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REGISTRATION NO. -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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1,400,000 AMERICAN DEPOSITARY SHARES
REPRESENTING 1,400,000 ORDINARY SHARES
ZINDART INDUSTRIAL COMPANY LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.)
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HONG KONG 3944 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
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FLAT C & D, 25/F BLOCK 1, TAI PING INDUSTRIAL CENTRE
57 TING KOK ROAD, TAI PO, N.T., HONG KONG
GENERAL: 011-852-2665-6992
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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CT CORPORATION SYSTEM
1733 BROADWAY, NEW YORK, NEW YORK 10019
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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COPIES OF ALL COMMUNICATIONS SHOULD BE SENT TO:
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LIOR O. NUCHI, ESQ. AUGUST J. MORETTI, ESQ.
DANIEL D. MEYERS, ESQ. SIMON C. LUK, ESQ.
ELAN Q.G. NGUYEN, ESQ. TIMOTHY G. HOXIE, ESQ.
MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP DAWN L. JUDD, ESQ.
ONE EMBARCADERO PLACE HELLER EHRMAN WHITE & MCAULIFFE
2100 GENG ROAD, SUITE 200 525 UNIVERSITY AVENUE
PALO ALTO, CA 94303-9173 PALO ALTO, CA 94301
(415) 846-4000 (415) 324-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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Ordinary Shares represented by
American Depositary Shares(3)... 1,610,000 $12.00 $19,320,000 $6,662.07
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(1) Includes (a) 1,400,000 Ordinary Shares represented by 1,400,000 ADSs that
are to be sold in the Offering, and (b) 210,000 Ordinary Shares represented
by 210,000 ADSs that the Underwriters may purchase to cover over-allotments,
if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457.
(3) A separate Registration Statement on Form F-6 has been filed with respect to
the American Depositary Shares evidenced by American Depositary Receipts
issuable upon deposit of the Ordinary Shares registered hereby. Each
American Depositary Share will represent one Ordinary Share.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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ZINDART INDUSTRIAL COMPANY LIMITED
CROSS REFERENCE SHEET
Pursuant to Rule 404(a) and Item 501(b) of Regulation S-K
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REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
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1. Forepart of Registration Statement and
Outside
Front Cover Page of Prospectus........... Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of
Prospectus............................... Inside Front Cover Page; Additional
Information; Outside Back Cover Page
3. Summary Information, Risk Factors and
Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Selected Financial
Data; Risk Factors
4. Use of Proceeds.......................... Use of Proceeds, Dividends and Dividend
Policy
5. Determination of Offering Price.......... Underwriting
6. Dilution................................. Dilution
7. Plan of Distribution..................... Outside Front Cover Page; Underwriting
8. Description of Securities to be
Registered............................... Prospectus Summary; Description of
Shares; Description of American
Depositary Receipts
9. Interests of Named Experts and Counsel... Legal Matters
10(a). Information with Respect to the
Registrant............................... Prospectus Summary; Use of Proceeds;
Dividends and Dividend Policy; Dilution;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Description of Shares; Description of
American Depositary Receipts; Shares
Eligible for Future Sale; Taxation;
Certain Foreign Issuer Considerations;
Financial Statements
10(b). Financial Statements..................... Index to Financial Statements
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
1,400,000 AMERICAN DEPOSITARY SHARES
REPRESENTING 1,400,000 ORDINARY SHARES
ZINDART
LIMITED
All of the 1,400,000 American Depositary Shares ("ADSs") offered hereby are
being sold by Zindart Limited ("Zindart" or the "Company"). Each ADS offered
hereby represents one Ordinary Share, par value $0.065 per share (a "Share") of
the Company. The ADSs are evidenced by American Depositary Receipts ("ADRs"),
and are initially being offered hereby for sale by Van Kasper & Company ("Van
Kasper" or the "Representative") and the several underwriters named herein
(together with the Representative, the "Underwriters") (the "Offering"). Prior
to this Offering, there has been no public market for the ADSs or the Shares. It
is currently estimated that the initial public offering price per ADS will be
between $10.00 and $12.00. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Company has
applied for inclusion of the ADSs on the Nasdaq National Market upon
commencement of this Offering under the symbol ZNDT.
THE ADSS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," COMMENCING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per ADS............................ $ $ $
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Total (3).......................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities and to pay the Underwriters an amount not to exceed $280,000 as
reimbursement of their expenses. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,300,000.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 210,000 additional ADSs representing 210,000 additional Shares on the
same terms as set forth above, solely for the purpose of covering
over-allotments, if any (the "Over-allotment Option"). If the Over-allotment
Option is exercised in full, the Price to Public and Underwriting Discount
will be $ and $ , respectively. See "Underwriting."
The ADSs offered by the several Underwriters named herein are subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. The Depositary will charge a fee of $1.50 or less per
certificate for an ADS or ADSs transferred pursuant to the Deposit Agreement.
See "Description of American Depositary Receipts." It is expected that delivery
of the ADSs will be made against payment therefore at the office of Van Kasper &
Company, San Francisco, California on or about , 1997.
VAN KASPER & COMPANY
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 4
REPORTS TO SECURITIES HOLDERS
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934 and in accordance
therewith will file reports, proxy statements and other information with the
U.S. Securities and Exchange Commission (the "Securities and Exchange
Commission"). The Company intends to provide its securities holders with annual
reports in English containing audited financial statements and such other
periodic reports as the Company deems appropriate or as may be required by law.
The Company intends to publish its consolidated financial statements in U.S.
Dollars prepared in conformity with generally accepted accounting principles in
the United States ("U.S. GAAP"). The Company currently intends to make certain
summary financial information publicly available with respect to the results of
operations of the Company for each quarter of each fiscal year. The Company has
agreed to provide the Depositary referred to under "Description of American
Depositary Receipts" with annual reports of the Company, including a review of
operations and annual audited consolidated financial statements prepared in
conformity with U.S. GAAP. Upon receipt thereof, the Depositary will promptly
mail such reports to all holders of ADSs. The Depositary will also mail to all
holders of ADSs a notice containing the information (or a summary of the
information) contained in any notice of a shareholders' meeting received by the
Depositary and make available to all holders of ADSs such notices and all other
reports and other communications received by the Depositary from the Company.
CURRENCY CONVERSIONS
Unless otherwise specified, all references in this Prospectus to "U.S.
Dollars," "Dollars," "US$" or "$" alone are to United States dollars; all
references to "HK Dollars" or "HK$" are to Hong Kong dollars; and all references
to "Renminbi" or "Rmb" are to Renminbi, which is the legal tender currency of
the People's Republic of China (the "PRC"). This Prospectus contains
translations of certain HK Dollar amounts into U.S. Dollar amounts at specified
rates. These translations should not be construed as representations that the HK
Dollar amounts actually represent such U.S. Dollar amounts or could be or could
have been converted into U.S. Dollars at the rates indicated. Unless otherwise
stated, the translations of HK Dollars into U.S. Dollars have been made at the
rate of US$1.00 = HK$7.73.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is organized under the laws of Hong Kong and all or a
substantial portion of its assets are or may be located outside the United
States. In addition, certain of the directors and officers of the Company and
certain of the experts named herein are nationals or residents of Hong Kong or
the PRC, and all or a substantial portion of the assets of such persons are or
may be located outside the United States. The Company has appointed CT
Corporation System, 1733 Broadway, New York, New York 10019 as its agent to
receive service of process with respect to any action brought against it in the
United States District Court for the District of New York under the laws of the
United States or any state, or any action brought against it in the Supreme
Court of the State of New York in the County of New York under the laws of the
State of New York. However, it may be difficult for investors to enforce outside
the United States judgments against the Company or any of its officers and
directors or the experts named herein obtained in the United States in any such
actions, including actions predicated upon the civil liability provisions of the
United States federal securities laws. As a result, it may be difficult for
investors to effect service of process within the United States upon such
persons or to enforce against them judgments obtained in United States federal
or state courts, including judgments predicated upon the civil liability
provisions of United States federal securities laws. The Company has been
advised by its PRC counsel, Guangzhou Law Office, and its Hong Kong counsel,
Robert W.H. Wang & Co., that there is uncertainty as to whether the courts of
the PRC or Hong Kong would enforce (i) judgments of United States federal or
state courts obtained against the Company or such persons predicated upon the
civil liability provisions of United States federal or state laws or (ii) in
original actions brought in the PRC or Hong Kong, claims against the Company or
such persons predicated upon United States federal or state laws.
2
<PAGE> 5
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT ARE INTENDED TO STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
ADSs AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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THIS PROSPECTUS DOES NOT COMPRISE AN OFFER TO SELL SHARES OR ADSs, DIRECTLY
OR INDIRECTLY, TO ANY MEMBER OF THE PUBLIC IN HONG KONG, OR ANY SECTION OF THE
PUBLIC IN HONG KONG. THIS PROSPECTUS HAS NOT BEEN APPROVED BY OR REGISTERED WITH
ANY REGULATORY AUTHORITY IN HONG KONG. NO SHARES OF THE COMPANY ARE TRADED ON
ANY STOCK EXCHANGE AND THERE IS NO INTENTION TO LIST SHARES OR ADSs ON ANY STOCK
EXCHANGE OTHER THAN THE LISTING OF ADSs AS CONTEMPLATED IN THIS PROSPECTUS.
------------------------
Zindart(TM) is a trademark of the Company. This Prospectus also includes
trade names and trademarks of companies other than Zindart, whose mention herein
is with due recognition of and without intent to misappropriate their marks.
3
<PAGE> 6
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus. The following summary is qualified in
its entirety by the more detailed information and the financial statements and
notes appearing elsewhere in this Prospectus. Except as otherwise noted herein,
all information contained in this Prospectus assumes that the Over-allotment
Option will not be exercised. See "Underwriting." Unless otherwise indicated,
all Share and per Share information in this Prospectus gives effect to the 20
for 1 stock split of the Company's Shares effected in December 1996.
THE COMPANY
Zindart Limited ("Zindart" or the "Company") manufactures high-quality,
detailed die-cast and injection-molding products, including: (i) die-cast
collectibles, (ii) collectible holiday ornaments, and (iii) action figures and
miniature figurine playsets used primarily as toys. Zindart's headquarters are
located in Hong Kong and its manufacturing operations are located in the
neighboring Guangdong Province in the People's Republic of China (the "PRC"). In
fiscal year 1996, Zindart sold its products to approximately 20 customers, many
of which are the premier U.S. designers and marketers of die-cast collectibles,
collectible holiday ornaments and toys.
Hallmark Cards, Inc. ("Hallmark") and The Ertl Company, Inc. ("Ertl") are
Zindart's two largest customers, each accounting for approximately one-third of
the Company's sales in the last two fiscal years. Hallmark, a customer of the
Company since 1982, is a leading U.S. designer and marketer of greeting cards
and collectible holiday ornaments under the Keepsake Ornaments line, which are
sold through authorized retail outlets. Ertl, a customer of the Company since
1978, is a leading U.S. designer and marketer of high-quality, die-cast scale
model replicas of automobiles, trucks, planes, farm implements, construction
equipment and other similar items targeted at adult collectors, equipment
dealers and children. Ertl's die-cast replicas are sold through hobby shops,
collectors' clubs, car and equipment dealers, toy and gift stores and other
similar channels. Zindart's other customers include Mattel Inc., Sieper Werke
Gmbh ("SWG"), MBI Inc. (The Danbury Mint), Revell-Monogram, Inc., a subsidiary
of Hallmark ("Revell-Monogram"), Hasbro, Inc. and Tyco Toys, Inc. See
"Business -- Markets, Products and Customers."
Zindart seeks to develop a partnering relationship with each of its
customers and to improve and expand such relationships for the parties' mutual
benefit. In order to enhance these partnering relationships, in 1994 Zindart
introduced its Turnkey Manufacturing Service, which enables Zindart to satisfy a
customer's requirements at every stage in the production process -- from product
engineering to model making, to computer-aided mold design and production, to
manufacturing and packaging of the finished product. This coordinated,
"one-stop" production strategy enables Zindart and its customers to shorten lead
times from design to production, lower the costs of production, better control
the quality and consistency of the manufactured products and better meet
shipping and delivery schedules. See "Business -- Manufacturing."
In February 1996, the Company completed Phase I of the construction of a
large, modern facility located on a 20-acre site in HengLi, Dongguan (the
"Dongguan Facility"), approximately 60 miles north of Hong Kong. Currently, the
Company has approximately 1,300 employees in the Dongguan Facility. By early
1998, the Company intends to complete Phase II of the construction of the
Dongguan Facility, using approximately $7 million of the net proceeds of this
offering, and to close its other two manufacturing facilities. As a result, all
of the Company's production is expected to be consolidated at the Dongguan
Facility. Upon completion of Phase II of the construction of the Dongguan
Facility, the net manufacturing area of the Dongguan Facility will be 887,000
square feet, 470,773 square feet more than Phase I's manufacturing space and
double the size of the manufacturing space in the Company's original two
manufacturing facilities. The Dongguan Facility will be able to accommodate
8,000 employees. See "Business -- Properties." Management intends to establish a
sales, marketing and investor relations office in the U.S. in 1997.
4
<PAGE> 7
Zindart's net sales for the fiscal year ended March 31, 1996 were $46.9
million, an increase of 27% from the prior fiscal year. Net sales for the six
months ended September 30, 1996, were $32.4 million, an increase of 39% from the
prior year's comparable period, and consisted of die-cast collectibles (39.9% of
net sales), collectible holiday ornaments (29.3%), action figures and miniature
figurine playsets (18.6%) and molds (12.2%). As a percentage of sales for the 12
months ended September 30, 1996, sales in each quarter during such period were
21.9%, 20.1%, 28.6%, and 29.4%, respectively. The lower sales figure for the
quarter ended March 31, 1996 reflects the annual customary two-week factory
closing for the Chinese New Year holiday. As of September 30, 1996, Zindart had
orders on hand of approximately $19.6 million, compared to $17.3 million at
September 30, 1995. The Company's net income for the six months ended September
30, 1996 was $2.8 million, versus $2.6 million for the prior year's comparable
period. See "Summary Consolidated Financial Data."
Zindart's largest shareholders are private equity funds under the
management of two U.S.-based venture capital firms -- ChinaVest Group
("ChinaVest") and Advent International Corporation ("Advent") -- which funds
acquired their interests in Zindart in 1993. Prior to the Offering, the funds
under the management of ChinaVest indirectly owned 51.5% of the outstanding
Shares of the Company, and funds under the management of Advent indirectly owned
14.9% of the outstanding Shares of the Company. See "Risk Factors -- Risks
Relating to the Company -- Control by Principal Shareholders" and "Principal
Shareholders."
Zindart's principal executive offices are located at Flat C&D, 25/F Block
1, Tai Ping Industrial Centre, 57 Ting Kok Road, Tai Po, N.T., Hong Kong, its
telephone number is 011-852-2665-6992, its fax number is 011-852-2664-7066, and
its email address is [email protected].
THE OFFERING
SECURITIES OFFERED......... 1,400,000 ADSs, each representing one Share.
SHARES TO BE OUTSTANDING
AFTER THE OFFERING......... 6,400,000 Shares.
USE OF PROCEEDS............ Approximately $7,000,000 will be used to finance
Phase II of the construction of the Dongguan
Facility, $1,600,000 to purchase equipment,
$2,400,000 to repay certain indebtedness, and
$300,000 to establish a sales, marketing and
investor relations office in the U.S. in 1997. The
balance will be used for working capital and
general corporate purposes. See "Use of Proceeds."
OVER-ALLOTMENT OPTION...... The Company has granted the Underwriters an option
to purchase up to an additional 210,000 ADSs solely
for the purpose of covering over-allotments, if
any. See "Underwriting."
PROPOSED NASDAQ NATIONAL
MARKET SYMBOL............ ZNDT.
5
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables present summary consolidated financial information
derived from the consolidated financial statements of the Company and certain
other data, all of which have been prepared in conformity with U.S. GAAP. See
also "Business," "Selected Consolidated Financial and Other Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
appearing elsewhere herein.
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<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31 SEPTEMBER 30,
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1992 1993 1994 1995 1996 1995 1996
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INCOME STATEMENT DATA:
Net sales.................................. $29,116 $35,603 $35,583 $36,879 $46,930 $23,251 $32,398
Gross profit............................... 7,037 8,294 10,546 11,235 12,814 6,469 7,979
Operating income........................... 2,178 3,214 4,195 4,429 6,316 3,238 3,817
Interest income (expense) net.............. (7) (1) (21) 91 (194) 35 (460)
Other income (expense), net................ 52 122 80 492 (416) 7 122
Income before income taxes................. 2,223 3,335 4,254 5,012 5,706 3,280 3,479
Income before minority interests........... 2,004 3,033 3,818 4,529 5,218 2,977 3,195
Minority interests(1)...................... 0 0 83 337 622 405 425
------- ------- ------- ------- ------- ------- -------
Net income................................. $ 2,004 $ 3,033 $ 3,735 $ 4,192 $ 4,596 $ 2,572 $ 2,770
======= ======= ======= ======= ======= ======= =======
Earnings per share(2)...................... $ 0.40 $ 0.61 $ 0.75 $ 0.84 $ 0.92 $ 0.51 $ 0.55
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares.......... 5,000 5,000 5,000 5,000 5,000 5,000 5,000
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1996 SEPTEMBER 30, 1996
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ACTUAL ACTUAL AS ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,294 $ 4,253 $ 6,637
Working capital............................................. 3,401 5,764 9,570
Property, plant and equipment, net.......................... 10,800 11,216 19,816
Total assets................................................ 31,710 36,220 46,826
Short-term debt(4).......................................... 8,899 7,530 6,108
Long-term debt and capital lease obligations................ 2,128 2,085 1,091
Shareholders' equity........................................ 11,608 14,378 27,400
</TABLE>
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(1) Certain third parties own minority equity interests in the Company's
subsidiaries. See "Business -- Subsidiaries.
(2) Earnings per share is computed by dividing net income for each year by
5,000,000, the weighted average number of ordinary shares outstanding during
the years or periods on the basis that the 20 for 1 stock split had been
consummated prior to the years or periods presented.
(3) As adjusted to reflect the sale of 1,400,000 ADSs at an assumed public
offering price of $11.00 per ADS and the application of the net proceeds
therefrom. See "Use of Proceeds."
(4) Includes current portions of long-term debt and capital lease obligations.
6
<PAGE> 9
ORGANIZATION OF THE COMPANY
The following chart shows the organization of the Company, its principal
shareholders and subsidiaries prior to giving effect to the Offering.
[LOGO]
OPERATING STRUCTURE
The following chart shows the operating structure of the Company's three
manufacturing facilities.
[LOGO]
7
<PAGE> 10
RISK FACTORS
An investment in the ADSs offered hereby involves a high degree of risk.
Prior to making an investment decision, prospective purchasers of the ADSs
offered hereby should consider carefully, together with the other information
contained in this Prospectus, the matters set forth below.
LIMITED PRECEDENT
Prospective investors should be aware of and take into consideration the
limited precedent with which to evaluate the potential risks and rewards related
to the development, financing, ownership and operation of a light manufacturing
company in the PRC.
RISKS RELATING TO THE COMPANY
Dependence on Two Major Customers. Sales to two major
customers -- Hallmark and Ertl -- account for a majority of the Company's total
net sales. Sales to these two customers as a percentage of the Company's total
net sales during the fiscal years ended March 31, 1994, 1995 and 1996 were
approximately 66.3%, 63.3% and 52.9%, respectively. The Company's dependence on
these two customers is expected to continue in the foreseeable future. Although
management believes that any one of its customers could be replaced eventually,
the loss of either one of its major customers would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's sales transactions with all of its customers are based on purchase
orders received by the Company from time to time. While these purchase orders
may be cancelled by the customer, to date, such cancellations have not been
significant in the aggregate. Except for these purchase orders, the Company has
no written purchase agreements with its customers relating to the sale of
products.
Introduction of New Products by Customers; Market Acceptance; Economic
Factors. The Company's long-term operating results depend substantially upon
its customers' ability to continue to conceive of, design and market new
products and upon continuing market acceptance of its customers' existing and
future products. In the ordinary course of their businesses, the Company's
customers continuously develop new products and create additions to their
existing product lines. Significant delays by the Company's customers in the
introduction of, or their failure to introduce or market, new products or
additions to their collective product lines would impair the Company's results
of operations. The die-cast collectible, collectible holiday ornament and toy
markets are affected by changing consumer tastes and interests, which are
difficult to predict and over which the Company's customers have little, if any,
control. Accordingly, there can be no assurance that the existing or future
products of the Company's customers will maintain or receive substantial market
acceptance. In addition, since most of the products manufactured by the Company
are sold in the United States, the Company's profitability will also depend on
the strength of the U.S. economy, which can affect U.S. consumers' spending
habits on such items as die-cast collectibles, collectible holiday ornaments and
toys. Any downturn in the U.S. economy could have a material adverse effect on
the Company's business, financial condition and results of operations.
Competition. The Company expects significantly increased competition, both
from existing and new competitors. Some of these competitors may have
significantly greater financial, technical, manufacturing and marketing
resources than the Company. The ability of the Company to compete successfully
depends, in part, upon the Company's ability to maintain and increase demand for
its manufacturing services and increase production capacity to meet such
increased demand. There can be no assurance that the Company will be able to
compete successfully in the future or that the Company will not be subject to
increased price competition. See "Business -- Competition." In addition, the
Company's major customers operate in highly competitive markets. There can be no
assurance that these customers will be able to continue to enjoy market
acceptance of their products in the face of such competition. Any failure by the
Company's major customers to remain competitive could have a material adverse
effect on the Company's business, financial condition and results of operations.
Lack of Barriers to Entry. The Company does not believe that there are any
significant barriers to entry into the manufacture of die-cast collectibles,
collectible holiday ornaments and toys, although the Company
8
<PAGE> 11
believes that it currently holds certain competitive advantages. The Company
does not characterize its business as proprietary and does not own any patents
or copyrights or possess any material trade secrets. There can be no assurance
that additional participants will not enter the market or that the Company could
effectively compete with such entrants. Any failure by the Company to compete
effectively with such new entrants would have a material adverse effect on the
Company's business, results of operations and financial condition.
Ability to Manage Growth and Expansion. The Company has experienced
significant growth over the past few years and is expanding its manufacturing
operations. The management of the Company's growth will require continued
improvement and refinement of the Company's operating, management and financial
control systems, as well as a significant increase in the Company's
manufacturing, quality control, marketing, logistics and service capabilities,
any of which could place a significant strain on the Company's resources. If the
Company's management is unable to manage growth effectively, the quality of the
Company's products, its ability to retain key customers and its business,
financial condition and results of operations could be adversely affected. As
part of its expansion, the Company will have to hire additional management
personnel and other employees. The expenses associated with hiring, training and
integrating such employees may be incurred prior to the generation of any
associated revenues, with a corresponding adverse effect on the Company's
business, financial condition and results of operations. In addition, the
failure to integrate new personnel on a timely basis could have an adverse
effect on the Company's business, financial condition and results of operations.
Reliance on New Production Facility. Historically, the Company conducted
its manufacturing operations in two facilities in Guangzhou. In February 1996,
the Company completed Phase I of the construction of the Dongguan Facility. By
early 1998, the Company intends to complete Phase II of the construction of the
Dongguan Facility, to consolidate all manufacturing operations at the Dongguan
Facility and to close the other two facilities. In addition, the Company intends
to transfer some administrative functions from the Hong Kong headquarters to the
Dongguan Facility. See "Business -- Properties."
Although the Company believes that it will be able to complete Phase II of
the construction of the Dongguan Facility on schedule, no assurance can be given
that such construction will be completed or completed on schedule. Any material
delay in completing, or the inability to complete, Phase II of the construction
of the Dongguan Facility would have a material adverse effect on the Company's
business, financial condition and results of operations. Consolidating the
Company's operations into the Dongguan Facility will require the Company's
management to coordinate a wide array of key decisions and physical logistics,
including the relocation of a majority of the Company's factory employees and
equipment. Failure to timely and properly execute these tasks could have a
material adverse impact on the Company's business, financial condition and
results of operations.
If a natural disaster, such as a typhoon, fire or flood, were to destroy or
significantly damage the Dongguan Facility or if such facility were to otherwise
become unavailable or inoperable, the Company would need to obtain alternative
facilities from which to conduct its operations, which would result in
significantly increased operating costs and significant delays in the
fulfillment of customer orders. No assurance can be given that alternative
facilities could be obtained at an affordable price or at all. Such increased
costs or delays, or inability to obtain alternative facilities, would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company maintains business interruption insurance.
A significant portion of the benefits to be obtained from consolidating
operations in the Dongguan Facility depends on the Company being able to
terminate in a cost-effective and timely manner its obligations relating to the
Company's other two manufacturing facilities. The Company does not have the
right to terminate at will these agreements and thus must depend on the
cooperation of other parties to attain this objective. There can be no assurance
that the Company will be able to terminate these agreements on a timely basis or
without incurring substantial costs. Any additional costs associated with
terminating such agreements or otherwise consolidating operations at the
Dongguan Facility could have a material adverse effect on the Company's
business, financial condition and results of operations. In the event that the
Company is unable to capitalize its
9
<PAGE> 12
relocation costs, the Company will have to expense such costs, which may have an
adverse effect on the Company's reported net income.
Dependence on PRC Parties. The Company's oldest factory, located in the
Tian He district of Guangzhou, is owned by a local economic development
authority (the "Subcontractor") and operated under a subcontract operating
agreement. The factory located in the Henan district of Guangzhou and the
Dongguan Facility are each owned by Sino-foreign contractual joint ventures in
which the Company has a majority interest. The other parties to these
contractual joint ventures are entities (the "PRC Co-Venturers") that are
controlled by PRC governmental bodies. The efficient and cost-effective
operation of these facilities depends upon the cooperation and support of the
Subcontractor and the PRC Co-Venturers (collectively, the "PRC Parties"). Should
a dispute develop between the Company and any of the PRC Parties, there can be
no assurance that the Company would be able to enforce its understanding of its
agreements with the PRC Parties. Any lack of cooperation by the PRC Parties
could subject the Company to additional risks and costs, including the
interruption or cessation of its present operations in the PRC, all of which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Raw Materials. The Company uses zinc alloy and various
plastic resins in its manufacturing operations. The Company's financial
performance is dependent to a substantial extent on the cost of such raw
materials. The capacity, supply and demand for zinc alloy and for both plastic
resins and the petrochemical intermediates from which plastic resins are
produced are subject to cyclical and other market factors and may fluctuate
significantly. As a result, the cost of raw materials to the Company is subject
to substantial increases and decreases over which the Company has no control
except by seeking to time its purchases in order to take advantage of favorable
market conditions. In the past, the Company has experienced significant
increases in the price of certain raw materials, which increases the Company was
not able to pass on fully to its customers. To the extent that future increases
in the cost of raw materials cannot be passed on to customers, such increases
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has no formal written agreements with its suppliers. The
Company purchases zinc alloy and over 12 different types of plastics from
approximately 10 major suppliers and is not dependent upon any single supplier
for key materials. The Company has not experienced any difficulty in obtaining
needed materials and thus believes that the lack of written agreements with any
of its suppliers does not present a risk to its business, but no assurance can
be given that the Company will be able to obtain sufficient quantities of such
raw materials to meet its needs. Any lack of sufficient raw materials for its
needs could have a material adverse effect on the Company's business, financial
condition and results of operations.
Reliance on Key Personnel. The success of the Company is substantially
dependent upon its executive management, as well as upon its ability to attract
and retain additional qualified design, manufacturing and marketing personnel.
The loss of the services of any of the Company's current executive management
for any reason could have a material adverse effect on the business, financial
condition and results of operations of the Company. The Company is not the
beneficiary of any "key person" life insurance policy on any such person. See
"Management." Successful expansion of the Company's business will require
additional management resources and may require the hiring of additional senior
management personnel.
Potential Product Liability. The Company is engaged in a business that
could result in possible claims for injury or damage resulting from its
products. The Company is not currently a defendant in any product liability
lawsuit. The Company does not maintain product liability insurance. A successful
claim brought against the Company by a customer of the Company or a consumer
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Government Regulations. U.S. customers of the Company are subject to the
provisions of, among other laws, the Federal Hazardous Substances Act and the
Federal Consumer Product Safety Act. These laws empower the Consumer Product
Safety Commission (the "CPSC") to protect consumers from hazardous toys and
other articles. The CPSC has the authority to exclude from the market articles
that are found to be unsafe or hazardous, and can require a recall of such
products under certain circumstances. Similar laws exist in some states and
cities in the United States, as well as in Canada and Europe. The Company relies
on its
10
<PAGE> 13
customers to design products that comply with such safety standards and to test
the products to ensure compliance with applicable regulatory safety standards.
The Company has established a strong quality assurance program to meet the
Company's objective of conforming to its customers' design specifications and
delivering high-quality, safe products to its customers. While the Company
believes that its customers design and test the products the Company
manufactures for compliance with regulatory standards, and the Company itself
maintains appropriate quality assurance, there can be no assurance that the
Company's products will not be found to violate applicable laws, rules and
regulations, which could have a material adverse effect on the business,
financial condition and results of operations of the Company. In addition, there
can be no assurance that more restrictive laws, rules and regulations will not
be adopted in the future, or that the Company's products will not be marketed in
the future in countries with more restrictive laws, rules and regulations,
either of which could make compliance more difficult or expensive, and which
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
Reduced Revenue in the Fourth Fiscal Quarter, Possible Fluctuation in
Quarterly Results. The Company ceases production for a two-week period during
January or February of each year due to the Chinese New Year holiday, which
cessation in the past has caused revenue during the fourth fiscal quarter of
each year to be somewhat lower than revenue during the other three quarters. The
Company may also experience fluctuations in quarterly sales and related net
income compared with the prior year due to the timing of receipt of orders from
customers for die-cast collectibles, toys and molds and subsequent shipment of
such products. As a result, it is possible that the Company may experience
quarterly variations in operating results. Accordingly, the trading price of the
Company's ADSs may be subject to fluctuations in response to quarterly
variations in the Company's operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Control by Principal Shareholders. Following this Offering, Zindart Pte
Limited, a Singapore
corporation ("Zindart Singapore") will own approximately 78.1% of the
outstanding Shares (approximately 75.6% if the Over-allotment Option is
exercised in full). As majority shareholder, Zindart Singapore will have the
ability to control the election of the Company's directors and most corporate
actions of the Company. Zindart Singapore is controlled by ZIC Holdings Limited,
a Cayman Islands corporation ("ZICHL"), which owns approximately 76.0% of the
shares of Zindart Pte Limited. ZICHL, in turn, is currently controlled by
limited life private equity funds managed by ChinaVest (the "ChinaVest private
equity funds"), which own in the aggregate approximately 67.8% of the ordinary
shares of ZICHL and which therefore will be indirectly in control of the
Company. See "Principal Shareholders." Subject to agreements with the
Representative not to sell or dispose any shares of the Company for 180 days
following the closing of the Offering, these funds have the right, acting in
their own interest, to sell or dispose of such shares as they see fit, subject
to applicable law. Further, since these funds must dissolve by 2003, these funds
will need to liquidate their investments, whether by way of sale, distribution
or otherwise, prior to that date. Accordingly, although the Company has been
advised that ChinaVest has no present intention to cause these funds to sell or
dispose of their investments in the Company at any particular time, no assurance
can be given that any current shareholder of the Company, including the
ChinaVest private equity funds, will maintain any interest in the Company beyond
the lock-up period.
Taxation. During the past five years, under applicable Hong Kong and PRC
tax laws, only 50% of the Company's profits have been subject to tax in Hong
Kong and the Company has been exempt from taxation in the PRC pursuant to a tax
holiday, which tax holiday will change from a complete exemption to a partial
exemption, then to no exemption over time based on profitability of the
Company's joint ventures. See "Taxation -- Hong Kong Taxation" and "-- PRC
Taxation." As a result, during the past five years, the Company has enjoyed a
relatively low effective tax rate of between 7.0% and 9.0%. No assurance can be
given that the Company's effective tax rate will not increase in the future. In
the event that certain special United States federal income tax rules are
applicable to the Company, there is a risk that holders of ADSs who are U.S.
taxpayers may be required to recognize income prior to the receipt of dividends
or distributions from the Company. See "Taxation -- United States Federal Income
Taxation -- Special United States Federal Income Tax Considerations."
Tariffs and Quotas. Most of the Company's products are shipped to
customers in the United States. The United States may, from time to time, impose
new quotas, duties, tariffs, or other charges or restrictions, or adjust
presently prevailing quota, duty or tariff levels, which could have an adverse
effect on the Company's
11
<PAGE> 14
business, financial condition and results of operations and its ability to
continue to export products to the United States at current or increased levels.
The Company cannot predict what regulatory changes may occur, if any, or the
type or amount of any financial impact on the Company that such changes may have
in the future. In addition, various forms of protectionist trade legislation
have been proposed in the United States. Adverse changes in tariff structures or
other trade policies could have a material adverse effect on the Company's
business, financial condition and results of operations.
Environmental Matters. The Company's operations involve the use of certain
toxic substances, including plastic resins and oil-based paints. The Company is,
and is likely to continue to be, subject to PRC national, provincial and local
environmental protection laws and regulations. Such laws and regulations
currently impose a uniform fee on industrial wastewater discharges and a
graduated schedule of pollution fees for the discharge into the environment of
waste substances in excess of applicable standards, require the payment of fines
for violations of laws, regulations or decrees, and provide for possible closure
by the central, provincial or local government of any facility which fails to
comply with orders requiring it to cease or cure certain activities deemed by
such authorities to be causing environmental damage. The Company believes that
it has complied, and intends to continue to comply, with all applicable
environmental protection laws and regulations. There can be no assurance that
the Company will at all future times remain in compliance with such laws and
regulations and avoid incurring the consequences of non-compliance, or that PRC
authorities will not impose additional regulatory requirements that would
necessitate additional expenditures for environmental compliance. Any such
occurrence could have a material adverse effect on the Company's business,
financial condition and results of operations.
Employees. Substantially all of the Company's factory employees are women
aged 18-24 who come from various rural regions in the PRC for the purpose of
working for wages higher than are available in such rural regions. These
employees typically work for the Company for two to five years and then return
to their communities. Accordingly, approximately 20% of the factory employees do
not return to the Company each year after the Chinese New Year holiday, and the
Company must hire replacements. If these employees were able to earn similar
wages in their communities or higher wages in other industries, the Company
could experience labor shortages or could be required to increase salaries to
meet its labor needs, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's employees are not unionized, and the Company has not experienced any
labor strife. Union organizing and worker unrest are not common in the PRC. No
assurance can be given, however, that labor conflicts will not develop. Any
labor conflicts could have a material adverse effect on the Company's business,
financial condition and results of operations.
Lack of Dividends. The Company does not contemplate the payment of
dividends in the foreseeable future. In addition, the Company's lines of credit
prohibit the payment of dividends in excess of 25% of net income. See "Dividends
and Dividend Policy."
Dilution. Purchasers of ADSs offered hereby will incur immediate and
substantial dilution in the net tangible book value per Share of the ADSs from
the initial public offering price. See "Dilution."
No Assurance of Public Market; Possible Volatility of Market Price of
ADSs. Prior to this Offering, there has been no public trading market for the
ADSs or the Shares. There can be no assurance that an active trading market for
the ADSs will develop after this Offering or that, if developed, it will be
sustained. Further, there will be no public market for the Shares. In the past
several years, many foreign issuers with market capitalizations similar to that
of the Company after this Offering have been unable to sustain an active trading
market for their securities. The initial public offering price for the ADSs
being sold by the Company in this Offering has been determined by negotiations
between the Company and the Representative and does not necessarily reflect the
Company's book value or other established criteria of value. The market price
for the ADSs following this offering may be highly volatile, as has been the
case with the securities of other companies in emerging businesses. The market
price of the ADSs may fluctuate substantially in response to various factors
affecting the collectible, holiday ornament and toy markets generally.
Shares Eligible for Future Sale. No prediction can be made as to the
effect, if any, that future sales of ADSs, or the availability of ADSs for
future sale, will have on the market price of the ADSs prevailing from time to
time. Sales of a substantial number of ADSs in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the ADSs or the ability of the Company to raise capital through
a sale of its equity securities. See "Shares Eligible For Future Sale." The
Company and
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<PAGE> 15
its shareholder have agreed not to sell or otherwise dispose of any ADSs for a
period of 180 days after the closing of this Offering without the prior written
consent of the Representative. See "Underwriting."
COUNTRY RISKS
General. The Company conducts all of its product engineering,
model-making, mold-making and manufacturing operations in the PRC. In addition,
some of the Company's administrative, finance and accounting, marketing, and MIS
activities are located in Hong Kong. As a result, the Company's business,
financial condition and results of operations may be influenced by the general
political, social and economic situation in Hong Kong and the PRC. Accordingly,
the Company may be subject to political and economic risks, including political
instability, currency controls and exchange rate fluctuations, and changes in
import/export regulations, tariffs, duties and quotas.
Exchange Rate Risk
The Company's sales are denominated in U.S. Dollars. The largest portion of
the Company's expenses are denominated in Hong Kong Dollars, followed by
Renminbi and U.S. Dollars. The Company is subject to a variety of risks
associated with changes among the relative values of the U.S. Dollar, the Hong
Kong Dollar and Renminbi. Any material increase in the value of the Hong Kong
Dollar or Renminbi relative to the U.S. Dollar would increase the Company's
expenses and therefore would have a material adverse effect on the Company's
business, financial condition and results of operations.
Since 1983, the Hong Kong government has maintained a policy of linking the
U.S. Dollar and the Hong Kong Dollar at an exchange rate of approximately
HK$7.80 to U.S. $1.00. There can be no assurance that this link will be
continued, although the Company is not aware of any intention of the Hong Kong
government or the PRC to abandon the link. There has been significant volatility
in the exchange rates of Renminbi to U.S. Dollars in recent years. Over the last
five years, the Renminbi has experienced significant devaluation against most
major currencies. The January 1, 1994 establishment of the current exchange rate
system produced a significant devaluation of the Renminbi from $1.00 to Rmb 5.7
to approximately $1.00 to Rmb 8.7. The rates at which exchanges of Renminbi into
U.S. Dollars may take place in the future may vary.
Inflation Risk
The annual inflation rate in Hong Kong was approximately 9.4%, 8.5%, 8.1%
and 8.8% in 1992, 1993, 1994 and 1995, respectively. The annual inflation rate
in the PRC was approximately 14.7%, 21.7% and 14.8% in 1993, 1994 and 1995,
respectively. The Company does not consider that inflation in Hong Kong or the
PRC has had a material impact on its results of operations in recent years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." No assurance can be given that inflation in Hong Kong or the PRC
will not have a material adverse effect on the business, financial condition and
results of operations of the Company in the future.
RISKS RELATING TO HONG KONG
The Company's business, financial condition and results of operations may
be influenced by the political situation in Hong Kong and by the general state
of the Hong Kong economy. On July 1, 1997, sovereignty over Hong Kong will be
transferred from the United Kingdom to the PRC, and Hong Kong will become a
Special Administrative Region ("SAR") of the PRC. As provided in the
Sino-British Joint Declaration on the Question of Hong Kong and the Basic Law of
the Hong Kong SAR of the PRC (the "Basic Law"), the Hong Kong SAR will have a
high degree of autonomy except in foreign affairs and defense. Under the Basic
Law, the Hong Kong SAR is to have its own legislature, legal and judicial system
and economic autonomy for 50 years. Based on the current political conditions
and the Company's understanding of the Basic Law, the Company does not believe
that the transfer of sovereignty over Hong Kong will have a material adverse
effect on the Company's business, financial condition or results of operations.
There can be no assurance, however, that changes in political, legal or other
conditions will not result in such an adverse impact.
RISKS RELATING TO THE PRC
Investment in the Company may be adversely affected by the political,
social and economic environment in the PRC. The PRC is controlled by the
Communist Party of China. Under its current leadership, the PRC has been
pursuing economic reform policies, including the encouragement of private
economic activity and greater economic decentralization. There can be no
assurance, however, that the PRC government will
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<PAGE> 16
continue to pursue such policies, that such policies will be successful if
pursued, or that such policies will not be significantly altered from time to
time. Economic development may be limited as well by the imposition of austerity
measures intended to reduce inflation, the inadequate development or maintenance
of infrastructure or the unavailability of adequate power and water supplies,
transportation, raw materials and parts, or a deterioration of the general
political, economic or social environment in the PRC, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, economic reforms and growth in the PRC have
been more successful in certain provinces than others, and the continuation or
increase of such disparities could affect the political or social stability of
the PRC.
MFN Status. The PRC currently enjoys Most-Favored-Nation ("MFN") status
granted by the United States, pursuant to which the United States imposes the
lowest applicable tariffs on PRC exports to the United States. The United States
annually reconsiders the renewal of MFN trading status for the PRC. No assurance
can be given that the PRC's MFN status will be renewed in future years. The
PRC's loss of MFN status would adversely affect the Company's business by
raising prices for its products in the United States, which could possibly
result in a reduction in demand for the Company's products by its U.S.
customers. Furthermore, trade friction between the PRC and the United States may
have an influence on after-market prices of the ADSs offered hereby.
Loss of PRC Facilities; Nationalization; Expropriation. If for any reason
the Company were required to move its manufacturing operations outside of the
PRC, the Company's profitability, competitiveness and market position could be
materially jeopardized, and there could be no assurance that the Company could
continue its manufacturing operations. In addition, the Company's business and
prospects are dependent upon agreements with various entities controlled by PRC
governmental instrumentalities. Not only would the Company's operations and
prospects be materially and adversely affected by the failure of such entities
to honor these contracts, but it might be difficult to enforce these contracts
in the PRC. There can be no assurance that assets and business operations in the
PRC will not be nationalized, which could result in the total loss of the
Company's investments in that country. Following the formation of the PRC in
1949, the PRC government renounced various debt obligations incurred by
predecessor governments, which obligations remain in default, and expropriated
assets without compensation. Accordingly, an investment in the Company involves
a risk of total loss.
Government Control Over Economy. The PRC only recently has permitted
greater provincial and local economic autonomy and private economic activities.
The PRC central government has exercised and continues to exercise substantial
control over virtually every sector of the PRC economy. Accordingly, PRC
government actions in the future, including any decision not to continue to
support current economic reform programs and to return to a more centrally
planned economy, or regional or local variations in the implementation of
economic reform policies, could have a significant effect on economic conditions
in the PRC or particular regions thereof. Any such developments could affect
current operations of and property ownership by foreign investors.
PRC Law; Evolving Regulations and Policies. The PRC's legal system is a
civil law system based on written statutes in which decided legal cases have
little value as precedents, unlike the common law system in the United States.
The PRC does not have a well-developed, consolidated body of law governing
foreign investment enterprises. As a result, the administration of laws and
regulations by government agencies may be subject to considerable discretion and
variation. In addition, the legal system of the PRC relating to foreign
investments is both new and continually evolving, and currently there can be no
certainty as to the application of its laws and regulations in particular
instances. Definitive regulations and policies with respect to such matters as
the permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published, statements regarding these evolving
policies have been conflicting, and any such policies, as administered, are
likely to be subject to broad interpretation and discretion and to be modified,
perhaps on a case-by-case basis. As the legal system in the PRC develops with
respect to these new types of enterprises,
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<PAGE> 17
foreign investors may be adversely affected by new laws, changes to existing
laws (or interpretations thereof) and the preemption of provincial or local laws
by national laws. In circumstances where adequate laws exist, it may not be
possible to obtain timely and equitable enforcement thereof. The Company's
activities in the PRC are by law subject, in some circumstances, to
administrative review and approval by various national and local agencies of the
PRC government. Although the Company believes that the present level of support
from local, provincial and national governmental entities enjoyed by the Company
benefits the Company's operations in connection with administrative review and
the receipt of approvals, there is no assurance that such approvals, when
necessary or advisable in the future, will be forthcoming. The inability to
obtain such approvals could have a material adverse effect on the Company's
business, financial condition and results of operations.
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the ADSs offered hereby
are estimated to be approximately $13,000,000 at an assumed initial public
offering price of $11.00 per ADS, after deducting offering expenses and
underwriting discounts, which are estimated to be approximately $2,400,000. The
net proceeds will be applied as follows: (i) approximately $7,000,000 to finance
Phase II of the construction of the Dongguan Facility; (ii) approximately
$2,400,000 to reduce the outstanding amount of long-term bank loans and an
equipment lease (including current portions thereof); (iii) approximately
$1,600,000 for plant and equipment purchases; and (iv) approximately $300,000 to
establish a combined sales and marketing and investor relations office in the
U.S. in 1997. The balance of the proceeds will be used for general working
capital.
The Company intends to apply the amount specified in clause (ii) above as
follows:
<TABLE>
<CAPTION>
APPROXIMATE INTEREST RATE OF MATURITY DATE OF
AMOUNT LOAN/LEASE LOAN/LEASE
----------- ---------------- ----------------
<S> <C> <C> <C>
$ 388,000 10.0% January 1997
388,000 10.0% February 1997
218,000 9.5% December 1998
145,000 9.5% December 1998
243,000 9.5% March 1999
1,034,000 9.5% May 1999
-----
Total.... $ 2,416,000
</TABLE>
Pending application of the net proceeds of this Offering to the uses
described above, the Company intends to invest the net proceeds of the Offering
in bank time deposits or other short-term investment-grade, interest-bearing
instruments.
DIVIDENDS AND DIVIDEND POLICY
The Company intends to retain earnings for expansion of its operations in
accordance with its business strategy and does not contemplate the payment of
dividends in the foreseeable future. In addition, the Company's present lines of
credit prohibit the payment of dividends in excess of 25% of net income. The
Company currently intends that dividends, if paid, would be paid to holders of
ADSs in U.S. Dollars. See "Description of Shares -- Dividends" and "Description
of American Depositary Receipts -- Dividends, Other Distributions and Rights."
In the fiscal years 1992 through 1995, the Company declared and paid
dividends per Share in the amount of $0.44, $0.29, $0.39, and $0.21,
respectively. The aggregate amount of dividends paid in these fiscal years was
$2,222,000, $1,473,000, $1,959,000, and $1,073,000, respectively. In 1996, the
Company distributed a dividend in kind of approximately $0.60 per Share
consisting of $2,994,000 of a loan receivable and amounts due from a debtor of
the Company. The Company did not declare a cash dividend in FY 1996.
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<PAGE> 19
DILUTION
As of September 30, 1996, the net tangible book value per Share of the
Company was approximately $14,306,000, or $2.86 per Share. Net tangible book
value per Share is determined by dividing the tangible net worth of the Company
(total assets less liabilities) by the number of Shares outstanding. Without
taking into account any change in such net tangible value after September 30,
1996, other than to give effect to the sale of 1,400,000 ADSs offered hereby
(assuming an offering price of $11.00 per Share), and after deducting estimated
offering expenses and underwriting discounts, the pro forma net tangible book
value per Share as of September 30, 1996, on a consolidated basis, would have
been approximately $27,328,000, or $4.27 per Share, representing an immediate
dilution of $6.73 per Share to persons purchasing ADSs in this Offering. The
following table illustrates this per ADS dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per Share........................... $ 11.00
Net tangible book value per Share as of September 30, 1996........ $ 2.86
Increase per Share attributable to this offering.................. 1.41
-------
Pro forma net tangible book value per Share after offering........ 4.27
--------
Dilution to purchasers of ADSs in the offering.................... $ 6.73
========
</TABLE>
The computations in the table set forth above assume that the
Over-allotment Option is not exercised. If the Over-allotment Option is
exercised in full, the pro forma net tangible book value at September 30, 1996
would have been $29,476,000 or $4.46 per Share, resulting in dilution to
purchasers of ADSs of $6.54 per Share.
The following table summarizes, on a pro forma basis at September 30, 1996,
the number of Shares or ADSs purchased, the total consideration paid to the
Company, and the average price per Share or ADS paid by the existing
shareholders and by new investors purchasing ADSs in this Offering at an initial
public offering price of $11.00 per Share.
<TABLE>
<CAPTION>
SHARES OR ADSS AVERAGE
PURCHASED TOTAL CONSIDERATION PRICE
--------------------- --------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ----- ------
<S> <C> <C> <C> <C> <C>
Existing Shareholders.......... 5,000,000 78.1% $14,378,000 48.3% $ 2.88
New investors (1).............. 1,400,000 21.9% 15,400,000 51.7% 11.00
---------
Total................ 6,400,000 100.0% $29,778,000 100.0%
=========
</TABLE>
- ---------------
(1) Assuming no exercise of the Over-allotment Option. If such Over-allotment
Option were exercised in full, the Number of Shares or ADSs Purchased would
be 1,610,000, the Percent of Shares or ADSs Purchased would be 24.4% and the
aggregate Amount of Total Consideration would be $32,088,000.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the pro forma consolidated capitalization of
the Company at September 30, 1996, as adjusted to give effect to the sale by the
Company of the ADSs offered hereby and the application of the estimated net
proceeds to be received by the Company therefrom, at an initial offering price
of $11.00 per ADS and after deducting the underwriting discounts and estimated
offering expenses payable by the Company. The capitalization information set
forth in the table below is unaudited and should be read in conjunction with the
more detailed Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Short-term bank borrowings........................................... $ 5,555 $ 5,555
Current portion of long-term loans................................... 811 165
Current portion of capital lease obligations......................... 1,164 388
------ ------
Total short-term debt........................................ 7,530 6,108
------ ------
Long-term debt:
Long-term bank loans................................................. 1,336 342
Capital lease obligations, long-term................................. 749 749
------ ------
Total long-term debt......................................... 2,085 1,091
Minority interest...................................................... 1,026 1,026
Shareholders' equity:
Ordinary shares; 5,000,000 shares issued and outstanding;
6,400,000 shares issued and outstanding, as adjusted.............. 323 414
Additional paid-in capital........................................... -- 12,931
Retained earnings.................................................... 14,055 14,055
------ ------
Total shareholders' equity................................... 14,378 27,400
------ ------
Total capitalization................................................... $17,489 $29,517
====== ======
</TABLE>
18
<PAGE> 21
SELECTED FINANCIAL DATA
The selected consolidated income statement data for the fiscal years ended
March 31, 1994, 1995 and 1996 and the selected consolidated balance sheet data
as of March 31, 1995 and 1996 set forth below have been prepared in accordance
with U.S. GAAP and are derived from the consolidated financial statements and
notes thereto included elsewhere in this Prospectus which have been audited by
Arthur Andersen & Co., independent public accountants, whose report thereon is
also included elsewhere in this Prospectus. The selected consolidated income
statement data for the fiscal years ended March 31, 1992 and 1993 and the
selected consolidated balance sheet data as of March 31, 1992, 1993 and 1994 not
included elsewhere in this Prospectus have been prepared in accordance with U.S.
GAAP and are derived from Zindart's audited financial statements. The selected
consolidated income statement data for the six months ended September 30, 1995
and 1996 and the selected balance sheet data as of September 30, 1996, are
unaudited, but in the opinion of management, such unaudited consolidated
financial statements include all adjustments necessary for a fair presentation
of such data. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and the notes
thereto and other financial information, which appears elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $29,116 $35,603 $35,583 $36,879 $46,930 $23,251 $32,398
Cost of goods sold............................ 22,079 27,309 25,037 25,644 34,116 16,782 24,419
------ ------ ------ ------ ------ ------ ------
Gross profit.................................. 7,037 8,294 10,546 11,235 12,814 6,469 7,979
Selling, general and administrative
expenses.................................... 4,859 5,080 6,351 6,806 6,498 3,231 4,162
Operating income.............................. 2,178 3,214 4,195 4,429 6,316 3,238 3,817
Interest expense.............................. 211 165 150 137 402 107 517
Interest income............................... 204 164 129 228 208 142 57
Other income (expense), net................... 52 122 80 492 (416) 7 122
------ ------ ------ ------ ------ ------ ------
Income before income taxes.................... 2,223 3,335 4,254 5,012 5,706 3,280 3,479
Provision for income taxes.................... 219 302 436 483 488 303 284
------ ------ ------ ------ ------ ------ ------
Income before minority interests.............. 2,004 3,033 3,818 4,529 5,218 2,977 3,195
Minority interests(1)......................... 0 0 83 337 622 405 425
------ ------ ------ ------ ------ ------ ------
Net income.................................... $ 2,004 $ 3,033 $ 3,735 $ 4,192 $ 4,596 $ 2,572 $ 2,770
====== ====== ====== ====== ====== ====== ======
Earnings per share(2)......................... $ 0.40 $ 0.61 $ 0.75 $ 0.84 $ 0.92 $ 0.51 $ 0.55
====== ====== ====== ====== ====== ====== ======
Dividends per share(3)........................ $ 0.44 $ 0.29 $ 0.39 $ 0.21 $ 0.60 $ 0.60 $ --
====== ====== ====== ====== ====== ====== ======
Weighted average number of shares............. 5,000 5,000 5,000 5,000 5,000 5,000 5,000
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
AS OF MARCH 31, ---------------------
----------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(4)
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 2,692 $ 3,912 $ 4,068 $ 4,123 $ 3,294 $ 4,253 $ 6,637
Working capital............................... 2,621 3,775 3,210 5,399 3,401 5,764 9,570
Property, plant and equipment, net............ 1,528 1,882 2,545 3,902 10,800 11,216 19,816
Total assets.................................. 10,445 13,905 16,846 23,070 31,710 36,220 46,826
Short-term debt(5)............................ 1,528 1,052 1,020 1,780 8,899 7,530 6,108
Long-term debt and capital lease
obligations................................. 566 745 420 859 2,128 2,085 1,091
Shareholders' equity.......................... 3,552 5,112 6,887 10,011 11,608 14,378 27,400
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Capital expenditures.......................... $ 548 $ 1,086 $ 1,491 $ 3,197 $ 7,341 $ 3,748 $ 1,237
</TABLE>
- ---------------
(1) Certain third parties own minority equity interests in the Company's
manufacturing and mold-making operations in the PRC. See
"Business -- Subsidiaries."
(2) Earnings per share is computed by dividing net income for each year by
5,000,000, the weighted average number of shares of common stock outstanding
during the years/periods, on the basis that a 20 for 1 stock split had been
consummated prior to the years/periods presented.
(3) Dividends per Share are computed by dividing the total amount of dividends
for such year by 5,000,000, the weighted average number of shares of common
stock outstanding during the years or periods, on the basis that the 20 for
1 stock split had been consummated prior to years or periods presented. For
the six months ended September 30, 1995, and accordingly during the year
ended March 31, 1996, the Company distributed a dividend in kind of
approximately $2,994,000 of a loan receivable and amounts due from a related
company.
(4) As adjusted to reflect the sale of 1,400,000 ADSs at an assumed public
offering price of $11.00 per ADS and the application of the net proceeds
therefrom. See "Use of Proceeds."
(5) Includes current portions of long-term debt and capital lease obligations.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
HEREIN.
The fiscal 1996 period is referred to herein as FY 1996, the fiscal 1995
period is referred to herein as FY 1995 and the fiscal 1994 period is referred
to herein as FY 1994.
OVERVIEW
The Company manufactures a wide range of high-quality, detailed die-cast
and injection-molding products including (i) die-cast collectibles, (ii)
collectible holiday ornaments and (iii) action figures and miniature figurine
playsets used primarily as toys. In fiscal 1996, the Company manufactured
products for approximately 20 customers, most of which are leading U.S.
marketers. Two of these customers accounted for a majority of the Company's
production, as they have for the past five fiscal years.
The Company's dependence on a relatively small number of customers may
increase the volatility of the Company's net sales in response to changes in the
level of demand by such customers for the Company's products. Such demand can
vary both as a result of fluctuations in the business of these customers as well
as changes in the proportion of such customers' needs for the manufactured
products supplied by the Company. As a result, the Company's net sales can vary
from period to period. The Company intends to seek to reduce its exposure to
such fluctuations in financial performance by expanding its customer base and
product lines. However, the Company is committed to strengthening its
relationships with key customers since the Company believes such relationships
are vital to its long-term success, even if they can expose the Company to
short-term variations in financial performance.
Notwithstanding fluctuations in net sales, the Company has, through
emphasis on improving efficiency, managed to control costs such that the Company
has experienced steady growth in both operating income as a percentage of net
sales and net income. For example, for fiscal years 1992 through 1996, operating
income as a percentage of net sales increased from 7.5% to 13.5%; for the same
period, net income grew from $2.0 million to $4.6 million, a compounded annual
growth rate of 23.1%. While on an absolute basis operating and net income may
increase in FY 1997 as compared with FY 1996, the Company expects that, as a
percentage of net sales, each is likely to be below FY 1996 percentages of net
sales due primarily to expenses related to operating the Dongguan Facility at
less than full capacity and training new employees.
RESULTS OF OPERATIONS
The table below sets forth certain statement of operations data as a
percentage of net sales for the fiscal years ended March 31, 1994, 1995 and 1996
and the six months ended September 30, 1995 and 1996.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 29.6% 30.5% 27.3% 27.8% 24.6%
Selling, general, and administrative expenses...... 17.9% 18.5% 13.8% 13.9% 12.8%
Operating income................................... 11.8% 12.0% 13.5% 13.9% 11.8%
Income before income taxes......................... 12.0% 13.6% 12.2% 14.1% 10.7%
Provision for income taxes......................... 1.2% 1.3% 1.0% 1.3% 0.9%
Minority interests................................. 0.2% 0.9% 1.3% 1.7% 1.3%
Net income......................................... 10.5% 11.4% 9.8% 11.1% 8.5%
</TABLE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
Net Sales. Net sales for the six months ended September 30, 1996 totaled
$32,398,000, an increase of $9,147,000, or 39.3%, from $23,251,000 in the six
months ended September 30, 1995. This increase resulted from an increase in
sales volume in all finished product categories. Sales of the Company's die-cast
collectibles
20
<PAGE> 23
increased from $9,128,000 to $12,954,000, or 41.9%, due to increased sales to
Ertl. Sales of collectible holiday ornaments increased from $6,763,000 to
$9,483,000, or 40.2%. Sales of action figures and miniature figurine playsets
increased from $2,589,000 to $6,038,000, or 133.2%, primarily due to sales to
two new customers. Mold sales decreased by 17.8% from $4,771,000 to $3,923,000,
because during the period ended September 30, 1996 the Company's mold-making
subsidiaries focused on manufacturing molds for the Company's products rather
than for sale to third parties.
Gross Profit. Gross profit during the six months ended September 30, 1996
totaled $7,979,000, an increase of $1,510,000, or 23.3%, from $6,469,000 in the
six months ended September 30, 1995. The increase in gross profit was
principally due to the increase in sales volume in all finished product
categories. Gross profit as a percentage of net sales ("Gross Margin") decreased
from 27.8% to 24.6% because of costs associated with operating the Dongguan
Facility at less than full capacity and training new employees.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the six months ended September 30, 1996
totaled $4,162,000, compared to $3,231,000 for the six months ended September
30, 1995, an increase of $931,000, or 28.8%, as a result of increased sales and
a corresponding increase in selling expenses. As a percentage of net sales, SG&A
declined from 13.9% to 12.8%.
Operating Income. Income from operations totaled $3,817,000 for the six
months ended September 30, 1996, compared to $3,238,000 for the six months ended
September 30, 1995, an increase of $579,000, or 17.9%, due to the factors
described above. Income from operations as a percentage of net sales decreased
from 13.9% to 11.8%.
Interest Expense. Interest expense totaled $517,000 for the six months
ended September 30, 1996 compared to $107,000 for the six months ended September
30, 1995, an increase of $410,000. The increase in interest expenses resulted
from the Company's assumption of additional indebtedness to finance Phase I of
the construction of the Dongguan Facility. Approximately $2,400,000 of the
proceeds from this Offering will be used to repay indebtedness.
Provision for Income Taxes. The effective tax rate remained relatively
constant at approximately 8.2% of pre-tax income in FY 1996, and 9.2% in FY
1995, respectively.
Net Income. Net income during the six months ended September 30, 1996 was
$2,770,000, an increase of $198,000, or 7.7% from $2,572,000 for the six months
ended September 30, 1995, due to the factors stated above.
COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 1996 AND 1995
Net Sales. Net sales in FY 1996 totaled $46,930,000, an increase of
$10,051,000, or 27.3%, from $36,879,000 in FY 1995. This growth resulted from an
increase in sales volume in all finished product categories. Sales of die-cast
collectibles increased by 13.9%, from $17,500,000 to $19,934,000. Sales of
collectible holiday ornaments increased by 10.0%, from $11,496,000 to
$12,650,000. Sales of action figures and miniature figurine playsets increased
by 63.9%, from $3,492,000 to $5,722,000. Mold sales increased by 96.4%, from
$4,391,000 to $8,624,000, as a result of the Company's acquisition of a 51%
majority interest of Luen Tat Mould Manufacturing Limited ("Luen Tat Mould") and
the subsequent consolidation of Luen Tat Mould's financial results with those of
the Company, as well as an increase in Luen Tat Mould's sales.
Gross Profit. Gross profit totaled $12,814,000 in FY 1996, an increase of
$1,579,000, or 14.1%, from $11,235,000 in FY 1995. Gross Margin was 27.3% in FY
1996 compared to 30.5% in FY 1995. The Gross Margin decreased because the sale
of action figures and miniature figurine playsets and molds as a percentage of
total net sales increased. These products generally have a lower Gross Margin
than the Company's other products. Sales of die-cast collectibles decreased from
47.5% of net sales to 42.5% of net sales, and sales of collectible holiday
ornaments decreased from 31.2% of net sales to 27.0% of net sales. Sales of
action figures and miniature figurine playsets increased from 9.5% of net sales
to 12.2% of net sales, and sales of molds decreased from 19.6% of net sales to
18.4% of net sales.
Selling, General and Administrative Expenses. SG&A expenses totaled
$6,498,000 in FY 1996 compared to $6,806,000 in FY 1995, a decrease of $308,000,
or 4.5%, as a result of the transfer of certain
21
<PAGE> 24
engineering and administrative functions from Hong Kong to the PRC. SG&A
expenses were 13.8% of net sales in FY 1996 as compared to 18.5% of net sales in
FY 1995, a decrease of 4.7%.
Operating Income. Income from operations totaled $6,316,000 in FY 1996
compared to $4,429,000 in FY 1995, an increase of $1,887,000, or 42.6%. The
operating margin increased from 12.0% of net sales in 1995 to 13.5% of net sales
in 1996.
Interest Expense. Interest expense increased from $137,000 in FY 1995 to
$402,000 in FY 1996 because the Company increased borrowings to undertake the
construction of Phase I of the Dongguan Facility.
Provision for Income Taxes. The effective income tax rate was 8.6% in FY
1996 and 9.6% in FY 1995. The effective rate decreased because profit
contributions from subsidiaries of the Company are not taxable and the
proportion of profits contributed from such subsidiaries was higher in FY 1996
than in FY 1995.
Net Income. Net income totaled $4,596,000 in FY 1996, an increase of
$404,000, or 9.6% from $4,192,000 for FY 1995.
COMPARISON OF RESULTS OF OPERATIONS FOR FISCAL 1995 TO FISCAL 1994
Net Sales. Net sales in FY 1995 totaled $36,879,000, an increase of
$1,296,000, or 3.6%, from $35,583,000 in FY 1994. During FY 1995, the Company
did not emphasize increasing sales revenues, but instead focused on the
introduction of its Turnkey Manufacturing Service, implementing cost control
measures and increasing production efficiency. Also during FY 1995 sales of
die-cast collectible products decreased by $939,000, or approximately 5.1% from
$18,439,000 to $17,500,000 in FY 1995 due to a reduction in sales to a major
customer. Sales of collectible holiday ornaments increased by $1,510,000, or
approximately 15.1% from $9,986,000 to $11,496,000 in FY 1995. Sales of action
figures and miniature figurine playsets increased by $466,000 or approximately
15.4%, from $3,026,000 to $3,492,000 in FY 1995. Mold sales increased 6.3% from
$4,132,000 in 1994 to $4,391,000 in FY 1995.
Gross Profit. Gross profit totaled $11,235,000 in FY 1995, an increase of
$689,000, or 6.5%, from $10,546,000 in FY 1994. The Gross Margin increased from
29.6% in FY 1994 to 30.5% in FY 1995, principally as a result of a higher
percentage of sales of collectible holiday ornaments relative to other products
and an improvement in cost controls and efficiency.
Selling, General and Administrative Expenses. SG&A expenses totaled
$6,806,000 in FY 1995 as compared to $6,351,000 in FY 1994, an increase of
$455,000, or 7.2%, due to the hiring of additional employees for the Turnkey
Manufacturing Service. SG&A as a percentage of net sales increased from 17.9% in
FY 1994 to 18.5% in FY 1995.
Operating Income. Income from operations increased by $234,000, or 5.6%,
from $4,195,000 in FY 1994 to $4,429,000 in FY 1995, due to the factors
described above. Operating margins increased from 11.8% of net sales in FY 1994
to 12.0% of net sales in FY 1995.
Provision for Income Taxes. The effective income tax rate as a percentage
of pre-tax income remained relatively constant at approximately 10.0%.
Net Income. Net income totaled $4,192,000 in FY 1995, an increase of
$457,000, or 12.2%, from $3,735,000 in FY 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through cash generated
from operations and borrowings from banks and other third parties. Cash and cash
equivalents were $3,294,000 at March 31, 1996, and $4,253,000 at September 30,
1996, while total indebtedness at March 31, 1996 was $11,027,000 and total
indebtedness at September 30, 1996 was $9,615,000.
22
<PAGE> 25
The Company obtained a term loan in the amount of $2,600,000 from The Hong
Kong and Shanghai Banking Corporation Limited in FY 1995 in connection with
Phase I of the construction of the Dongguan Facility. This loan is partially
secured by a mortgage on the Company's Hong Kong property and certain other
assets. The term loan is repayable in 48 monthly installments, commencing on
August 1, 1994. As of September 30, 1996, the outstanding principal amount of
this loan was $1,640,000. The Company intends to use a portion of the proceeds
from this Offering to repay a portion of the remaining balance of this loan.
In FY 1995 and FY 1996, the Company obtained equipment lease financings in
the aggregate amount of $3,700,000 from three different equipment lessors. One
lease requires repayment in January and February of 1997 (the "First Lease") and
the second and third leases (the "Second and Third Leases") require repayment in
48 monthly installments. The First Lease carries an interest rate of 10.0% and
the Second and Third Leases carry interest rates of 9.3% and 7.2%, respectively.
As of September 30, 1996, the aggregate outstanding amount under these leases
was $1,900,000. The Company intends to use approximately $776,000 of the
proceeds from this Offering to repay the First Lease.
The Company has revolving lines of credit with three banks -- Standard
Chartered Bank, The Hong Kong and Shanghai Banking Corporation Limited and Bank
of China. As of March 31, 1996, these lines of credit allow for aggregate
borrowings of up to $10,800,000. As at September 30, 1996, the Company had
$4,400,000 of outstanding loans and letters of credit under these revolving
lines of credit. The Company draws down from the lines of credit primarily to
finance purchases of raw materials. The lines of credit contain covenants
requiring the maintenance of net minimum worth, and limitations on payment of
dividends and bonuses to management without the consent of the lender.
Consistent with practice in the giftware and collectibles industry, the
Company offers accounts receivable terms to its customers. This practice
typically has created working capital requirements that the Company generally
has financed with net cash balances, internally generated cash flow and
borrowing. The Company's accounts receivable balance at March 31, 1996, was
$8,315,000. The Company has never experienced any significant problems with
collection of accounts receivable from its customers.
Capital expenditures, for fiscal years 1994, 1995, 1996, and the six month
period ended September 30, 1996, were $1,491,000, $3,197,000, $7,341,000, and
$1,237,000, respectively. The Company believes that cash flow generated from its
operations, the proceeds from this Offering and its existing credit facilities
will be sufficient to satisfy its working capital and capital expenditure
requirements for at least the next 18 months.
FOREIGN EXCHANGE
All of the Company's sales are generated either in Hong Kong Dollars or
U.S. Dollars. Approximately 50% of the Company's expenses are incurred in
Renminbi, and the remainder are incurred primarily in Hong Kong Dollars. The
exchange rate of the Hong Kong Dollar is currently pegged to the U.S. Dollar,
but during the past several years the market exchange rate has fluctuated within
a narrow range. The PRC government sets the exchange rate between the Renminbi
and all other currencies. As a result, the exchange rate between the Renminbi
and the U.S. Dollar and the Hong Kong Dollar has fluctuated in the past and may
fluctuate in the future. If the value of the Renminbi or the Hong Kong Dollar
decreases relative to the U.S. Dollar, such fluctuation may have a positive
effect on the Company's results of operations. If the value of the Renminbi or
the Hong Kong Dollar increases relative to the U.S. Dollar, such fluctuation may
have a negative effect on the Company's results of operations. See "Risk
Factors -- Country Risks -- Exchange Rate Risk." The Company does not currently
hedge its foreign exchange positions.
EFFECT OF INFLATION
During the past three years, the rate of inflation in Hong Kong has been
between approximately 8% to 10% per year and the rate of inflation in the PRC
has been approximately 14% to 22% per year. However, the Company has in such
years been able to minimize the impact of inflation on profitability by
increasing the prices of its products and reducing operating costs. No assurance
can be given that the Company will be able to minimize the impact of inflation
on profitability in the future.
23
<PAGE> 26
BUSINESS
Zindart manufactures high-quality, detailed die-cast and injection-molding
products, including: (i) die-cast collectibles, (ii) collectible holiday
ornaments, and (iii) action figures and miniature figurine playsets used
primarily as toys. Zindart's corporate headquarters are located in Hong Kong and
its manufacturing operations are located in the neighboring Guangdong Province
in the PRC.
DEVELOPMENT OF THE COMPANY
Since its inception, Zindart's goal has been to become the leading
manufacturer of high-quality die-cast and injection-molding products for the
premier U.S. designers and marketers of die-cast collectibles, collectible
holiday ornaments and toys. Zindart was founded in Hong Kong in 1978 by George
K.D. Sun, who believed that, in order to succeed, Asian light manufacturers had
to build industry partnerships with their customers by providing them with
consistently high-quality, mass-produced products at affordable prices. It was
Mr. Sun's plan to meet the needs of Zindart's customers and forge the desired
industry partnerships by seeking to manage the entire product engineering and
manufacturing process rather than acting simply as a volume contract
manufacturer. Zindart's long-term relationships with its two largest customers
exemplify the type of industry partnerships envisioned by Mr. Sun. See
"Business -- Markets, Products and Customers."
In the early 1980s, Zindart decided to capitalize on opportunities in the
PRC by moving its manufacturing operations to Guangdong Province. In so doing,
Zindart realized substantial savings in labor and operating costs and gained
access to a large pool of technically trained craftsmen and other skilled but
relatively inexpensive laborers. Zindart also developed and trained a local PRC
management team, resulting both in cost savings and increased synergy between
labor and management. In 1982, Zindart opened the Zhong Xin factory in the Tian
He district of Guangzhou. In 1987, due to expanding sales and the need for
additional production capacity, Zindart opened a second production facility in
the PRC -- the Xin Xing factory in the Henan district of Guangzhou.
In 1987, in order to secure PRC governmental support for the Company's
operations in the PRC, Mr. Sun, Ertl and certain management staff collectively
sold a controlling interest in the Company to certain PRC entities. In 1993, in
order to enable the Company to gain access to U.S. management expertise and
capital markets, Mr. Sun asked the PRC entities to sell their shares in the
Company to funds under the management of ChinaVest, Advent and certain other
shareholders, which they did, and concurrently Mr. Sun sold a majority of his
shares to these parties. See "Principal Shareholders."
By late 1994, in response to growth in sales, Zindart decided to build the
Dongguan Facility in order to expand and consolidate its manufacturing
operations. Phase I of the construction of the Dongguan Facility was completed
in 1996. Upon completion of Phase II of the construction of the Dongguan
Facility, Zindart will increase its current manufacturing space in the Dongguan
Facility by 470,773 square feet and will have doubled the amount of its
manufacturing space from the manufacturing space in its first two facilities.
See "Business -- Properties." During the past two decades, Mr. Sun recruited and
trained the Company's current executive team, and in the past few years
gradually transferred to them responsibility for managing all of the Company's
day-to-day operations. Mr. Sun continues to be responsible for providing
leadership to, and engaging in strategic planning for, the Company. See
"Management."
MARKETS, PRODUCTS AND CUSTOMERS
Die-cast Collectibles
Zindart manufactures a wide range of metal die-cast collectible scale model
replicas of automobiles, trucks, planes, farm implements and construction
equipment, such as Mercedes Benz, BMW, Corvette and Mustang, farm equipment,
such as John Deere and Caterpillar, and classic cars, such as the 1932 Cadillac,
the 1964 Aston Martin and the 1956 Ford Thunderbird. These replicas, which come
in various scales from 1/12th to 1/64th of the size of the original product, are
medium- and high-feature products that must meet exacting standards. Many of the
die-cast replicas manufactured by Zindart have complex designs which require
high-quality workmanship and decorative details, with pad printing of as many as
one hundred imprints. The most
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complex of these models incorporate up to 200 moveable parts. The die-cast scale
model replicas manufactured by Zindart are sold through hobby shops, collectors'
clubs, car and equipment dealers, toy and gift stores and other channels. These
products typically retail in the U.S. between $150.00 and $180.00 for the high-
feature products, between $25.00 and $60.00 for the medium-feature products and
between $5.00 and $10.00 for the low-feature products. Many of these products
have nostalgic appeal to adult consumers. In addition, some of these products,
especially the automobile replicas, have attracted a following of collectors and
have been traded on a secondary market. It is the Company's belief, based on 15
years of sales experience, that many die-cast collectibles have enduring
consumer appeal. For example, the Company manufactures on an annual basis
several products for which molds were made between five and ten years ago. These
include the '70 Ford Mustang, '68 Pontiac GTO, '67 Corvette convertible, Ford
Roadster, Allis Chalmers Model "C" Tractor, and John Deere Skidsteer Loader.
Zindart's primary customer for die-cast collectibles is Ertl, a leading
U.S. designer and marketer of die-cast collectible replicas with 1995 sales of
over $200 million. Ertl was Zindart's first customer in 1978 and has been a
customer ever since. In 1982, Ertl's affiliated company, Ertl (Hong Kong)
Limited, acquired a significant equity interest in Zindart. Currently, Ertl's
Chief Executive Officer is a director of the Company. See "Management" and
"Certain Transactions." In fiscal years 1995 and 1996, sales to Ertl accounted
for 32.1% and 25.9% of the Company's net sales. Other customers of Zindart for
die-cast collectibles include other well known designers and marketers of such
products, such as Revell-Monogram, which has been a customer of Zindart since
1987, and SWG of Germany, which has been a customer of Zindart since 1989.
Revell-Monogram is a leading worldwide designer and marketer of plastic model
kits and die-cast replicas of airplanes, automobiles and ships marketed under
the "Revell" and "Monogram" brand names. SWG is one of the largest designers and
marketers of die-cast replicas in Germany, which are sold under the brand name
"Siku." The Company is currently manufacturing molds for die-cast collectibles
for Mattel, Inc.
Collectible Holiday Ornaments
Hallmark, long known as a leading producer of greeting cards, has
successfully diversified into collectible holiday ornaments and giftware
products. Hallmark relies on Zindart to manufacture many of its Keepsake
Ornaments, which consist of a variety of Christmas ornaments, holiday-themed
pieces and other giftware, both in die-cast zinc alloy and plastic. Hallmark's
Keepsake Ornament products also include free-standing decorations such as
die-cast replicas of pedal cars, which were first manufactured by Zindart in
1992. Production of Keepsake Ornament products requires highly developed hand
spray painting skills and attention to quality by each member of the workforce
in order to meet Hallmark's exacting aesthetic and quality requirements.
The Keepsake Ornaments manufactured by Zindart are collectibles sold
through authorized retail outlets. These products typically retail in the U.S.
between $7.00 and $25.00. Many purchasers of Keepsake Ornaments consider these
products to be valuable, collectible items. In addition to traditional holiday
themes, many Keepsake Ornaments depict characters from storybooks and films such
as the Wizard of Oz, Star Trek, Pocahontas, the Flintstones, and Peanuts, and
various American icons such as Lou Gehrig and Babe Ruth. Sales to Hallmark
accounted for 31.2% and 27.0% of the Company's net sales in FY 1995 and FY 1996,
respectively.
Action Figures and Miniature Figurine Playsets
Zindart also manufactures action figures and miniature figurine playsets
for various designers and marketers such as Hasbro, Inc., Tyco Toys, Inc. and
Lewis Galoob Toys, Inc. These products include miniature replicas of popular
television and movie characters such as Thomas the Tank Engine & Friends and
various Disney and Sesame Street characters. These products typically retail in
the U.S. between $5.00 and $15.00. The Company believes that a developing trend
among toymakers is to focus on profitability rather than volume. As a result,
many toymakers are moving into the sale of higher-priced toys, the production of
which requires high-quality and detailed manufacturing skills of the type
offered by Zindart.
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MANUFACTURING NEEDS OF ZINDART'S CUSTOMERS
Zindart believes that a significant sourcing problem facing its customers
is locating suppliers who can manufacture: (i) high-quality products, (ii) in
desired volumes (i.e., both in large quantities and limited runs) and (iii) in a
timely and cost-effective manner. In addition, a significant problem facing the
Company's customers is eliminating the cost, time and complexity of locating and
managing the number of companies usually required to perform the different steps
of the product development and production cycle of a single product. Different
companies are often hired to engage in product engineering, model and mold
making, and manufacturing and packaging of the finished product. The need to
coordinate several different companies in the manufacturing process can cause
production delays, inefficiencies in management of multiple contractors, and
quality and reliability problems.
ZINDART'S SOLUTION
- High-quality Production
Zindart has developed the ability to produce high-quality products by
employing a skilled workforce of technically trained craftsmen using modern
equipment under the guidance of experienced management. The Company ensures
quality through rigorous quality control procedures at each step of the
production process. The Company has an employee training program geared
specifically toward inspection and quality control.
- Manufacturing Capacity
Zindart currently employs over 6,800 persons in its manufacturing
facilities. Upon completion of Phase II of the construction of the Dongguan
Facility, the Company will have an aggregate of 887,000 square feet of
manufacturing space for up to 8,000 workers. The Company believes that this
space, together with the anticipated increase in efficiency for which the
Dongguan Facility was designed, will allow the Company to significantly increase
its production capacity. The added flexibility gained through increased
production capacity should enable the Company to further shorten production
cycles, which in turn will enable the Company to offer, among other things, a
just-in-time manufacturing service.
- Commitment to Improvement in Efficiency
The Company continually strives to increase efficiency and reduce costs for
the benefit of the Company and its customers. To date, the Company has been able
to achieve efficiencies by locating its production facilities in the PRC,
vertically integrating its production processes, and by working in close
cooperation with its customers. The Company expects to achieve greater
efficiencies as a result of the consolidation of its operations in the Dongguan
Facility. In addition, the Company intends to retain production experts to
assist it in achieving further production efficiencies.
- Turnkey Manufacturing Service
Zindart's Turnkey Manufacturing Service fulfills a customer's requirements
at every stage in the production process, from computer-aided product
engineering and model and mold making, to manufacturing, assembling and
packaging of the finished product. This coordinated, "one-stop" production
process provides Zindart's customers with (i) shortened lead times from design
to production; (ii) a single rather than multiple participants in the
manufacturing process; and (iii) increased efficiency resulting in lower
per-unit costs. See "-- Manufacturing."
ZINDART'S STRATEGY
Zindart's goal is to become the leading manufacturer of high-quality
die-cast and injection-molding products for the premier designers and marketers
of die-cast collectibles, collectible holiday ornaments and toys. Zindart's
business strategy to achieve this goal is to focus on the following:
- Develop Additional Major Customers
Currently, Zindart has two major customers, but manufactures products for
an additional 15 premier marketers. Some of these marketers have become
customers in the last few years. The Company expects that it will be able to
develop several of these new customers into major customers as these customers
become
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familiar with the benefits of the Company's Turnkey Manufacturing Service. Upon
completion of Phase II of the construction of the Dongguan Facility, Zindart
will be able to offer new major customers a dedicated production team and
dedicated production space, which can provide such customers with attractive
advantages. For example, the Company will be able to customize its production
facility to meet the specific needs of such customers, and the customer will
then be able to exercise greater control over the production process. thereby
enhancing quality control and cost efficiency, increasing confidentiality, and
expediting scheduling and delivery timetables.
- Diversify Product Offerings
Zindart has established itself as a leading manufacturer of die-cast
collectibles and collectible holiday ornaments and toys. Zindart intends to
further diversify the Company's product offerings to include the manufacture of
other consumer products which utilize Zindart's current competitive advantages
and know-how. In this regard, the Company intends to establish a sales,
marketing and investor relations office in the U.S. in 1997 to pursue such
efforts.
- Invest in Plant, Equipment and Employees
The completion of Phase II of the Dongguan Facility will provide the
Company with additional production space. In addition, Zindart intends to
purchase new equipment for this facility and hire additional employees. This
expansion will increase Zindart's capacity and, the Company believes, the
quality of its operations and overall efficiency, which should in turn enable
Zindart to meet additional demand for its manufacturing services.
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<PAGE> 30
MANUFACTURING
A significant problem facing the Company's customers is eliminating the
cost, time and complexity of locating and managing the number of companies
usually required to perform the different steps of the product development and
production cycle of a single product. Different companies are often hired to
engage in product engineering, model and mold making, and manufacturing and
packaging of the finished product. The need to coordinate several different
companies in the manufacturing process can cause production delays,
inefficiencies in management of multiple contractors, quality and reliability
problems.
To address this problem, the Company in 1994 broadened its manufacturing
capability to provide a fully integrated service known as Turnkey Manufacturing
Service. With this service, Zindart is able to provide product engineering,
model making and mold making, which Zindart integrates with the production of
the finished product. With this vertical integration, Zindart can meet all of a
customer's design engineering and manufacturing needs (other than the design and
printing of product packaging), thus avoiding the need for a Hong Kong
intermediary. Zindart's commitment to providing a comprehensive product
development service is evidenced by a team currently consisting of approximately
130 engineers and technicians, 350 model makers and tool makers and a total
workforce of approximately 6,800. By coordinating product development and
process design with production and packaging, Zindart is able to shorten the
lead time from conceptual design to product delivery and to lower product cost
while maintaining high quality and reliability.
The Turnkey Manufacturing Service comprises the following processes:
LOGO
<TABLE>
<S> <C>
- Based on a customer's preliminary specifications, Zindart assists in
product engineering through the use of computer-aided design systems
and other means with an eye toward promoting cost effectiveness
throughout the production cycle.
- Zindart builds prototype scale models of the product which are then
reviewed to ensure economical production and adherence to safety and
quality requirements.
- Using the model, Zindart produces tooling casts and then molds that
are key to the quality, timing and cost of the finished product.
- Zindart employs die-casting and injection-molding processes to shape
zinc alloys or plastic into product parts.
- The product parts are then painted through electrostatic painting,
detailed hand spray painting and/or pad printing.
- Zindart's large work force assembles multiple parts to produce the
final product.
- The product then undergoes buffing, finishing and quality control
inspection.
- Zindart assembles preprinted boxes, inserts the product and places
the boxes in cartons for delivery as specified by the customer.
</TABLE>
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COMPETITION
The Company faces competition from several companies for the manufacture of
die-cast collectibles and several other companies for the manufacture of
collectible holiday ornaments. The Company faces competition from numerous
companies for the manufacture of toys. The Company believes that the basis for
competition in the manufacture of all of these products is price, quality and
the ability to produce in required volumes and to timely meet delivery
schedules. The Company believes that, to date, it has been able to successfully
compete with respect to each of these criteria. However, no assurance can be
given that the Company will be able to continue to compete successfully or that
it will not face increased competition from new entrants or increased price
competition. The Company expects increased competition from manufacturers of
low-priced toys that may seek to enter the higher margin business of
manufacturing high-quality toys, die-cast collectibles and collectible holiday
ornaments. Some of these potential competitors may have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
See "Risk Factors -- Risks Relating to the Company -- Competition" and "-- Lack
of Barriers to Entry."
PROPERTIES
Zindart owns a facility of approximately 14,700 square feet at Tai Po in
Hong Kong's New Territories, which it acquired in 1982 and which currently
serves as the Company's headquarters, housing its customer service, quality
control, material control and purchasing, finance and accounting, marketing,
project management and engineering, personnel and other administration
functions, which are staffed by approximately 80 persons. Prior to the transfer
of production to the PRC, Zindart's manufacturing plant was located at its Tai
Po facility.
In 1982, Zindart established its Zhong Xin factory in the Tian He district
of Guangzhou, which is approximately 112 miles northwest of Hong Kong, on the
Pearl River. The factory, which is not owned by Zindart, operates under a
subcontract processing agreement with the local economic development authority,
which provides Zindart with the factory building and facilities as well as the
workforce. Zindart pays subcontracting fees for the use of these facilities and
labor, and provides machinery, equipment and raw materials. All of the
production machinery and equipment used in the plant is the property of Zindart.
Under the subcontract processing agreement, Zindart has the right to operate and
manage the production facility, including the authority to employ and dismiss
plant workers and to make decisions on day-to-day operational matters. The Zhong
Xin plant has been expanded over the years and currently provides a factory
space of approximately 250,000 square feet and employs a workforce of
approximately 2,500. The subcontract processing agreement expires in December
1999. The parties are currently negotiating the terms on which this agreement
will be terminated when Zindart moves all production to the Dongguan Facility.
See "Risk Factors -- Reliance on New Production Facility."
Zindart established its Xin Xing factory in the Henan district of Guangzhou
in 1987. The Xin Xing factory now occupies a factory space of approximately
170,000 square feet, with a workforce of approximately 1,500. In December 1993,
Zindart entered into a contractual joint venture agreement with the PRC party
that owned the Xin Xing factory to operate the factory through a majority-owned
subsidiary of Zindart. Pursuant to the contractual joint venture agreement with
the PRC party, the PRC party receives an annual fee from Zindart equal to the
rent of this facility, but does not share in the profits or losses of the
venture. This agreement will have to be terminated prior to the Company's
transfer of its operations from this facility to the Dongguan Facility. See
"Risk Factors -- Reliance on New Production Facility."
In October 1994, Zindart decided to build its own production facility on
approximately 20 acres of land in the city of Dongguan, which is located
approximately 60 miles north of Hong Kong, near the Pearl River Delta. Virtually
all land in the PRC is state-owned, but can be leased from the government on a
long-term basis. Operation of the Dongguan Facility is structured as a
contractual joint venture with a PRC governmental entity, Dongguan Xinda, which
will receive an annual fee from Zindart but which does not share in the profits
or losses of the venture. This contractual joint venture acquired a 50-year
lease on the 20 acres of land, and has a term of fifteen years. At the end of
this term, Zindart will continue to own the principle assets of the joint
venture, including the fifty year land lease. Phase I of the construction of the
Dongguan Facility,
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with a gross floor area of approximately 560,000 square feet, including living
accommodations for up to 3,500 workers, was completed in February 1996. The
Company commenced Phase II of the construction in late 1996, and intends to
complete such construction in early 1998. When Phase II of the construction of
the Dongguan Facility is completed, it will have approximately 887,000 square
feet of manufacturing space and approximately 385,000 square feet of space used
for non-production purposes. The Dongguan Facility has been designed to meet or
exceed applicable environmental, worker and fire safety requirements. Following
completion of Phase II of the construction, Zindart intends to transfer all
production activities from the two Guangzhou factories to the Dongguan Facility.
RAW MATERIALS
Zindart acquires the raw materials for its die-cast production primarily
from Australia, Belgium and Canada. Plastics used for manufacturing collectible
holiday ornaments and figurines are obtained from Hong Kong. Zindart's standard
practice is to maintain a supply of raw materials sufficient for approximately
three months' production. See "Risk Factors -- Risks Relating to the
Company -- Dependence on Raw Materials."
SUBSIDIARIES
The Company has a controlling interest in two mold-making subsidiaries. In
August 1994, the Company acquired a 55% interest in Onchart Industrial Limited,
a British Virgin Islands corporation. In December 1994, the Company acquired a
51% interest in Luen Tat Mould. Prior to these acquisitions, the Company had
regularly contracted with these companies to provide mold-making services to the
Company. Presently, Luen Tat Mould conducts its mold-making operations in one of
the Company's factories, and provides the Company with the largest in-house mold
and model-making capacity in southern China. Both subsidiaries will move their
operations to the Dongguan Facility upon completion of Phase II of the
construction.
Luen Tat Mould owns an 18% interest in Luen Tat Model, which provides
model-making services to Luen Tat Mould.
BACKLOG AND SEASONALITY
Zindart's customers generally place orders two to three months in advance
of delivery target dates. These purchase orders may be cancelled by the customer
upon reimbursement of actual costs incurred and payment of a portion of lost
profits determined on a case-by-case basis. As is customary in the PRC, Zindart
closes its facilities for two weeks during the months of January or February in
celebration of the Chinese New Year holidays. As a result, the Company's fourth
fiscal quarter production and revenues have in the past been lower than in other
quarters and are expected to be lower than other quarters in the future. Except
as attributable to the observance of the New Year, the Company has not
experienced seasonality in its operations, although it could show quarterly
fluctuations based on the timing of orders placed by its customers.
As of September 30, 1996, Zindart had orders on hand of approximately $19.6
million, compared to $17.3 million at September 30, 1995. Less than 1% of
Zindart's total annual customer orders have been canceled in any of the last
three years.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
Zindart has no registered trademarks or other registered proprietary
rights. The Company's key employees have entered into to confidentiality
agreements with the Company.
ENVIRONMENTAL MATTERS
The plants and equipment owned and operated by Zindart and the construction
activity associated with the expansion program are subject to comprehensive laws
and regulations for environmental protection. If Zindart were found to be in
violation of any such regulation, it would be given a period of time to remedy
the problem. If it failed to do so, the government could impose sanctions
including, but not limited to, a shut-down of operations until such time as
Zindart complied with such regulations. Each of Zindart's manufacturing
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<PAGE> 33
facilities have been subject to periodic environmental review by the local
authorities and have never incurred a fine or penalty for any breach or
violation of any applicable environmental laws. Zindart believes that its
manufacturing and other operations are in compliance in all material respects
with existing applicable environmental laws. See "Risk Factors -- Risks Relating
to the Company -- Environmental Matters."
EMPLOYEES
Zindart currently employs over 6,800 persons, of whom approximately 5,400
are production workers, 600 are administrative staff and 800 are engineering and
technical personnel. See "Risk Factors -- Risks Relating to the
Company -- Employees." As is customary for employers in the PRC, each of
Zindart's production facilities includes housing facilities for workers. Zindart
is committed to providing good working and living conditions for its employees
in the PRC. To that end, the Company has adopted a code of conduct regulating
human rights policies, including child labor, worker safety, wages and hours.
Zindart intends to retain outside consultants to review and assist in improving
the working and living conditions of its employees.
Zindart provides training to its managers and executives in its Hong Kong
headquarters through courses conducted by industry professionals engaged by
Zindart as well by senior management. The courses cover management skills, total
quality management, ISO 9000 requirements and the technical aspects of
operations. In addition, Zindart sponsors a number of technical staff to attend
night classes and in-house seminars for workers are held semi-annually by the
quality control staff or the factory managers on quality requirements.
LEGAL PROCEEDINGS AND INSURANCE
Zindart is not a party to any material pending legal or arbitration
proceeding with respect to itself or any of its material properties.
Zindart currently maintains insurance coverage with HSCB Insurance Ltd.,
the China Pacific Insurance Co., Ltd. and China Insurance Co., Ltd. on its
property, plant and equipment in an amount in excess of the current net book
value of such assets. It carries business interruption and third-party liability
insurance to cover claims arising out of bodily injury or property or
environmental damage caused by accidents on its property, or otherwise relating
to its operations or defects in the products it manufactures.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and key employees of the Company:
<TABLE>
<CAPTION>
NAME POSITION AGE
- --------------------------------- ---------------------------------------------------- ---
<S> <C> <C>
George K. D. Sun................. Founder, Chief Executive Officer and Director 56
Feather S. Y. Fok................ Chief Operating Officer, Chief Financial Officer and 35
Director
Tony D. H. Lai................... Vice President of Production and Director 55
Andrew C. H. Mok................. Vice President of Marketing 45
Koulman N. Zheng................. Vice President of Engineering 41
Vickie W. K. So.................. Assistant Vice President and Financial Controller 36
Choi S. Leung.................... Assistant Vice President of Marketing and Purchasing 52
Pei J. Yu........................ Assistant Vice President of Production 50
Alexander M. K. Ngan............. Director 45
Henry H.L. Hu.................... Director 52
George B. Volanakis.............. Director 48
Domina W.K. Leung................ Director 36
</TABLE>
George K. D. Sun, 56, founded Zindart in 1978 and served as a Director and
Chief Executive Officer from 1978 to 1994. In 1994, Mr. Sun took a sabbatical
from the Company to pursue philanthropic activities, including the creation of
the Zindart (De Zhen) Foundation, the beneficiaries of which include Zindart's
employees and their families, and other charities and churches. Mr. Sun returned
to Zindart in 1996 as a Director and Chief Executive Officer.
Feather S. Y. Fok, 35, has served as a Director since August 1993 and has
served as Chief Operating Officer and Chief Financial Officer since 1993. Ms.
Fok joined the Company in January 1989. Before joining the Company, Ms. Fok
worked in the auditing and consulting department of a "Big 6" accounting firm in
Hong Kong. Ms. Fok is a Certified Public Accountant in Hong Kong and an
associate member of the Hong Kong Society of Accountants. Ms. Fok is also a
member of the Chartered Association of Certified Accountants, United Kingdom.
Ms. Fok received a B.S. degree in Business Administration from the Chinese
University of Hong Kong.
Tony D. H. Lai, 55, has served as a Director and Vice President of
Production since October 1994 and is responsible for production in the PRC. Mr.
Lai graduated from the Shanghai Education University and was a secondary school
teacher for 27 years in the PRC before he emigrated to Hong Kong. He joined the
Company in 1989.
Andrew C. H. Mok, 45, has served as Vice President of Marketing since
January 1995, and in that capacity is responsible for the management of customer
relations, marketing, product engineering and costing. Mr. Mok has over 20 years
of working experience in the toy industry. Mr. Mok received a B.S. degree in
Mechanical Engineering from the University of Hong Kong.
Koulman N. Zheng, 41, has served as Vice President of Engineering since
1993, and is responsible for Luen Tat Mould's operations. Prior to joining the
Company, Mr. Zheng worked for many years as an engineer and operations manager
in various companies in the U.S. Mr. Zheng holds a 10% interest in Luen Tat
Mould. Mr. Zheng holds a B.S. and an M.S. degree in Mechanical Engineering from
San Francisco State University and Northeastern University, respectively. Mr.
Zheng also received a B.S. degree in Mechanical Engineering from the South
Chinese Institute of Technology in the PRC.
Vickie W. K. So, 36, has served as the Assistant Vice President and
Financial Controller since September 1996. Prior to joining the Company, Ms. So
worked as Administration Manager, Group Accountant and Financial Controller of
Pacific Dunlop (Asia) Ltd. for more than ten years. Ms. So is a qualified
accountant in
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Hong Kong. Ms. So received a B.S. degree in Business Administration from the
Chinese University of Hong Kong in 1984 and an M.B.A. from the Australian
Graduate School of Management, University of New South Wales.
Choi S. Leung, 52, has served as the Assistant Vice President of Marketing
and Purchasing since 1992 and is responsible for customer relations of the
Hallmark account, and purchasing. Prior thereto, Mr. Leung worked for 12 years
for the Hong Kong-based purchasing arm of Hallmark as a buyer and manager for
its PRC operations.
Pei J. Yu, 50, has served as the Assistant Vice President of Production
since October 1993, and is responsible for production in all of the Company's
manufacturing facilities. Prior to joining the Company in 1983, Mr. Yu worked as
an engineer in various companies in the PRC for 15 years. Mr. Yu received a B.S.
degree from the East China Chemical Engineering University.
Alexander M. K. Ngan, 45, has served as a Director since October 1995. Mr.
Ngan is a partner of ChinaVest, which he joined in 1993. Mr. Ngan is a director
of several ChinaVest portfolio companies. Prior thereto, Mr. Ngan worked for
over 20 years in banking and financial consulting in Canada and Hong Kong. Mr.
Ngan received a Bachelors of Mathematics degree from the University of Waterloo,
Ontario. Mr. Ngan is a representative of ChinaVest.
Henry H. L. Hu, 52, has served as a Director since August 1993. Mr. Hu has
over 25 years of experience in the light manufacturing industry in Hong Kong and
the PRC. Prior to becoming an entrepreneur, Mr. Hu held senior executive
positions in several multi-national toy companies.
George B. Volanakis, 48, has served as a Director since November 1992. Mr.
Volanakis joined Ertl in 1988 and has served as President and Chief Executive
Officer of Ertl since 1993. Prior to joining Ertl, Mr. Volanakis was Senior Vice
President of Marketing for Mattel Inc. Mr. Volanakis has served as President of
Matchbox Toys U.S.A., Ltd. and as President and Chief Operating Officer of
Playskool Inc., a subsidiary division of Milton Bradley Company, Inc. Mr.
Volanakis is the Chairman of the Toy Manufacturing Association in the United
States. Mr. Volanakis received a B.A. degree from Union College. Mr. Volanakis
is a representative of Ertl.
Domina W. K. Leung, 36, has been a Director since October 1994. Ms. Leung
joined the Company in 1980 and is responsible for finance, personnel and
administration. Ms. Leung has earned a London Chamber of Commerce certificate in
accounting. Ms. Leung resigned from her executive officer position in the
Company in July, 1996, but remains as a Director on the Board.
BOARD OF DIRECTORS
The Directors of the Company who are not executive officers do not receive
compensation for serving on the Board of Directors or any committee thereof. All
non-management directors are reimbursed for their expenses for each Board of
Directors meeting attended.
Pursuant to the listing requirements of the Nasdaq National Market, the
Company is required to have at least two independent directors on its Board of
Directors and to establish an audit committee, at least a majority of whose
members are independent of management. Prior to the Offering, Mr. Ngan and two
other directors will be appointed to be on the Audit Committee of the Board of
Directors.
EXECUTIVE COMPENSATION
The aggregate amount of compensation paid by the Company to all directors,
executive officers and significant employees as a group in FY 1996 was $939,145,
of which $182,859 was paid as discretionary bonuses. In addition, $122,345 was
contributed to the Company's provident fund (i.e., the Company's defined
contribution benefit plan administered by Jardine Matheson) in FY 1996 on behalf
of such persons.
The Company's executive officers and other key employees participate in the
Company's bonus plan, which generally provides for the payment of bonuses in an
aggregate amount not to exceed ten percent of the Company's pre-tax income. The
Chief Executive Officer recommends the size of the bonus pool to the
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Company's Board of Directors for its approval and the allocation of the bonus
amounts to the Compensation Committee for its approval. An employee's bonus
amount is determined on the basis of the employee's position, performance during
the year, length of service and other factors. The Compensation Committee is
comprised of Messrs. Sun and Ngan.
OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY
No officer or director of the Company currently has any option or warrant
to purchase any securities of the Company. The Company intends to adopt an
employee stock option plan following the closing of the Offering. The plan will
provide for the issuance of options up to 10% of the outstanding Shares
following the Offering.
LIMITATION OF LIABILITY
The organizational documents of the Company contain provisions limiting the
personal liability of directors to the Company or its shareholders and
indemnifying directors, officers, employees and agents of the Company for acts
performed in such capacity, to the fullest extent permitted by law. The
Underwriting Agreement provides for indemnification by the Underwriters of the
Company, its directors and officers, and by the Company of the Underwriters, for
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), and affords certain rights of
contributions with respect thereto.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
At present there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company for which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that may result in a claim of indemnification by any
director or officer.
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<PAGE> 37
PRINCIPAL SHAREHOLDERS
The following table sets forth beneficial ownership of Shares as of
December 11, 1996 and immediately following the completion of this offering, by
(i) each person known by the Company to own beneficially more than 10% of the
outstanding Shares and (ii) the officers and directors of the Company as a
group.
Zindart Pte Limited ("Zindart Singapore") owns 100% of the Shares prior to
the offering, and after the Closing Date will own 78.1% of the Shares, thereby
retaining control of the Company. ZICHL is the largest shareholder of Zindart
Singapore by virtue of its ownership of 76.0% of the shares of Zindart
Singapore. Funds under the management of ChinaVest own 67.81% of the shares of
ZICHL.
The Company is not aware of any present arrangement that may at a
subsequent date result in a change of control of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING (2)
---------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------ ------------------- -------- --------
<S> <C> <C> <C>
Zindart Singapore(3)........................................ 5,000,000 100.0% 78.1%
ZICHL (4)................................................. 5,000,000 100.0% 78.1%
ChinaVest IV Funds (5)................................. 5,000,000 100.0% 78.1%
All executive officers and directors as a group ((2)
persons) (6).............................................. 5,000,000 100.0% 78.1%
</TABLE>
- ---------------
(1) Beneficial ownership is determined pursuant to Rule 13d-3 of the Exchange
Act.
(2) Based on 5,000,000 Shares outstanding before the offering and 6,400,000
Shares outstanding after the offering.
(3) Zindart Singapore is an investment holding company incorporated in
Singapore. The shareholders of Zindart Singapore are ZIC Holdings Limited
(76.0%), Longvest Management Limited (14.0%) and Ertl (Hong Kong) Limited
(10%). The address of Zindart Singapore is 138 Cecil St., #18-00 Cecil
Court, Singapore 069538.
(4) ZICHL is an investment holding company incorporated in the Cayman Islands.
The address of ZICHL is P.O. Box 309, Ugland House, South Church St.,
George Town, Grand Cayman, Cayman Islands, British West Indies. The shares
of ZICHL are owned by four shareholders, whose indirect pecuniary interest
in the Company is outlined below:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
---------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
-------------------------------------------------- ------------------- -------- --------
<S> <C> <C> <C>
ChinaVest IV Funds................................ 2,577,000 51.5% 40.3%
Advent Funds...................................... 744,000 14.9% 11.6%
Long Gain Limited................................. 239,500 4.8% 3.7%
Cititrend International Holdings Ltd.............. 239,500 4.8% 3.7%
</TABLE>
ChinaVest IV Funds are described in note (5).
Advent Funds consist of the following three limited partnerships: Advent
International Investors II, L.P., a Massachusetts limited partnership;
Advent Asia/Pacific Fund L.P., a Bermuda limited partnership; and
Asia/Pacific Special Situations Fund, L.P., a Delaware limited partnership,
which together hold 19.6% of ZICHL. The address of Advent Funds is c/o
Advent International Corporation, 5th Floor, 101 Federal St., Boston,
Massachusetts 02110.
Long Gain Limited, incorporated in the British Virgin Islands, is the
personal investment holding company of Mr. Henry H.L. Hu. The address of
Long Gain Limited is Creque Building, P.O. Box 116, Roadtown, Tortola,
British Virgin Islands.
Cititrend International Holdings Ltd., incorporated in Bermuda, is the
personal investment holding company of Mr. Carl Tong. The address of
Cititrend International Holdings Ltd. is 12B Thomson Commercial Building,
4-10 Thomson Road, Wanchai, Hong Kong.
(5) The ChinaVest IV Funds consist of the following three limited partnerships:
ChinaVest IV, L.P., a Delaware partnership; ChinaVest IV-A, L.P., a
Delaware limited partnership, and ChinaVest IV-B,
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<PAGE> 38
L.P., a Bermuda limited partnership The address of ChinaVest IV Funds is
c/o ChinaVest Ltd., 19/F, Dina House, Duddell Street, Central, Hong Kong.
(6) Alexander M.K. Ngan is a partner of ChinaVest. On that basis, Mr. Ngan may
be deemed to own beneficially the Shares held by ChinaVest. Mr. Ngan
disclaims beneficial ownership of such Shares, except to the extent of his
pecuniary interest therein. Henry H.L. Hu is a Director of the Company and
of ZICHL. On that basis, Mr. Hu may be deemed to own beneficially the
shares held by ZICHL. Mr. Hu disclaims beneficial ownership of such Shares,
except to the extent of his pecuniary interest therein.
36
<PAGE> 39
CERTAIN TRANSACTIONS
Ertl has been one of the Company's two largest customers in the past three
fiscal years. Ertl beneficially owns 10% of the Company's Shares and has a
representative on the Company's Board of Directors (the "Board"). All sales
transactions to Ertl are negotiated on an arm's length basis.
In 1992, Zindart granted Mr. George Sun an option to buy from Zindart a
leasehold apartment in Hong Kong, at Zindart's original cost. In 1995, Mr. Sun
exercised his option to buy this leasehold apartment pursuant to the terms of
the option.
In 1994, the Company sold its interest in four associated companies,
Zindart Investment (China) Company Limited, G&D Children Products Company
Limited, Zindart Investment Company Limited and Yuehai Recreation World Limited
to Zindart Entertainment & Leisure Limited ("ZEL"), a company controlled by
ZICHL. The interests were sold by the Company at its cost, approximately
$350,000, and the Company recorded the sale as a loan by the Company to ZICHL
with an interest rate of 2.0% above the Hong Kong prime lending rate.
Subsequently, the Company made other advances to ZEL with similar interest rates
such that as of September 30, 1995, the balance owing to the Company by ZEL was
approximately $2,994,000. On September 30, 1995, the Company declared and
distributed a dividend in kind of the debt owing from ZEL at its face value.
The Company advanced ZICHL $95,000 in fiscal 1994 on an interest-free basis
for working capital purposes. These advances were repaid in fiscal 1995.
In February 1996, the Company borrowed $259,000 from Hua Yang Printing Co.,
Ltd., a company whose principal shareholders are funds under the management of
ChinaVest and Advent. This loan was unsecured and had an interest rate of 2.0%
above the Hong Kong prime lending rate. This loan was repaid by the Company in
March 1996.
In FY 1995, the Company loaned $517,000 to Sinomex, Inc., a company in
which ZICHL owned a 28.6% equity interest at the time the loan was made. The
loan carried an interest rate of 2.0% above the Hong Kong prime lending rate,
and was used for working capital purposes. The principal amount of the loan,
along with all accrued interest, was repaid in full in FY 1996.
The Company intends that all transactions with affiliates will be approved
by a committee of disinterested directors.
37
<PAGE> 40
DESCRIPTION OF SHARES
As of December 16, 1996, the authorized shares of the Company consisted of
5,000,000 Ordinary Shares with a par value of approximately $0.065, all of which
were outstanding. The Company intends to increase the number of authorized
Ordinary Shares to 10,000,000 prior to the closing of the Offering. The
following statements are summaries of certain provisions of the Company's
Memorandum of Association and Articles of Association and the Companies
Ordinance (Chapter 32) of the laws of Hong Kong (the "Companies Ordinance").
These summaries do not purport to be complete and are qualified in their
entirety by reference to the full Memorandum and Articles of Association which
have been filed as exhibits to the Company's Registration Statement, of which
this Prospectus is a part.
GENERAL
All of the Ordinary Shares of the Company offered hereby, when issued, will
be fully paid and non-assessable. Certificates representing the Shares are
issued in registered form. Shareholders of the Company who are non-residents of
Hong Kong for exchange control purposes may freely hold and vote their Shares.
The Shares are not entitled to any sinking fund or redemption rights.
Application has been made to list the ADSs on the Nasdaq National Market.
The Shares will not be listed.
VOTING RIGHTS
Under the Companies Ordinance, any action to be taken by the shareholders
in general meeting requires the affirmative vote of either an ordinary or a
special resolution passed at such meeting. An ordinary resolution is one passed
by the majority of such members as are entitled to, and do, vote in person or by
proxy at a general meeting of the Company. A special resolution is one passed by
not less than three-quarters of such members as are entitled to, and do, vote in
person or by proxy at a general meeting of the Company. Generally, resolutions
of the members of the Company are passed by ordinary resolution. However, the
Companies Ordinance stipulates that certain matters may only be passed as
special resolutions.
Subject to any special voting rights granted to any additional class of
shares, on a show of hands every member who is present in person at a general
meeting of the Company shall have one vote, and on a poll every member who is
present in person or by proxy shall have one vote, for every share in the
capital of the Company of which it is the holder.
Any action to be taken by the shareholders requires the affirmative vote of
a majority of the Shares at a meeting of shareholders. There are no cumulative
voting rights. Accordingly, the holders of a majority of the shares voting for
the election of directors can elect all the directors if they choose to do so.
MODIFICATION OF RIGHTS
Subject to the Companies Ordinance, any of the rights from time to time
attaching to any class of Ordinary Shares may (whether or not the Company is
being wound up) be altered or abrogated with the consent in writing of the
holders of not less than three-quarters of the issued Ordinary Shares of that
class or with the sanction of a special resolution passed at a separate general
meeting of the holders of Ordinary Shares.
ISSUE OF SHARES
Under the Companies Ordinance, the directors of the Company may, without
prior approval of the shareholders, offer to issue new shares in the Company to
existing shareholders pro rata. The directors may not issue new shares of the
Company in any other manner without the prior approval of the shareholders in a
general meeting. Any such approval given in a general meeting shall continue in
force until the conclusion of the following annual general meeting or the
expiration of the period within which the next annual general meting is required
by law to be held. If such approval is given, the unissued Ordinary Shares of
the Company
38
<PAGE> 41
shall be at the disposal of the board of directors, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such times
and for such consideration and upon such terms and conditions as the directors
may determine.
The shareholders may remove any director before the expiration of his
period office only upon the vote of not less than three-quarters of the issued
Ordinary Shares.
DIVIDENDS
Subject to the Companies Ordinance and as set out in the Articles of
Association, the shareholders in a general meeting may from time to time declare
dividends to be paid to the members according to their rights and interests in
the profits available for distribution, but no dividend shall be declared in
excess of the amount recommended by the Board.
In addition to dividends declared in a general meeting upon the
recommendation of the board of directors, the board of directors may from time
to time declare and pay to the members such interim dividends as appear to the
board of directors to be justified by the financial position of the Company; the
board of directors may also pay any fixed dividend which is payable on any
Ordinary Shares of the Company on any other dates, whenever the Company's
financial position, in the opinion of the board of directors, justifies such
payment.
The Company's loan facility with The Hong Kong and Shanghai Banking
Corporation Limited restricts the Company to an annual dividend not in excess of
25% of net profits. See "Dividends and Dividend Policy".
MISCELLANEOUS
The shareholders have no redemption rights, conversion rights or preemptive
rights on the transfer of securities of the Company.
39
<PAGE> 42
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of certain provisions of the Deposit Agreement
(the "Deposit Agreement"), to be entered into by the Company, The Bank of New
York, as depositary (the "Depositary"), and the owners (the "Owners") and
holders from time to time of American Depositary Receipts ("ADRs") issued
thereunder.
This summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the Deposit Agreement which has been
filed as an exhibit to the Company's Registration Statement of which this
Prospectus is a part, including the form of ADRs. Terms used herein and not
otherwise defined will have the meanings set forth in the Deposit Agreement.
Copies of the Deposit Agreement, the Memorandum of Association and the Articles
of Association of the Company will be available for inspection at the Corporate
Trust Office of the Depositary, currently located at 101 Barclay Street, New
York, New York 10286, and at the principal office of the agent of the Depositary
(the "Custodian"), currently located at the Hong Kong office of The Hong Kong
and Shanghai Banking Corporation Limited. The Depositary's principal executive
office is located at 48 Wall Street, New York, New York 10286.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing ADSs are issuable by the Depositary pursuant to the Deposit
Agreement. Each ADS will represent one Share or evidence of the right to receive
one Share. Only persons in whose names ADRs are registered on the books of the
Depositary will be treated by the Depositary and the Company as Owners.
DEPOSIT, TRANSFER AND WITHDRAWAL
The Depositary has agreed, subject to the terms and conditions of the
Deposit Agreement, that upon delivery to the Custodian of Shares (or evidence of
rights to receive Shares) and pursuant to appropriate instruments of transfer in
a form satisfactory to the Custodian, the Depositary will, upon payment of the
fees, charges and taxes provided in the Deposit Agreement, execute and deliver
at its Corporate Trust Office to, or upon the written order of, the person or
persons named in the notice of the Custodian delivered to the Depositary or
requested by the person depositing such Shares with the Depositary, an ADR or
ADRs, registered in the name or names of such person or persons, and evidencing
the authorized number of ADSs requested by such person or persons.
Upon surrender at the Corporate Trust Office of the Depositary of an ADR
for the purpose of withdrawal of the Shares represented by the ADSs evidenced by
such ADR, and upon payment of the fees of the Depositary for the surrender of
ADRs, governmental charges and taxes provided in the Deposit Agreement, and
subject to the terms and conditions of the Deposit Agreement, the Owner of such
ADR will be entitled to delivery, to it or upon its order, of the number of
Shares at the time represented by the ADS or ADSs evidenced by such ADR. The
forwarding of share certificates, other securities, property, cash and other
documents of title for such delivery will be at the risk and expense of the
Owner.
Subject to the terms and conditions of the Deposit Agreement and any
limitations established by the Depositary, the Depositary may execute and
deliver ADRs prior to the receipt of Shares (a "Pre-Release") and deliver Shares
upon the receipt and cancellation of ADRs which have been Pre-Released, whether
or not such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such ADR has been Pre-Released. The Depositary may receive
ADRs in lieu of Shares in satisfaction of a Pre-Release. Each Pre-Release must
be (a) preceded or accompanied by a written representation from the person to
whom the ADRs or Shares are to be delivered that such person, or its customer,
owns the Shares or ADRs to be remitted, as the case may be, (b) at all times
fully collateralized with cash or such other collateral as the Depositary deems
appropriate, (c) terminable by the Depositary on not more than five business
days' notice and (d) subject to such further indemnities and credit regulations
as the Depositary deems appropriate. The number of ADSs which are outstanding at
any time as a result of Pre-Releases will not normally exceed thirty
40
<PAGE> 43
percent of the Shares deposited under the Deposit Agreement; provided, however,
that the Depositary reserves the right to change or disregard such limit from
time to time as it deems appropriate.
The Depositary may retain for its own account any compensation received by
it in connection with the foregoing.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
The Depositary will convert or cause to be converted into U.S. Dollars, to
the extent that in its judgment it can do so on a reasonable basis and can
transfer the resulting U.S. Dollars to the United States, all cash dividends and
other cash distributions denominated in a currency other than Dollars, including
Hong Kong Dollars ("Foreign Currency"), that it receives in respect of the
deposited Shares, and to distribute the resulting U.S. Dollar amount (net of the
expenses incurred by the Depositary in converting such Foreign Currency) to the
Owners entitled thereto, in proportion to the number of ADSs representing such
Shares evidenced by ADRs held by them, respectively. Such distribution may be
made upon an averaged or other practicable basis without regard to any
distinctions among Owners on account of exchange restrictions or the date of
delivery of any ADR or ADRs or otherwise. The amount distributed to the Owners
of ADRs will be reduced by any amount on account of taxes to be withheld by the
Company or the Depositary. See "-- Liability of Owner for Taxes."
If the Depositary determines that in its judgment any Foreign Currency
received by the Depositary cannot be converted on a reasonable basis into U.S.
Dollars, or if any approval or license of any government or agency thereof which
is required for such conversion is denied or in the opinion of the Depositary is
not obtainable, or if any such approval or license is not obtained within a
reasonable period as determined by the Depositary, the Depositary may distribute
the Foreign Currency received by the Depositary to, or in its discretion may
hold such Foreign Currency uninvested and without liability for interest thereon
for the respective accounts of, the Owners entitled to receive the same. If any
such conversion of Foreign Currency, in whole or in part, cannot be effected for
distribution to some of the Owners entitled thereto, the Depositary may in its
discretion make such conversion and distribution in U.S. Dollars to the extent
permissible to the Owners entitled thereto, and may distribute the balance of
the Foreign Currency received by the Depositary to, or hold such balance
uninvested and without liability for interest thereon for, the respective
accounts of, the Owners entitled thereto.
If any distribution upon any Shares consists of a dividend in, or free
distribution of, Shares, the Depositary may, and will if the Company so
requests, distribute to the Owners of outstanding ADRs entitled thereto, in
proportion to the number of ADSs evidenced by the ADRs held by them,
respectively, additional ADRs evidencing an aggregate number of ADSs that
represents the number of Shares received as such dividend or free distribution,
subject to the terms and conditions of the Deposit Agreement with respect to the
deposit of Shares and the issuance of ADSs evidenced by ADRs, including the
withholding of any tax or other governmental charge and the payment of fees of
the Depositary as provided in the Deposit Agreement. The Depositary may withhold
any such distribution of ADRs if it has not received satisfactory assurances
from the Company that such distribution does not require registration under the
Securities Act or is exempt from registration under the provisions of such Act.
In lieu of delivering ADRs for fractional ADSs in the event of any such dividend
or free distribution, the Depositary will sell the number of Shares represented
by the aggregate of such fractions and distribute the net proceeds in accordance
with the Deposit Agreement. If additional ADRs are not so distributed, each ADS
will thenceforth also represent the additional Shares distributed upon the
Shares represented thereby.
If the Company offers or causes to be offered to the holders of any Shares
any rights to subscribe for additional Shares or any rights of any other nature,
the Depositary will have discretion as to the procedure to be followed in making
such rights available to any Owners of ADRs or in disposing of such rights for
the benefit of any Owners and making the net proceeds available in Dollars to
such Owners or, if by the terms of such rights offering or for any other reason,
the Depositary may not either make such rights available to any Owners or
dispose of such rights and make the net proceeds available to such Owners, then
the Depositary shall allow the rights to lapse. If at the time of the offering
of any rights the Depositary determines in its discretion that it is lawful and
feasible to make such rights available to all Owners or to all or certain Owners
41
<PAGE> 44
but not to other Owners, the Depositary may distribute to any Owner to whom it
determines the distribution to be lawful and feasible, in proportion to the
number of ADSs held by such Owner, warrants or other instruments therefore in
such form as it deems appropriate. If the Depositary determines in its
discretion that it is not lawful and feasible to make such rights available to
all or certain Owners, it may sell the rights, warrants or other instruments in
proportion to the number of ADSs held by the Owners to whom it has determined it
may not lawfully or feasibly make such rights available, and allocate the net
proceeds of such sales for the account of such Owners otherwise entitled to such
rights, warrants or other instruments, upon an averaged or other practical basis
without regard to any distinctions among such Owners because of exchange
restrictions or the date of delivery of any ADR or ADRs, or otherwise.
In circumstances in which rights would not otherwise be distributed, if an
Owner of ADRs requests the distribution of warrants or other instruments in
order to exercise the rights allocable to the ADSs of such Owner, the Depositary
will make such-rights available to such owner upon written notice from the
Company to the Depositary that (a) the Company has elected in its sole
discretion to permit such rights to be exercised and (b) such owner has executed
such documents as the Company has determined in its sole discretion are
reasonably required under applicable law. Upon instruction pursuant to such
warrants or other instruments to the Depositary from such Owner to exercise such
rights, upon payment by such Owner to the Depositary for the account of such
Owner of an amount equal to the purchase price of the Shares to be received in
exercise of the rights, and upon payment of the fees of the Depositary as set
forth in such warrants or other instruments, the Depositary will, on behalf of
such owner, exercise the rights and purchase the Shares, and the Company shall
cause the Shares so purchased to be delivered to the Depositary on behalf of
such Owner. As agent for such Owner, the Depositary will cause the Shares so
purchased to be deposited, and will execute and deliver ADRs to such Owner,
pursuant to the Deposit Agreement.
The Depositary will not offer rights to Owners unless both the rights and
the securities to which such rights relate are either exempt from registration
under the Securities Act with respect to a distribution to all Owners or are
registered under the provisions of such Act; provided, that nothing in the
Deposit Agreement will create, or be construed to create, any obligation on the
part of the Company to file a registration statement with respect to such rights
or underlying securities or to endeavor to have such a registration statement
declared effective. If an Owner of ADRs requests the distribution of warrants or
other instruments, notwithstanding that there has been no such registration
under the Securities Act, the Depositary will not effect such distribution
unless it has received an opinion from recognized counsel in the United States
for the Company upon which the Depositary may rely that such distribution to
such Owner is exempt from such registration. The Depositary will not be
responsible for any failure to determine that it may be lawful or feasible to
make such rights available to owners in general or any owner in particular.
Whenever the Depositary receives any distribution other than cash, Shares
or rights in respect of the Shares, the Depositary will cause the securities or
property received by it to be distributed to the Owners entitled thereto, after
deduction or upon payment of any fees and expenses of the Depositary or any
taxes or other governmental charges, in proportion to their holdings,
respectively, in any manner that the Depositary may deem equitable and
practicable for accomplishing such distribution; provided, however, that if in
the opinion of the Depositary such distribution cannot be made proportionately
among the Owners entitled thereto, or if for any other reason (including, but
not limited to, any requirement that the Company or the Depositary withhold an
amount on account of taxes or other governmental charges or that such securities
must be registered under the Securities Act in order to be distributed to Owners
or the Depositary deems such distribution not to be feasible), the Depositary
may adopt such method as it may deem equitable and practicable for the purpose
of effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus received, or any part thereof,
and the net proceeds of any such sale (net of the fees of the Depositary) will
be distributed by the Depositary to the Owners entitled thereto as in the case
of a distribution received in cash.
If the Depositary determines that any distribution of property (including
Shares and rights to subscribe therefor) is subject to any taxes or other
governmental charges which the Depositary is obligated to withhold, the
Depositary may, by public or private sale, dispose of all or a portion of such
property in such amount and in such manner as the Depositary deems necessary and
practicable to pay such taxes or charges and the
42
<PAGE> 45
Depositary will distribute the net proceeds of any such sale after deduction of
such taxes or charges to the owners entitled thereto in proportion to the number
of ADSs held by them, respectively.
Upon any change in nominal or par value, split-up, consolidation or any
other reclassification of Shares, or upon any recapitalization, reorganization,
merger or consolidation or sale of assets affecting the Company or to which it
is a party, any securities which shall be received by the Depositary or
Custodian in exchange for, in conversion of, or in respect of Shares will be
treated as new Shares under the Deposit Agreement, and the ADSs will thenceforth
represent, in addition to the existing Shares, the right to receive the new
Shares so received in exchange or conversion, unless additional ADRs are
delivered pursuant to the following sentence. In any such case the Depositary
may, and will, if the Company so requests, execute and deliver additional ADRs
as in the case of a dividend in Shares, or call for the surrender of outstanding
ADRs to be exchanged for new ADRs specifically representing such new Shares.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become payable
or any distribution other than cash shall be made, or whenever rights shall be
issued with respect to the Shares, or whenever for any reason the Depositary
causes a change in the number of Shares that are represented by each ADS, or
whenever the Depositary shall receive notice of any meeting of holders of
Shares, the Depositary will fix a record date, (a) for the determination of the
Owners who will be (i) entitled to receive such dividend, distribution or
rights, or the net proceeds of the sale thereof, or (ii) entitled to give
instructions for the exercise of voting rights at any such meeting, or (b) on or
after which each ADS will represent the changed number of Shares, all subject to
the provisions of the Deposit Agreement.
VOTING OF SHARES
Upon receipt of notice of any meeting of holders of Shares, if requested in
writing by the Company, the Depositary will, as soon as practicable thereafter,
mail to all Owners a notice, the form of which notice will be in the sole
discretion of the Depositary, containing (a) such information included in such
notice of meeting received by the Depositary from the Company, and (b) a
statement that the Owners as of the close of business on a specified record date
will be entitled, subject to any applicable provision of Hong Kong law and of
the Memorandum of Association and Articles of Association of the Company, to
instruct the Depositary as to the exercise of the voting rights, if any,
pertaining to the amount of Shares or other Deposited Securities represented by
their respective ADSs. Upon the written request of an Owner on such record date,
received on or before the date established by the Depositary for such purpose,
the Depositary will endeavor, insofar as practicable, to vote or cause to be
voted the amount of Shares or other Deposited Securities represented by the ADSs
evidenced by such ADRs in accordance with the instructions set forth in such
request. The Depositary will not vote or attempt to exercise the right to vote
that attaches to the Shares or other Deposited Securities, other than in
accordance with such instructions.
There can be no assurance that the Owners generally or any Owner in
particular will receive the notice described in the preceding paragraph
sufficiently prior to the date established by the Depositary for the receipt of
instructions to ensure that the Depositary will vote the Shares in accordance
with the provisions set forth in the preceding paragraph.
REPORTS AND OTHER COMMUNICATIONS
The Depositary will make available for inspection by Owners at its
Corporate Trust Office any reports and communications, including any proxy
soliciting material, received from the Company, which are both (a) received by
the Depositary as the holder of the Shares and (b) made generally available to
the holders of such Shares by the Company. The Depositary will also, upon
written request, send to the Owners copies of such reports when furnished by the
Company pursuant to the Deposit Agreement. Any such reports and communications,
including any proxy soliciting material, furnished to the Depositary by the
Company will be furnished in English when so required pursuant to any
regulations of the Securities and Exchange Commission.
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AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of ADRs and any provisions of the Deposit Agreement may at any
time and from time to time be amended by agreement between the Company and the
Depositary in any respect which they may deem necessary or desirable without the
consent of the Owners; provided, however, that any amendment that imposes or
increases any fees or charges (other than taxes and other governmental charges,
registration fees, cable, telex or facsimile transmission costs, delivery costs
or other such expenses), or which otherwise prejudices any substantial existing
right of Owners, will not take effect as to outstanding ADRs until the
expiration of 30 days after notice of any amendment has been given to the
Owners. Every Owner, at the time any amendment so becomes effective will be
deemed, by continuing to hold such ADR, to consent and agree to such amendment
and to be bound by the Deposit Agreement as amended thereby. In no event will
any amendment impair the right of the Owner to surrender its ADR and receive
therefor the Shares represented thereby, except to comply with mandatory
provisions of applicable law.
The Depositary will at any time at the direction of the Company terminate
the Deposit Agreement by mailing notice of such termination to the Owners of the
ADRs then outstanding at least 90 days prior to the date fixed in such notice
for such termination. The Depositary may likewise terminate the Deposit
Agreement by mailing notice of such termination to the Company and the Owners of
all ADRs then outstanding if, any time after 90 days have expired after the
Depositary will have delivered to the Company a written notice of its election
to resign and a successor depositary will not have been appointed and accepted
its appointment, in accordance with the terms of the Deposit Agreement. If any
ADRs remain outstanding after the date of termination of the Deposit Agreement,
the Depositary thereafter will discontinue the registration of transfers of
ADRs, will suspend the distribution of dividends to the Owners thereof and will
not give any further notices or perform any further acts under the Deposit
Agreement, except the collection of dividends and other distributions pertaining
to the Shares, the sale of rights and the delivery of underlying Shares,
together with any dividends or other distributions received with respect thereto
and the net proceeds of the sale of any rights or other property, in exchange
for surrendered ADRs (after deducting, in each case, the fees of the Depositary
for the surrender of an ADR and other expenses set forth in the Deposit
Agreement and any applicable taxes or governmental charges). At any time after
the expiration of one year from the date of termination, the Depositary may sell
the Shares then held thereunder and hold uninvested the net proceeds of such
sale, together with any other cash, unsegregated and without liability for
interest, for the pro rata benefit of the Owners that have not theretofore
surrendered their ADRs, such Owners thereupon becoming general creditors of the
Depositary with respect to such net proceeds. After making such sale, the
Depositary will be discharged from all obligations under the Deposit Agreement,
except to account for net proceeds and other cash (after deducting, in each
case, the fee of the Depositary and other expenses set forth in the Deposit
Agreement for the surrender of an ADR and any applicable taxes or other
governmental charges).
CHARGES OF DEPOSITARY
The Depositary will charge any party depositing or withdrawing Shares or
any party surrendering ADRs or to whom ADRs are issued (including, without
limitation, issuance pursuant to a stock dividend or stock split declared by the
Company or an exchange of stock regarding the ADRs or Shares or a distribution
of ADRs pursuant to the Deposit Agreement) whichever applicable: (a) taxes and
other governmental charges; (b) such registration fees as may from time to time
be in effect for the registration of transfers of Shares generally on the share
register of the Company or Foreign Registrar and applicable to transfers of
Shares to the name of the Depositary or its nominee or the Custodian or its
nominee on the making of deposits or withdrawals; (c) such cable, telex and
facsimile transmission expenses as are expressly provided in the Deposit
Agreement to be at the expense of persons depositing Shares or Owners; (d) such
expenses as are incurred by the Depositary in the conversion of Foreign Currency
pursuant to the Deposit Agreement; (e) a fee of $5.00 or less per 100 ADSs (or
portion thereof) for the execution, delivery and surrender of ADRs pursuant to
the Deposit Agreement; (f) a fee of $.02 or less per ADS (or portion thereof)
for any cash distribution made pursuant to the Deposit Agreement; (g) a fee of
$1.50 or less per certificate for an ADR or ADRs for transfers made pursuant to
the Deposit Agreement; and (h) a fee for the distribution of securities pursuant
to the Deposit Agreement, such fee being in an amount equal to the fee for the
execution and delivery of ADSs
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referred to above which would have been charged as a result of the deposit of
such securities (for purposes of this clause (h) treating all such securities as
if they were Shares), but which securities are instead distributed by the
Depositary to Owners and the net proceeds distributed.
The Depositary, pursuant to the Deposit Agreement, may own and deal in any
class of securities of the Company and its affiliates and in ADRs.
LIABILITY OF OWNER FOR TAXES
If any tax or other governmental charge shall become payable by the
Custodian or the Depositary with respect to any ADR or any Shares represented by
the ADRs, such tax or other governmental charge will be payable by the Owner of
such ADR to the Depositary. The Depositary may refuse to effect any transfer of
such ADR or any withdrawal of Shares underlying such ADR until such payment is
made, and may withhold any dividends or other distributions, or may sell for the
account of the Owner thereof any part or all of the Shares underlying such ADR
and may apply such dividends, distributions or the proceeds of any such sale to
pay any such tax or other governmental charge and the owner of such ADR will
remain liable for any deficiency.
GENERAL
Neither the Depositary nor the Company will be liable to any Owner or
holder of any ADR, if by reason of any provision of any present or future law or
regulation of the United States, or any other country, or of any governmental or
regulatory authority or stock exchange, or by reason of any provision, present
or future, of the Memorandum of Association or Articles of Association of the
Company, or by reason of any act of God or war or other circumstances beyond its
control, the Depositary or the Company shall be prevented, delayed or forbidden
from, or be subject to any civil or criminal penalty on account of, doing or
performing any act or thing which by the terms of the Deposit Agreement it is
provided will be done or performed; nor will the Depositary or the Company incur
any liability to any Owner or holder of any ADR by reason of any nonperformance
or delay, caused as aforesaid, in the performance of any act or thing which by
the terms of the Deposit Agreement it is provided will or may be done or
performed, or by reason of any exercise of, or failure to exercise, any
discretion provided for under the Deposit Agreement. Where, by the terms of a
distribution pursuant to the Deposit Agreement, or an offering or distribution
pursuant to the Deposit Agreement, or for any other reason, such distribution or
offering may not be made available to Owners, and the Depositary may not dispose
of such distribution or offering on behalf of such Owners and make the net
proceeds available to such Owners, then the Depositary will not make such
distribution or offering, and will allow the rights, if applicable, to lapse.
The Company and the Depositary assume no obligation nor will they be
subject to any liability under the Deposit Agreement to Owners or holders of
ADRs except that they agree to perform their respective obligations specifically
set forth under the Deposit Agreement without negligence or bad faith.
The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books at any time or from time to time when
deemed expedient by it in connection with the performance of its duties. As a
condition precedent to the execution and delivery, registration or transfer,
split-up, combination or surrender of any Shares, the Depositary, the Custodian
or the Registrar may require payment from the person presenting the ADR or the
depositor of the Shares of a sum sufficient to reimburse it for any tax or other
governmental charge and any stock transfer or registration fee with respect
thereto (including any such tax or charge and fee with respect to Shares being
deposited or withdrawn) and payment of any applicable fees payable by the Owners
and holders of ADRs. The Depositary may refuse to deliver ADRs, to register the
transfer of any ADR or to make any distribution on, or related to, Shares until
it has received such proof of citizenship or residence, exchange control
approval or other information as it may deem necessary or proper. The delivery,
transfer, registration of transfer of outstanding ADRs and surrender of ADRs
generally may be suspended or refused during any period when the transfer books
of the Depositary, the Company or the Foreign Registrar are closed or if any
such action is deemed necessary or advisable by the Depositary or the Company,
at any time or from time to time. Notwithstanding any other provision of this
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Deposit Agreement or the ADRs, the surrender of outstanding ADRs and withdrawal
of the deposited Shares may not be suspended subject only to (i) temporary
delays caused by closing the transfer books of the Depositary or the Company or
the deposit of Shares in connection with voting at a shareholders' meeting, or
the payment of dividends, (ii) the payment of fees, taxes and similar charges,
and (iii) compliance with any U.S. or foreign laws or governmental regulations
relating to the ADRs or to the withdrawal of the deposited Shares. Without
limitation of the foregoing, the Depositary shall not knowingly accept for
deposit under the Deposit Agreement any Shares required to be registered under
the provisions of the Securities Act of 1933, unless a registration statement is
in effect as to such Shares.
The Depositary will keep books, at its Corporate Trust Office, for the
registration and transfer of ADRs, which at all reasonable times will be open
for inspection by the Owners, provided that such inspection will not be for the
purpose of communicating with Owners in the interest of a business object other
than the business of the Company or a matter related to the Deposit Agreement or
the ADRs.
The Depositary may appoint one or more co-transfer agents for the purpose
of effecting transfers, combinations and split-ups of ADRs at designated
transfer offices on behalf of the Depositary. In carrying out its functions, a
co-transfer agent may require evidence of authority and compliance with
applicable laws and other requirements by Owners or persons entitled to ADRs and
will be entitled to protection and indemnity to the same extent as the
Depositary.
GOVERNING LAW
The Deposit Agreement will be governed by the laws of the State of New
York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 6,400,000 Shares
issued and outstanding, assuming no exercise of the Over-allotment Option. Of
such Shares, the 1,400,000 Shares represented by ADSs offered hereby will be
freely tradable without restriction or further registration under the Securities
Act, except for any Shares subsequently purchased by "affiliates" of the
Company, which may include the Company's existing shareholders, officers or
directors. All other Shares (including Shares purchased by certain officers and
employees of the Underwriter and its affiliates) will become eligible for sale
in the public market, although, with respect to sales of such Shares by
affiliates of the Company into the U.S. public market, such shares will be
subject to the volume and other limitations under Rule 144 promulgated by the
Securities and Exchange Commission under the Securities Act ("Rule 144").
Subject to certain exceptions, the Company and each affiliate prior to this
Offering have agreed not to offer, sell, contract to sell, grant options to
purchase, or otherwise dispose of any Shares or ADSs of the Company or any
securities convertible into or exercisable or exchangeable for such Shares or
ADSs or in any other manner transfer all or a portion of the economic benefits
associated with the ownership of any such Shares or ADSs, except to the
Underwriter pursuant to the Underwriting Agreement, for a period of 180 days
after the date of this Prospectus without the prior written consent of the
Representative.
Following expiration of such lockup period, the Company will be able to
sell Shares held by it as treasury shares, if any, and to issue additional
Shares. Any Shares held by affiliates of the Company may be sold in the U.S.
public markets only pursuant to an effective registration statement or an
exemption from the registration requirements of the Securities Act, including
Rule 144, or outside the United States in accordance with Regulation S
promulgated by the Securities and Exchange Commission under the Securities Act.
In general, Rule 144, as in effect on the date of this Prospectus, permits
a person who has beneficially owned for at least two years (subject to
applicable rules on tacking) restricted shares acquired from the Company or an
affiliate of the Company to sell within any three-month period a number of
shares not exceeding the greater of: (i) one percent of the then-outstanding
shares of the class (approximately 64,000 Shares immediately following
completion of this offering, assuming no exercise of this Over-allotment Option)
and (ii) the average weekly trading volume of such shares on the Nasdaq National
Market during the four calendar weeks preceding the date on which a notice of
sale is filed with the Securities and Exchange
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Commission. Sales under Rule 144 are subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information on the Company. A person who is not deemed an affiliate of the
Company at any time during the 90 days preceding a sale and who beneficially
owns shares that were not acquired from the Company or an affiliate of the
Company within the past three years is entitled to sell such shares under Rule
144(k) without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information on the Company.
There can be no assurance that a significant public market for the ADSs or
the Shares will be sustained after the Offering. No precise predictions can be
made about the effect, if any, that market sales of ADSs or Shares or the
availability of ADSs or Shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of a substantial number of ADSs or Shares
in the public market, or the prospect of such sales, may have an adverse impact
on the market price thereof.
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TAXATION
The following discussion under "United States Federal Income Taxation"
generally summarizes the principal United States federal income tax consequences
of an investment in the ADSs. The discussion under "Hong Kong Taxation"
generally summarizes the material Hong Kong tax consequences of an investment in
the ADSs. The discussion under "PRC Taxation" generally summarizes the material
PRC taxes applicable to Company's investment in the PRC. The discussion under
"Hong Kong Taxation" generally summarizes the material Hong Kong taxes
applicable to the Company's operations in Hong Kong. The discussion does not
deal with all possible tax consequences relating to an investment in the ADSs
and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities, insurance
companies and tax-exempt entities) may be subject to special rules. In
particular, the discussion does not address the tax consequences under state or
local law or the laws of countries other than the United States, Hong Kong and
the PRC. Accordingly, prospective investors should consult their own tax
advisors regarding the particular tax consequences to them of an investment in
the ADSs. The following discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this Prospectus, all of
which are subject to change.
UNITED STATES FEDERAL INCOME TAXATION
The following discussion, solely to the extent relating to the U.S., is
based on the advice of McCutchen, Doyle, Brown & Enersen LLP, Palo Alto,
California, and addresses the United States federal income taxation of the
Company and of a beneficial owner of ADSs that is a United States citizen or
resident or a United States domestic corporation who owns the ADSs as a capital
asset (a "United States Investor"). For purposes of the following discussion, a
United States Investor who acquires ADSs shall be deemed to own the Shares
represented thereby. The summary does not address the United States federal
income tax treatment of certain types of investors (such as non-United States
Investors, life insurance companies, tax-exempt investors, banks, broker-dealers
and investors who or that hold Shares as part of hedging or conversion
transactions), all of whom may be subject to tax rules that differ significantly
from those summarized below. Prospective investors, including investors other
than United States Investors, are advised to consult their own tax advisor with
respect to their particular circumstances and with respect to the effects of
state, local or foreign tax laws to which they may be subject.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations, court decisions and current administrative
rulings and pronouncements of the United States Internal Revenue Service ("IRS")
in effect as of the date of this Prospectus, all of which are subject to change,
possibly with retroactive effect. There can be no assurance that future changes
in applicable law or administrative and judicial interpretations thereof will
not adversely affect the tax consequences discussed herein. Prospective
purchasers are advised to consult their own tax advisors regarding the tax
consequences of acquiring, holding or disposing of the Shares in light of their
particular circumstances.
Taxation of the Company. The Company will be subject to United States
federal income tax only to the extent it has income which has its source in the
United States or is effectively connected with a United States trade or
business. Income derived by the Company from it's business in the PRC should not
constitute United States source income. It is possible that the Company may
invest the net proceeds of this offering, future earnings from the business, or
proceeds derived from the sale of Shares in United States securities or cash
equivalents. Income derived from United States securities or cash equivalents
will generally constitute United States source income and may therefore be
subject to United States federal income tax unless a statutory exemption
applies.
Taxation of Shareholders. The following discussion does not purport to
address the tax consequences to non-United States Investors or to a person who
owns, directly or indirectly (or is deemed to own after the application of
certain complex attribution rules), the Company's Shares giving the holder the
right to exercise 10 percent or more of the total voting power of the Company's
outstanding Shares (a "10-Percent Shareholder" of the Company), other than as
discussed below under "-- Special United States Federal Income Tax
Considerations -- Controlled Foreign Corporations." Non-United States Investors
and any
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person contemplating becoming a 10-Percent Shareholder are advised to consult
their own tax advisors regarding the tax consequences to them of an investment
in the Shares.
Basis in Shares. A United States Investor will have a basis in the Shares
equal to his or her purchase price for United States federal tax purposes. The
purchase price (and basis) will be allocated among the Shares received on the
basis of their relative fair market values at the time of this offering.
Dividends. A United States Investor receiving a distribution on the Shares
will be required to include such distribution in gross income as a taxable
dividend to the extent such distribution is paid from current or accumulated
earnings and profits of the Company as determined for United States federal
income tax purposes. Distributions in excess of the current and accumulated
earnings and profits of the Company will first be treated, for United States
federal income tax purposes, as a nontaxable return on capital to the extent of
the United States Investor's basis in the Shares and then as gain from the sale
or exchange of a capital asset. Dividends paid by the Company will not be
eligible for the corporate dividends received deduction.
In general, a United States Investor (other than a 10-Percent Shareholder
of the Company) will be entitled to claim a foreign tax credit only for taxes
(such as withholding taxes), if any, imposed on dividends paid to such United
States Investor and not for taxes, if any, imposed on the Company or on any
entity in which the Company has made an investment. Dividends received with
respect to Shares will generally be characterized as "passive income" for
purposes of applying the foreign tax credit limitation. To the extent that the
Company's income is derived from United States sources, dividends which it pays
to United States Investors may be considered United States source income for
purposes of applying the foreign tax credit limitation.
Dispositions of Shares. Subject to the discussion below of the
consequences of the Company being treated as a Passive Foreign Investment
Company or a Foreign Investment Company, gain or loss realized by a United
States Investor (other than a 10-Percent Shareholder of the Company) on the sale
or other disposition of Shares will be subject to United States federal income
tax capital gain or loss in an amount equal to the difference between such
United States Investor's basis in the Shares and the amount realized on the
disposition. Such capital gain or loss will be long-term capital gain or loss if
the United States Investor has held the Shares for more than one year at the
time of the sale or exchange.
SPECIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Passive Foreign Investment Company
The Company has not been a passive foreign investment company ("PFIC") for
United States federal income tax purposes and believes that it will not be
treated as a PFIC, but this conclusion is a factual determination made annually
and thus subject to change. The Company will be a PFIC with respect to a United
States Investor if, for any taxable year in which such United States Investor
held the Company's Shares, either (i) at least 75 percent of the gross income of
the Company for the taxable year is passive income, or (ii) at least 50 percent
of the value (or adjusted basis) of the Company's assets is attributable to
assets that produce or are held for the production of passive income (in each
case taking into account the Company's pro rata share of the gross income and
the value (or adjusted basis) of the assets of any company in which the Company
owns, directly or indirectly, 25 percent or more of the stock by value (the
"look-through" rule). For this purpose, passive income generally includes
dividends, interest, royalties, rents (other than rents and royalties derived in
the active conduct of a trade or business and not derived from a related
person), annuities, and gains from assets that produce passive income. The
Company anticipates that, under the "look-through" rules described above, most
of the income that it derives from manufacturing in the PRC will not constitute
passive income and that most of its investment in such manufacturing will not
constitute assets held for the production of passive income. The Company
anticipates, therefore, that it will not be a PFIC.
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If the Company were to be treated as a PFIC, then, unless a United States
Investor who owns Shares in the Company elects to have the Company treated as a
"qualified electing fund" (a "QEF") as described below, the following rules
apply:
1. Distributions made by the Company during a taxable year to a United
States Investor who owns Shares in the Company that are an "excess
distribution" (defined generally as the excess of the amount received with
respect to the Shares in any taxable year over 125 percent of the average
received in the shorter of either the three previous years or such United
States Investor's holding period before the taxable year) must be allocated
ratably to each day of such shareholder's holding period. The amount
allocated to the current taxable year must be included as ordinary income
in gross income for that year. The amount allocated to each prior taxable
year is taxed as ordinary income at the highest rate in effect for such
shareholder in that prior year and the tax is subject to an interest charge
at the rate applicable to deficiencies in income taxes.
2. The entire amount of any gain realized upon the sale or other
disposition of the Shares will be treated as an excess distribution made in
the year of sale or other disposition and as a consequence will be treated
as ordinary income and, to the extent allocated to years prior to the year
of sale or disposition, will be subject to the interest charge described
above.
A shareholder that makes a QEF election will be currently taxable on his or
her pro rata share of the Company's ordinary earnings and net capital gain (at
ordinary income and capital gains rates, respectively) for each taxable year of
the Company, regardless of whether or not distributions were received. A
shareholder that makes a QEF election for the first taxable year in which the
Company is a PFIC and in which the shareholder owns shares in the Company and
maintains this election for all subsequent years in which the shareholder owns
shares in the Company (causing the Company to be a so-called "pedigreed QEF"
with respect to such shareholder) will be subject to the foregoing treatment
only in such years in which the Company actually satisfies the income and asset
tests for PFIC status described above. The shareholder's basis in his or her
Shares will be increased to reflect taxed but undistributed income.
Distributions of income that had previously been taxed will result in a
corresponding reduction of basis in the Shares and will not be taxed again as a
distribution to the shareholder.
Special rules apply with respect to the calculation of the amount of the
foreign tax credit with respect to excess distributions by a PFIC or inclusions
under a QEF.
A United States Investor who owns Shares in the Company during any year
that the Company is a PFIC must file Internal Revenue Service Form 8621 with the
Internal Revenue Service (as well as attaching a copy to his or her income tax
return).
Controlled Foreign Corporations
Sections 951 through 964 and Section 1248 of the Code relate to controlled
foreign corporations ("CFC"). The CFC provisions may impute some portion of such
a corporation's undistributed income to certain shareholders on a current basis
and convert into dividend income some portion of gains on dispositions of stock
which would otherwise qualify for capital gains treatment. In general, the CFC
provisions will apply to the Company only if 10-Percent Shareholders who are
United States Investors own in the aggregate (or are deemed to own after
application of complex attribution rules), more than 50 percent (measured by
voting power or value) of the Shares of the Company. The Company does not
believe that it will be a CFC after this Offering. It is possible that the
Company could become a CFC in the future. Even if the Company were classified as
a CFC in a future year, however, the CFC rules referred to above would apply
only with respect to 10-Percent Shareholders.
Personal Holding Company/Foreign Personal Holding Company/Foreign
Investment Company
A corporation will be classified as a personal holding company (a "PHC") if
at any time during the last half of a tax year (i) five or fewer individuals
(without regard to their citizenship or residence) directly or indirectly or by
attribution own more than 50 percent in value of the corporation's stock and
(ii) at least
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60 percent of its ordinary gross income, as specially adjusted, consists of
personal holding company income (defined generally to include dividends,
interest, royalties, rents and certain other types of passive income). A PHC is
subject to a United States federal income tax of 39.6 percent on its
undistributed personal holding company income (generally limited, in the case of
a foreign corporation, to United States source income).
A corporation will be classified as a foreign personal holding company (an
"FPHC") and not a PHC if at any time during a tax year (i) five or fewer
individual United States citizens or residents directly or indirectly or by
attribution own more than 50 percent of the total combined voting power or value
of the corporation's stock and (ii) at least 60 percent of its gross income
consists of foreign personal holding company income (defined generally to
include dividends, interest, royalties, rents and certain other types of passive
income). Each United States shareholder in an FPHC is required to include in
gross income, as a dividend, an allocable share of the FPHC's undistributed
foreign personal holding company income (generally the taxable income of the
FPHC, as specially adjusted).
A corporation will be classified as a foreign investment company (a "FIC")
if for any taxable year it (i) is registered under the Investment Company Act of
1940, as amended, as a management company or share investment trust or is
engaged primarily in the business of investing or trading in securities or
commodities (or any interest therein) and (ii) 50 percent or more of the value
or the total combined voting power of all the corporation's stock is owned
directly or indirectly (including stock owned through the application of
attribution rules) by United States persons. In general, unless an FIC elects to
distribute 90 percent or more of its taxable income (determined under United
States tax principles as specially adjusted) to its shareholders, gain on the
sale or exchange of FIC stock is treated as ordinary income (rather than capital
gain) to the extent of such shareholder's ratable share of the corporation's
earnings and profits for the period during which such stock was held.
The Company believes that it is not and will not be a PHC, FPHC or FIC
after this offering. However, no assurance can be given as to the Company's
future status.
U.S. Information Reporting and Backup Withholding. Dividends paid in the
United States are generally subject to the information reporting requirements of
the Code. Dividends paid in the United States may be subject to backup
withholding at the rate of 31 percent unless the holder provides a taxpayer
identification number on a properly completed Form W-9 or otherwise establishes
an exemption.
The amount of any backup withholding will not constitute additional tax and
will be allowed as a credit against the United States Investor's federal income
tax liability.
Filing of Information Returns. Under a number of circumstances, a United
States Investor acquiring Shares of the Company may be required to file an
information return. In particular, any United States Investor who becomes the
owner, directly or indirectly, of 10 percent or more of the Shares of the
Company will be required to file such a return. Other filing requirements may
apply, and United States Investors should consult their own tax advisors
concerning these requirements.
HONG KONG TAXATION
In the opinion of Robert W.H. Wang & Co., Hong Kong counsel to the Company,
the following correctly summarizes the taxes applicable to the Company and its
shareholders under Hong Kong law:
Profits tax
The Company is subject to profits tax on all profits (excluding capital
profits) arising in or derived from Hong Kong. The source of income is therefore
the relevant factor, and this is generally regarded as a question of fact. There
are certain situations in which the Hong Kong tax authorities are prepared to
accept apportionment of chargeable profits, for example when a Hong Kong-based
company has manufacturing facilities in the PRC. The proportion of income
originating from the PRC and Hong Kong respectively in such situations is a
question of fact. However, where apportionment is appropriate, the Hong Kong tax
authorities usually adopt a 50:50 allocation unless compelling circumstances
dictate otherwise. Profits tax is levied at the rate of 16.5% for corporations
and 15.0% for unincorporated entities. Generally speaking, business losses may
be carried forward indefinitely to be offset against future profits of the
Company.
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Capital Gains/Taxation of Dividends
Hong Kong does not have any form of capital gains tax. Neither does it have
any form of dividend taxation or withholding taxes, and hence profits
accumulated in a Hong Kong company can be distributed as dividends without tax
deduction in Hong Kong. However, Hong Kong profits tax will be charged on
trading gains from the sale of property that are derived from or arise in Hong
Kong, by persons carrying on a trade in Hong Kong where such gains are from such
trade. Liability for Hong Kong profits tax would therefore arise in respect of
trading gains from the sale of ADSs or Shares realized by persons carrying on a
business of trading or dealing in securities in Hong Kong.
Estate Duty
Estate duties are imposed upon the value of properties situated in Hong
Kong that pass to a person's estate upon his or her death. ADSs or Shares that
are registered outside Hong Kong are not regarded as properties situated in Hong
Kong for estate duty purposes.
Stamp Duty
Hong Kong stamp duty is generally payable by the purchaser on every
purchase, and by the seller on every sale, of shares of Hong Kong-incorporated
companies. The duty is charged to both the purchaser and the seller at the rate
of HK$1.50 per HK$1,000 or part thereof of the consideration for, or (if
greater) the value of, the shares transferred. In addition, a fixed duty of HK$5
is currently payable on an instrument of transfer of such shares.
Under the current practices of the Hong Kong Inland Revenue Department, if
ADSs are not specifically identified to correspond with particular underlying
Shares, the issuance of ADSs upon the deposit of Shares issued directly to the
Depositary or for the account of the Depositary should not be subject to stamp
duty, nor should any Hong Kong stamp duty be payable upon the transfer of ADSs
outside Hong Kong.
PRC TAXATION
In the opinion of the Guangzhou Law Office, PRC counsel to the Company, the
following correctly summarizes the taxes applicable to the Company's investment
in the PRC under PRC law:
Income Tax. The Company's investment is subject to the Income Tax Law of
the PRC for Enterprises with Foreign Investment and Foreign Enterprises ("the
Foreign Investment Enterprise Tax Law"). Pursuant to the Foreign Investment
Enterprise Tax Law, Sino-foreign equity and contractual joint venture
enterprises generally are subject to an income tax at an effective rate of 33%,
which is comprised of a state tax of 30% and a local tax of 3%. The Foreign
Investment Enterprise Tax Law generally exempts Sino-foreign equity and
contractual joint venture enterprises engaged in manufacturing with an operating
term of more than ten years from state and local income taxes for two years
starting from the first profitable year of operations, followed by a 50%
reduction for the next three years. The first profitable year for the Company's
operations at the Xin Xing facility was the year ended March 31, 1995, and the
first profitable year for Dongguan Facility has not yet occurred as the joint
venture has just started operations.
Value-Added Tax ("VAT"). Effective January 1, 1994, all goods produced or
processed in the PRC, other than real property and goods produced or processed
for export, are subject to a new VAT at each stage or sale in the process of
manufacture, processing and distribution through the sale to the ultimate
consumer of the goods. The new basic VAT rate for the Company is 17% of the sale
price of the item. The seller of the goods adds 17% to the sale price of the
item, separately invoiced (except in the case of retail sales), and collects the
applicable amount of VAT through the sale of the item. The amount of the
seller's VAT liability to the Tax Bureau is calculated as the amount of sales
multiplied by the applicable VAT rate. The amount of the seller's VAT liability
may be reduced by deducting the invoiced amount of VAT included in the
materials, parts and other items purchased by the seller and used in producing
the goods.
The Value-Added Tax Provisional Regulations do not permit the seller to
deduct from its VAT liability the amount of VAT included in the purchase price
of fixed assets purchased by the Seller. Thus, although the
52
<PAGE> 55
book value of fixed assets, including plant and equipment, purchased by the
Company will be the depreciated cost (ordinarily the purchase price plus VAT)
paid at the time of such purchase, the Company is not permitted to deduct from
its VAT liability in respect of products sold.
Taxation of Dividends from the PRC. Dividends distributed to the Company
can be remitted from the PRC without any PRC taxation. Although the Income Tax
Law on Foreign Investment Enterprises and Foreign Enterprises provides that
certain remittances of foreign exchange earnings from the PRC are subject to PRC
withholding tax, dividends received by foreign investors from a foreign
investment enterprise are exempt from withholding tax. The Company's PRC
subsidiaries are qualified as foreign investment enterprises, so withholding tax
is not applicable to dividends received by the Company from these subsidiaries.
Taxation of Disposition of Interest in PRC Subsidiaries. In the event the
Company transfers its interest in its PRC subsidiaries, the amount received in
excess of its original capital contribution would be subject to PRC withholding
tax at the rate of 20%.
In the event that the Company's PRC subsidiaries are liquidated, the
portion of the balance of their assets or remaining property, after deducting
undistributed profits, various funds and liquidation expenses, that exceeds the
Company's paid-in capital would be treated as income from liquidation, which
would be subject to income tax at the same rate that would apply to the
Company's income as described under "Income Tax."
53
<PAGE> 56
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The Company is a limited liability company incorporated under the Companies
Ordinance of Hong Kong. The Company is therefore governed by and subject to the
provisions of Hong Kong law.
Under Hong Kong law, there are currently no restrictions on the degree of
foreign ownership of a company incorporated in Hong Kong. Likewise, there are
currently no restrictions on the rights of non-Hong Kong owners to exercise
voting rights in respect of Shares held by them in Hong Kong-incorporated
companies.
There are currently no foreign exchange control restrictions imposed by
Hong Kong law which affect the Company. There are currently no foreign exchange
control restrictions on the ability of the Company to transfer funds into and
out of Hong Kong or to pay dividends to United States residents who are holders
of the Shares or ADSs.
In accordance with Hong Kong law, share certificates are only issued in the
name of corporations or individuals. In the case of an applicant acting in a
special capacity (for example, as an executor or trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any special capacity, the Company is
not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust. The Company will take no notice of
any trust applicable to any of its securities whether or not it had notice of
such trust.
The rights and liabilities of the shareholders of the Company are governed
by the Companies Ordinance and the Memorandum of Association and Articles of
Association. Under Hong Kong law, shareholders are liable to pay the full
purchase price of shares or ADSs registered in their name, but are not otherwise
subject to liabilities vis-a-vis the Company in their capacity as shareholders.
See "Taxation -- Hong Kong Taxation."
54
<PAGE> 57
UNDERWRITING
The Underwriters named below, acting through their representative, Van
Kasper & Company (the "Representative"), have severally agreed, subject to the
terms and conditions set forth in an Underwriting Agreement with the Company, to
purchase from the Company the number of ADSs set forth opposite their respective
names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF ADSS
-------------------------------------------------------------------------- ---------
<S> <C>
Van Kasper & Company......................................................
---------
Total.....................................................................
=========
</TABLE>
The ADSs are being offered by the Underwriters named herein, subject to
receipt and acceptance by them, to their right to reject any order in whole or
in part, and to certain other conditions. The Underwriters are committed to
purchase all of the above ADSs being offered if any are purchased.
The Representative has advised the Company that the Underwriters propose to
offer the ADSs to the public at the offering price set forth on the cover page
of this Prospectus and to certain selected dealers at that price less a
concession not in excess of $ per ADS, and such dealers may re-allow to
certain dealers a discount not in excess of $ per ADS. After the
initial Offering, the public offering price, concessions and re-allowance to
dealers may be changed by the Representative as a result of market conditions or
other factors.
Prior to this Offering, there has been no public market for the ADSs or
Shares. Consequently, the initial public offering price will be determined
through negotiation between the Company and the Representative. Among the
factors to be considered in making such determination are the prevailing market
conditions, the Company's financial and operating history and condition, its
prospects and the market prices of securities for companies in businesses
similar to that of the Company.
The Company has granted an option to the Underwriters, exercisable by the
Representative within 30 days after the date of this Prospectus, to purchase up
to 210,000 additional ADSs at the initial offering price, less underwriting
discounts and commissions. The Representative may exercise the Over-allotment
Option solely for the purpose of covering over-allotments, if any, incurred in
the sale of the ADSs offered hereby. To the extent that the Over-allotment
Option is exercised, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of the additional ADSs as the number
of ADSs to be purchased and offered by that Underwriter in the above table bears
to the total number of ADSs offered hereunder.
The Company has agreed to pay the Underwriters all out-of-pocket costs and
expenses of the Underwriters and their legal counsel, together in an amount not
to exceed $280,000.
The Company has agreed to indemnify the Underwriters for certain
liabilities, including liabilities under the Securities Act.
Certain beneficial owners of the Shares have agreed not to sell, offer to
sell, contract to sell or otherwise dispose of any Shares or securities
exercisable for Shares, directly or indirectly, for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representative and the Company. The Representative and the Company may, in their
sole discretion and at any time without notice, release all or any portion of
the securities subject to these lock-up agreements. In addition, the Company has
agreed that for a period of 180 days after the date of this Prospectus, it will
not issue, offer, sell, grant options to purchase or otherwise dispose of any
equity securities or securities convertible into or exchangeable for equity
securities, without the prior written consent of the Representative, except for
(i) ADSs offered hereby, (ii) Shares issued pursuant to the exercise of
outstanding options, and (iii) options granted to its associates, officers,
directors
55
<PAGE> 58
and consultants so long as none of such options become exercisable during said
180 day period. Sales of such shares in the future could adversely affect the
market price of the ADSs. See "Shares Eligible for Future Sale."
LEGAL MATTERS
United States counsel for the Company is McCutchen, Doyle, Brown & Enersen,
LLP, Palo Alto, California. The validity of the issuance of the shares offered
hereby and certain legal matters as to Hong Kong law are being passed upon for
the Company by Robert W.H. Wang & Co., Hong Kong, and certain legal matters as
to PRC law will be passed upon by the Guangzhou Law Office, Guangzhou, the PRC.
Certain legal matters as to United States Law will be passed upon for the
Underwriters by Heller Ehrman White & McAuliffe, Palo Alto, California. The
matters included herein under the heading "Hong Kong Taxation" and "PRC
Taxation" under the caption "Taxation" have been passed upon by Robert W.H. Wang
& Co. as to Hong Kong Taxation and Guangzhou Law Office as to PRC Taxation,
respectively, and are stated herein on their respective authority.
EXPERTS
The financial statements of the Company as of March 31, 1995 and 1996 and
for years ended March 31, 1994, 1995 and 1996 included in this Prospectus have
been audited by Arthur Andersen & Co., independent public accountants, as stated
in their report appearing herein and are so included herein in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form F-1 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the ADSs being offered in this Offering. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain items of which
are omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. The omitted information may be inspected and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at Seven World
Trade Center, New York, New York 10048 and CitiCorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained from
the public reference section of the Securities and Exchange Commission at
prescribed rates. Statements contained in this Prospectus as to the contents of
any contract or other document filed as an exhibit to the Registration Statement
are not necessarily complete and in each instance reference is made to the copy
of the document filed as an exhibit to the Registration Statement, each
statement made in this Prospectus relating to such documents being qualified in
all respects by such reference. For further information with respect to the
Company and the securities being offered hereby, reference is hereby made to
such Registration Statement, including the exhibits thereto and the financial
statements, notes, and schedules filed as a part thereof.
The Company intends to furnish its security holders with annual reports
containing audited financial statements and a report thereon by its independent
public accountants, and quarterly reports containing unaudited financial
information. Such financial statements and financial information will be
prepared in accordance with U.S. GAAP and such quarterly and annual reports will
include a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section for all relevant periods.
56
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ZINDART INDUSTRIAL COMPANY LIMITED:
Report of Independent Public Accountants............................................ F-2
Consolidated audited Balance Sheets as of March 31, 1995 and 1996 and unaudited as
of September 30, 1996............................................................ F-3
Consolidated audited Statements of Operations for each of the three years ended
March 31, 1994, 1995 and 1996 and unaudited for the six-month periods ended
September 30, 1995 and 1996...................................................... F-4
Consolidated audited Statements of Cash Flows for each of the three years ended
March 31, 1994, 1995 and 1996 and unaudited for the six-month periods ended
September 30, 1995 and 1996...................................................... F-5
Consolidated audited Statements of Changes in Shareholders' Equity for each of the
three years ended March 31, 1994, 1995 and 1996 and unaudited for the six-month
period ended September 30, 1996.................................................. F-7
Notes to financial statements....................................................... F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Zindart Industrial Company
Limited:
We have audited the accompanying consolidated balance sheets of Zindart
Industrial Company Limited, a company incorporated in Hong Kong, ("the Company")
and Subsidiaries ("the Group") as of March 31, 1995 and 1996, and the related
consolidated statements of operations, cash flows and changes in shareholders'
equity for the years ended March 31, 1994, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. 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 financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zindart
Industrial Company Limited and Subsidiaries as of March 31, 1995 and 1996, and
the results of their operations and their cash flows for the years ended March
31, 1994, 1995 and 1996, in conformity with generally accepted accounting
principles in the United States of America.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
December 16, 1996.
F-2
<PAGE> 61
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1995 AND 1996 (AUDITED)
AND SEPTEMBER 30, 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------- 1996
1996 -------------
------ $'000
1995 $'000 (UNAUDITED)
------
$'000
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank deposits......................................... 4,123 3,294 4,253
Accounts receivable, net....................................... 4,300 8,315 10,599
Due from immediate holding company............................. -- 3 --
Due from ultimate holding company.............................. 95 -- --
Due from related companies..................................... 1,752 -- 3
Deposits and prepayments....................................... 1,575 1,528 1,376
Inventories, net............................................... 5,347 7,514 8,144
------ ------ ------
Total current assets........................................ 17,192 20,654 24,375
Property, plant, equipment and capital leases, net............... 3,902 10,800 11,216
Loan receivable from a related company........................... 1,889 -- --
Long-term investment............................................. -- 179 179
Deferred stock issuance costs.................................... -- -- 378
Goodwill, net.................................................... 87 77 72
------ ------ ------
Total assets................................................ 23,070 31,710 36,220
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings..................................... 1,269 7,055 5,555
Long-term bank loans, current portion.......................... 261 811 811
Capital lease obligations, current portion..................... 250 1,033 1,164
Accounts payable............................................... 2,305 4,107 4,194
Receipts in advance............................................ 1,321 958 1,616
Accrued liabilities............................................ 4,596 2,806 4,579
Due to related companies....................................... 52 -- 41
Due to a director.............................................. 66 -- --
Taxation payable............................................... 600 483 651
Dividend payable............................................... 1,073 -- --
------ ------ ------
Total current liabilities................................... 11,793 17,253 18,611
Long-term bank loans............................................. 733 1,754 1,336
Capital lease obligations........................................ 126 374 749
Deferred taxation................................................ 120 120 120
------ ------ ------
Total liabilities........................................... 12,772 19,501 20,816
------ ------ ------
Minority interests............................................... 287 601 1,026
------ ------ ------
Shareholders' equity:
Common stock, par value $0.0646 (equivalent of HK$0.5); 323
authorized, outstanding and fully paid -- 5,000,000
shares...................................................... 323 323
Retained earnings.............................................. 9,683 11,285 14,055
Cumulative translation adjustments............................. 5 -- --
------ ------ ------
Total shareholders' equity.................................. 10,011 11,608 14,378
------ ------ ------
Total liabilities, minority interests and shareholders' 23,070
equity.................................................... 31,710 36,220
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED) AND
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED MARCH 31, ---------------------------
------------------------------------- 1995 1996
1994 1995 1996 ---------- ----------
--------- --------- --------- $'000 $'000
$'000 $'000 $'000 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... 35,583 36,879 46,930 23,251 32,398
Cost of goods sold................ (25,037) (25,644) (34,116) (16,782) (24,419)
------- ------- ------- ------- -------
Gross profit.................... 10,546 11,235 12,814 6,469 7,979
Selling, general and
administrative expenses......... (6,351) (6,806) (6,498) (3,231) (4,162)
Interest expenses................. (150) (137) (402) (107) (517)
Interest income................... 129 228 208 142 57
Other income (expenses), net...... 80 492 (416) 7 122
------- ------- ------- ------- -------
Income before income taxes...... 4,254 5,012 5,706 3,280 3,479
Provision for income taxes........ (436) (483) (488) (303) (284)
------- ------- ------- ------- -------
Income before minority
interests.................... 3,818 4,529 5,218 2,977 3,195
Minority interests................ (83) (337) (622) (405) (425)
------- ------- ------- ------- -------
Net income...................... 3,735 4,192 4,596 2,572 2,770
======= ======= ======= ======= =======
Earnings per common share......... $ 0.75 $ 0.84 $ 0.92 $ 0.51 $ 0.55
======= ======= ======= ======= =======
Weighted average number of shares
outstanding..................... 5,000 5,000 5,000 5,000 5,000
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED) AND
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED MARCH 31, --------------------------
----------------------------------- 1995 1996
1994 1995 1996 ---------- ----------
-------- -------- -------- $'000 $'000
$'000 $'000 $'000 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. 3,735 4,192 4,596 2,572 2,770
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation of property, plant and
equipment......................... 762 946 1,021 521 821
Amortization of goodwill............. -- 10 10 5 5
Net gain on disposals of property,
plant and equipment............... (37) (121) (6) (8) --
Minority interests................... 83 337 622 405 425
Provision for deferred taxation...... 70 -- -- -- --
(Increase) Decrease in operating
assets -- Accounts receivable, net... 46 (1,395) (4,015) (4,717) (2,284)
Deposits and prepayments............. 24 266 47 537 152
Inventories, net..................... (104) (1,589) (2,167) (816) (630)
Increase (Decrease) in operating
liabilities -- Accounts payable...... (503) 82 1,802 2,249 87
Receipts in advance.................. (156) 738 (363) (93) 658
Accrued liabilities.................. 1,212 1,112 (1,790) (372) 1,773
Taxation payable..................... 339 (93) (117) 187 168
------ ------ ------ ------ ------
Net cash provided by (used in)
operating activities............ 5,471 4,485 (360) 470 3,945
------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash inflow from acquisition of a
subsidiary........................ -- 168 -- -- --
Acquisition of long-term
investment........................ -- -- (179) -- --
Acquisition of property, plant and
equipment......................... (1,491) (3,197) (7,341) (3,748) (1,237)
Proceeds from disposals of property,
plant and equipment............... 103 1,040 13 15 --
------ ------ ------ ------ ------
Net cash used in investing
activities...................... (1,388) (1,989) (7,507) (3,733) (1,237)
------ ------ ------ ------ ------
</TABLE>
F-5
<PAGE> 64
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED) AND
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED) -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED MARCH 31, --------------------------
----------------------------------- 1995 1996
1994 1995 1996 ---------- ----------
-------- -------- -------- $'000 $'000
$'000 $'000 $'000 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in bank
overdraft......................... 105 340 1,910 (13) (937)
Increase (Decrease) in short-term
bank loans........................ (119) 25 3,876 425 (563)
New long-term bank loans............. -- 1,035 2,565 2,287 --
Repayment of long-term bank loans.... (120) (283) (994) (994) (418)
New capital lease obligations ....... 209 107 776 321 727
Repayment of capital element of
capital lease obligations......... (470) (300) (330) (167) (221)
Stock issuance costs paid............ -- -- -- -- (378)
Due from immediate holding company... -- -- (3) -- 3
Due from ultimate holding company.... -- (95) 95 (137) --
Due from related companies........... (466) (1,286) 647 602 (3)
Due to related companies............. (1,545) 52 (52) (52) 41
Due from a director.................. (77) 77 -- -- --
Due to a director.................... -- (63) (66) 4 --
Dividends paid....................... (1,473) (1,959) (1,073) (167) --
Finance from minority interests...... 29 (33) -- -- --
Dividends paid by subsidiaries to
their minority shareholders....... -- (63) (308) -- --
------ ------ ------ ------ ------
Net cash (used in) provided by
financing activities............ (3,927) (2,446) 7,043 2,109 (1,749)
------ ------ ------ ------ ------
Effect of cumulative translation
adjustments.......................... -- 5 (5) -- --
------ ------ ------ ------ ------
Net increase (decrease) in cash and
bank deposits........................ 156 55 (829) (1,154) 959
Cash and bank deposits, as of beginning
of years/periods..................... 3,912 4,068 4,123 4,123 3,294
------ ------ ------ ------ ------
Cash and bank deposits, as of end of
years/periods........................ 4,068 4,123 3,294 2,969 4,253
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 65
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED)
AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED CUMULATIVE
-------------------- EARNINGS TRANSLATION
AMOUNT -------- ADJUSTMENTS
------ $'000 -----------
NUMBER OF $'000 $'000
SHARES
---------
'000
<S> <C> <C> <C> <C>
Balance as of April 1, 1993....................... 5,000 323 4,788 --
Net income........................................ -- -- 3,735 --
Dividend -- $0.39 per share....................... -- -- (1,959) --
-- --
---- ----- ------- -
Balance as of March 31, 1994...................... 5,000 323 6,564 --
Net income........................................ -- -- 4,192 --
Dividend -- $0.21 per share....................... -- -- (1,073) --
Translation adjustments........................... -- -- -- 5
-- --
---- ----- ------- -
Balance as of March 31, 1995...................... 5,000 323 9,683 5
Net income........................................ -- -- 4,596 --
Dividend -- $0.60 per share....................... -- -- (2,994) --
Translation adjustments........................... -- -- -- (5)
-- --
---- ----- ------- -
Balance as of March 31, 1996...................... 5,000 323 11,285 --
Net income (Unaudited)............................ -- -- 2,770 --
-- --
---- ----- ------- -
Balance as of September 30, 1996 (Unaudited)...... 5,000 323 14,055 --
==== ===== ======== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 66
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Zindart Industrial Company Limited (the "Company") was incorporated in Hong
Kong in July 1977. Prior to August 1993, the Company was owned by certain
individual shareholders. In August 1993, as a result of a group reorganization,
the Company became wholly owned by Zindart Holdings Limited ("ZHL"; a company
incorporated in the Cayman Islands). In December 1995, ZHL transferred its 100%
interest in the Company to Zindart Pte Limited (formerly known as Devenish Pte
Limited; a company incorporated in Singapore) in return for 14,689,998 ordinary
shares of S$1 each in Zindart Pte Limited. ZHL is majority owned by ZIC Holdings
Limited ("ZIC"; a company incorporated in Cayman Islands).
Prior to the Offering, 1996, the Company consummated a 20 for 1 stock split
(the "Share Split") and as a result 5,000,000 shares of common stock, par value
HK$0.50 each, were outstanding. The Company intends to increase its authorized
share capital from HK$2,500,000 to HK$5,000,000 by authorizing an aggregate of
10,000,000 ordinary shares of HK$0.50 each, rank pari passu to the then existing
shares prior to the closing of the Offering. The Share Split has been reflected
retrospectively in the accompanying balance sheets and in all per share
computations.
The Company and its subsidiaries are principally engaged in the
manufacturing of high-quality, detailed die-cast and injection-molding products,
including collectibles, collectible holiday ornaments and toy action figures and
figurine playsets in the People's Republic of China (the "PRC") for sales to
customers in North America and Europe.
2. SUBSIDIARIES
Details of the Company's subsidiaries (which together with the Company are
collectively referred to as the "Group") as of March 31, 1996 were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF EQUITY
NAME PLACE OF INCORPORATION INTEREST HELD
- ------------------------------------------------ --------------------------- --------------------
<S> <C> <C>
Dongguan Xinda Giftware Company Limited......... The PRC Note(a)
Guangzhou Zindart (Xin Xing)(Giftware) Company
Limited....................................... The PRC Note(b)
Luen Tat Mould Manufacturing Limited............ The British Virgin Islands 51% Note(c)
Onchart Industrial Limited...................... The British Virgin Islands 55%
Onchart Industrial Limited...................... Hong Kong 55%
Wealthy Holdings Limited........................ The British Virgin Islands 100%
</TABLE>
- ---------------
(a) Dongguan Xinda Giftware Company Limited is a contractual joint venture
established in the PRC to be operated for 15 years up to November 2009.
Under the joint venture contract and the supplemental agreement thereto, the
Group is entitled to 100% of the joint venture's income after paying a pre-
determined annual fee to its joint venture partner.
(b) Guangzhou Zindart (Xin Xing)(Giftware) Company Limited is a contractual
joint venture established in the PRC to be operated for 15 years up to
December 2008. Under the joint venture contract and the supplemental
agreement thereto, the Group is entitled to 100% of the joint venture's
income after paying a pre-determined rental for the factory premises to its
joint venture partner.
(c) According to a shareholders' agreement dated October 10, 1994, the Group is
only entitled to share 41% of the profit of Luen Tat Mould Manufacturing
Limited.
There is no restriction on the distribution of retained earnings by the
subsidiaries.
F-8
<PAGE> 67
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Consolidation
The consolidated financial statements include the accounts of the Company,
its subsidiaries and its contractual joint ventures which are considered as de
facto subsidiaries. All material intra-group balances and transactions have been
eliminated on consolidation.
b. Goodwill
Goodwill, being the excess of cost over the fair value of the net assets of
a subsidiary acquired during the year ended March 31, 1995, is amortized on a
straight-line basis over ten years. The amortization recorded for the years
ended March 31, 1995 and 1996 was $10,000 and $10,000, respectively, and for the
six months ended September 30, 1995 and 1996 was $5,000 and $5,000,
respectively. Accumulated amortization as of March 31, 1995 and 1996 and
September 30, 1996 was $10,000, $20,000 and $25,000, respectively.
c. Contractual Joint Ventures
A contractual joint venture is an entity established between the Group and
one or more other parties, with the rights and obligations of the joint venture
partners governed by a contract. If the Group owns more than 50% of the joint
venture and is able to govern and control its financial and operating policies
and its board of directors, such joint venture is considered as a de facto
subsidiary and is accounted for as a subsidiary.
d. Inventories
Inventories are stated at the lower of cost, on a first-in first-out basis,
or market value. Costs of work-in-process and finished goods are composed of
direct materials, direct labor and an attributable portion of production
overheads.
e. Property, Plant, Equipment and Capital Leases
Property, plant, equipment and capital leases are recorded at cost. Gains
or losses on disposals are reflected in current operations. Depreciation for
financial reporting purpose is provided using the straight-line method over the
estimated useful lives of the assets as follows: properties -- 10 to 20 years,
machinery, tools, furniture and office equipment -- 4 to 5 years. All ordinary
repair and maintenance costs are expensed as incurred.
Interest costs incurred during the years/periods of construction of fixed
assets are capitalized and amortized over the estimated useful lives of the
related assets. Interest costs capitalized during the years ended March 31,
1994, 1995 and 1996 were Nil, approximately $23,000 and approximately $206,000,
respectively, and for the six months ended September 30, 1995 and 1996 were
approximately $90,000 and Nil, respectively.
f. Long-term investments
Investments held for the long-term are stated at market value. Income from
long-term investments is accounted for to the extent of dividends received and
receivable.
g. Sales
Sales represent the invoiced value of merchandise/molds supplied to
customers. Sales are recognized upon delivery of goods and passage of title to
customers.
F-9
<PAGE> 68
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
h. Income Taxes
The Group accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
i. Operating Leases
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
j. Foreign Currency Translation
The Company considers United States dollars as its functional currency as
most of the Group's business activities are based in United States dollars and
Hong Kong dollars ("HK$") (Note: Hong Kong dollars are pegged with United States
dollars at the exchange rate of US$1 to HK$7.8).
The translation of the financial statements of group companies into United
States dollars is performed for balance sheet accounts using the closing
exchange rate in effect at the balance sheet date and for revenue and expense
accounts using an average exchange rate during each reporting period. The gains
or losses resulting from translation are included in shareholders' equity
separately as cumulative translation adjustments. Aggregate gains (losses) from
foreign currency transactions included in the results of operations for the
years ended March 31, 1994, 1995 and 1996 were approximately $(102,000),
approximately $182,000 and approximately $(160,000), respectively, and for the
six months ended September 30, 1995 and 1996 were approximately $8,000 and
approximately $1,000, respectively.
k. Earnings Per Common Share
Earnings per common share is computed by dividing net income for each
year/period by 5,000,000, the weighted average number of shares of common stock
outstanding during the years/periods, on the basis that the Share Split (see
Note 1) had been consummated prior to the years/periods presented.
l. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
F-10
<PAGE> 69
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable comprised:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------------- 1996
1996 -------------
--------- $'000
1995 $'000 (UNAUDITED)
---------
$'000
<S> <C> <C> <C>
Trade receivables................................. 4,339 8,354 10,638
Less: Allowance for doubtful accounts............. (39) (39) (39)
----- ----- ------
Accounts receivable, net.......................... 4,300 8,315 10,599
===== ===== ======
</TABLE>
5. DEPOSITS AND PREPAYMENTS
Deposits and prepayments comprised:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
MARCH 31, -------------
----------------------- $'000
1995 1996 (UNAUDITED)
--------- ---------
$'000 $'000
<S> <C> <C> <C>
Deposits for acquisition of molds................. 1,268 1,083 1,058
Prepayments....................................... 287 352 289
Rental and utility deposits....................... 12 12 11
Other receivables................................. 8 81 18
----- ----- -----
1,575 1,528 1,376
===== ===== =====
</TABLE>
6. INVENTORIES
Inventories comprised:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
MARCH 31, -------------
--------------- $'000
1995 1996 (UNAUDITED)
----- -----
$'000 $'000
<S> <C> <C> <C>
Raw materials.......................................... 3,840 5,204 4,479
Work-in-process........................................ 903 1,170 2,098
Finished goods......................................... 663 1,199 1,626
----- ----- -----
5,406 7,573 8,203
Less: Allowance for obsolescence....................... (59) (59) (59)
----- ----- -----
Inventories, net....................................... 5,347 7,514 8,144
===== ===== =====
</TABLE>
F-11
<PAGE> 70
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, PLANT, EQUIPMENT AND CAPITAL LEASES
Property, plant, equipment and capital leases comprised:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------- 1996
1996 -------------
------ $'000
1995 $'000 (UNAUDITED)
------
$'000
<S> <C> <C> <C>
Property, plant and equipment:
Properties.............................................. 2,303 7,940 8,116
Machinery and tools..................................... 3,631 4,212 3,455
Furniture and office equipment.......................... 1,094 1,367 1,592
Capital leases:
Machinery and tools..................................... 711 1,993 3,027
Furniture and office equipment.......................... 566 636 587
----- ------ ------
Cost.................................................... 8,305 16,148 16,777
Less: Accumulated depreciation
Property, plant and equipment........................... (3,558) (3,740) (3,656)
Capital leases.......................................... (845) (1,608) (1,905)
----- ------ ------
Property, plant, equipment and capital leases, net...... 3,902 10,800 11,216
===== ====== ======
</TABLE>
As of March 31, 1995 and 1996 and September 30, 1996, properties with a net
book value of approximately $1,409,000, approximately $7,225,000, and
approximately $7,276,000, respectively, were mortgaged to secure certain of the
Group's banking facilities.
8. LONG-TERM INVESTMENT
On March 1, 1996, the Group acquired from several individuals, including a
minority shareholder of a subsidiary, an 18% interest in Luen Tat Model Design
Company Limited (a company incorporated in the British Virgin Islands) for a
cash consideration of $179,000. The cost of $179,000 approximates the market
value of this investment as of March 31, 1996 and September 30, 1996.
9. SHORT-TERM BANK BORROWINGS
Short-term bank borrowings comprised:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996
--------- SEPTEMBER 30,
1996
1995 $'000 -------------
--------- $'000
$'000 (UNAUDITED)
<S> <C> <C> <C>
Bank overdrafts................................... 456 2,366 1,429
Short-term bank loans............................. 813 4,689 4,126
----- ----- -----
1,269 7,055 5,555
===== ===== =====
</TABLE>
Short-term bank borrowings are denominated in Hong Kong dollars, and bear
interest at the floating commercial bank lending rates in Hong Kong, which range
from 8.72% to 10.50% per annum as of March 31, 1996 and from 8.94% to 10.50% per
annum as of September 30, 1996. They are secured by certain properties, bank
deposits and inventories of the Group. They are drawn for working capital
purposes and are renewable with the consent of the relevant banks.
F-12
<PAGE> 71
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SHORT-TERM BANK BORROWINGS -- (CONTINUED)
Supplemental information with respect to short-term bank borrowings for the
year ended March 31, 1996 and for the six months ended September 30, 1996 are as
follows:
<TABLE>
<CAPTION>
AVERAGE WEIGHTED AVERAGE
AMOUNT INTEREST RATE AT WEIGHTED AVERAGE
OUTSTANDING THE END OF AVERAGE INTEREST RATE
DURING THE YEAR/PERIOD DURING THE YEAR/PERIOD
YEAR/PERIOD ---------------- ----------------------
MAXIMUM -----------
AMOUNT
OUTSTANDING $'000
DURING THE
YEAR/PERIOD
-----------
$'000
<S> <C> <C> <C> <C>
MARCH 31, 1996
Bank overdrafts.................. 2,366 1,232 9.66% 9.90%
===== ===== ==== ====
Short-term bank loans............ 5,551 3,632 8.92% 8.41%
===== ===== ==== ====
SEPTEMBER 30, 1996 (UNAUDITED)
Bank overdrafts.................. 3,646 2,241 9.25% 9.50%
===== ===== ==== ====
Short-term bank loans............ 6,590 4,774 8.98% 8.94%
===== ===== ==== ====
</TABLE>
10. ACCRUED LIABILITIES
Accrued liabilities comprised:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996
--------- SEPTEMBER 30,
1996
1995 $'000 -------------
--------- $'000
$'000 (UNAUDITED)
<S> <C> <C> <C>
Accruals for operating expenses
-- Workers, wages and bonus..................... 560 467 679
-- Management bonus............................. 1,146 535 908
-- Rental expenses.............................. 457 408 417
-- Subcontracting charges....................... 622 271 198
-- Repair and maintenance....................... 714 -- --
Payable for land cost in the PRC.................. 531 98 --
Accruals for raw materials purchases.............. 75 339 1,018
Others............................................ 491 688 1,359
----- ----- -----
4,596 2,806 4,579
===== ===== =====
</TABLE>
F-13
<PAGE> 72
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. LONG-TERM BANK LOANS
Long-term bank loans are collateralized by certain properties and bank
deposits of the Group. They bear interest rates ranging from 7% to 10% per annum
as of March 31, 1996 and from 7% to 10% per annum as of September 30, 1996 and
are repayable as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------- 1996
1996 -------------
----- $'000
1995 $'000 (UNAUDITED)
-----
$'000
<S> <C> <C> <C>
Payable during the following period:
Within one year...................................... 261 811 811
Over one year but not exceeding two years............ 259 1,594 810
Over two years but not exceeding three years......... 259 160 470
Over three years but not exceeding four years........ 215 -- 56
---- ----- -----
Total bank loans....................................... 994 2,565 2,147
Less: Current maturities............................... (261) (811) (811)
---- ----- -----
Long-term bank loans................................... 733 1,754 1,336
==== ===== =====
</TABLE>
12. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments under capital leases as of March 31, 1995 and
1996 and September 30, 1996, together with the present value of the minimum
lease payments are:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
---------------- 1996
1996 -------------
------ $'000
1995 $'000 (UNAUDITED)
-----
$'000
<S> <C> <C> <C>
Payable during the following period:
Within one year..................................... 306 1,151 1,270
Over one year but not exceeding two years........... 87 438 801
Over two years but not exceeding three years........ 88 -- 106
---- ----- ------
Total minimum lease payments.......................... 481 1,589 2,177
Less: Amount representing interest.................... (105) (182) (264)
---- ----- ------
Present value of minimum lease payments............... 376 1,407 1,913
Less: Current portion................................. (250) (1,033) (1,164)
---- ----- ------
Non-current portion................................... 126 374 749
==== ===== ======
</TABLE>
13. NET SALES
Net sales comprised:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED
------------------------ SEPTEMBER 30,
1994 1995 1996 -------------------------
------ ------ ------ 1995 1996
$'000 $'000 $'000 ----------- -----------
$'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales of merchandise.................... 31,451 32,488 38,306 18,480 28,475
Sales of molds.......................... 4,132 4,391 8,624 4,771 3,923
------ ------ ------ ------ ------
35,583 36,879 46,930 23,251 32,398
====== ====== ====== ====== ======
</TABLE>
F-14
<PAGE> 73
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. NET SALES -- (CONTINUED)
Substantially all of the sales of merchandise and molds are shipped to the
United States of America.
14. INCOME TAXES
The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which they
are domiciled and operate. The Company is subject to Hong Kong profits tax at a
rate of 16.5%. The British Virgin Islands subsidiaries are incorporated under
the International Business Companies Act of the British Virgin Islands and,
accordingly, is exempted from payment of the British Virgin Islands income
taxes. The joint venture enterprises established in the PRC are subject to PRC
income taxes at a rate of 27% (24% state unified income tax and 3% local income
tax, in the open coastal areas of the PRC). However, they are exempted from
state unified income tax and local income tax for two years starting from the
first year of profitable operations and then are subject to a 50% reduction in
state unified income tax for the next three years. The first profitable year for
Guangzhou Zindart (Xin Xing) (Giftware) Company Limited was the year ended March
31, 1995; and the first profitable year for Dongguan Xinda Giftware Company
Limited could not be determined as the joint venture has just started
operations.
Significant components of provision for income taxes are:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED
--------------------------------- SEPTEMBER 30,
1994 1995 1996 -------------------------
--------- --------- --------- 1995 1996
$'000 $'000 $'000 ----------- -----------
$'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current tax
-- Hong Kong profits tax........... 366 483 488 303 284
Deferred tax....................... 70 -- -- -- --
--- --- --- --- ---
436 483 488 303 284
=== === === === ===
</TABLE>
The reconciliation of the Hong Kong statutory tax rate to the effective
income tax rate based on income before income taxes stated in the consolidated
statements of operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1994 1995 1996
--------- --------- --------- SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Hong Kong statutory tax rate....... 17.5% 16.5% 16.5% 16.5% 16.5%
Effect of tax exemption for
Guangzhou Zindart (Xin Xing)
(Giftware) Company Limited....... -- (1.4%) (1.1%) (0.9%) --
Non-taxable income arising from
activities which qualified as
offshore......................... (7.3%) (5.5%) (6.8%) (6.4%) (8.3%)
----- ---- - ---- - ---- - ---- -
Effective income tax rate.......... 10.2% 9.6% 8.6% 9.2% 8.2%
===== ===== ===== ===== =====
</TABLE>
F-15
<PAGE> 74
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES -- (CONTINUED)
Components of deferred tax balances as of March 31, 1995 and 1996 and
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------------- 1996
1995 1996 -------------
--------- --------- $'000
$'000 $'000 (UNAUDITED)
<S> <C> <C> <C>
Accumulated difference between taxation allowance and
depreciation expenses............................... 120 120 120
=== === ===
</TABLE>
15. DIVIDENDS
Dividends comprised:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED
--------------------------------- SEPTEMBER 30,
1994 1995 1996 1996
--------- --------- --------- ----------------
$'000 $'000 $'000 $'000
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash dividend............................. 1,959 1,073 -- --
Dividend in kind.......................... -- -- 2,994 --
----- ----- ----- -----
1,959 1,073 2,994 --
===== ===== ===== =====
</TABLE>
Dividends for the year ended March 31, 1996 of approximately $2,994,000 was
settled in kind by distributing to the shareholder the loan receivable from a
related company of approximately $1,889,000 and the amount due from that related
company of approximately $1,105,000.
16. COMMITMENTS
a. Capital commitments
As of March 31, 1995 and 1996 and September 30, 1996, the Group had capital
commitments amounting to approximately $3,368,000, $975,000 and Nil,
respectively, in respect of construction of factories in the PRC.
F-16
<PAGE> 75
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. COMMITMENTS -- (CONTINUED)
b. Operating Lease Commitments
The Group has various operating lease agreements for factory premises and
office equipment which extend through December 1997. Rental expenses for the
years ended March 31, 1994, 1995 and 1996 were approximately $615,000,
approximately $936,000 and approximately $624,000, respectively, and for the six
months ended September 30, 1995 and 1996 were approximately $300,000 and
approximately $326,000, respectively. Most leases contain renewal options.
Future minimum rental payments as of March 31, 1996 and September 30, 1996,
under agreements classified as operating leases with non-cancelable terms in
excess of one year, are as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1996
--------- -------------
$'000 $'000
(UNAUDITED)
<S> <C> <C>
Payable during the following period:
Within one year............................................ 500 185
Over one year but not exceeding two years.................. 63 21
Over two years but not exceeding three years............... 3 --
--- ---
566 206
=== ===
</TABLE>
Under the supplementary joint venture agreement for the establishment of
Dongguan Xinda Giftware Company Limited, the Group has committed to pay a
pre-determined annual fee to the third-party joint venture partner for the
period from January 1996 to November 2009. The total commitments for this pre-
determined fee as of March 31, 1996 and September 30, 1996 are analyzed as
follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1996 1996
--------- -------------
$'000 $'000
(UNAUDITED)
<S> <C> <C>
Payable during the following period:
Within one year............................................ 39 39
Over one year but not exceeding two years.................. 39 39
Over two years but not exceeding three years............... 39 39
Over three years but not exceeding four years.............. 39 39
Over four years but not exceeding five years............... 39 39
Thereafter................................................. 348 328
--- ---
543 523
=== ===
</TABLE>
17. RETIREMENT PLAN
The Group's employees in the PRC are all hired on a contractual basis and
consequently the Group has no obligation for pension liabilities to these
employees.
The Group's employees in Hong Kong, after completing a probation period,
may join the Group's defined contribution provident fund managed by an
independent trustee. Both the Group and its Hong Kong employees make monthly
contributions to the scheme of 5% of the employees' basic salaries. The Hong
Kong employees are entitled to receive their entire contribution together with
accrued interest thereon at any time upon leaving the Group, and 100% of the
employer's contribution and the accrued interest thereon upon retirement or
leaving the Group after completing ten years of service or at a reduced scale of
between 30% to 90% after completing three to nine years of service. Any
forfeited contributions made by the Group and the accrued interest thereon are
used to reduce future employer's contributions. The aggregate amount of
F-17
<PAGE> 76
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. RETIREMENT PLAN -- (CONTINUED)
employer's contributions made by the Group during the years ended March 31,
1994, 1995 and 1996 were approximately $62,000, approximately $97,000, and
approximately $71,000, respectively, and during the six months ended September
30, 1995 and 1996 were approximately $28,000 and approximately $28,000,
respectively.
The Group has no other post-retirement or post-employment benefit plans.
18. BANKING FACILITIES
As of March 31, 1996 and September 30, 1996, the Group had banking
facilities of approximately $10,754,000 and $12,153,000, respectively, for
overdrafts, loans and trade financing. Unused facilities as of the same dates
amounted to approximately $1,129,000 and approximately $4,446,000, respectively.
These facilities were secured by:
a. Mortgages over the Group's properties with a net book value of
approximately $7,225,000 and $7,276,000 as of March 31, 1996 and September
30, 1996, respectively;
b. Pledges of the Group's bank deposits of approximately $1,770,000 and
$1,770,000 as of March 31, 1996 and September 30, 1996, respectively; and
The Group's inventories held under trust receipt and import bank loans.
In addition, the Group has agreed to observe certain restrictive bank
covenants on maintenance of net worth, and payment of dividends and management
bonuses. The Group has complied with all such covenants. The Group has also
agreed not to create any debenture without a bank's prior consent.
19. RELATED PARTY TRANSACTIONS
The Group entered into the following transactions with related parties:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------- ------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
1994 $'000 $'000 $'000 $'000
--------- (UNAUDITED) (UNAUDITED)
$'000
<S> <C> <C> <C> <C> <C>
Sales to ERTL (Note a) and ERTL's
related company.................... 13,576 11,824 12,081 5,564 9,850
Management fee paid to ZIC........... -- 23 -- -- --
Management fee paid to related
companies.......................... -- 171 -- -- --
Rental income from a related
company............................ -- -- 8 -- --
========= ========= ========= =========== ===========
</TABLE>
F-18
<PAGE> 77
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Group had the following outstanding balances with related parties:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------------- 1996
1996 -------------
--------- $'000
1995 $'000 (UNAUDITED)
---------
$'000
<S> <C> <C> <C>
Accounts receivable from ERTL (Note a) and its
related company................................. 1,140 1,536 3,241
Loan receivable from a related company (Note b)... 1,889 -- --
Due from immediate holding company (Note f)....... -- 3 --
Due from ultimate holding company (Note f)........ 95 -- --
Due from related companies (Notes b, and c and
f).............................................. 1,752 -- 3
Due to related companies.......................... 52 -- 41
Due to a director (Note e)........................ 66 -- --
========= ========= =============
</TABLE>
Notes
a. ERTL (Hong Kong) Ltd. ("ERTL") is a minority shareholder of Zindart Pte
Limited, the Company's sole shareholder.
b. Loan receivable from a related company of approximately $1,889,000 and the
amount due from that related company of approximately $1,105,000 were
distributed to Zindart Pte Limited, the Company's then sole shareholder, as
dividends in kind during the year ended March 31, 1996.
c. Included in amounts due from related companies of approximately $1,317,000
were unsecured and bore interest at two percentage points above the Hong Kong
prime lending rate. Interest income earned from these related companies for
the years ended March 31, 1994, 1995 and 1996 were Nil, approximately $85,000
and approximately $68,000, respectively and for the six months ended
September 30, 1995 and 1996 were approximately $67,000 and Nil, respectively.
d. During the year ended March 31, 1996, a related company had advanced
approximately $259,000 to the Company. Such advance was unsecured and bore
interest at two percentage points above the Hong Kong prime lending rate.
During the year ended March 31, 1996, the Group paid to this related company
interest of approximately $3,000.
e. Amounts due to a director were unsecured and bore interest at two percentage
points above the Hong Kong prime lending rate. Interest expenses paid to the
director for the years ended March 31, 1994, 1995 and 1996 were Nil,
approximately $1,000 and approximately $7,000, respectively and for the six
months ended September 30, 1995 and 1996 were approximately $4,000 and Nil,
respectively.
f. The other outstanding balances with the ultimate and immediate holding
company and related companies were unsecured, non-interest bearing and
without pre-determined repayment terms.
20. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
a. Cash paid for interest and income taxes comprised:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------- ---------------------------
1995 1996 1995 1996
---- ---- ----------- -----------
1994 $'000 $'000 $'000 $'000
---- (UNAUDITED) (UNAUDITED)
$'000
<S> <C> <C> <C> <C> <C>
Interest............................. 150 160 608 197 517
========= ========= ========= =========== ===========
Income taxes......................... 165 742 605 116 116
========= ========= ========= =========== ===========
</TABLE>
F-19
<PAGE> 78
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -- (CONTINUED)
b. Supplemental disclosure of investing activities:
(i) During the year ended March 31, 1995, the Group acquired from an
unrelated third party certain assets and liabilities with a net book value
of approximately $82,000 at a consideration of approximately $179,000.
Thereafter, it contributed such assets and liabilities to Luen Tat Mould
Manufacturing Limited ("LTMML") in exchange for a 51% interest in LTMML.
According to a shareholders' agreement dated October 10, 1994, the Group is
only entitled to share 41% of the profit of LTMML. Details of net assets
acquired were as follows:
<TABLE>
<CAPTION>
$'000
----
<S> <C>
Cash and bank deposits...................................................... 347
Accounts receivable, net.................................................... 372
Deposits and prepayments.................................................... 328
Inventories, net............................................................ 2
Property, plant and equipment............................................... 26
Accounts payable............................................................ (604)
Accrued liabilities......................................................... (157)
Due to a director........................................................... (129)
Taxation payable............................................................ (24)
----
Net assets as of the date of acquisition.................................... 161
Acquired percentage......................................................... 51%
----
Share of net assets as of the date of acquisition........................... 82
Consideration satisfied in cash............................................. (179)
----
Goodwill.................................................................... 97
====
Net cash inflow:
Cash acquired............................................................. 347
Cash paid................................................................. (179)
----
Net cash inflow........................................................... 168
====
</TABLE>
(ii) During the six months ended September 30, 1995 and accordingly during
the year ended March 31, 1996, the Group paid a dividend in kind of
approximately $2,994,000 by distributing a loan receivable from a related
company of approximately $1,889,000 and an amount due from that related company
of approximately $1,105,000.
(iii) During the year ended March 31, 1996, the Group entered into capital
lease arrangements in respect of originally owned assets and obtained cash
finance of $776,000, and (ii) newly acquired assets with a capital value of
approximately $585,000.
21. OPERATING RISK
a. Country risk
The Group's operations are conducted in Hong Kong and the PRC. As a result,
the Group's business, financial condition and results of operations may be
influenced by the political, economic and legal environments in Hong Kong and
the PRC, and by the general state of the Hong Kong and the PRC economies.
On July 1, 1997, sovereignty over Hong Kong will be transferred from the
United Kingdom to the PRC, and Hong Kong will become a Special Administrative
Region of the PRC (a "SAR"). As provided in the
F-20
<PAGE> 79
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. OPERATING RISK -- (CONTINUED)
Sino-British Joint Declaration relating to Hong Kong and the Basic Law of the
Hong Kong SAR of the PRC, the Hong Kong SAR will have full economic autonomy and
its own legislative, legal and judicial systems for fifty years. The Group's
management does not believe that the transfer of sovereignty over Hong Kong will
have an adverse impact on the Group's financial and operating environment. There
can be no assurance, however, that changes in political or other conditions will
not result in such an adverse impact.
The Group's operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Group's results may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies with respect to
laws and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things.
b. Dependence on strategic relationship
The Group conducts its manufacturing operations through its contractual
joint ventures established between the Group and two PRC parties. The
deterioration of any of these strategic relationships may have an adverse effect
on the operations of the Group.
c. Concentration of credit risk
A substantial portion of the Group's sales are made to a small number of
customers on an open account basis and generally no collateral is required.
Details of individual customers accounting for more than 5% of the Group's sales
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS
---------------------- ENDED
1994 1995 1996 SEPTEMBER 30,
---- ---- ---- 1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Hallmark Cards (HK) Limited (a subsidiary of
Hallmark Cards Inc.)........................... 28.1% 31.2% 27.0% 29.3%
ERTL and its related company (Note a)............ 38.2% 32.1% 25.9% 30.4%
Hasbro Far East Limited.......................... 8.0% 8.1% 9.3% 3.4%
A buying office of Sieper Werke GmbH............. 7.0% 7.4% 6.2% 7.6%
Drumwell Limited................................. 0.1% 0.7% 4.5% 7.2%
Revell/Monogram, Inc............................. 5.8% 4.5% 3.0% 1.4%
==== ==== ==== ======
</TABLE>
- ---------------
Note a. ERTL is a minority shareholder of Zindart Pte Limited, the Company's
sole shareholder.
Concentration of accounts receivable as of March 31, 1995 and 1996 and
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1995 1996
--------- --------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Five largest accounts receivable.................. 85% 52% 67%
== == ==
</TABLE>
The Group performs ongoing credit evaluation of each customer's financial
condition. It maintains reserves for potential credit losses and such losses in
the aggregate have not exceeded management's projections.
F-21
<PAGE> 80
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. OPERATING RISK -- (CONTINUED)
d. Concentration of Suppliers
The Group purchases raw materials from a number of suppliers. Details
of individual suppliers accounting for more than 5% of the Group's
purchases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
1994 1995 1996
--------- --------- --------- SIX MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sogen (Far East) Limited............... 0.4% 2.5% 9.8% 5.0%
Starlite Printers Limited.............. 3.3% 4.8% 8.3% 7.3%
Wing Fu Carton & Printing Company
Limited.............................. 5.0% 5.5% 6.3% 4.9%
Lee Kee Metal Company Limited.......... 2.0% 9.0% 4.8% 2.6%
Y.T. Cheng (Ching Tai) Limited......... 4.0% 7.2% 4.7% 1.9%
Cominco Ltd............................ 16.4% 1.2% 0.9% 5.2%
==== === === ===
</TABLE>
22. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the consolidated statements of
operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------------- -------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
1994 $'000 $'000 $'000 $'000
--------- (UNAUDITED) (UNAUDITED)
$'000
<S> <C> <C> <C> <C> <C>
Depreciation of property, plant and
equipment
owned assets............................. 458 658 759 409 609
assets held under capital leases......... 304 288 262 112 213
Interest expenses for
bank overdrafts and loans................ 70 91 519 160 451
capital lease obligations................ 80 68 79 33 66
amount due to a director................. -- 1 7 4 --
amount due to a related company.......... -- -- 3 -- --
Less: amount capitalized as property, plant
and equipment............................ -- (23) (206) (90) --
---- --- ---- ---- ---
150 137 402 107 517
Operating lease rentals for
rented premises.......................... 590 913 613 299 308
machinery and equipment.................. 25 23 11 1 18
Repairs and maintenance expenses........... 636 289 286 160 268
Interest income from
bank deposits............................ 129 143 140 75 57
amount due from related companies........ -- 85 68 67 --
Net foreign exchange (loss) gain........... (102) 182 (160) 8 1
==== === ==== ==== ===
</TABLE>
F-22
<PAGE> 81
APPENDIX
DESCRIPTION OF GRAPHICS
PAGE 7:
ORGANIZATION OF THE COMPANY
This chart shows the organization of the Company, its principal shareholders
and subsidiaries prior to giving effect to the Offering.
OPERATING STRUCTURE
This chart shows the operating structure of the Company's three manufacturing
facilities.
PAGE 28:
This flow chart shows the steps in the manufacturing process that make up the
Turnkey Manufacturing Service.
<PAGE> 82
- ------------------------------------------------------
- ------------------------------------------------------
No person has been authorized to give any information or to make any
representation in connection with the Offering being made hereby not contained
in this Prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company, the
Underwriters or any other person. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy any securities offered hereby in
any jurisdiction in which it is unlawful to make such offer or solicitation in
such jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that information
contained herein is correct as of any time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Securities Holders.......... 2
Currency Conversions................... 2
Enforceability of Civil Liabilities.... 2
Prospectus Summary..................... 5
Risk Factors........................... 9
Use of Proceeds........................ 17
Dividends and Dividend Policy.......... 17
Dilution............................... 17
Capitalization......................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results
of Operations........................ 21
Business............................... 25
Management............................. 33
Principal Shareholders................. 35
Certain Transactions................... 37
Description of Shares.................. 37
Description of American Depositary
Receipts............................. 39
Shares Eligible for Future Sale........ 47
Taxation............................... 48
Certain Foreign Issuer
Considerations....................... 53
Underwriting........................... 54
Legal Matters.......................... 55
Experts................................ 55
Additional Information................. 55
Report of Independent Public
Accountants.......................... F-2
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OR ADSS, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,400,000
AMERICAN DEPOSITARY SHARES
REPRESENTING 1,400,000 ORDINARY SHARES
Z I N DA R T
LIMITED
------------------------------
PROSPECTUS
------------------------------
VAN KASPER & COMPANY
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
of the securities being registered, other than the underwriting discount and
commission. All of the amounts are estimates except for the SEC registration fee
and NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 5,793.10
NASD filing fee....................................................... 2,180.00
Blue Sky fees and expenses............................................ 5,000.00
Printing and engraving expenses....................................... 85,000.00
Legal fees and expenses............................................... 700,000.00
Accounting fees and expenses.......................................... 250,000.00
Miscellaneous expenses................................................ 252,026.90
---------
Total............................................................ $ 1,300,000.00
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 8 of the Underwriting Agreement, a copy of
which will be filed as Exhibit 1.1 hereto, which provides for indemnification of
the directors and officers of the Company who sign the Registration Statement by
the Underwriters against certain liabilities, including those arising under the
Securities Act, in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
To be provided by amendment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.1 -- Form of Underwriting Agreement.
*3.1 -- Memorandum of Association of the Company.
3.2 -- Articles of Association of the Company.
4.1 -- Deposit Agreement
*5.1 -- Opinion of Robert W.H. Wang & Co.
*10.1 -- Contractual Joint Venture Agreement with Dongguan Xinda Giftware
Company Limited (English summary of document in Chinese).
*10.2 -- Contractual Joint Venture Agreement with Guangzhou (Xin Xing)
Giftware Company Limited (English summary of document in Chinese).
*10.3 -- Subcontract Processing Agreement with Guangzhou Tian He Dongpu
Economic Development Company (English summary of document in
Chinese).
*10.4 -- Commitment Letter from The Hong Kong and Shanghai Banking
Corporation Limited.
*10.5 -- Commitment Letter from Standard Chartered Bank.
*10.6 -- Commitment Letter from Bank of China.
*10.7 -- Land Use Rights Agreement (English summary of document in
Chinese).
II-1
<PAGE> 84
*15.1 -- Letter of Arthur Andersen & Co., re Unaudited Interim Financial
Information.
22.1 -- Subsidiaries of the Registrant.
*24.1 -- Consent of Arthur Andersen & Co.
*24.2 -- Consent of Robert W.H. Wang & Co.
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
<TABLE>
<S> <C> <C>
Schedule II -- Amounts Receivable from Related Parties
Schedule IV -- Indebtedness of Related Parties -- Not Current
Schedule IX -- Valuation and Qualifying Accounts
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement at the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide the Underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to
each purchaser.
II-2
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Hong Kong, on December 16, 1996.
(Registrant)
ZINDART INDUSTRIAL COMPANY LIMITED
By
George K.D. Sun
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------- ------------------
<C> <S> <C>
/s/ GEORGE K.D. SUN Chief Executive Officer and December 16, 1996
- ---------------------------------------- Director (Principal Executive
George K.D. Sun Officer)
/s/ FEATHER S.Y. FOK Chief Operating Officer and Chief December 16, 1996
- ---------------------------------------- Financial Officer (Principal
Feather S.Y. Fok Financial Officer)
/s/ VICKIE W.K. SO Financial Controller (Principal December 16, 1996
- ---------------------------------------- Accounting Officer)
Vickie W.K. So
/s/ ALEXANDER M.K. NGAN Director December 16, 1996
- ----------------------------------------
Alexander M.K. Ngan
/s/ HENRY H.L. HU Director December 16, 1996
- ----------------------------------------
Henry H.L. Hu
/s/ GEORGE VOLANAKIS Director December 16, 1996
- ----------------------------------------
George Volanakis
/s/ TONY D.H. LAI Director December 16, 1996
- ----------------------------------------
Tony D.H. Lai
/s/ DOMINA W.K. LEUNG Director December 16, 1996
- ----------------------------------------
Domina W.K. Leung
/s/ ROBERT A. THELEEN Authorized U.S. Representative December 16, 1996
- ----------------------------------------
Robert A. Theleen
</TABLE>
II-3
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholders and Board of Directors of Zindart Industrial Company
Limited:
We have audited, in accordance with generally accepted auditing standards
in the United States of America, the consolidated balance sheets of Zindart
Industrial Company Limited (incorporated in Hong Kong; "the Company") and
Subsidiaries as of March 31, 1994, 1995 and 1996 and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for the
years ended March 31, 1994, 1995 and 1996, included in this registration
statement and have issued our report thereon dated December 16, 1996. Our audit
was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index to the schedules
are the responsibility of the Company's management and are presented for the
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
December 16, 1996.
S-1
<PAGE> 87
SCHEDULE II
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT END
ADDITIONS ----------------------- ---------------------
--------- AMOUNTS AMOUNTS CURRENT NOT CURRENT
NAME OF DEBTOR COLLECTED WRITTEN OFF ------- -----------
- -------------------------------------- BALANCE AT $'000 --------- ----------- $'000 $'000
BEGINNING $'000 $'000
----------
$'000
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31, 1994
Zindart Entertainment &
Leisure Limited.................. $ -- $ 152 $ -- $ -- $ 152 --
Zindart Investment Company
Limited.......................... -- 194 -- -- 194 --
Premium Gallery Limited............. -- 120 -- -- 120 --
------ ------ ------- ------ ------ ------
$ -- $ 466 $ -- $ -- $ 466 $ --
====== ====== ======= ====== ====== ======
Year ended March 31, 1995
Zindart Entertainment &
Leisure Limited.................. $ 152 $ 880 $ -- $ -- $ 1,032 $ --
Zindart Investment Company
Limited.......................... 194 -- (194) -- -- --
Premium Gallery Limited............. 120 -- (120) -- -- --
Sinomex Hong Kong Limited........... -- 526 -- -- 526 --
Verveine Limited.................... -- 4 -- -- 4 --
Gold Venture Limited................ -- 4 -- -- 4 --
Wealthy Holdings Limited............ -- 7 -- -- 7 --
Luen Tat Model Design Company
Limited.......................... -- 179 -- -- 179 --
------ ------ ------- ------ ------ ------
$ 466 $ 1,600 $ (314) $ -- $ 1,752 $ --
====== ====== ======= ====== ====== ======
Year ended March 31, 1996
Zindart Entertainment &
Leisure Limited.................. $1,032 $ 73 $ (1,105)* $ -- -- --
Sinomex Hong Kong Limited........... 526 41 (567) -- -- --
Verveine Limited.................... 4 2 (6) -- -- --
Gold Venture Limited................ 4 2 (6) -- -- --
Wealthy Holdings Limited............ 7 -- (7) -- -- --
Luen Tat Model Design Company
Limited.......................... 179 -- (179) -- -- --
------ ------ ------- ------ ------ ------
$1,752 $ 118 $ (1,867) $ -- $ -- $ --
====== ====== ======= ====== ====== ======
</TABLE>
- ---------------
* This amount was distributed to Zindart Pte Limited, the Company's then sole
shareholder, as dividends in kind.
S-2
<PAGE> 88
SCHEDULE IV
ZINDART INDUSTRIAL COMPANY LIMITED
AND SUBSIDIARIES
INDEBTEDNESS OF RELATED PARTIES -- NOT CURRENT
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
INDEBTEDNESS OF
------------------------ BALANCE
ADDITIONS DEDUCTIONS AT END
NAME --------- ---------- -------
- ------------------------------------------------ BALANCE $'000 $'000 $'000
AT BEGINNING
------------
$'000
<S> <C> <C> <C> <C>
Year ended March 31, 1994
Zindart Entertainment & Leisure Limited....... $ -- $ 1,889 $ -- $ 1,889
====== ====== ======= ======
Year ended March 31, 1995
Zindart Entertainment & Leisure Limited....... $1,889 $ -- $ -- $ 1,889
====== ====== ======= ======
Year ended March 31, 1996
Zindart Entertainment & Leisure Limited....... $1,889 $ -- $ (1,889)* $ --
====== ====== ======= ======
</TABLE>
- ---------------
* This amount was distributed to Zindart Pte Limited, the Company's then sole
shareholder, as dividends in kind.
S-3
<PAGE> 89
SCHEDULE IX
ZINDART INDUSTRIAL COMPANY LIMITED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS EXPRESSES IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS:
CHARGED TO DEDUCTIONS BALANCE AT
COST AND ---------- END
DESCRIPTION EXPENSES ----------
- ------------------------------------------------ BALANCE AT ---------- $'000 $'000
BEGINNING $'000
----------
$'000
<S> <C> <C> <C> <C>
Year ended March 31, 1994
Provision for doubtful accounts............... $ -- $ 26 $ -- $ 26
Provision for inventories obsolescence........ 59 -- -- 59
--- --- --- ---
$ 59 $ 26 $ -- $ 85
=== === === ===
Year ended March 31, 1995
Provision for doubtful accounts............... $ 26 $ 13 $ -- $ 39
Provision for inventories obsolescence........ 59 -- -- 59
--- --- --- ---
$ 85 $ 13 $ -- $ 98
=== === === ===
Year ended March 31, 1996
Provision for doubtful accounts............... $ 39 $ -- $ -- $ 39
Provision for inventories obsolescence........ 59 -- -- 59
--- --- --- ---
$ 98 $ -- $ -- $ 98
=== === === ===
</TABLE>
S-4
<PAGE> 90
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- ------- ------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement................................................
*3.1 -- Memorandum of Association of the Company......................................
3.2 -- Articles of Association of the Company........................................
4.1 -- Deposit Agreement.............................................................
*5.1 -- Opinion of Robert W.H. Wang & Co..............................................
*10.1 -- Contractual Joint Venture Agreement with Dongguan Xinda Giftware Company
Limited (English summary of document in Chinese)..............................
*10.2 -- Contractual Joint Venture Agreement with Guangzhou (Xin Xing) Giftware Company
Limited (English summary of document in Chinese)..............................
*10.3 -- Subcontract Processing Agreement with Guangzhou Tian He Dongpu Economic
Development Company (English summary of document in Chinese)..................
*10.4 -- Commitment Letter from The Hong Kong and Shanghai Banking Corporation
Limited.......................................................................
*10.5 -- Commitment Letter from Standard Chartered Bank................................
*10.6 -- Commitment Letter from Bank of China..........................................
*10.7 -- Land Use Rights Agreement (English summary of document in Chinese)............
*15.1 -- Letter of Arthur Andersen & Co., re Unaudited Interim Financial
Information...................................................................
22.1 -- Subsidiaries of the Registrant................................................
*24.1 -- Consent of Arthur Andersen & Co...............................................
*24.2 -- Consent of Robert W.H. Wang & Co..............................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.1
Zindart Limited
(a Hong Kong corporation)
1,400,000 American Depositary Shares
Representing 1,400,000 Ordinary Shares(1)
UNDERWRITING AGREEMENT
_____________, 1997
VAN KASPER & COMPANY
As Representative of the several
Underwriters named in Schedule I,
11661 San Vincente Boulevard, Suite 709
Los Angeles, California 90049
Ladies and Gentlemen:
Zindart Limited, a corporation formed under the laws of Hong Kong (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters") 1,400,000 American Depositary Shares
(the "Shares") representing 1,400,000 of the Company's Ordinary Shares (the
"Ordinary Shares"). In addition, the Company also proposes to grant to the
Underwriters an option to purchase up to an additional 210,000 American
Depositary Shares representing 210,000 Ordinary Shares on the terms and for
the purposes set forth in Section 2(b) (the "Option Shares"). The Shares and
any Option Shares purchased pursuant to this Agreement are referred to
collectively in this Agreement as the "Securities." Van Kasper & Company is
acting as representative of the several Underwriters and in that capacity is
referred to in this Agreement as the "Representative."
The Company hereby confirms the agreements with the several
Underwriters as set forth below.
1. Representations and Warranties of the Company. The Company hereby
represents and warrants to and agrees with each Underwriter as follows:
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(1) Plus an option to purchase from the Company up to 210,000
additional American Depositary Shares representing 210,000 Ordinary Shares to
cover over-allotments.
<PAGE> 2
(a) A Registration Statement (Registration No. 33-____) on
Form F-1 under the Securities Act of 1933, as amended (the "Securities Act"),
including such amendments to such registration statement as may have been
required to the date of this Agreement, relating to the Securities has been
prepared by the Company under and in conformity with the provisions of the
Securities Act, the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. After the execution of this Agreement, the Company
will file with the Commission either (i) if such registration statement, as it
may have been amended, has been declared by the Commission to be effective under
the Securities Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment has been
filed, in such registration statement), with such changes or insertions as are
required by Rule 430A of the Rules and Regulations or permitted by Rule 424(b)
of the Rules and Regulations, and as has been provided to and approved by the
Representative prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Securities Act, an amendment to such
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Representative prior to the
execution of this Agreement. As used in this Agreement, the term "Registration
Statement" means such registration statement, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A of the Rules and Regulations and included in the Prospectus (defined
below), in the form in which it became effective, and any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations with respect to the
Securities (a "Rule 462(b) Registration Statement"), and, in the event of any
amendment thereto after the effective date of such registration statement (the
"Effective Date"), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any 462(b)
Registration Statement); the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Securities Act; or
(B) if no prospectus is required to be filed pursuant
to Rule 424(b) under the Securities Act, the prospectus included in the
Registration Statement;
provided that if any revised prospectus that is provided to the Underwriters by
the Company for "use in connection with the offering of the Securities" differs
from the prospectus on file with the Commission at the time the Registration
Statement became or becomes, as the case may be, effective, whether or not the
revised prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations, the term "Prospectus"
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<PAGE> 3
shall mean such revised prospectus from and after the time it is first provided
to the Underwriters for such use.
(b) No order suspending the effectiveness of the Registration
Statement or preventing or suspending the issue of any Preliminary Prospectus or
the Prospectus has been issued and no proceedings for that purpose are pending
or, to the best knowledge of the Company, threatened or contemplated by the
Commission; no order suspending the sale of the Securities in any jurisdiction
has been issued and no proceedings for that purpose are pending or, to the best
knowledge of the Company, threatened or contemplated, and any request of the
Commission for additional information (to be included in the Registration
Statement, any Preliminary Prospectus or the Prospectus or otherwise) has been
complied with.
(c) When the Preliminary Prospectus was filed with the
Commission it (i) contained all statements required to be contained therein and
complied in all respects with the requirements of the Securities Act, the Rules
and Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder (the "Exchange
Act Rules and Regulations") and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement or any amendment thereto
was or is declared effective, it (i) contained or will contain all statements
required to be contained therein and complied or will comply in all respects
with the requirements of the Securities Act, the Rules and Regulations, the
Exchange Act and the Exchange Act Rules and Regulations and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the Registration Statement or
the amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and at all times subsequent thereto up to and
including the Closing Date (defined below) and any date on which Option Shares
are to be purchased, the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be contained
therein and complied or will comply in all respects with the requirements of the
Securities Act, the Rules and Regulations, the Exchange Act and the Exchange Act
Rules and Regulations, and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing provisions of this paragraph (c) do not
apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representative specifically for use therein.
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<PAGE> 4
(d) The subsidiaries (each, a "Subsidiary" and collectively
the "Subsidiaries") of the Company and the jurisdiction of incorporation of each
Subsidiary is listed on Exhibit A hereto. As used in this Agreement, the word
"subsidiary" means any corporation, partnership, joint venture, limited
liability company or other entity of which the Company directly or indirectly
owns 50 percent or more of the equity or that the Company directly or indirectly
controls. The Company has no subsidiaries other than the Subsidiaries listed on
Exhibit A to this Agreement, and except as set forth on such Exhibit, the
Company owns 100 percent of the issued and outstanding stock of each of the
Subsidiaries. Exhibit B hereto lists each entity in which the Company or any
Subsidiary holds an equity interest, whether as a shareholder, partner, member,
joint venturer or otherwise. Except as set forth on Exhibit B, neither the
Company nor any Subsidiary has any interest in any person.
(e) The Company and each of its Subsidiaries has been duly
incorporated or organized and is validly existing as a corporation or other
legal entity in good standing under the laws of the jurisdiction of its
incorporation or organization, has full power (corporate and other) and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) and as currently being
conducted and proposed to be conducted by it and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have a material effect on the business, properties, condition (financial or
otherwise), results of operations or prospects of the Company or such
Subsidiary). The Company and each of its Subsidiaries is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from federal, state, local, foreign and other
governmental or regulatory authorities that are material to the conduct of its
business, all of which are valid and in full force and effect.
(f) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there has not been
any material loss or interference with the business of the Company or any
Subsidiary from fire, explosion, flood, earthquake or other calamity, whether or
not covered by insurance, or from any court or governmental action, order or
decree, or any changes in the capital stock or long-term debt of the Company or
any Subsidiary, or any dividend or distribution of any kind declared, paid or
made on the capital stock or registered capital of the Company or any
Subsidiary, or any material change, or a development known to the Company that
might cause or result in a material change, in or affecting the business,
properties, condition (financial or otherwise), results of operation or
prospects of the Company or any Subsidiary, whether or not arising from
transactions in the ordinary course of business, in each case other than as may
be set forth in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and
since such dates, except in the ordinary course of business, neither the Company
nor any Subsidiary has entered into any material transaction not
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<PAGE> 5
described in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(g) There is no agreement, contract, license, lease or other
document required to be described in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) or to be filed as an exhibit to the Registration
Statement which is not described or filed as required. All contracts described
in the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), if any, are in full force and effect on the date
hereof, and none of the Company, its Subsidiaries or any other party thereto is
in material breach of or default under any such contract.
(h) The authorized and outstanding capital stock of the
Company is set forth in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), and the description of the
Ordinary Shares and of the Securities therein conforms with and accurately
describes the rights set forth in the instruments defining the same. The
Securities and the Ordinary Shares represented by the Securities have been duly
and validly authorized and, when issued and delivered against payment therefor
as provided herein, will be duly and validly issued, fully paid and
nonassessable, and the issuance of the Ordinary Shares and the Securities is not
subject to any preemptive or similar rights.
(i) All of the outstanding Ordinary Shares of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
have been issued in compliance with all applicable securities laws and were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities of the Company. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, if
any, and the options or other rights granted or exercised thereunder, if any,
set forth in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), accurately and fairly present the information
required to be shown with respect to such plans, arrangements, options and
rights. Other than this Agreement and the options to purchase Ordinary Shares
described in the Prospectus, there are no options, warrants or other rights
outstanding to subscribe for or purchase any shares of the Company's capital
stock. There are no preemptive rights applicable to any of the Securities to be
sold by the Company.
(j) All of the stock or other equity interest in the
Subsidiaries owned by the Company as set forth on Exhibit A is owned by the
Company free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest of any type, kind or nature. All of the outstanding
stock or registered capital of each of the Subsidiaries has been duly authorized
and validly issued and is fully paid and nonassessable, has been issued in
compliance with all applicable laws, including securities laws, and was not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities of such Subsidiary. There are no options,
warrants or other rights outstanding to subscribe for or purchase any shares of
the capital stock or registered capital of any Subsidiary and no
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<PAGE> 6
Subsidiary is subject to any obligation, commitment, plan, arrangement or court
or administrative order with respect to same. There are no preemptive rights
applicable to any shares of capital stock or registered capital of the
Subsidiaries.
(k) This Agreement has been duly authorized, executed and
delivered by, and constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable federal or state
securities laws. Other than the registration rights described in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) there are no rights for or relating to the registration of any
capital stock of the Company. The filing of the Registration Statement does not
give rise to any rights, other than those which have been waived in writing, for
or relating to the registration of any capital stock of the Company.
(l) Neither the Company nor any of its Subsidiaries is, or
with the giving of notice or lapse of time or both would be, in violation of or
in default under, nor will the execution or delivery of this Agreement or the
completion of the transactions contemplated by this Agreement result in a
violation of or constitute a breach of or a default (including without
limitation with the giving of notice, the passage of time or otherwise) under,
the Memorandum of Association, Articles of Association or other governing
documents of the Company or such Subsidiary or any obligation, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any contract, indenture, mortgage, deed of trust, loan
agreement, lease, license, joint venture or other agreement or instrument to
which the Company or any Subsidiary is a party or by which any properties of the
Company or any Subsidiary may be bound or affected. The Company has not incurred
any liability, direct or indirect, for any finders' or similar fees payable on
behalf of the Company or the Underwriters in connection with the transactions
contemplated by this Agreement. The performance by the Company of its
obligations under this Agreement will not violate any law, ordinance, rule or
regulation, or any order, writ, injunction, judgment or decree of any
governmental agency or body or of any court having jurisdiction over the Company
or any Subsidiary or any properties of the Company or any Subsidiary, or result
in the creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company or any Subsidiary. Except for permits and
similar authorizations required under the Securities Act, the Exchange Act or
under other securities or Blue Sky laws of certain jurisdictions and for such
permits and authorizations that have been obtained, no consent, approval,
authorization or order of any court, governmental agency or body, financial
institution or any other person is required in connection with the completion of
the transactions contemplated by this Agreement.
(m) The Company and each Subsidiary owns, or has valid rights
to use, all items of real and personal property which are material to the
business of the Company or such Subsidiary (including, without limitation, all
real property on which the Company's manufacturing facilities are located) free
and clear of all liens, encumbrances and claims that
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<PAGE> 7
might materially interfere with the business, properties, condition (financial
or otherwise), results of operations or prospects of the Company or such
Subsidiary.
(n) The Company or the appropriate Subsidiary, as the case may
be, owns or possesses adequate rights to use all material patents, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names and copyrights (collectively, "Intellectual Property") described or
referred to in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) as owned
by or used by the Company or such Subsidiary, or which are necessary for the
conduct business of the Company or such Subsidiary as described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus); and neither the Company nor
any Subsidiary has received any notice of infringement of or conflict with
asserted rights of others with respect to any Intellectual Property which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of the Company or
any Subsidiary. Except as described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) neither the Company nor any Subsidiary is a party to any
options, licenses, or agreements of any kind relating to Intellectual Property
or that grant rights to any other party to manufacture, license, produce,
assemble, market or sell the products of the Company or any Subsidiary, nor is
the Company or any Subsidiary bound by or a party to any options, licenses, or
agreements of any kind with respect to the Intellectual Property of any other
party. No employee of the Company or of any Subsidiary is obligated under any
contract (including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or such Subsidiary or that would
conflict with the business of the Company or such Subsidiary as presently
conducted or proposed to be conducted.
(o) There is no litigation or governmental proceeding to which
the Company or any Subsidiary is a party or to which any property of the Company
or any Subsidiary is subject which is pending or, to the best knowledge of the
Company, is threatened or contemplated against the Company or any Subsidiary
that might have a material effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of the Company or
any Subsidiary, that might prevent consummation of the transactions contemplated
by this Agreement or that are required to be disclosed in the Registration
Statement or Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) and are not so disclosed.
(p) None of the Company or any Subsidiary is in violation of,
or has received any notice or claim from any governmental agency or third party
that any of them is in violation of, any law, order, ordinance, rule or
regulation, or any order, writ, injunction, judgment or decree of any agency or
body or of any court, to which it or its properties
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<PAGE> 8
(whether owned or leased) may be subject, which violation might have a material
effect on the business, properties, condition (financial or otherwise), results
of operations or prospects of the Company or any Subsidiary.
(q) The Company has not taken and shall not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to cause or result in, under the Exchange
Act, the Exchange Act Rules and Regulations or otherwise, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities. No bid or purchase by the Company and, to the best
knowledge of the Company, no bid or purchase that could be attributed to the
Company (as a result of bids or purchases by an "affiliated purchaser" within
the meaning of Rule 10b-6 under the Exchange Act) for or of the Securities, the
Ordinary Shares, any securities of the same class or series as the Ordinary
Shares or any securities convertible into or exchangeable for or that represent
any right to acquire Ordinary Shares is now pending or in progress or will have
commenced at any time prior to the completion of the distribution of the
Securities.
(r) Arthur Andersen, LLP, whose reports appear in the
Registration Statement and the Prospectus, are, and during the periods covered
by their reports in the Registration Statement were, independent accountants as
required by the Securities Act and the Rules and Regulations. The financial
statements and schedules included in the Registration Statement, each
Preliminary Prospectus and the Prospectus present fairly (or, if the Prospectus
has not been filed with the Commission, as to the Prospectus, will present
fairly) the financial condition, results of operations, cash flow and changes in
shareholders' equity and the financial statements and schedules included in the
Registration Statement present fairly the information required to be stated
therein. Such financial statements and schedules have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis throughout the periods presented. The selected and summary
financial and statistical data included in the Registration Statement and the
Prospectus present fairly (or, if the Prospectus has not been filed with the
Commission, as to the Prospectus, will present fairly) the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or schedules are
required to be included in the Registration Statement. Except as set forth in
such financial statements or as set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), the
Company has no debts, liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature whatsoever, including, without
limitation, any tax liabilities or deferred tax liabilities or any other debts,
liabilities or obligations.
(s) The books, records and accounts of the Company and each
Subsidiary accurately and fairly reflect, in reasonable detail, the transactions
in and dispositions of the assets of the Company and such Subsidiary. The
systems of internal accounting controls maintained by the Company and each
Subsidiary are sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or
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<PAGE> 9
specific authorization; (ii) transactions are recorded as necessary (x) to
permit preparation of financial statements in conformity with generally accepted
accounting principles and (y) to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(t) The Company will not, and the Company has delivered to the
Representative the written agreement of each of its directors, officers,
commissioners and shareholders (collectively, the "Material Holders") to the
effect that each of the Material Holders will not, for a period of 180 days
following the date of this Agreement, without the prior written consent of the
Representative, offer, sell or contract to sell, or otherwise dispose of, or
announce the offer of, any Ordinary Shares, American Depositary Shares ("ADSs")
representing Ordinary Shares, or options, convertible securities or other
securities exercisable or exchangeable for, or convertible into, Ordinary Shares
or ADSs in each case without the prior written consent of the Representative.
(u) No labor disturbance by the employees of the Company or
any Subsidiary exists, is imminent or, to the best knowledge of the Company, is
contemplated or threatened; and the Company is not aware of an existing,
imminent or threatened labor disturbance by the employees of any principal
suppliers, contract manufacturing organizations, manufacturers, authorized
dealers or distributors that might be expected to result in any material change
in the business, properties, condition (financial or otherwise), results of
operations or prospects of the Company. No collective bargaining agreement
exists with any employees of the Company or any such Subsidiary and, to the best
knowledge of the Company, no such agreement is imminent. No officer, employee or
consultant of the Company or any Subsidiary whose continued services are
material to the conduct of the business of the Company or any Subsidiary has any
plans to terminate employment with the Company or such Subsidiary nor does the
Company or any Subsidiary have a present intention to terminate the employment
or contract of any such person.
(v) The Company and each Subsidiary has filed all federal,
state, national, provincial, local and foreign tax returns that are required to
be filed or has requested extension thereof and has paid all taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
to the extent that the same have become due and payable. No tax assessment or
deficiency has been made or proposed against the Company or any of its
Subsidiaries, nor has the Company or any Subsidiary received any notice of any
proposed tax assessment or deficiency.
(w) Except as set forth in the Prospectus (or if the
Prospectus is not in existence, the most recent Preliminary Prospectus) there
are no outstanding loans, advances or guaranties of indebtedness by the Company
to or for the benefit of any of (i) its "affiliates," as such term is defined in
the Rules and Regulations, (ii) any of the officers or directors of any of its
Subsidiaries or (iii) any of the members of the families of any of them.
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<PAGE> 10
(x) Neither the Company nor any Subsidiary has, directly or
indirectly, at any time: (i) made any contributions to any candidate for
political office in violation of law; (ii) made any payment to any local, state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasi-public duties; or (iii) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
(y) Neither the Company nor any Subsidiary has any liability,
absolute or contingent, relating to: (i) public health or safety; (ii) worker
health or safety; (iii) product defect or warranty; or (iv) except as may be
disclosed in the Registration Statement and Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) pollution, damage to
or protection of the environment, including, without limitation, relating to
damage to natural resources, emissions, discharges, releases or threatened
releases of hazardous materials into the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, use, treatment,
storage, generation, disposal, transport or handling of any hazardous materials.
As used herein, "hazardous material" includes chemical substances, wastes,
pollutants, contaminants, hazardous or toxic substances, constituents, materials
or wastes, whether solid, gaseous or liquid in nature.
(z) The Company has not distributed and will not distribute
prior to the Closing Date or on or prior to any date on which the Option Shares
are to be purchased, as the case may be, any prospectus or other offering
material in connection with the offering and sale of the Securities other than
the Prospectus, the Registration Statement and any other material which may be
permitted by the Securities Act and the Rules and Regulations.
(aa) The Company has filed and will file in a timely manner
all reports and other documents required to be filed with the Commission under
the Exchange Act and with the National Association of Securities Dealers, Inc.
(the "NASD"), and each such report or other document contained, at the time it
was filed, such information as was required to be included in such report or
other document and all such information was correct and complete in all material
respects; except as disclosed in the Registration Statement, no event has
occurred or is likely to occur that required or would require an amendment to
any report or document referred to in this section that has not been filed or
distributed as required.
(ab) The Securities have been approved for inclusion for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(ac) The Company is not now, and intends to conduct its
affairs in the future in such a manner so that it will not become, an investment
company within the meaning of the Investment Company Act of 1940, as amended.
(ad) The Company satisfies the requirements for filing a
registration statement on Form F-1.
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<PAGE> 11
(ae) Neither the Company nor any Subsidiary has entered into
any transaction with any affiliate of the Company other than an arm's length
transaction, and all such transactions required to be described in the
Registration Statement or the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) have been described therein.
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<PAGE> 12
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements of the Company contained in this Agreement and subject to the
terms and conditions set forth in this Agreement, the Company agrees to sell to
the several Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $______ per Share
(the "Purchase Price") the respective number of Shares set forth opposite the
name of such Underwriter on Schedule I to this Agreement (subject to adjustment
as provided in Section 8 of this Agreement).
(b) On the basis of the several (and not joint)
representations, warranties, covenants and agreements of the Underwriters
contained in this Agreement and subject to the terms and conditions set forth
in this Agreement, the Company grants an option to the several Underwriters to
purchase from the Company all or any portion of the Option Shares at the
Purchase Price.
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<PAGE> 13
This option may be exercised only to cover over-allotments in the sale of the
Shares by the Underwriters and may be exercised in whole or in part at any time
(but not more than once) on or before the 30th day after the date of the
Prospectus upon written, telecopied or telegraphic notice by the Representative
to the Company setting forth the aggregate principal number of Option Shares as
to which the several Underwriters are exercising the option and the settlement
date. The Option Shares shall be purchased severally, and not jointly, by each
Underwriter, if purchased at all, in the same proportion that the number of
Shares set forth opposite the name of the Underwriter in Schedule I to this
Agreement bears to the total number of Shares to be purchased by the
Underwriters under Section 2(a) above, subject to such adjustments as the
Representative in its absolute discretion shall make to eliminate any fractional
Shares. Delivery of Option Shares, and payment therefor, shall be made as
provided in Section 2(c) and Section 2(d) below.
(c) Delivery of the Shares and the Option Shares (if the
option granted by the Company in Section 2(b) above has been exercised not later
than 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date), and payment therefor, shall be made at the office of Van Kasper &
Company, 600 California Street, San Francisco, California at 7:00 a.m., San
Francisco time, on the third business day after the date of this Agreement, or
at such time on such other day, not later than seven full business days after
such third business day, as shall be agreed upon in writing by the Company and
the Representative, or as provided in Section 8 of this Agreement. The date and
hour of delivery and payment for the Shares are referred to in this Agreement as
the "Closing Date." As used in this Agreement, "business day" means a day on
which the Nasdaq National Market is operating and on which banks in New York and
California are open for business and not permitted by law or executive order to
be closed. ADRs representing the Shares shall be in such denominations and
registered in such names as the Representative may request in writing at least
two business days before the Closing Date.
(d) If the option granted by the Company in Section 2(b) above
is exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of the Option Shares and payment therefor
shall be made at the office of Van Kasper & Company, 600 California Street, San
Francisco, California at 7:00 a.m., San Francisco time, on the date specified by
the Representative (which shall be three or four or fewer business days after
the exercise of the option, but not in excess of the period specified in the
Rules and Regulations).
(e) Payment of the purchase price for the Securities by the
several Underwriters shall be made by certified or official bank check or checks
drawn in next-day
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<PAGE> 14
funds, payable to the order of the Company. Such payment shall be made upon
delivery of the Securities to the Representative for the respective accounts of
the several Underwriters. The Securities to be delivered to the Representative
shall be registered in such name or names and shall be in such denominations as
the Representative may request at least two business days before the Closing
Date, in the case of the Shares, and at least one business day prior to the
purchase of the Option Shares, in the case of the Option Shares. The
Representative, individually and not on behalf of the Underwriters, may (but
shall not be obligated to) make payment to the Company for Shares to be
purchased by any Underwriter whose check shall not have been received by the
Representative on the Closing Date or any later date on which Option Shares are
purchased for the account of such Underwriter. Any such payment shall not
relieve such Underwriter from any of its obligations hereunder.
(f) The several Underwriters propose to offer the Securities
for sale to the public as soon as the Representative deems it advisable to do
so. The Securities are to be initially offered to the public at the public
offering price set forth (or to be set forth) in the Prospectus. The
Representative may from time to time thereafter change the public offering price
and other selling terms.
(g) The information set forth [in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters), the
legend respecting stabilization set forth on the inside front cover page and the
statements set forth under the caption "Underwriting" in the Registration
Statement, any Preliminary Prospectus and in the final form of Prospectus filed
pursuant to Rule 424(b)] constitute the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Prospectus or the Registration Statement.
3. Further Agreements of the Company. The Company covenants and agrees
with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement, and any amendment thereof, if not effective at the time
of execution of this Agreement, to become effective as promptly as possible. If
the Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b), the
Company will file the Prospectus, properly completed (and in form and substance
reasonably satisfactory to the Underwriters) pursuant to Rule 424(b) within the
time period prescribed and will provide evidence satisfactory to the
Representative of such timely filing. The Company will not file the Prospectus,
any amended Prospectus, any amendment (including post-effective amendments) of
the Registration Statement or any supplement to the Prospectus without (i)
advising the Representative of the proposed filing of such amendment or
supplement and, a reasonable time prior to the proposed filing,
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<PAGE> 15
furnishing the Representative with copies thereof and (ii) obtaining the prior
consent of the Representative to such filing. The Company will prepare and file
with the Commission, promptly upon the request of the Representative, any
amendment to the Registration Statement or supplement to the Prospectus that may
be necessary or advisable in the opinion of the Representative in connection
with the distribution of the Securities by the Underwriters and shall use its
best efforts to cause the same to become effective as promptly as possible.
(b) The Company will promptly advise the Representative (i)
when the Registration Statement becomes effective, (ii) when any post-effective
amendment thereof becomes effective, (iii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose, and (v) of the
receipt by the Company of any notification with respect to the suspension of the
registration, qualification or exemption from registration or qualification of
the Securities for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order or suspension and, if issued, to
obtain as soon as possible the withdrawal thereof.
(c) The Company will (i) on or before the Closing Date,
deliver to the Representative and its counsel a signed copy of the Registration
Statement as originally filed and of each amendment thereto filed prior to the
time the Registration Statement becomes effective and, promptly upon the filing
thereof, a signed copy of each post-effective amendment, if any, to the
Registration Statement (together with, in each case, all exhibits thereto unless
previously furnished to the Representative) and will also deliver to the
Representative for distribution to the several Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (excluding exhibits) so
that one copy of each may be distributed to each Underwriter, (ii) as promptly
as possible deliver to the Representative and send to the several Underwriters,
at such office or offices as the Representative may designate, as many copies of
the Prospectus as the Representative may reasonably request and (iii) thereafter
from time to time during the period in which a prospectus is required by law to
be delivered by an Underwriter or a dealer, likewise to send to the Underwriters
as many additional copies of the Prospectus and as many copies of any supplement
to the Prospectus and of any amended Prospectus, filed by the Company with the
Commission, as the Representative may reasonably request for the purposes
contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or a dealer any event shall
occur as a result of which it is necessary to supplement or amend the Prospectus
in order to make the Prospectus not misleading or so that the Prospectus will
not omit to state a material fact necessary to be stated therein, in each case
at the time the Prospectus is delivered to a purchaser of the Securities, or if
it shall be necessary to amend or to supplement the Prospectus to comply with
the Securities Act or the Rules and Regulations, the Company will forthwith
prepare
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<PAGE> 16
and file with the Commission a supplement to the Prospectus or an amended
Prospectus so that the Prospectus as so supplemented or amended will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein not misleading and so that it
then will otherwise comply with the Securities Act and the Rules and
Regulations. If, after the public offering of the Securities by the Underwriters
and during such period, the Underwriters propose to vary the terms of offering
thereof by reason of changes in general market conditions or otherwise, the
Representative will advise the Company in writing of the proposed variation and
if, in the opinion either of counsel for the Company or counsel for the
Underwriters, such proposed variation requires that the Prospectus be
supplemented or amended, the Company will forthwith prepare and file with the
Commission a supplement to the Prospectus setting forth such variation. The
Company authorizes the Underwriters and all dealers to whom any of the
Securities may be sold by the Underwriters to use the Prospectus, as from time
to time so amended or supplemented, in connection with the sale of the
Securities in accordance with the applicable provisions of the Securities Act
and the Rules and Regulations for such period.
(e) The Company will cooperate with the Representative and its
counsel in the qualification or registration of the Securities for offer and
sale under the securities or blue sky laws of such jurisdictions as the
Representative may designate and, if applicable, in connection with exemptions
from such qualification or registration and, during the period in which a
Prospectus is required by law to be delivered by an Underwriter or a dealer, in
keeping such qualifications, registrations and exemptions in effect; provided,
however, that, other than the appointment of a United States representative as
required by the Securities Act, the Company shall not be obligated to file any
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports and other
documents as are or may be required to continue such qualifications,
registrations and exemptions in effect for so long a period as the
Representative may reasonably request for the distribution of the Securities.
(f) During a period of five years commencing with the date of
this Agreement, the Company will promptly furnish to the Representative and to
each Underwriter who may so request in writing copies of (i) all periodic and
special reports furnished by it to shareholders of the Company, (ii) all
information, documents and reports filed by it with the Commission, any
securities exchange on which any securities of the Company are then listed, the
Nasdaq National Market or the NASD, (iii) all press releases and material news
items or articles in respect of the Company or its affairs released or prepared
by the Company (other than promotional and marketing materials disseminated
solely to customers and potential customers of the Company in the ordinary
course of business) and (iv) any additional information concerning the Company
or its business which the Representative may reasonably request.
(g) As soon as practicable, but not later than the 45th day
following the end of the fiscal quarter first ending after the first anniversary
of the Effective Date, the
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<PAGE> 17
Company will make generally available to its securities holders and furnish to
the Representative an earnings statement or statements in accordance with
Section 11(a) of the Securities Act and Rule 158 of the Rules and Regulations.
(h) The Company will apply the net proceeds from the offering
of the Securities in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(i) The Company will comply with all provisions of all
undertakings contained in the Registration Statement.
(j) The Company will, and at all times for a period of at
least five years after the date of this Agreement, cause the Securities to be
listed on the Nasdaq National Market, and the Company will comply with all
registration, filing, reporting and other requirements of the Exchange Act and
the Nasdaq National Market which may from time to time be applicable to the
Securities, the Ordinary Shares and the Company.
(k) The Company will use its best efforts to maintain
insurance of the types and in the amounts which it deems adequate for its
business consistent with insurance coverage maintained by companies of similar
size and engaged in similar businesses, including, but not limited to, product
liability insurance and general liability insurance covering all real and
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against.
(l) The Company will issue no press release prior to the
Closing Date with respect to the offering without the Representative's prior
written consent.
(m) The Company shall not effect a change in its accounting
firm to any other firm other than a "big six" accounting firm for a period of
three years from the date of this Agreement without the written consent of the
Representative.
4. Fees and Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and
expenses in connection with: the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus, any drafts of each of them and any
amendments or supplements to any of them; the duplication or, if applicable,
printing (including all drafts thereof) of this Agreement, the Agreement Among
Underwriters, any Selected Dealer Agreements, the Preliminary Blue Sky Survey
and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire, the Power
of Attorney and the Depositary Agreement and the duplication and printing
(including of drafts thereof) of any other underwriting documents and material
(including but not limited to
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<PAGE> 18
marketing memoranda and other marketing material) in connection with the
offering, purchase, sale and deliver of the Securities; the issuance and
delivery of the Securities under this Agreement to the several Underwriters,
including all expenses, taxes, duties, fees and commissions on the purchase and
sale of the Securities and stock exchange brokerage and transaction levies with
respect to the purchase and, if applicable, the sale of the Securities (x)
incident to the sale and delivery of the Securities by the Company to the
Underwriters and (y) incident to the sale and delivery of the Securities by the
Underwriters to the initial purchasers thereof; the cost of printing the
certificates for the Securities; the Transfer Agents', Depositary's and
Registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent public accountants and any
other experts named in the Prospectus; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus, the agreements and other
documents and instruments referred to above and any amendments or supplements to
any of the foregoing; the NASD filing fees; the cost of qualifying or
registering the Securities (or obtaining exemptions from qualification or
registration) under the laws of such jurisdictions as the Representative may
designate (including filing fees and fees and costs/disbursements of
Underwriters' counsel in connection with such NASD filings and state securities
or Blue Sky qualifications, registrations and exemptions and in preparing the
preliminary and any final Blue Sky Memorandum); all fees and expenses in
connection with listing of the Securities on the Nasdaq National Market; all
advertising and road show expenses; and all other expenses incurred by the
Company in connection with the performance of its obligations hereunder. In
addition, the Company will pay 80 percent of the out-of-pocket costs and
expenses of the Underwriters and their counsel with respect to the Offering
whether or not the Offering is consummated; provided, however, that the amount
paid by the Company in accordance with this sentence shall not exceed $280,000.
Amounts paid in connection with state securities and Blue Sky qualification
(including filing fees, fees and expenses of counsel shall not be taken into
consideration when calculating the $280,000 "cap" in the preceding sentence.
(ii) In addition to its obligations under Section
7(a) of this Agreement, the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any loss, claim, damage or liability described in
Section 7(a) of this Agreement, it will reimburse or advance to or for the
benefit of the Underwriters, and each of them, on a monthly basis (or more
often, if requested) for all legal and other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse or
advance for the benefit of the Underwriters for such expenses or the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any portion, or all, of any such
interim reimbursement payments or advances are so held to have been improper,
the Underwriters receiving the same shall promptly return such amounts to the
Company together with interest, compounded daily, at the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Bank of
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<PAGE> 19
America, NT&SA, San Francisco, California (the "Prime Rate"), but not in excess
of the maximum rate permitted by applicable law. Any such interim reimbursement
payments or advances that are not made to or for the Underwriters within 30 days
of a request for reimbursement or for an advance shall bear interest at the
Prime Rate, compounded daily, but not in excess of the maximum rate permitted by
applicable law, from the date of such request until the date paid.
(b) In addition to their obligations under Section 7(b) of
this Agreement, the Underwriters severally and in proportion to their obligation
to purchase Shares as set forth on Schedule I hereto, agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding arising out of or based upon any loss, claim, damage or
liability described in Section 7(b) of this Agreement, they will reimburse or
advance to or for the benefit of the Company on a monthly basis (or more often,
if requested) for all legal and other expenses incurred by the Company in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety or enforceability of the
Underwriters' obligation to reimburse or advance for the benefit of the Company
for such expenses and the possibility that such payments or advances might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any portion, or all, of any such interim reimbursement payments or
advances are so held to have been improper, the Company shall promptly return
such amounts to the Underwriters together with interest, compounded daily, at
the Prime Rate, but not in excess of the maximum rate permitted by applicable
law. Any such interim reimbursement payments or advances that are not made to
the Company within 30 days of a request for reimbursement or for an advance
shall bear interest at the Prime Rate, compounded daily, but not in excess of
the maximum rate permitted by applicable law, from the date of such request
until the date paid.
(c) Any controversy arising out of the operation of the
interim reimbursement and advance arrangements set forth in Sections 4(a)(ii)
and 4(b) above, including the amounts of any requested reimbursement payments or
advance, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the indemnifying parties, shall be settled by
arbitration conducted under the provisions of the Code of Arbitration Procedure
of the NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. If the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to the demand or notice is authorized to do so. Any such
arbitration will be limited to the interpretation and obligations of the parties
under the interim reimbursement and advance provisions contained in Sections
4(a)(ii) and 4(b) above and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for or contribute to expenses that
is created by the provisions of Section 7 of this Agreement.
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<PAGE> 20
(d) If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 5 of this Agreement is not satisfied, or because of any
termination pursuant to Section 9(b) of this Agreement, or because of any
refusal, inability or failure on the part of the Company to perform any covenant
or agreement set forth in this Agreement or to comply with any provision of this
Agreement other than by reason of a default by any of the Underwriters, the
Company agrees to reimburse the several Underwriters upon demand for all
out-of-pocket accountable expenses actually incurred (including fees and
disbursements of counsel) that shall have been incurred by any or all of them in
connection with investigating, preparing to market or marketing the Securities
or otherwise in connection with this Agreement.
5. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase and pay for the Securities shall be subject, in the
sole discretion of the Representative, to the accuracy as of the date of
execution of this Agreement, the Closing Date and the date and time at which the
Option Shares are to be purchased, as the case may be, of the representations
and warranties of the Company set forth in this Agreement, to the accuracy of
the statements of the Company and its officers made in any certificate delivered
pursuant to this Agreement, to the performance by the Company of all of its
obligations to be performed under this Agreement at or prior to the Closing Date
or any later date on which Option Shares are to be purchased, as the case may
be, to the satisfaction of all conditions to be satisfied or performed by the
Company at or prior to that date and to the following additional conditions:
(a) The Registration Statement shall have become effective
(or, if a post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective amendment shall become effective and the
Company shall have provided evidence satisfactory to the Representative of such
filing and effectiveness) not later than 5:00 p.m., New York time, on the date
of this Agreement or at such later date and time as the Representative may
approve in writing and, at the Closing Date or, with respect to the Option
Shares, the date on which such Option Shares are to be purchased, no stop order
suspending the effectiveness of the Registration Statement or any qualification,
registration or exemption from qualification or registration for the sale of the
Securities in any jurisdiction shall have been issued and no proceedings for
that purpose shall have been instituted or threatened; and any request for
additional information on the part of the Commission shall have been complied
with to the reasonable satisfaction of the Representative and its counsel.
(b) The Representative shall have received from Heller Ehrman
White & McAuliffe, counsel for the Underwriters, an opinion, on and dated as of
the Closing Date or, if applicable, the date on which Option Shares are to be
purchased, with respect to the issuance and sale of the Securities and such
other related matters as the Representative may reasonably require, and the
Company shall have furnished such counsel with all documents which they may
request for the purpose of enabling them to pass upon such matters.
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(c) The Representative shall have received on the Closing Date
or, if applicable, the later date on which Option Shares are purchased (i) the
opinion of McCutchen, Doyle, Brown & Enersen LLP, counsel for the Company, (ii)
Appleby, Spurling & Kempe, Bermuda counsel for the Company, (iii) Robert W.H.
Wang & Co., Hong Kong counsel to the Company, and (iv) Guangzhou Foreign
Economic Law Office, People's Republic of China counsel to the Company,
addressed to the Underwriters and dated the Closing Date or such later date,
with reproduced copies or signed counterparts thereof for each of the
Underwriters in each case in form and substance satisfactory to the
Representative.
(d) The Representative shall be satisfied that there has not
been any material change in the market for securities in general or in
political, financial or economic conditions in any country or countries as to
render it impracticable in the Representative's judgment to make a public
offering of the Securities, or a material adverse change in market levels for
securities in general (or those of companies in particular) or financial or
economic conditions which render it inadvisable to proceed.
(e) The Representative shall have received on the Closing Date
and on any later date on which Option Shares are purchased a certificate, dated
the Closing Date or such later date, as the case may be, and signed by the
President and the Chief Financial Officer of the Company confirming certain of
the representations and warranties of the Company, as follows:
(i) the representations and warranties of the Company
set forth in Section 1 of this Agreement are true and correct with the same
force and effect as if expressly made at and as of the Closing Date or such
later date on which Option Shares are purchased, and the Company has complied
with all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or such later date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or are threatened under the Securities Act;
(iii) the Securities have been approved for listing
on the Nasdaq National Market, subject only to notice of issuance; and
(iv) (A) the respective signers of such certificate
have carefully examined the Registration Statement in the form in which it
originally became effective and the Prospectus and any supplements or amendments
to any of them and, as of the Effective Date, the statements made in the
Registration Statement and the Prospectus were true and correct in all material
respects and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading, (B) since the Effective Date, no
event has occurred
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<PAGE> 22
that should have been set forth in an amendment to the Registration Statement or
a supplement or amendment to the Prospectus that has not been set forth in such
an amendment or supplement, (C) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus, there has not been any material
change or any development involving a prospective material change in or
affecting the business, properties, condition (financial or otherwise), results
of operations or prospects of the Company and its Subsidiaries taken as a whole
and, since such dates, neither the Company nor any of its Subsidiaries has
entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein, (D) there are not any pending or known threatened legal
proceedings to which the Company or any Subsidiary is a party or of which
property of the Company or any Subsidiary is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus and (E)
there are not any license agreements, contracts, leases or other documents that
are required to be filed as exhibits to the Registration Statement that have not
been filed as required.
(f) The Representative shall have received from Arthur
Andersen, LLP, accountants to the Company, a letter or letters, addressed to the
Underwriters and dated the Closing Date and any later date on which Option
Shares are purchased, confirming that they are independent accountants with
respect to the Company within the meaning of the Securities Act and the
applicable Rules and Regulations thereunder and, based upon the procedures
described in their letter delivered to the Representative concurrently with the
execution of this Agreement (the "Original Letter"), but carried out to a date
not more than five business days prior to the Closing Date or such later date on
which Option Shares are purchased, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in the
Original Letter that are necessary to reflect any changes in the facts described
in the Original Letter since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or information. Such
letters shall not disclose any change, or any development involving a
prospective change, in or affecting the business, properties or condition
(financial or otherwise), results of operations or prospects of the Company
which, in the Representative's sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Shares or the purchase of
the Option Shares as contemplated by the Prospectus. In addition, the
Representative shall have received from Arthur Andersen LLP, on or prior to the
Closing Date, a letter addressed to the Company and made available to the
Representative for the use of the Underwriters stating that their review of the
Company's system of internal controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of March 31, 1996 or in delivering their Original
Letter, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(g) Prior to the Closing Date, the Securities shall have been
approved for listing on the Nasdaq National Market, subject only to official
notice of issuance.
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(h) On or prior to the Closing Date, the Representative shall
have received from all Material Holders executed agreements covering the matters
described in Section 1(s) of this Agreement.
(i) The Company shall have furnished to the Representative
such further certificates and documents as the Representative shall request
(including certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company set forth in this Agreement, the
performance by the Company of its obligations under this Agreement and such
other matters as the Representative may have then requested.
All the agreements, opinions, certificates and letters
mentioned above or elsewhere in this Agreement will be in compliance with the
provisions of this Agreement only if they are satisfactory to the Representative
and its counsel. The Company will furnish the Representative with such number of
conformed copies of such opinions, certificates, letters and documents as the
Representative shall reasonably request.
If any of the conditions specified in this Section 5 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, time being of the essence, or if any of the opinions and certificates
mentioned above or elsewhere in this Agreement shall not be in all material
respects satisfactory in form and substance to the Representative and its
counsel, this Agreement and all obligations of the Underwriters hereunder may be
canceled by the Representative at or at any time prior to, the Closing Date or,
with respect to the Option Shares, prior to the date which the Option Shares are
to be purchased, as the case may be. Notice of such cancellation shall be given
to the Company in writing or by telephone, telecopy or telegraph confirmed in
writing. Any such termination shall be without liability of the Company to the
Underwriters (except as provided in Section 4 or Section 7 of this Agreement)
and without liability of the Underwriters to the Company or the Selling
Securityholders (except as provided in Section 7 of this Agreement).
6. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligations of the Company and the Selling Securityholders
to sell and deliver the Securities required to be delivered as and when
specified in this Agreement shall be subject to the condition that, at the
Closing Date or, with respect to the Option Shares, the date and time at which
the Option Shares are to be purchased, no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereto) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act or other federal, state
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<PAGE> 24
or foreign statute, law or regulation, at common law or otherwise, specifically
including but not limited to losses, claims, damages or liabilities (or action
in respect thereof) related to negligence on the part of any Underwriter, and
the Company agrees to reimburse each such Underwriter and controlling person for
any legal or other expenses (including, except as otherwise provided below,
settlement expenses and fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding that may be brought against, the respective
indemnified parties, in each case insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon, in
whole or in part, (i) any breach of any representation, warranty, covenant or
agreement of the Company contained in this Agreement, (ii) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement in the form originally filed or in any amendment thereto (including
the Prospectus as part thereof) or any post-effective amendment thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading or (iv) any untrue statement or alleged untrue
statement of a material fact contained in any application or other document, or
any amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify or register the Securities under the securities
or Blue Sky laws thereof or to obtain an exception from such qualification or
registration or filed with the Commission, any securities association or the
Nasdaq National Market, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this Section 7(a) shall not apply to such losses, claims, damages,
liabilities or expenses if such statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Underwriter through the Representative specifically for use in any
Preliminary Prospectus or the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto and (2) the indemnity agreement
contained in this Section 7(a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages, liabilities or expenses purchased the Securities
that is the subject thereof (or to the benefit of any person controlling such
Underwriter) if the Company can demonstrate that at or prior to the written
confirmation of the sale of such Securities a copy of the Prospectus (or the
Prospectus as amended or supplemented) or, for this purpose, if applicable, a
copy of the then most recent Preliminary Prospectus was not sent or delivered to
such person and the untrue statement or omission of a material fact contained
in
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<PAGE> 25
such Preliminary Prospectus or, if applicable, prior Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented) or,
if applicable, the then most recent Preliminary Prospectus, unless the failure
is the result of noncompliance by the Company with Section 3 of this Agreement.
The indemnity agreements of the Company contained in this Section 7(a) and the
representations and warranties of the Company contained in Section 1 of this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or behalf of any indemnified party and shall survive the
delivery of and payment for the Securities. This indemnity agreement shall be
in addition to any liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of its officers who signs the
Registration Statement, each of its directors, each other Underwriter and each
person (including each partner or officer thereof) who controls the Company or
any such other Underwriter within the meaning of Section 15 of the Securities
Act from and against any and all losses, claims, damages or liabilities, joint
or several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or other federal, state or foreign
statute, law or regulation or at common law or otherwise and to reimburse each
of them for any legal or other expenses (including, except as otherwise
hereinafter provided, settlement expenses and fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding that may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any breach of any covenant or agreement of the indemnifying
Underwriter contained in this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof) or any post-effective amendment
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, but in each case under clauses (i), (ii) and (iii)
above, as the case may be, only if such statement or omission was made in
reliance upon and in connection with information furnished in writing to the
Company by or on behalf of such indemnifying Underwriter through the
Representative specifically for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The Company acknowledges and agrees that the matters
described in Section 2(g) of this Agreement constitute the only information
furnished in writing by or on behalf of any of the several Underwriters
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<PAGE> 26
for inclusion in the Registration Statement or the Prospectus or in any
Preliminary Prospectus. The several indemnity agreement of each Underwriter
contained in this Section 7(b) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Securities. This
indemnity agreement shall be in addition to any liabilities which each
Underwriter may otherwise have.
(c) Each person or entity indemnified under the provisions of
Sections 7(a) and 7(b) above agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
Sections , it will, if a claim in respect thereunder is to be made against the
indemnifying party or parties under this Section 7, promptly give written notice
(the "Notice") of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in
Sections 7(a) or 7(b) above shall be available to any person who fails to so
give the Notice if the party to whom such Notice was not given was unaware of
the action, suit, investigation, inquiry or proceeding to which the Notice would
have related, but only to the extent such party was materially prejudiced by the
failure to receive the Notice, and the omission to so notify such indemnifying
party or parties shall not relieve such indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of Sections 7(a) and 7(b). Any indemnifying party
shall be entitled at its own expense to participate in the defense of any
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(the "Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense of
such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses or
rights available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or parties, then separate
counsel for and selected by the indemnified party or parties shall be entitled,
at the expense of the indemnifying parties, to conduct the defense of the
indemnified parties to the extent determined by counsel to the indemnified
parties to be necessary to protect the interests of the indemnified party or
parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel selected by such indemnified party or parties
participate in, but not conduct, the defense. If, within a reasonable time after
receipt of the Notice, an indemnifying party gives a Notice of Defense and,
unless separate counsel is to be chosen by the indemnified party or parties as
provided above, the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the
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<PAGE> 27
indemnified party or parties, the indemnifying party or parties will not be
liable under Sections 8(a) through 8(c) for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear and pay the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the "provided, however" clause in the preceding sentence and
(B) the indemnifying party or parties shall bear and pay such other expenses as
it or they have authorized to be incurred by the indemnified party or parties.
If, within a reasonable time after receipt of the Notice, no Notice of Defense
has been given, the indemnifying party or parties shall be responsible for any
legal or other expenses incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
8 but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right to appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 provides for
indemnification in such case, each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in Section 7(a) or 7(b)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by each indemnifying party from the offering of the Securities or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of each
indemnifying party in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, or actions in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Underwriters shall be deemed to be in the same
respective proportion as the total proceeds from the offering of the Securities,
net of the underwriting discounts, received by the Company and the total
underwriting discount retained by the Underwriters bear to the aggregate public
offering price of the Securities. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were to be determined by pro rata
allocation which does not take into account the equitable considerations
referred to in the first sentence of the first paragraph of this Section 7(d)
and to the considerations referred to in the third sentence of the first
paragraph of this Section 7(d). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities, or actions in respect
thereof, referred to in the
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<PAGE> 28
first sentence of the first paragraph of this Section 7(d) shall be deemed to
include any legal or other expenses incurred by such indemnified party in
connection with investigating, preparing to defend or defending against any
action or claim which is the subject of this Section 7(d). Notwithstanding the
provisions of this Section 7(d), no Underwriter shall be required to contribute
any amount in excess of the underwriting discount applicable to the Securities
purchased by that Underwriter. For purposes of this Section 7(d), each person
who controls an Underwriter within the meaning of the Securities Act shall have
the same rights to contribution as such Underwriter, and each person who
controls the Company within the meaning of the Securities Act, each officer of
the Company who signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company; provided,
however, in each case that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute in this Section
7(d) are several in proportion to their respective underwriting obligations and
not joint.
Each party or other entity entitled to contribution agrees
that upon the service of a summons or other initial legal process upon it in any
action instituted against it in respect of which contribution may be sought, it
will promptly give written notice of such service to the party or parties from
whom contribution may be sought, but the omission to so notify such party or
parties of any such service shall not relieve the party from whom contribution
may be sought from any obligation it may have hereunder or otherwise (except as
specifically provided in Section 7(c) above).
(e) The Company shall not, without the prior written consent
of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each such Underwriter and each such
controlling person from any and all liability arising out of such claim, action,
suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including, without
limitation, the provisions of Sections 5(a)(ii), 5(b) and 5(c) and this Section
8 of this Agreement and that they are fully informed regarding all such
provisions. They further acknowledge that the provisions of Sections 5(a)(ii),
5(b) and 5(c) and this Section 8 of this Agreement fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement and Prospectus as required by the Securities Act, the Rules and
Regulations, the Exchange Act and the Exchange Act Rules and Regulations. The
parties are advised that federal or state policy, as
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<PAGE> 29
interpreted by the courts in certain jurisdictions, may be contrary to certain
provisions of Sections 4(a)(ii), 4(b) and 4(c) and this Section 7 of this
Agreement and, to the extent permitted by law, the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public policy
as a defense to a claim under Sections 4(a)(ii), 4(b) or 4(c) or this Section 7
of this Agreement and further agree not to attempt to assert any such defense.
9. Substitution of Underwriters. If for any reason one or more of the
Underwriters fails or refuses (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of Section 5 or Section
9 of this Agreement) to purchase and pay for the number of Shares agreed to be
purchased by such Underwriter or Underwriters, the Representative shall
immediately give notice thereof to the Company and the non-defaulting
Underwriters shall have the right within 24 hours after the receipt by the
Representative of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon among the
Representative and such purchasing Underwriter or Underwriters and upon the
terms set forth herein, all or any part of the Shares that such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail to make such arrangements with respect to all such Shares, the
number of shares of Shares that each non-defaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased on a
pro rata basis to absorb the remaining Shares that the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares that the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate amount of such
Shares exceeds 10% of the aggregate amount of Shares that all Underwriters
agreed to purchase under this Agreement. If the total number of shares of Shares
that the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the first 24-hour
period above referred to, to make arrangements with other underwriters or
purchasers satisfactory to the Representative for purchase of such Shares on the
terms set forth in this Agreement. In any such case, either the Representative
or the Company shall have the right to postpone the Closing Date determined as
provided in Section 2(c) of this Agreement for not more than seven business days
after the date originally fixed as the Closing Date pursuant to Section 2(c) in
order that any necessary changes in the Registration Statement, the Prospectus
or any other documents or arrangements may be made.
If neither the non-defaulting Underwriters nor the Company
shall make arrangements within the time periods set forth above for the purchase
of all the Shares that the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter (except as provided in Section 4 or Section 7 of this Agreement) and
without any liability on the part of any nondefaulting Underwriters to the
Company (except to the extent provided in Section 7 of this Agreement). Nothing
in this Section 8, and no action taken hereunder, shall relieve any defaulting
Underwriter from
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<PAGE> 30
liability, if any, to the Company or any nondefaulting Underwriter for damages
occasioned by its default under this Agreement. The term "Underwriter" in this
Agreement shall include any persons substituted for an Underwriter under this
Section 8.
9. Effective Date of Agreement and Termination.
(a) If the Registration Statement has not been declared
effective prior to the date of this Agreement, this Agreement shall become
effective at such time, after notification of the effectiveness of the
Registration Statement has been released by the Commission, as the
Representative and the Company shall agree upon the public offering price and
other terms and the purchase price of the Securities. If the public offering
price and other terms and the purchase price of the Securities shall not have
been determined prior to 5:00 p.m., New York time, on the third full business
day after the Registration Statement has become effective, this Agreement shall
thereupon terminate without liability on the part of the Company to the
Underwriters (except as provided in Section 4 or Section 7 of this Agreement).
By giving notice before the time this Agreement becomes effective, the
Representative, as representative of the several Underwriters, may prevent this
Agreement from becoming effective without liability of any party to the other
party, except that the Company shall remain obligated to pay costs and expenses
to the extent provided in Section 4 and Section 7 of this Agreement. If the
Registration Statement has been declared effective prior to the date of this
Agreement, this Agreement shall become effective upon execution and delivery by
the Representative and the Company.
(b) This Agreement may be terminated by the Representative in
its absolute discretion by giving written notice to the Company at any time on
or prior to the Closing Date or, with respect to the purchase of the Option
Shares, to the Company on or prior to any later date on which the Option Shares
are to be purchased, as the case may be, if prior to such time any of the
following has occurred or, in the Representative's opinion, is likely to occur:
(i) after the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material change or development
involving a prospective adverse change in or affecting the business, properties,
condition (financial or otherwise), results of operations or prospects of the
Company and its subsidiaries taken as a whole, which would, in the
Representative's sole judgment, make the offering or the delivery of the
Securities impracticable or inadvisable; or (ii) if trading in securities of the
Company has been suspended by the Commission or if trading generally on the New
York Stock Exchange, American Stock Exchange, Nasdaq National Market or
over-the-counter market has been suspended or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by either of such exchanges, by the NASD or by the Commission; or
(iii) if there shall have been the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, court, legislative body,
agency or other governmental authority which in the Representative's sole
judgment materially affects or may materially affect the business, properties,
condition (financial or otherwise), results of operations or prospects of the
Company and its
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<PAGE> 31
subsidiaries taken as a whole; (iv) if there shall have been the declaration of
a banking moratorium by federal, New York or California authorities; (v)
existing international monetary conditions shall have undergone a material
change which, in the Representative's sole judgment, makes the offering or
delivery of the Securities impracticable or inadvisable; or (vi) if there has
occurred any material change in the financial markets in the United States or
internationally or any outbreak of hostilities or escalation of existing
hostilities or other crisis, the effect of which in the Representative's sole
judgment make the offering or delivery of the Securities impracticable or
inadvisable. If this Agreement shall be terminated pursuant to this Section 9,
there shall be no liability of the Company to the Underwriters (except pursuant
to Section 4 and Section 7 of this Agreement) and no liability of the
Underwriters to the Company (except pursuant to Section 7 of this Agreement).
10. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by either telecopier or telegraph and, if to
the Underwriters, shall be mailed, telecopied or telegraphed or delivered to Van
Kasper & Company, 11661 San Vincente Boulevard, Suite 709, Los Angeles,
California 90049, Attention: Bruce P. Emmeluth (telecopier: (310) 820-5032); and
if to the Company, shall be mailed, telecopied, telegraphed or delivered to it
at its office at ______________________. All notices given by telecopy or
telegraph shall be promptly confirmed by letter.
11. Persons Entitled to the Benefit of This Agreement. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 4 and
Section 7 of this Agreement, the several parties (in addition to the Company and
the several Underwriters) indemnified under the provisions of Section 4 and
Section 7 and in addition, as to Section 4, Van Kasper & Company, and its
respective personal representatives, successors and assigns (whether such
succession or assignment is by sale, assignment, merger, reverse merger,
consolidation, operation of law or, without limitation, otherwise). Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision contained herein. The term "successors and
assigns" as herein used shall not include any purchaser, as such, of any of the
Shares from the several Underwriters.
12. General. Notwithstanding any provision of this Agreement to the
contrary, the reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties, covenants and
agreements in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof or by or on behalf of
the Company or their respective directors or officers and (c) delivery and
payment for the Securities under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of Sections
3(f), 3(g), 3(h), 3(i) and 3(j) of this Agreement shall be of no further force
or effect.
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<PAGE> 32
This Agreement may be executed in two or more counterparts, each of
which shall constitute an original, but all of which together shall constitute
one and the same instrument.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS, AND NOT THE LAWS PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF
THE STATE OF CALIFORNIA.
13. Authority of the Representative. In connection with this Agreement,
the Representative will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by the Representative, as representative
of the several Underwriters, will be binding on all of the Underwriters.
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<PAGE> 33
If the foregoing correctly sets forth your understanding,
please so indicate by signing in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company and
the several Underwriters.
Very truly yours,
ZINDART LIMITED
By: /s/ Feather Siu Yung Fok
-------------------------------------
Feather Siu Yung Fok
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
VAN KASPER & COMPANY
By: /s/ Bruce P. Emmeluth
------------------------------------
Bruce P. Emmeluth, Managing Director
On its behalf and on behalf of each of the
several Underwriters named in Schedule I hereto
<PAGE> 34
SCHEDULE I
UNDERWRITERS
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------
Van Kasper & Company
---------
Total =======
<PAGE> 1
EXHIBIT 3.2
THE COMPANIES ORDINANCE (CHAPTER 32)
Private Company Limited by Shares
ARTICLES OF ASSOCIATION
OF
ZINDART LIMITED
( )
PRELIMINARY
1. The regulations in Table A in the First Schedule to the Ordinance shall
not apply to the Company. Any reference to an "Article" or "Articles"
shall mean an article or articles contained herein.
INTERPRETATION
2. (a) In these Articles
"ORDINANCE" means the Companies Ordinance, Chapter 32.
"SEAL" means the common seal of the Company or any official
seal which the Company may, by the Ordinance, be
permitted to have.
"SECRETARY" means any person appointed to perform the duties of
the secretary of the Company.
Expressions referring to writing shall, unless the contrary
intention appears, be construed as including references to printing,
lithography, photography, and other modes of representing or
reproducing words in a visible form.
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<PAGE> 2
Unless the context otherwise requires, words or expressions
contained in these Articles shall bear the same meaning as in the
Ordinance or any statutory modification thereof in force at the date
at which these Articles become binding on the Company.
The headings are inserted for convenience only and shall not affect
the construction of these Articles.
(b) A cable telex or telexfax message sent by a member or by a director
of the Company shall be deemed to be a document signed by him for
the purposes of Article 1 1 5.
SHARE CAPITAL AND VARIATION OF RIGHTS
3. Without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares, any share in the
Company may be issued with such preferred, deferred or other special
rights or such restrictions, whether in regard to dividend, voting, return
of capital or otherwise as the Company may from time to time by ordinary
resolution determine.
4. Subject to the provisions of Section 49 of the Ordinance, any preference
shares may, with the sanction of an ordinary resolution, be issued on the
terms that they are, or at the option of the Company are liable, to be
redeemed on such terms and in such manner as the Company before the issue
of the shares may by special resolution determine.
5. If at any time the share capital is divided into different classes of
shares, the rights attached to any class may, whether or not the Company
is being wound up, be varied with the consent in writing of the holders of
three-fourths in nominal value of the issued shares of that class, or with
the sanction of a special resolution passed at a separate general meeting
of the holders of the shares of the class.
6. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to
be varied by the creation or issue of further shares ranking pari passu
therewith.
7. The Company may exercise the powers of paying commissions conferred by
Section 46 of the Ordinance, provided that the rate per cent or the amount
of the commission paid or agreed to be paid shall be disclosed in the
manner required by the said Section and the rate of the commission shall
not exceed the rate of 10 per cent of the price at which the shares in
respect whereof the same is paid are issued or an amount equal to 10 per
cent of such price (as the case may be). Such commission may be satisfied
by the payment of cash or the allotment of fully or partly paid shares or
partly in one way and partly in the other. The Company may also on any
issue of shares pay such brokerage as may be lawful.
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<PAGE> 3
8. Except as required by law, no person shall be recognized by the Company as
holding any share upon any trust, and the Company shall not be bound by or
be compelled in any way to recognize (even when having notice thereof) any
equitable, contingent, future or partial interest in any share or any
interest in any fractional part of a share or (except only as by these
Articles or by law otherwise provided) any other rights in respect of any
share except an absolute right to the entirety thereof in the registered
holder.
9. Every person whose name is entered as a member in the register of members
shall be entitled without payment to receive within 2 months after
allotment or lodgment of transfer (or within such other period as the
conditions of issue shall provide) one certificate for all his shares or
several certificates each for 1 or more of his shares upon payment of HK$5
for every certificate after the first or such less sum as the directors
shall from time to time determine. Every certificate shall be under the
seal, or under the official seal kept by the Company under Section 73A of
the Ordinance, and shall specify the shares to which it relates and the
amount paid up thereon. Provided that in respect of a share or shares held
jointly by several persons the Company shall not be bound to issue more
than 1 certificate, and delivery of a certificate for a share to 1 of
several joint holders shall be sufficient delivery to all such holders.
10. If a share certificate be defaced, lost or destroyed, it may be renewed on
payment of a fee of HK$5 or such less sum and on such terms (if any) as to
evidence and indemnity and the payment of out-of-pocket expenses of the
Company of investigating evidence as the directors think fit.
11. The Company shall not give, whether directly or indirectly, and whether by
means of a loan, guarantee, the provision of security or otherwise, any
financial assistance for the purpose of or in connexion with a purchase or
subscription made or to be made by any person of or for any shares in the
Company or in its holding company nor shall the Company make a loan for
any purpose whatsoever on the security of its shares or those of its
holding company, but this Article shall not prohibit any transaction
permitted by Section 47C of the Ordinance.
LIEN
12. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys (whether presently payable or
not) called or payable at a fixed time in respect of that share, and the
Company shall also have a first and paramount lien on all shares (other
than fully paid shares) standing registered in the name of a single person
for all moneys presently payable by him or his estate to the Company; but
the directors may at any time declare any share to be wholly or in part
exempt from the provisions of this Article. The Company's lien, if any, on
a share shall extend to all dividends payable thereon.
13. The Company may sell, in such manner as the directors think fit, any
shares on which the Company has a lien, but no sale shall be made unless a
sum in respect of which the lien exists is presently payable, nor until
the expiration of 14 days after a notice in writing, stating and demanding
payment of such part of the amount in respect of which the lien exists as
is presently payable, has been given
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<PAGE> 4
to the registered holder for the time being of the share, or the person
entitled thereto by reason of his death or bankruptcy.
14. To give effect to any such sale the directors may authorize some person to
transfer the shares sold to the purchaser thereof. The purchaser shall be
registered as the holder of the shares comprised in any such transfer, and
he shall not be bound to see to the application of the purchase money, nor
shall his title to the shares be affected by any irregularity or
invalidity in the proceedings in reference to the sale.
15. The proceeds of the sale shall be received by the Company and applied in
payment of such part of the amount in respect of which the lien exists as
is presently payable, and the residue, if any, shall (subject to a like
lien for sums not presently payable as existed upon the shares before the
sale) be paid to the person entitled to the shares at the date of the
sale.
CALLS ON SHARES
16. The directors may from time to time make calls upon the members in
respect of any moneys unpaid on their shares (whether on account of the
nominal value of the shares or by way of premium) and not by the
conditions of allotment thereof made payable at fixed times and each
member shall (subject to receiving at least 14 days' notice specifying the
time or times and place of payment) pay to the Company at the time or
times and place so specified the amount called on his shares. A call may
be revoked or postponed as the directors may determine.
17. A call shall be deemed to have been made at the time when the resolution
of the directors authorizing the call was passed and may be required to be
paid by instalments.
18. If by the conditions of allotment of any shares, the whole or part of the
amount or issue price thereof shall be payable by instalments, every such
instalment shall, when due, be paid to the Company by the person who for
the time being and from time to time shall be the registered holder of the
share, or his legal personal representative, and the word "call" wherever
used in these Articles shall be deemed to include such an instalment.
19. If two or more persons are registered as joint holders of any share they
shall be severally as well as jointly liable for any call or other
liability in respect of such share but any one of them may give effectual
receipts for any dividends, bonuses or other moneys payable in respect of
such share. The first named upon the register shall, however, as regards
voting, proxy, service of notices and delivery of certificates and
dividend warrants, be deemed to be the sole owner of such share.
20. No person shall exercise any rights of a member until his name shall have
been entered in the register of members and he shall have paid all calls
and other moneys for the time being due and payable on any share held by
him.
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21. If a sum called in respect of a share is not paid before or on the day
appointed for payment thereof, the person from whom the sum is due shall
pay interest on the sum from the day appointed for payment thereof to the
time of actual payment at such rate not exceeding 10 per cent per annum
as the directors may determine, but the directors shall be at liberty to
waive payment of such interest wholly or in part.
22. Any sum which by the terms of issue of a share becomes payable on
allotment or at any fixed date, whether on account of the nominal value of
the share or by way of premium, shall for the purposes of these
regulations be deemed to be a call duly made and payable on the date on
which by the terms of issue the same becomes payable, and in case of
non-payment all the relevant provisions of these regulations as to payment
of interest and expenses, forfeiture or otherwise shall apply as if such
sum had become payable by virtue of a call duly made and notified.
23. The directors may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment.
24. The directors may, if they think fit, receive from any member willing to
advance the same, all or any part of the moneys uncalled and unpaid upon
any shares held by him, and upon all or any of the moneys so advanced may
(until the same would, but for such advance, become payable) pay interest
at such rate not exceeding (unless the Company in general meeting shall
otherwise direct) 8 per cent per annum, as may be agreed upon between the
directors and the member paying such sum in advance.
TRANSFER AND TRANSMISSION OF SHARES
25. The instrument of transfer of any share shall be executed by or on behalf
of the transferor and transferee, and the transferor shall be deemed to
remain a holder of the share until the name of the transferee is entered
in the register of members in respect thereof.
26. Subject to such of the restrictions of these Articles as may be
applicable, any member may transfer all or any of his shares by instrument
in writing in any usual or common form or any other form which the
directors may approve.
27. The directors may decline to register the transfer of a share (not being a
fully paid share) to a person of whom they shall not approve, and they may
also decline to register the transfer of a share on which the Company has
a lien.
28. Any person becoming entitled to a share in consequence of the death or
bankruptcy of a member (or, being a company, the liquidation thereof) may
elect, instead of being registered himself as the holder of the share, to
have some person nominated by him registered as the transferee thereof but
if he shall so elect, the directors shall have the same right to refuse or
suspend registration as they would have had in the case of a transfer of
the share by that member before his death or bankruptcy (or liquidation),
as the case may be.
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<PAGE> 6
29. If the person so becoming entitled shall elect to be registered himself,
he shall deliver or send to the Company a notice in writing signed by him
stating that he so elects. If he shall elect to have another person
registered he shall testify his election by executing to that person a
transfer of the share. All the limitations, restrictions and provisions of
these Articles relating to the right to transfer and the registration of
transfers of shares shall be applicable to any such notice or transfer as
aforesaid as if the death or bankruptcy (or liquidation) of the member had
not occurred and the notice or transfer were a transfer signed by that
member.
30. A person becoming entitled to a share by reason of the death or bankruptcy
(or liquidation) of the holder shall be entitled to the same dividends and
other advantages to which he would be entitled if he were the registered
holder of the share, except that he shall not before being registered as a
member in respect of the share, be entitled in respect of it to exercise
any right conferred by membership in relation to meetings of the Company:-
Provided always that the directors may at any time give notice requiring
any such person to elect either to be registered himself or to transfer
the share, and if the notice is not complied with within 90 days the
directors may thereafter withhold payment of all dividends, bonuses or
other moneys payable in respect of the share until the requirements of the
notice have been complied with.
31. Any person to whom the right to any shares in the Company has been
transmitted by operation of law shall, if the directors refuse to
register the transfer, be entitled to call on the directors to furnish
within 28 days a statement of the reasons for the refusal.
32. The directors may decline to recognize any instrument of transfer unless:-
(a) a fee of HK$5 or such lesser sum as the directors may from time to
time require is paid to the Company in respect thereof;
(b) the instrument of transfer is accompanied by the certificate of the
shares to which it relates, and such other evidence as the directors
may reasonably require to show the right of the transferor to make
the transfer; and
(c) the instrument of transfer is in respect of only one class of share.
33. If the directors refuse to register a transfer they shall within 2 months
after the date on which the transfer was lodged with the Company send to
the transferor and transferee notice of the refusal.
34. The registration of transfers may be suspended at such times and for such
periods as the directors may from time to time determine, provided always
that such registration shall not be suspended in any year for more than 30
days or, where the period for closing the register of members is extended
in respect of that year under Section 99(2)(a) of the Ordinance, for more
than that extended period.
35. The Company shall be entitled to charge a fee not exceeding HK$5 on the
registration of every probate, letters of administration, certificate of
death or
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marriage, power of attorney, or other instrument.
36. In case of the death of a member the survivor or survivors where the
deceased was a joint holder, and the legal personal representatives of the
deceased where he was a sole holder, shall be the only persons recognized
by the Company as having any title to his interest in the shares; but
nothing herein contained shall release the estate of a deceased joint
holder from any liability in respect of any share which had been jointly
held by him with other persons.
FORFEITURE OF SHARES
37. If a member fails to pay any call or instalment of a call on the day
appointed for payment thereof, the directors may, at any time thereafter
during such time as any part of the call or instalment remains unpaid,
serve a notice on him requiring payment of so much of the call or
instalment as is unpaid, together with any interest which may have
accrued.
38. The notice shall name a further day (not earlier than the expiration of 14
days from the date of service of the notice) on or before which the
payment required by the notice is to be made, and shall state that in the
event of non-payment at or before the time appointed the shares in respect
of which the call was made will be liable to be forfeited.
39. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which the notice has been given may at any time
thereafter, before the payment required by the notice has been made, be
forfeited by a resolution of the directors to that effect.
40. A forfeited share may be sold or otherwise disposed of on such terms and
in such manner as the directors think fit, and at any time before a sale
or disposition the forfeiture may be cancelled on such terms as the
directors think fit.
41. A person whose shares have been forfeited shall cease to be a member in
respect of the forfeited shares, but shall, notwithstanding, remain liable
to pay to the Company all moneys which, at the date of forfeiture, were
payable by him to the Company in respect of the shares, but his liability
shall cease if and when the Company shall have received payment in full of
all such moneys in respect of the shares.
42. A statutory declaration in writing that the declarant is a director or the
Secretary of the Company, and that a share in the Company has been duly
forfeited on a date stated in the declaration, shall be conclusive
evidence of the facts therein stated as against all persons claiming to be
entitled to the share. The Company may receive the consideration, if any,
given for the share on any sale or disposition thereof and may execute a
transfer of the share in favour of the person to whom the share is sold
or disposed of and he shall thereupon be registered as the holder of the
share, and shall not be bound to see to the application of the purchase
money, if any, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings in reference to the
forfeiture, sale or disposal of the share.
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<PAGE> 8
43. The provisions of these Articles as to forfeiture shall apply in the case
of non-payment of any sum which, by the terms of issue of a share, becomes
payable at a fixed time, whether on account of the nominal value of the
share or by way of premium, as if the same had been payable by virtue of a
call duly made and notified.
CONVERSION OF SHARES INTO STOCK
44. The Company may by ordinary resolution convert any paid-up shares into
stock, and reconvert any stock into paid-up shares of any denomination.
45. The holders of stock may transfer the same, or any part thereof, in the
same manner, and subject to the same Articles, as and subject to which the
shares from which the stock arose might previously to conversion have been
transferred, or as near thereto as circumstances admit; and the directors
may from time to time fix the minimum amount of stock transferable but so
that such minimum shall not exceed the nominal amount of the shares from
which the stock arose.
46. The holders of stock shall, according to the amount of stock held by them,
have the same rights, privileges and advantages as regards dividends,
voting at meetings of the Company and other matters as if they held the
shares from which the stock arose, but no such privilege or advantage
(except participation in the dividends and profits of the Company and in
the assets on winding up) shall be conferred by an amount of stock which
would not, if existing in shares, have conferred that privilege or
advantage.
47. Such of the Articles of the Company as are applicable to paid-up shares
shall apply to stock, and the words "share" and "shareholder" therein
shall include "stock" and "stockholder".
ALTERATION OF CAPITAL
48. The Company may from time to time by ordinary resolution increase the
share capital by such sum, to be divided into shares of such amount, as
the resolution shall prescribe.
49. The Company may by ordinary resolution:-
(a) consolidate and divide all or any of its share capital into shares
of larger amount than its existing shares;
(b) sub-divide its existing shares, or any of them, into shares of
smaller amount than is fixed by the Memorandum of Association
subject, nevertheless, to the provisions of Section 53(l)(d) of the
Ordinance;
(c) cancel any shares which, at the date of the passing of the
resolution, have not been taken or agreed to be taken by any person.
50. The Company may by special resolution reduce its share capital, any
capital
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<PAGE> 9
redemption reserve fund or any share premium account in any manner and
with, and subject to, any incident authorized, and consent required, by
law.
PURCHASE OF OWN SHARES
51. At any time while the Company is a listed company within the meaning of
the Ordinance, it may, subject to sections 49, 49A, 49B(6), 49BA, 49C,
49E, 49F, 49G, 49H, 49P, 49Q, 49R and 49S of the Ordinance, purchase its
own shares (including any redeemable shares).
52. At any time while the Company is an unlisted company within the meaning of
the Ordinance, it may, subject to sections 49 to 49S of the Ordinance,
purchase its own shares (including any redeemable shares).
53. Notwithstanding section 49B(1) and (2) but subject to sections 49, 49A,
49B(6), 49F, 49G, 49H, 49I(4) and (5), 49P, 49Q, 49R and 49S of the
Ordinance (except that such purchases may be made either out of or
otherwise than out of the distributable profits of the Company or the
proceeds of a fresh issue of shares), the Company may purchase its own
shares (including any redeemable shares) in order to :-
(a) settle or compromise a debt or claim;
(b) eliminate a fractional share or fractional entitlement or an odd lot
of shares (as defined in section 49B(5) of the Ordinance;
(c) fulfil an agreement in which the Company has an option, or under
which the Company is obliged, to purchase shares under an employee
share scheme which had previously been approved by the Company in
general meeting; or
(d) comply with an order of the court under :-
(i) section 8(4)
(ii) section 47G(5), where such order provides for the matters
referred to in section 47G(6); or
(iii) section 168A(2)
of the Ordinance.
ALLOTMENT OF SHARES
54. The directors shall not exercise any power conferred on them to allot
shares in the Company without the prior approval of the Company in general
meeting where such approval is required by Section 57B of the Ordinance.
GENERAL MEETINGS
55. The Company shall in each year hold a general meeting as its annual
general meeting in addition to any other meetings in that year, and shall
specify the meeting as such in the notices calling it; and not more than
15 months shall
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elapse between the date of one annual general meeting of the Company and
that of the next. Provided that so long as the Company holds its first
annual general meeting within 18 months of its incorporation, it need not
hold it in the year of its incorporation or in the following year. The
annual general meeting shall be held at such time and place as the
directors shall appoint.
56. All general meetings other than annual general meetings shall be called
extraordinary general meetings.
57. The directors may, whenever they think fit, convene an extraordinary
general meeting, and extraordinary general meetings shall also be convened
on such requisition, or in default, may be convened by such
requisitionists, as provided by Section 1 1 3 of the Ordinance. A/%
NOTICE OF GENERAL MEETINGS
58. All general meetings of the Company (including annual general meetings and
extraordinary general meetings) shall be called by at least 21 days'
notice in writing. The notice shall be exclusive of the day on which it is
served or deemed to be served and of the day for which it is given, and
shall specify the place, the day and the hour of meeting and, in case of
special business, the general nature of that business, and shall be given,
in manner hereinafter mentioned or in such other manner, if any, as may be
prescribed by the Company in general meeting, to such persons as are,
under the Articles of the Company, entitled to receive such notices from
the Company.
Provided that a meeting of the Company shall, notwithstanding that it is
called by shorter notice than that specified in this Article, be deemed to
have been duly called if it is so agreed :-
(a) in the case of a meeting called as the annual general meeting, by
all the members entitled to attend and vote thereat; and
(b) in the case of any other meeting, by a majority in number of the
members having a right to attend and vote at the meeting, being a
majority together holding not less than 95 per cent in nominal value
of the shares giving that right.
59. The accidental omission to give notice of a meeting to, or the non-receipt
of notice of a meeting by, any person entitled to receive notice shall not
invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
60. All business shall be deemed special that is transacted at any
extraordinary general meeting, and also all that is transacted at an
annual general meeting, with the exception of declaring a dividend, the
consideration of the accounts, balance sheets, and the reports of the
directors and auditors, the election of directors in
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the place of those retiring and the appointment of, and the fixing of the
remuneration of, the auditors.
61. No business shall be transacted at any general meeting unless a quorum of
members is present at the time when the meeting proceeds to business and
continues to be present until the conclusion of the meeting; save as
herein otherwise provided, 2 members present in person or by proxy shall
be a quorum.
62. If within half an hour from the time appointed for the meeting a quorum is
not present, the meeting, if convened upon the requisition of members,
shall be dissolved; in any other case it shall stand adjourned to the same
day in the next week, at the same time and place or to such other day and
at such other time and place as the directors may determine, and if at the
adjourned meeting a quorum is not present within half an hour from the
time appointed for the meeting, the members present shall be a quorum.
63. The chairman, if any, of the board of directors shall preside as chairman
at every general meeting of the Company, or if there is no such chairman,
or if he shall not be present within 15 minutes after the time appointed
for the holding of the meeting or is unwilling to act or is absent from
Hong Kong or has given notice to the Company of his intention not to
attend the meeting, the directors present shall elect one of their number
to be chairman of the meeting.
64. If at any meeting no director is willing to act as chairman or if no
director is present within 15 minutes after the time appointed for holding
the meeting, the members present shall choose one of their number to be
chairman of the meeting.
65. The chairman may, with the consent of any meeting at which a quorum is
present (and shall if so directed by the meeting), adjourn the meeting
from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place. When a
meeting is adjourned for 30 days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting. Save as aforesaid it
shall not be necessary to give any notice of an adjournment or of the
business to be transacted at an adjourned meeting.
66. At any general meeting a resolution put to the vote of the meeting shall
be decided on a show of hands unless a poll is (before or on the
declaration of the result of the show of hands) demanded:-
(a) by the chairman; or
(b) by at least 2 members present in person or by proxy; or
(c) by any member or members present in person or by proxy and
representing not less than one-tenth of the total voting rights of
all the members having the right to vote at the meeting; or
(d) by a member or members holding shares in the Company conferring a
right to vote at the meeting being shares on which an aggregate sum
has been paid up equal to not less than one-tenth of the total sum
paid up on
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all the shares conferring that right.
Unless a poll be so demanded a declaration by the chairman that a
resolution has on a show of hands been carried or carried unanimously, or
by a particular majority, or lost and an entry to that effect in the book
containing the minutes of the proceedings of the Company shall be
conclusive evidence of the fact without proof of the number or proportion
of the votes recorded in favour of or against such resolution.
The demand for a poll may be withdrawn.
67. Except as provided in Article 69, if a poll is duly demanded it shall be
taken in such manner as the chairman directs, and the result of the poll
shall be deemed to be the resolution of the meeting at which the poll was
demanded.
68. In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman of the meeting at which the show of hands takes place
or at which the poll is demanded, shall not be entitled to a second or
casting vote.
69. A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith. A poll demanded on any other
question shall be taken at such time as the chairman of the meeting
directs, and any business other than that upon which a poll has been
demanded may be proceeded with pending the taking of the poll.
VOTES OF MEMBERS
70. Subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a show of hands every member present in
person or by proxy shall have 1 vote, and on a poll every member shall
have 1 vote for each share of which he is the holder.
71. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders; and for this purpose seniority shall be
determined by the order in which the names stand in the register of
members.
72. A member of unsound mind, or in respect of whom an order has been made by
any court having jurisdiction in lunacy, may vote, whether on a show of
hands or on a poll, by his committee, receiver, curator bonis, or other
person in the nature of a committee, receiver or curator bonis appointed
by that court, and any such committee, receiver, curator bonis or other
person may, on a poll, vote by proxy.
73. No member shall be entitled to vote at any general meeting unless all
calls or other sums presently payable by him in respect of shares in the
Company have been paid.
74. No objection shall be raised to the qualification of any voter except at
the meeting or adjourned meeting at which the vote objected to is given or
tendered, and every
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vote not disallowed at such meeting shall be valid for all purposes. Any
such objection made in due time shall be referred to the chairman of the
meeting, whose decision shall be final and conclusive.
75. On a poll votes may be given either personally or by proxy.
76. The instrument appointing a proxy shall be in writing under the hand of
the appointer or of his attorney duly authorized in writing, or, if the
appointer is a corporation, either under seal, or under the hand of an
officer or attorney duly authorized. A proxy need not be a member of the
Company.
77. The attorney of any member shall be entitled to vote on a show of hands or
on a poll on behalf of such member in the same manner as the duly
appointed proxy of such member provided that a duly certified copy of the
power of attorney shall have been deposited or handed over in the same
manner and subject to the same time limits as provided for proxies in the
following Article.
78. The instrument appointing a proxy and the power of attorney (if any) under
which it is signed, or a duly certified copy thereof, shall be deposited
at the registered office of the Company or with the Secretary of the
Company before the meeting for which it is to be used or shall be handed
to the Secretary or the chairman of the meeting at which it is to be used
before the person named in such instrument purports to vote in respect
thereof. No instrument appointing a proxy shall be valid after the
expiration of twelve months from the date of its execution.
79. An instrument appointing a proxy shall be in the following form or a form
as near thereto as circumstances admit:-
ZINDART LIMITED
"I/We of
being a member/members of the abovenamed company, hereby appoint
of
, or failing him, of
as my/our proxy to vote for me/us on my/our behalf at the (annual or
extraordinary, as the case may be] general meeting of the company to be held on
the day of 19 , and at any adjournment thereof.
Signed this day of 19 ,"
80. Where it is desired to afford members an opportunity of voting for or
against a resolution the instrument appointing a proxy shall be in the
following form or a form as near thereto as circumstances admit:-
ZINDART LIMITED
I /We, of , being a
member/members of
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<PAGE> 14
the abovenamed company, hereby appoint of ,
or failing him, of ,
as my/our proxy to vote for me/us on my/our behalf at the [annual or
extraordinary, as the case may be] general meeting of the company, to be held on
the day of 19 , and at any adjournment thereof.
Signed this day of 19 .
* in favour of
This form is to be used -------------- the resolution.
against
Unless otherwise instructed, the proxy will vote as he thinks fit.
* Strike out whichever is not desired."
81. The instrument appointing a proxy shall be deemed to confer authority to
demand or join in demanding a poll.
82. A vote given in accordance with the terms of an instrument of proxy shall
be valid notwithstanding the previous death or insanity of the principal
or revocation of the proxy or of the authority under which the proxy was
executed, or the transfer of the share in respect of which the proxy is
given, provided that no intimation in writing of such death, insanity,
revocation or transfer as aforesaid shall have been received by the
Company at the office before the commencement of the meeting or adjourned
meeting at which the proxy is used.
83. A general meeting of the Company may be held by telephonic conference call
attended by such number of members of the Company who would be entitled to
receive notice of and to attend and vote at a general meeting of the
Company that will constitute a necessary quorum of general meetings, or by
their duly appointed proxies or attorneys. Resolutions passed at such
meeting shall be as valid and effectual as if it had been duly passed at a
general meeting of the Company duly convened and held and, where relevant,
as a special resolution passed.
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
84. Any corporation or limited partnership which is a member of the Company
may by resolution of its directors, partners or other governing body
authorize such person as it thinks fit to act as its representative at any
meeting of the Company or of any class of members of the Company, and the
person so authorized shall be entitled to exercise the same powers on
behalf of the corporation or limited partnership which he represents as
that corporation or limited partnership could exercise if it were an
individual member of the Company.
DIRECTORS
85. (a) The names of the first directors shall be determined in writing
by the subscribers of the Memorandum of Association or a majority of
them.
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(b) The number of directors of the Company shall not be less than five
and, unless and until the Company in general meeting shall otherwise
determine, shall not be more than nine. Until the appointment of the
first directors, the subscribers hereto may exercise all the powers
of the directors.
86. The remuneration of the directors shall from time to time be determined by
the Company in general meeting. Such remuneration shall be deemed to
accrue from day to day. The directors may also be paid all travelling,
hotel and other expenses properly incurred by them in attending and
returning from meetings of the directors or any committee of the directors
or general meetings of the Company or in connexion with the business of
the Company.
87. The directors of the Company shall not be required to own any shares of
the Company as a condition of their appointment or continued engagement as
directors.
88. A director of the Company may be or become a director or other officer of,
or otherwise interested in, any company promoted by the Company or in
which the Company may be interested as shareholder or otherwise, and,
subject to the Ordinance, no such director shall be accountable to the
Company for any remuneration or other benefits received by him as a
director or officer of, or from his interest in, such other company
unless the Company otherwise direct.
89. If the directors or any of them or any other person shall become
personally liable for the payment of any sum primarily due from the
Company, the directors may execute or cause to be executed any mortgage
charge or security over or affecting the whole or any part of the assets
of the Company by way of indemnity to secure the directors or person so
becoming liable as aforesaid from any loss in respect of such liability.
BORROWING POWERS
90. The directors may exercise all the powers of the Company to borrow money,
and to mortgage or charge its undertaking, property and uncalled capital,
or any part thereof, and to issue debentures, debenture stock, and,
subject to Section 57B of the Ordinance, convertible debentures and
convertible debenture stock, and other securities whether outright or as
security for any debt, liability or obligation of the Company or of any
third party.
POWERS AND DUTIES OF DIRECTORS
91. The business of the Company shall be managed by the directors, who may pay
all expenses incurred in promoting and registering the Company, and may
exercise all such powers of the Company as are not, by the Ordinance or by
these Articles, required to be exercised by the Company in general
meeting, subject, nevertheless, to any of these Articles, to the
provisions of the Ordinance and to such regulations, being not
inconsistent with the aforesaid Articles or provisions, as may be
prescribed by the Company in general meeting; but no regulation made
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<PAGE> 16
by the Company in general meeting shall invalidate any prior act of the
directors which would have been valid if that regulation had not been
made.
92. The directors may from time to time and at any time by power of attorney
appoint any company, firm or person or body of persons, whether nominated
directly or indirectly by the directors, to be the attorney or attorneys
of the Company for such purposes and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the directors
under these Articles) and for such period and subject to such conditions
as they may think fit, and any such powers of attorney may contain such
provisions for the protection and convenience of persons dealing with any
such attorney as the directors may think fit and may also authorize any
such attorney to delegate all or any of the powers, authorities and
discretions vested in him.
93. The Company may exercise the powers conferred by Section 35 of the
Ordinance with regard to having an official seal for use abroad, and such
powers shall be vested in the directors.
94. The Company may exercise the powers conferred upon the Company by Sections
103, 104 and 106 of the Ordinance with regard to the keeping of a branch
register, and the directors may (subject to the provisions of those
Sections ) make and vary such Articles as they may think fit respecting
the keeping of any such register.
95. (a) A director who is in any way, whether directly or indirectly,
interested in a contract or proposed contract (being a contract of
significance in relation to the Company's business) with the Company
shall, if his interest in the contract or proposed contract is
material, declare the nature of his interest at a meeting of the
directors in accordance with Section 162 of the Ordinance.
(b) A director may vote in respect of any contract or arrangement in
which he is interested or upon any matter arising thereout and if he
shall so vote his vote shall be counted and he shall be counted in
estimating the quorum when any such contract or arrangement is under
consideration.
(c) A director may hold any other office or place of profit under the
Company (other than the office of auditor) in conjunction with his
office of director for such period and on such terms (as to
remuneration and otherwise) as the directors may determine and no
director or intending director shall be disqualified by his office
from contracting with the Company either with regard to his tenure
of any such other office or place of profit or as vendor, purchaser
or otherwise, nor shall any such contract, or any contract or
arrangement entered into by or on behalf of the Company in which any
director is in any way interested, be liable to be avoided, nor
shall any director so contracting or being so interested be liable
to account to the Company for any profit realized by any such
contract or arrangement by reason of such director holding that
office or of the fiduciary relation thereby established.
(d) Any director may act by himself or his firm in a professional
capacity for
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<PAGE> 17
the Company, and he or his firm shall be entitled to remuneration
for professional services as if he were not a director; provided
that nothing herein contained shall authorize a director or his firm
to act as auditor to the Company.
96. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments, and all receipts for moneys paid to the Company,
shall be signed, drawn, accepted, endorsed, or otherwise executed, as the
case may be, in such manner as the directors shall from time to time by
resolution determine.
97. The directors shall cause minutes to be made in books provided for the
purpose:
(a) of all appointments of officers made by the directors;
(b) of the names of the directors present at each meeting of the
directors and of any committee of the directors;
(c) of all resolutions and proceedings at all meetings of the Company,
and of the directors, and of committees of directors,
and every director present at any meeting of directors or committee of
directors shall sign his name in a book to be kept for that purpose.
98. The directors on behalf of the Company may pay a gratuity or pension or
allowance on retirement to any director who has held any other salaried
office or place of profit with the Company or to his widow or dependents
and may make contributions to any fund and pay premiums for the purchase
or provision of any such gratuity, pension or allowance.
DISQUALIFICATION OF DIRECTORS
99. The office of director shall be vacated if the director:
(a) ceases to be a director by virtue of Section 155 of the Ordinance;
or
(b) becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
(c) becomes prohibited from being a director by reason of any order made
under Section 157E or 157F of the Ordinance; or
(d) becomes of unsound mind; or
(e) resigns his office by notice in writing to the Company given in
accordance with Section 157D(3)(a) of the Ordinance; or
(f) shall for more than 6 months have been absent without permission of
the directors from meetings of the directors held during that
period.
100. Subject to the provisions of any agreement with the Company, a director
may
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<PAGE> 18
retire from his office upon giving notice in writing to the Company of
his intention so to do and such resignation shall take effect upon the
expiration of such notice or its earlier acceptance.
ROTATION OF DIRECTORS
101. (a) At each annual general meeting of the Company all the directors
shall retire but shall be eligible for re-election. Every such
retiring director shall be deemed automatically to have been
re-elected at the annual general meeting in question unless one of
the events specified in Article 99 shall have happened.
(b) No person, not being a retiring director, shall, unless recommended
by the directors for election, be eligible for election to the
office of director at any general meeting, unless he, or some other
member intending to propose him, has at least two clear days and not
more than fourteen days before such meeting left at the registered
office of the Company a notice in writing duly signed, signifying
his candidature for the office, or the intention of such member to
propose him.
102. The Company may from time to time by, ordinary resolution increase or
reduce the number of directors, and may also determine in what rotation
the increased or reduced number is to go out of office.
103. The directors shall have power at any time, and from time to time, to
appoint any person to be a director, either to fill a casual vacancy or as
an addition to the existing directors, but so that the total number of
directors shall not at any time exceed the number fixed in accordance with
these Articles. Any director so appointed shall hold office only until the
next following annual general meeting, and shall then be eligible for
re-election.
104. The Company may by special resolution remove any director before the
expiration of his period of office notwithstanding anything in these
Articles or in any agreement between the Company and such director. Such
removal shall be without prejudice to any claim such director may have for
damages for breach of any contract of service between him and the Company.
105. The Company may by ordinary resolution appoint another person in place of
a director removed from office under the immediately preceding Article,
and without prejudice to the powers of the directors under Article 103 of
the Company in general meeting may appoint any person to be a director
either to fill a casual vacancy or as an additional director. A person
appointed in place of a director so removed or to fill such a vacancy
shall be subject to retirement at the same time as if he had become a
director on the day on which the director in whose place he is appointed
was last elected a director.
PROCEEDINGS OF DIRECTORS
106. The directors may meet together in Hong Kong or elsewhere in the world for
the
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<PAGE> 19
despatch of business, adjourn, and otherwise regulate their meetings, as
they think fit. Questions arising at any meeting shall be decided by a
majority of votes. In case of an equality of votes, the chairman shall not
have a second or casting vote. A director may, and the Secretary on the
requisition of a director shall, at any time summon a meeting of the
directors. It shall in all cases be necessary to give notice of any
meeting of directors to all directors whether in Hong Kong or for the time
being absent from Hong Kong.
107. A director may at any time appoint any other person (whether a director or
member of the Company or not) to act as alternate director at any meeting
of the Board at which the director is not present, and may at any time
revoke any such appointment. An alternate director so appointed shall not
be entitled as such to receive any remuneration from the Company, but
shall otherwise be subject to the provisions of these Articles with regard
to directors. An alternate director shall be entitled to receive notices
of all meetings of the Board and to attend and vote as a director at any
such meeting at which the director appointing him is not personally
present, and generally to perform all the functions, rights, powers and
duties of the director by whom he was appointed in his capacity as a
director. An alternate director shall ipso facto cease to be an alternate
director if his appointor ceases for any reason to be a director: Provided
that if a director retires by rotation and is re-elected by the meeting at
which such retirement took effect, any appointment made by him pursuant to
this Article which was in force immediately prior to his retirement shall
continue to operate after his re-election as if he had not so retired.
Where a director has been appointed to be an alternate director and is
present at a meeting of the Board in the absence of his appointor he shall
have one vote in addition to his vote as a director. Every appointment and
revocation of appointment of an alternate director shall be made by
instrument in writing under the hand of the director making or revoking
such appointment and such instrument shall only take effect on the service
thereof at the registered office of the Company or upon the Secretary. The
remuneration of any such alternate director shall be payable out of the
remuneration payable to the director appointing him and shall consist of
such portion of the last mentioned remuneration as shall be agreed between
the alternate director and the director appointing him.
108. The quorum necessary for the transaction of the business of the directors
may be fixed by the directors, and unless so fixed shall be 4.
109. The continuing directors may act notwithstanding any vacancy in their
body, but, if and so long as their number is reduced below the number
fixed by or pursuant to the Articles of the Company as the necessary
quorum of directors, the continuing directors or director may act for the
purpose of increasing the number of directors to that number, or of
summoning a general meeting of the Company, but for no other purpose.
110. The directors may elect a chairman of their meetings and determine the
period for which he is to hold office; but if no such chairman is elected,
or if at any meeting the chairman is not present within 5 minutes after
the time appointed for holding the same, the directors present may choose
one of their number to be chairman of the meeting.
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<PAGE> 20
111. The directors may delegate any of their powers to committees consisting of
such member or members of their body as they think fit; any committee so
formed shall in the exercise of the powers so delegated conform to any
regulations that may be imposed on it by the directors.
112. A committee may elect a chairman of its meetings; if no such chairman is
elected, or if at any meeting the chairman is not present within 5
minutes after the time appointed for holding the same, the members present
may choose one of their number to be chairman of the meeting.
113. A committee may meet and adjourn as it thinks proper. Questions arising at
any meeting shall be determined by a majority of votes of the members
present, and in the case of an equality of votes the chairman shall not
have a second or casting vote.
114. All acts done by any meeting of the directors or of a committee of
directors or by any person acting as a director shall, notwithstanding
that it be afterwards discovered that there was some defect in the
appointment of any such director or person acting as aforesaid, or that
they or any of them were disqualified, be as valid as if every such person
had been duly appointed and was qualified to be a director.
115. A proposed resolution in writing notice of which has been given to all the
directors and consisting of one document or of separate copies prepared
and/or circulated for the purpose, signed by such number of directors as
shall be requisite for the passing of a resolution at a meeting of the
directors, shall be as valid and effective if it had been passed at a
meeting of the directors duly called and constituted.
116. A meeting of the directors may be held by telephonic conference call
attended by such number of directors (or their alternate directors as the
case may be), who would be entitled to receive notice of and to attend and
vote at a meeting of the directors that will constitute a necessary quorum
for meetings of the directors. Resolutions passed at such meetings shall
be as valid and effectual as if it had been duly approved at a meeting of
the directors duly convened and held.
MANAGING DIRECTOR
117. The directors may from time to time appoint one or more of their body to
the office of managing director for such period and on such terms as they
think fit, and, subject to the terms of any agreement entered into in any
particular case, may revoke such appointment. A director so appointed
shall not, whilst holding that office, be subject to retirement by
rotation or be taken into account in determining the rotation of
retirement of directors, but his appointment shall be automatically
determined if he ceases from any cause to be a director.
118. A managing director shall receive such remuneration (whether by way of
salary, commission or participation in profits, or partly in one way and
partly in another) as the directors may determine.
119. The directors may entrust to and confer upon a managing director any of
the
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powers exercisable by them upon such terms and conditions and with such
restrictions as they may think fit, and either collaterally with or to the
exclusion of their own powers and may from time to time revoke, withdraw,
alter or vary all or any of such powers.
SECRETARY
120. The Secretary shall be appointed by the directors for such term, at such
remuneration and upon such conditions as they may think fit; and any
secretary so appointed may be removed by them.
121. A provision of the Ordinance or these Articles requiring or authorizing a
thing to be done by or to a director and the Secretary shall not be
satisfied by its being done by or to the same person acting both as
director and as, or in place of, the Secretary.
THE SEAL
122. The directors shall provide for the safe custody of the seal, which shall
only be used by the authority of the directors or of a committee of the
directors authorized by the directors in that behalf, and every instrument
to which the seal shall be affixed shall be signed by a director and shall
be counter-signed by the Secretary or by a second director or by some
other person appointed by the directors for the purpose.
DIVIDENDS AND RESERVE
123. The Company in general meeting may declare dividends, but no dividend
shall exceed the amount recommended by the directors.
124. The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of
the Company.
125. No dividend shall be paid otherwise than out of profits.
126. The directors may, before recommending any dividend, set aside out of the
profits of the Company such sums as they think proper as a reserve or
reserves which shall, at the discretion of the directors, be applicable
for any purpose to which the profits of the Company may be properly
applied, and pending such application may, at the like discretion, either
be employed in the business of the Company or be invested in such
investments (other than shares of the Company) as the directors may from
time to time think fit. The directors may also without placing the same to
reserve carry forward any profits which they may think prudent not to
divide.
127. Subject to the rights of persons, if any, entitled to shares with special
rights as to dividend, all dividends shall be declared and paid according
to the amounts paid or credited as paid on the shares in respect whereof
the dividend is paid, but no
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amount paid or credited as paid on a share in advance of calls shall be
treated for the purposes of this Article as paid on the share. All
dividends shall be apportioned and paid proportionately to the amounts
paid or credited as paid on the shares during any portion or portions of
the period in respect of which the dividend is paid; but if any share is
issued on terms providing that it shall rank for dividend as from a
particular date such share shall rank for dividend accordingly.
128. The directors may deduct from any dividend payable to any member all sums
of money (if any) presently payable by him to the Company on account of
calls or otherwise in relation to the shares of the Company.
129. Any general meeting declaring a dividend or bonus may direct payment of
such dividend or bonus wholly or partly by the distribution of specific
assets and in particular of paid up shares, debentures or debenture stock
of any other company or in any one or more of such ways, and the directors
shall give effect to such resolution, and where any difficulty arises in
regard to such distribution, the directors may settle the same as they
think expedient, and in particular may issue fractional certificates and
fix the value for distribution of such specific assets or any part thereof
and may determine that cash payments shall be made to any members upon the
footing of the value so fixed in order to adjust the rights of all
parties, and may vest any such specific assets in trustees as may seem
expedient to the directors.
130. Any dividend, bonus, interest or other moneys payable in cash in respect
of shares may be paid by cheque or warrant sent through the post directed
to the registered address of the holder or, in the case of joint holders,
to the registered address of that one of the joint holders who is first
named on the register of members or to such person and to such address as
the holder or joint holders may in writing direct. Every such cheque or
warrant shall be made payable to the order of the person to whom it is
sent. Any one of 2 or more joint holders may give effectual receipts for
any dividends, bonuses, interest or other moneys payable in respect of the
shares held by them as joint holders.
131. No dividend shall bear interest against the Company.
132. All dividends or bonuses unclaimed for one year after having been declared
may be invested or otherwise made use of by the board for the benefit of
the Company until claimed and the Company shall not be constituted a
trustee in respect thereof. All dividends or bonuses unclaimed for six
years after having been declared may be forfeited by the board and shall
revert to the Company.
ACCOUNTS
133. The directors shall cause proper books of account to be kept with respect
to:
(a) all sums of money received and expended by the Company and the
matters in respect of which the receipt and expenditure takes place;
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(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Proper books shall not be deemed to be kept if there are not kept such
books of account as are necessary to give a true and fair view of the
state of the Company's affairs and to explain its transactions.
134. The books of account shall be kept at the registered office of the
Company, or, subject to Section 121(3) of the Ordinance, at such other
place or places as the directors think fit, and shall always be open to
the inspection of the directors.
135. The directors shall from time to time determine whether and to what extent
and at what times and places and under what conditions or regulations the
accounts and books of the Company or any of them shall be open to the
inspection of members not being directors, and no member (not being a
director) shall have any right of inspecting any account or book or
document of the Company except as conferred by statute or authorized by
the directors or by the Company in general meeting.
136. The directors shall from time to time, in accordance with Sections 122,
124 and 129D of the Ordinance, cause to be prepared and to be laid before
the Company in general meeting such profit and loss accounts, balance
sheets, group accounts (if any) and reports as are referred to in those
Sections.
137. A copy of every balance sheet (including every document required by law to
be annexed thereto) which is to be laid before the Company in general
meeting, together with a copy of the directors' report and a copy of the
auditors' report, shall not less than 21 days before the date of the
meeting be sent to every member of, and every holder of debentures of, the
Company and to all persons other than members or holders of debentures of
the Company, being persons entitled to receive notices of general meetings
of the Company:
Provided that this Article shall not require a copy of those documents to
be sent to any person of whose address the Company is not aware or to more
than one of the joint holders of any shares or debentures.
CAPITALIZATION OF PROFITS
138. The Company in general meeting may upon the recommendation of the
directors resolve that it is desirable to capitalize any part of the
amount for the time being standing to the credit of any of the Company's
reserve accounts or to the credit of the profit and loss account or
otherwise available for distribution, and accordingly that such sum be set
free for distribution amongst the members who would have been entitled
thereto if distributed by way of dividend and in the same proportions on
condition that the same be not paid in cash but be applied either in or
towards paying up any amounts for the time being unpaid on any shares held
by such members respectively or paying up in full unissued shares or
debentures of the Company to be allotted and distributed credited as fully
paid up to and amongst such members in the proportion aforesaid, or partly
in the one way and
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<PAGE> 24
partly in the other, and the directors shall give effect to such
resolution:
Provided that a share premium account and a capital redemption reserve
fund may, for the purposes of this Article, only be applied in the paying
up of unissued shares to be allotted to members of the Company as fully
paid bonus shares.
139. Whenever such a resolution as aforesaid shall have been passed the
directors shall make all appropriations and applications of the undivided
profits resolved to be capitalized thereby, and all allotments and issues
of fully-paid shares or debentures, if any, and generally shall do all
acts and things required to give effect thereto, with full power to the
directors to make such provision by the issue of fractional certificates
or by payment in cash or otherwise as they think fit for the case of
shares or debentures becoming distributable in fractions, and also to
authorize any person to enter on behalf of all the members entitled
thereto into an agreement with the Company providing for the allotment to
them respectively, credited as fully paid up, of any further shares or
debentures to which they may be entitled upon such capitalization, or (as
the case may require) for the payment up by the Company on their behalf,
by the application thereto of their respective proportions of the profits
resolved to be capitalized, of the amounts or any part of the amounts
remaining unpaid on their existing shares, and any agreement made under
such authority shall be effective and binding on all such members.
AUDIT
140. Auditors shall be appointed and their duties regulated in accordance with
Sections 131, 132, 133, 140, 140A, 140B and 141 of the Ordinance.
NOTICES
141. Every member and director shall register with the Company an address
either in Hong Kong or elsewhere to which notices can be delivered or sent
and if any member or director shall fail so to do notice may be given to
such member or director by delivering or sending the same in any of the
manners hereinafter mentioned to his last known place of business or
residence or, if there be none, by posting up a notice in the registered
office of the Company (in which case such notice shall be deemed to be
duly served at the expiration of 24 hours after it is so posted up).
142. A notice may be given either by personal delivery or by sending it by
prepaid post (airmail in the case of a registered address outside Hong
Kong), cable, telex or telefax.
143. (a) A notice shall be deemed served:
(i) in the case of personal delivery at the time of delivery;
(ii) in the case of prepaid post to an address in Hong Kong on the
second day following its posting;
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(iii) in the case of prepaid post to an address outside Hong Kong on
the seventh day following its posting;
(iv) in the case of cable, telex or telefax on the day following
despatch of the cable or telex message.
(b) In the case of a notice sent by prepaid post, in proving service
thereof it shall be sufficient to prove that the envelope or wrapper
containing the notice was properly addressed and stamped and was
deposited in a post box or at a post office.
144. A notice may be given by the Company to the joint holders of a share by
giving the notice to the joint holder first named in the register of
members in respect of the share.
145. A notice may be given by the Company to the persons entitled to a share in
consequence of the death or bankruptcy of a member by sending it through
the post in a prepaid letter addressed to them by name, or by the title of
representatives of the deceased, or trustee of the bankrupt, or by any
like description, at the address, if any, supplied for the purpose by the
persons claiming to be so entitled, or (until such an address has been so
supplied) by giving the notice in any manner in which the same might have
been given if the death or bankruptcy had not occurred.
146. Notice of every general meeting shall be given in any manner hereinbefore
authorized to:-
(a) every member except those members who have not supplied to the
Company an address for the giving of notices to them;
(b) every person entitled to a share in consequence of the death or
bankruptcy of a member who, but for his death or bankruptcy, would
be entitled to receive notice of the meeting; and
(c) the auditor for the time being of the Company.
No other person shall be entitled to receive notices of general meetings.
WINDING UP
147. If the Company shall be wound up the liquidator may, with the sanction of
a special resolution of the Company and any other sanction required by
the Ordinance, divide amongst the members in specie or kind the whole or
any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may, for such purpose, set such
value as he deems fair upon any property to be divided as aforesaid and
may determine how such division shall be carried out as between the
members or different classes of members. The liquidator may, with the like
sanction, vest the whole or any part of such assets in trustees upon such
trusts for the benefit of the contributories as the liquidator, with the
like sanction, shall think fit, but so that no member shall be compelled
to
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accept any shares or other securities whereon there is any liability.
INDEMNITY
148. Subject to the provisions of the Ordinance but without prejudice to any
indemnity to which a director may otherwise be entitled, every director or
other officer or auditor of the Company shall be indemnified out of the
assets of the Company against any liability incurred by him in defending
any proceedings, whether civil or criminal, in which judgment is given in
his favour or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability
for negligence, default, breach of duty or breach of trust in relation to
the affairs of the Company.
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<PAGE> 1
EXHIBIT 4.1
ZINDART LIMITED
AND
THE BANK OF NEW YORK
AS DEPOSITARY
AND
OWNERS AND HOLDERS OF AMERICAN DEPOSITARY RECEIPTS
DEPOSIT AGREEMENT
DATED AS OF _______, 1996
<PAGE> 2
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT dated as of _____________________, 1996 among Zindart
Limited, incorporated under the laws of ________________________ (herein called
the Issuer), THE BANK OF NEW YORK, a New York banking corporation (herein called
the Depositary), and all owners and holders from time to time of American
Depositary Receipts issued hereunder.
W I T N E S S E T H:
WHEREAS, the Issuer desires to provide, as hereinafter set forth in
this Deposit Agreement, for the deposit of Shares (as hereinafter defined) of
the Issuer from time to time with the Depositary or with the Custodian (as
hereinafter defined) as agent of the Depositary for the purposes set forth in
this Deposit Agreement, for the creation of American Depositary Shares
representing the Shares so deposited and for the execution and delivery of
American Depositary Receipts evidencing the American Depositary Shares; and
WHEREAS, the American Depositary Receipts are to be substantially in
the form of Exhibit A annexed hereto, with appropriate insertions, modifications
and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties hereto as follows:
<PAGE> 3
ARTICLE 1. DEFINITIONS.
The following definitions shall for all purposes, unless otherwise
clearly indicated, apply to the respective terms used in this Deposit Agreement:
SECTION 1.1. American Depositary Shares.
The term "American Depositary Shares" shall mean the
securities representing the interests in the Deposited Securities and evidenced
by the Receipts issued hereunder. Each American Depositary Share shall represent
__________ ( ) Share(s), until there shall occur a distribution upon Deposited
Securities covered by Section 4.3 or a change in Deposited Securities covered by
Section 4.8 with respect to which additional Receipts are not executed and
delivered, and thereafter American Depositary Shares shall evidence the amount
of Shares or Deposited Securities specified in such Sections.
SECTION 1.2. Article; Section.
Wherever references are made in this Deposit Agreement to an
"Article" or "Articles" or to a "Section" or "Sections", such references
shall mean an article or articles or a section or sections of this Deposit
Agreement, unless otherwise required by the context.
SECTION 1.3. Commission.
The term "Commission" shall mean the Securities and Exchange
Commission of the United States or any successor governmental agency in the
United States.
SECTION 1.4. Custodian.
The term "Custodian" shall mean the Hong Kong office of
HongKong Shanghai Bank, as agent of the Depositary for the purposes of this
Deposit Agreement, and any other firm
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<PAGE> 4
or corporation which may hereafter be appointed by the Depositary pursuant to
the terms of Section 5.5, as substitute or additional custodian or custodians
hereunder, as the context shall require and shall also mean all of them
collectively.
SECTION 1.5. Deposit Agreement.
The term "Deposit Agreement" shall mean this Agreement, as the
same may be amended from time to time in accordance with the provisions hereof.
SECTION 1.6. Depositary; Corporate Trust Office.
The term "Depositary" shall mean The Bank of New York, a New
York banking corporation and any successor as depositary hereunder. The term
"Corporate Trust Office", when used with respect to the Depositary, shall mean
the office of the Depositary which at the date of this Agreement is 101 Barclay
Street, New York, New York, 10286.
SECTION 1.7. Deposited Securities.
The term "Deposited Securities" as of any time shall mean
Shares at such time deposited or deemed to be deposited under this Deposit
Agreement and any and all other securities, property and cash received by the
Depositary or the Custodian in respect thereof and at such time held hereunder,
subject as to cash to the provisions of Section 4.5.
SECTION 1.8. Dollars;_____________.
The term "Dollars" shall mean United States dollars. The term
"_________________ shall mean _________________.
SECTION 1.9. Foreign Registrar.
The term "Foreign Registrar" shall mean the entity that
presently carries out the duties of registrar for the Shares or any successor as
registrar for the Shares and any
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<PAGE> 5
other appointed agent of the Issuer for the transfer and registration of Shares.
SECTION 1.10. Issuer.
The term "Issuer" shall mean Zindart Limited, incorporated
under the laws of ____________, and its successors.
SECTION 1.11. Owner.
The term "Owner" shall mean the person in whose name a Receipt
is registered on the books of the Depositary maintained for such purpose.
SECTION 1.12. Receipts.
The term "Receipts" shall mean the American Depositary
Receipts issued hereunder evidencing American Depositary Shares.
SECTION 1.13. Registrar.
The term "Registrar" shall mean any bank or trust company
having an office in the Borough of Manhattan, The City of New York, which shall
be appointed to register Receipts and transfers of Receipts as herein provided.
SECTION 1.14. Restricted Securities.
The term "Restricted Securities" shall mean Shares, or
Receipts representing such Shares, which are acquired directly or indirectly
from the Issuer or its affiliates (as defined in Rule 144 under the Securities
Act of 1933) in a transaction or chain of transactions not involving any public
offering or which are subject to resale limitations under Regulation D under
that Act or both, or which are held by an officer, director (or persons
performing similar functions) or other affiliate of the Issuer, or which are
subject to other restrictions on sale or deposit under the laws of the United
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States or _______________, or under a shareholder agreement or the Articles of
Association and By-laws of the Issuer.
SECTION 1.15. Securities Act of 1933.
The term "Securities Act of 1933" shall mean the United
States Securities Act of 1933, as from time to time amended.
SECTION 1.16. Shares.
The term "Shares" shall mean ____________ shares in
registered form of the Issuer, par value ____________ each, heretofore validly
issued and outstanding and fully paid, nonassessable and free of any
pre-emptive rights of the holders of outstanding Shares or hereafter validly
issued and outstanding and fully paid, nonassessable and free of any
pre-emptive rights of the holders of outstanding Shares or interim
certificates representing such Shares.
ARTICLE 2. FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY, TRANSFER
AND SURRENDER OF RECEIPTS.
SECTION 2.1. Form and Transferability of Receipts.
Definitive Receipts shall be substantially in the form set
forth in Exhibit A annexed to this Deposit Agreement, with appropriate
insertions, modifications and omissions, as hereinafter provided. No Receipt
shall be entitled to any benefits under this Deposit Agreement or be valid or
obligatory for any purpose, unless such Receipt shall have been executed by the
Depositary by the manual or facsimile signature of a duly authorized signatory
of the Depositary and, if a Registrar for the Receipts shall have been
appointed, countersigned by the manual or facsimile signature of a duly
authorized officer of the Registrar. The Depositary shall maintain
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books on which each Receipt so executed and delivered as hereinafter provided
and the transfer of each such Receipt shall be registered. Receipts bearing the
manual or facsimile signature of a duly authorized signatory of the Depositary
who was at any time a proper signatory of the Depositary shall bind the
Depositary, notwithstanding that such signatory has ceased to hold such office
prior to the execution and delivery of such Receipts by the Registrar or did not
hold such office on the date of issuance of such Receipts.
The Receipts may be endorsed with or have incorporated in the
text thereof such legends or recitals or modifications not inconsistent with the
provisions of this Deposit Agreement as may be required by the Depositary or
required to comply with any applicable law or regulations thereunder or with the
rules and regulations of any securities exchange upon which American Depositary
Shares may be listed or to conform with any usage with respect thereto, or to
indicate any special limitations or restrictions to which any particular
Receipts are subject by reason of the date of issuance of the underlying
Deposited Securities or otherwise.
Title to a Receipt (and to the American Depositary Shares
evidenced thereby), when properly endorsed or accompanied by proper instruments
of transfer, shall be transferable by delivery with the same effect as in the
case of a negotiable instrument; provided, however, that the Depositary,
notwithstanding any notice to the contrary, may treat the Owner thereof as the
absolute owner thereof for the purpose of determining the person entitled to
distribution of dividends or other distributions or to any notice provided for
in this Deposit Agreement and for all other purposes.
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SECTION 2.2. Deposit of Shares.
Subject to the terms and conditions of this Deposit Agreement,
Shares or evidence of rights to receive Shares may be deposited by delivery
thereof to any Custodian hereunder, accompanied by any appropriate instrument or
instruments of transfer, or endorsement, in form satisfactory to the Custodian,
together with all such certifications as may be required by the Depositary or
the Custodian in accordance with the provisions of this Deposit Agreement, and,
if the Depositary requires, together with a written order directing the
Depositary to execute and deliver to, or upon the written order of, the person
or persons stated in such order, a Receipt or Receipts for the number of
American Depositary Shares representing such deposit. No Share shall be accepted
for deposit unless accompanied by evidence satisfactory to the Depositary that
any necessary approval has been granted by any governmental body in
________________ which is then performing the function of the regulation of
currency exchange. If required by the Depositary, Shares presented for deposit
at any time, whether or not the transfer books of the Issuer or the Foreign
Registrar, if applicable, are closed, shall also be accompanied by an agreement
or assignment, or other instrument satisfactory to the Depositary, which will
provide for the prompt transfer to the Custodian of any dividend, or right to
subscribe for additional Shares or to receive other property which any person in
whose name the Shares are or have been recorded may thereafter receive upon or
in respect of such deposited Shares, or in lieu thereof, such agreement of
indemnity or other agreement as shall be satisfactory to the Depositary.
At the request and risk and expense of any person proposing to
deposit Shares, and for the account of such person, the Depositary may receive
certificates for Shares to be
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deposited, together with the other instruments herein specified, for the
purpose of forwarding such Share certificates to the Custodian for deposit
hereunder.
Upon each delivery to a Custodian of a certificate or
certificates for Shares to be deposited hereunder, together with the other
documents above specified, such Custodian shall, as soon as transfer and
recordation can be accomplished, present such certificate or certificates to the
Issuer or the Foreign Registrar, if applicable, for transfer and recordation of
the Shares being deposited in the name of the Depositary or its nominee or such
Custodian or its nominee.
Deposited Securities shall be held by the Depositary or by a
Custodian for the account and to the order of the Depositary or at such other
place or places as the Depositary shall determine.
SECTION 2.3. Execution and Delivery of Receipts.
Upon receipt by any Custodian of any deposit pursuant to
Section 2.2 hereunder (and in addition, if the transfer books of the Issuer or
the Foreign Registrar, if applicable, are open, the Depositary may in its sole
discretion require a proper acknowledgment or other evidence from the Issuer
that any Deposited Securities have been recorded upon the books of the Issuer or
the Foreign Registrar, if applicable, in the name of the Depositary or its
nominee or such Custodian or its nominee), together with the other documents
required as above specified, such Custodian shall notify the Depositary of such
deposit and the person or persons to whom or upon whose written order a Receipt
or Receipts are deliverable in respect thereof and the number of American
Depositary Shares to be evidenced thereby. Such notification shall be made by
letter or, at the request, risk and expense of the person making the
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deposit, by cable, telex or facsimile transmission. Upon receiving such notice
from such Custodian, or upon the receipt of Shares by the Depositary, the
Depositary, subject to the terms and conditions of this Deposit Agreement, shall
execute and deliver at its Corporate Trust Office, to or upon the order of the
person or persons entitled thereto, a Receipt or Receipts, registered in the
name or names and evidencing any authorized number of American Depositary Shares
requested by such person or persons, but only upon payment to the Depositary of
the fees of the Depositary for the execution and delivery of such Receipt or
Receipts as provided in Section 5.9, and of all taxes and governmental charges
and fees payable in connection with such deposit and the transfer of the
Deposited Securities.
SECTION 2.4. Transfer of Receipts; Combination and Split-up of
Receipts.
The Depositary, subject to the terms and conditions of this
Deposit Agreement, shall register transfers of Receipts on its transfer books
from time to time, upon any surrender of a Receipt, by the Owner in person or by
a duly authorized attorney, properly endorsed or accompanied by proper
instruments of transfer, and duly stamped as may be required by the laws of the
State of New York and of the United States of America. Thereupon the Depositary
shall execute a new Receipt or Receipts and deliver the same to or upon the
order of the person entitled thereto.
The Depositary, subject to the terms and conditions of this
Deposit Agreement, shall upon surrender of a Receipt or Receipts for the purpose
of effecting a split-up or combination of such Receipt or Receipts, execute and
deliver a new
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Receipt or Receipts for any authorized number of American Depositary Shares
requested, evidencing the same aggregate number of American Depositary Shares
as the Receipt or Receipts surrendered.
The Depositary may appoint one or more co-transfer agents for the
purpose of effecting transfers, combinations and split-ups of Receipts at
designated transfer offices on behalf of the Depositary. In carrying out its
functions, a co-transfer agent may require evidence of authority and compliance
with applicable laws and other requirements by Owners or persons entitled to
Receipts and will be entitled to protection and indemnity to the same extent as
the Depositary.
SECTION 2.5. Surrender of Receipts and Withdrawal of Shares.
Upon surrender at the Corporate Trust Office of the Depositary
of a Receipt for the purpose of withdrawal of the Deposited Securities
represented by the American Depositary Shares evidenced by such Receipt, and
upon payment of the fee of the Depositary for the surrender of Receipts as
provided in Section 5.9 and payment of all taxes and governmental charges
payable in connection with such surrender and withdrawal of the Deposited
Securities, and subject to the terms and conditions of this Deposit Agreement,
the Owner of such Receipt shall been entitled to delivery,to him or upon his
order, of the amount of Deposited Securities at the time represented by the
American Depositary Shares evidenced by such Receipt. Delivery of such
Deposited Securities may be made by delivery of (a) certificates in the name
of such Owner or as ordered by him or by certificates properly endorsed or
accompanied by proper instruments of transfer to such Owner or as ordered by
him and (b) any other securities, property and cash to which such Owner is then
entitled in respect of such Receipts to such Owner or as ordered by him. Such
delivery
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shall be made, as hereinafter provided, without unreasonable delay.
A Receipt surrendered for such purposes may be required by the
Depositary to be properly endorsed in blank or accompanied by proper instruments
of transfer in blank, and if the Depositary so requires, the Owner thereof shall
execute and deliver to the Depositary a written order directing the Depositary
to cause the Deposited Securities being withdrawn to be delivered to or upon the
written order of a person or persons designated in such order. Thereupon the
Depositary shall direct the Custodian to deliver at the Hong Kong office of such
Custodian, subject to Sections 2.6, 3.1 and 3.2 and to the other terms and
conditions of this Deposit Agreement, to or upon the written order of the person
or persons designated in the order delivered to the Depositary as above
provided, the amount of Deposited Securities represented by the American
Depositary Shares evidenced by such Receipt, except that the Depositary may make
delivery to such person or persons at the Corporate Trust Office of the
Depositary of any dividends or distributions with respect to the Deposited
Securities represented by the American Depositary Shares evidenced by such
Receipt, or of any proceeds of sale of any dividends, distributions or rights,
which may at the time be held by the Depositary.
At the request, risk and expense of any Owner so surrendering
a Receipt, and for the account of such Owner, the Depositary shall direct the
Custodian to forward any cash or other property (other than rights) comprising,
and forward a certificate or certificates and other proper documents of title
for, the Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt to the Depositary for delivery at the Corporate Trust
Office of the Depositary. Such direction shall be given by letter or, at
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the request, risk and expense of such Owner, by cable, telex or facsimile
transmission.
SECTION 2.6. Limitations on Execution and Delivery, Transfer and
Surrender of Receipts.
As a condition precedent to the execution and delivery,
registration of transfer, split-up, combination or surrender of any Receipt or
withdrawal of any Deposited Securities, the Depositary, Custodian or Registrar
may require payment from the depositor of Shares or the presenter of the Receipt
of a sum sufficient to reimburse it for any tax or other governmental charge and
any stock transfer or registration fee with respect thereto (including any such
tax or charge and fee with respect to Shares being deposited or withdrawn) and
payment of any applicable fees as herein provided, may require the production of
proof satisfactory to it as to the identity and genuineness of any signature and
may also require compliance with any regulations the Depositary may establish
consistent with the provisions of this Deposit Agreement, including, without
limitation, this Section 2.6.
The delivery of Receipts against deposits of Shares generally
or against deposits of particular Shares may be suspended, or the transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts generally may be suspended, during any period when the
transfer books of the Depositary are closed, or if any such action is deemed
necessary or advisable by the Depositary or the Issuer at any time or from time
to time because of any requirement of law or of any government or governmental
body or commission, or under any provision of this Deposit Agreement, or for any
other reason, subject to the provisions of Section 7.7 hereof. Notwithstanding
any other provision of this Deposit Agreement or the Receipts, the surrender of
outstanding Receipts and withdrawal of Deposited Securities may
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not be suspended subject only to (i) temporary delays caused by closing the
transfer books of the Depositary or the Issuer or the deposit of Shares in
connection with voting at a shareholders' meeting, or the payment of dividends,
(ii) the payment of fees, taxes and similar charges, and (iii) compliance with
any U.S. or foreign laws or governmental regulations relating to the Receipts or
to the withdrawal of the Deposited Securities. Without limitation of the
foregoing, the Depositary shall not knowingly accept for deposit under this
Deposit Agreement any Shares required to be registered under the provisions of
the Securities Act of 1933, unless a registration statement is in effect as to
such Shares.
SECTION 2.7. Lost Receipts. etc.
In case any Receipt shall be mutilated, destroyed, lost or
stolen, the Depositary shall execute and deliver a new Receipt of like tenor in
exchange and substitution for such mutilated Receipt upon cancellation thereof,
or in lieu of and in substitution for such destroyed, lost or stolen Receipt.
Before the Depositary shall execute and deliver a new Receipt in substitution
for a destroyed, lost or stolen Receipt, the Owner thereof shall have (a) filed
with the Depositary (i) a request for such execution and delivery before the
Depositary has notice that the Receipt has been acquired by a bona fide
purchaser and (ii) a sufficient indemnity bond and (b) satisfied any other
reasonable requirements imposed by the Depositary.
SECTION 2.8. Cancellation and Destruction of Surrendered
Receipts.
All Receipts surrendered to the Depositary shall be cancelled
by the Depositary. The Depositary is authorized to destroy Receipts so
cancelled.
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SECTION 2.9. Pre-Release of Receipts.
Notwithstanding Section 2.3 hereof, the Depositary may execute
and deliver Receipts prior to the receipt of Shares pursuant to Section 2.2
("Pre-Release"). The Depositary may, pursuant to Section 2.5, deliver Shares
upon the receipt and cancellation of Receipts which have been Pre-Released,
whether or not such cancellation is prior to the termination of such Pre-Release
or the Depositary knows that such Receipt has been Pre-Released. The Depositary
may receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each
Pre-Release will be (a) preceded or accompanied by a written representation from
the person to whom Receipts are to be delivered that such person, or its
customer, owns the Shares or Receipts to be remitted, as the case may be, (b) at
all times fully collateralized with cash or such other collateral as the
Depositary deems appropriate, (c) terminable by the Depositary on not more than
five (5) business days notice, and (d) subject to such further indemnities and
credit regulations as the Depositary deems appropriate. The number of American
Depositary Shares which are outstanding at any time as a result of Pre-Releases
will not normally exceed thirty percent (30%) of the Shares deposited hereunder;
provided, however, that the Depositary reserves the right to change or disregard
such limit from time to time as it deems appropriate.
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
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ARTICLE 3. CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS.
SECTION 3.1. Filing Proofs, Certificates and Other Information.
Any person presenting Shares for deposit or any Owner of a
Receipt may be required from time to time to file with the Depositary or the
Custodian such proof of citizenship or residence, exchange control approval, or
such information relating to the registration on the books of the Issuer or the
Foreign Registrar, if applicable, to execute such certificates and to make such
representations and warranties, as the Depositary may deem necessary or proper.
The Depositary may withhold the delivery or registration of transfer of any
Receipt or the distribution of any dividend or sale or distribution of rights or
of the proceeds thereof or the delivery of any Deposited Securities until such
proof or other information is filed or such certificates are executed or such
representations and warranties made.
SECTION 3.2. Liability of Owner for Taxes.
If any tax or other governmental charge shall become payable
with respect to any Receipt or any Deposited Securities represented by any
Receipt, such tax or other governmental charge shall be payable by the Owner
such Receipt to the Depositary. The Depositary may refuse to effect any
transfer withdrawal of Deposited Securities represented by American Depositary
Shares evidenced by such Receipt until such payment is made, and may withhold
any dividends or other distributions, or may sell for the account of the Owner
thereof any part or all of the Deposited Securities represented by the
American Depositary Shares evidenced by such Receipt, and may apply such
dividends or other distributions or the proceeds of any such sale in payment
of such tax or other governmental charge and the Owner of such Receipt shall
remain liable for any deficiency.
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SECTION 3.3. Warranties on Deposit of Shares.
Every person depositing Shares under this Deposit Agreement
shall be deemed thereby to represent and warrant that such Shares and each
certificate therefor are validly issued, fully paid, nonassessable and free of
any pre-emptive rights of the holders of outstanding Shares and that the person
making such deposit is duly authorized so to do. Every such person shall also be
deemed to represent that the deposit of such Shares and the sale of Receipts
evidencing American Depositary Shares representing such Shares by that person
are not restricted under the Securities Act of 1933. Such representations and
warranties shall survive the deposit of Shares and issuance of Receipts.
ARTICLE 4. THE DEPOSITED SECURITIES.
SECTION 4.1. Cash Distributions.
Whenever the Depositary shall receive any cash dividend or
other cash distribution on any Deposited Securities, the Depositary shall,
subject to the provisions of Section 4.5, convert such dividend or distribution
into Dollars and shall distribute the amount thus received (net of the fees of
the Depositary as provided in Section 5.9 hereof, if applicable) to the Owners
entitled thereto, in proportion to the number of American Depositary Shares
representing such Deposited Securities held by them respectively; provided,
however, that in the event that the Issuer or the Depositary shall be required
to withhold and does withhold from such cash dividend or such other cash
distribution an amount on account of taxes, the amount distributed to the Owner
of the Receipts evidencing American Depositary Shares representing such
Deposited Securities shall be reduced accordingly. The Depositary shall
distribute only such amount, however, as can be distributed without attributing
to any Owner a fraction of one cent. Any such
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fractional amounts shall be rounded to the nearest whole cent and so distributed
to Owners entitled thereto. The Issuer or its agent will remit to the
appropriate governmental agency in _______ all amounts withheld and owing to
such agency. The Depositary will forward to the Issuer or its agent such
information from its records as the Issuer may reasonably request to enable the
Issuer or its agent to file necessary reports with governmental agencies, and
the Depositary or the Issuer or its agent may file any such reports necessary to
obtain benefits under the applicable tax treaties for the Owners of Receipts.
SECTION 4.2. Distributions Other Than Cash, Shares or Rights.
Subject to the provisions of Section 4.11 and Section 5.9,
whenever the Depositary shall receive any distribution other than a distribution
described in Sections 4.1, 4.3 or 4.4, the Depositary shall cause the securities
or property received by it to be distributed to the Owners entitled thereto, in
proportion to the number of American Depositary Shares representing such
Deposited Securities held by them respectively, in any manner that the
Depositary may deem equitable and practicable for accomplishing such
distribution; provided, however, that if in the opinion of the Depositary such
distribution cannot be made proportionately among the Owners entitled thereto,
or if for any other reason (including, but not limited to, any requirement that
the Issuer or the Depositary withhold an amount on account of taxes or other
governmental charges or that such securities must he registered under the
Securities Act of 1933 in order to be distributed to Owners or holders) the
Depositary deems such distribution not to be feasible, the Depositary may adopt
such method as it may deem equitable and practicable for the purpose of
effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus
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received, or any part thereof, and the net proceeds of any such sale (net of the
fees of the Depositary as provided in Section 5.9) shall be distributed by the
Depositary to the owners entitled thereto as in the case of a distribution
received in cash.
SECTION 4.3. Distributions in Shares.
If any distribution upon any Deposited Securities consists of
a dividend in, or free distribution of, Shares, the Depositary may, and shall if
the Issuer shall so request, distribute to the owners of outstanding Receipts
entitled thereto, in proportion to the number of American Depositary Shares
representing such Deposited Securities held by them respectively, additional
Receipts evidencing an aggregate number of American Depositary Shares
representing the amount of Shares received as such dividend or free
distribution, subject to the terms and conditions of the Deposit Agreement with
respect to the deposit of Shares and the issuance of American Depositary Shares
evidenced by Receipts, including the withholding of any tax or other
governmental charge as provided in Section 4.11 and the payment of fees of the
Depositary as provided in Section 5.9. In lieu of delivering Receipts for
fractional American Depositary Shares in any such case, the Depositary shall
sell the amount of Shares represented by the aggregate of such fractions and
distribute the net proceeds, all in the manner and subject to the conditions
described in Section 4.1. If additional Receipts are not so distributed, each
American Depositary Share shall thenceforth also represent the additional Shares
distributed upon the Deposited Securities represented thereby.
SECTION 4.4. Rights.
In the event that the Issuer shall offer or cause to be
offered to the holders of any Deposited Securities any rights to subscribe for
additional Shares or any rights of any
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other nature, the Depositary shall have discretion as to the procedure to be
followed in making such Rights available to any Owners or in disposing of such
rights on behalf of any Owners and making the net proceeds available to such
Owners or, if by the terms of such rights offering or for any other reason, the
Depositary may not either make such rights available to any Owners or dispose of
such rights and make the net proceeds available to such Owners, then the
Depositary shall allow the rights to lapse. If at the time of the offering of
any rights the Depositary determines in its discretion that it is lawful and
feasible to make such rights available to all Owners or to certain Owners but
not to other Owners, the Depositary may distribute to any Owner to whom it
determines the distribution to be lawful and feasible, in proportion to the
number of American Depositary Shares held by such Owner, warrants or other
instruments therefor in such form as it deems appropriate.
In circumstances in which rights would otherwise not be
distributed, if an Owner of Receipts requests the distribution of warrants or
other instruments in order to exercise the rights allocable to the American
Depositary Shares of such Owner hereunder, the Depositary will make such rights
available to such Owner upon written notice from the Issuer to the Depositary
that (a) the Issuer has elected in its sole discretion to permit such rights to
be exercised and (b) such Owner has executed such documents as the Issuer has
determined in its sole discretion are reasonably required under applicable law.
If the Depositary has distributed warrants or other
instruments for rights to all or certain Owners, then upon instruction from such
an Owner pursuant to such warrants or other instruments to the Depositary from
such Owner to exercise such rights, upon payment by such Owner to the Depositary
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for the account of such Owner of an amount equal to the purchase price of the
Shares to be received upon the exercise of the rights, and upon payment of the
fees of the Depositary and any other charges as set forth in such warrants or
other instruments, the Depositary shall, on behalf of such Owner, exercise the
rights and purchase the Shares, and the Issuer shall cause the Shares so
purchased to be delivered to the Depositary on behalf of such Owner. As agent
for such Owner, the Depositary will cause the Shares so purchased to be
deposited pursuant to Section 2.2 of this Deposit Agreement, and shall, pursuant
to Section 2.3 of this Deposit Agreement, execute and deliver Receipts to such
Owner. In the case of a distribution pursuant to the second paragraph of this
section, such Receipts shall be legended in accordance with applicable U.S.
laws, and shall be subject to the appropriate restrictions on sale, deposit,
cancellation, and transfer under such laws.
If the Depositary determines in its discretion that it is not lawful
and feasible to make such rights available to all or certain Owners, it may sell
the rights, warrants or other instruments in proportion to the number of
American Depositary Shares held by the Owners to whom it has determined it may
not lawfully or feasibly make such rights available, and allocate the net
proceeds of such sales (net of the fees of the Depositary as provided in Section
5.9 and all taxes and governmental charges, payable in connection with such
rights and subject to the terms and conditions of this Deposit Agreement) for
the account of such Owners otherwise entitled to such rights, warrants or
other instruments, upon an averaged or other practical basis without regard to
any distinctions among such Owners because of exchange restrictions or the date
of delivery of any Receipt or otherwise.
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<PAGE> 22
The Depositary will not offer rights to Owners unless both the
rights and the securities to which such rights relate are either exempt from
registration under the Securities Act of 1933 with respect to a distribution to
Owners or are registered under the provisions of such Act. If an Owner of
Receipts requests distribution of warrants or other instruments, notwithstanding
that there has been no such registration under such Act, the Depositary shall
not effect such distribution unless it has received an opinion from recognized
counsel in the United States for the Issuer upon which the Depositary may rely
that such distribution to such owner is exempt from such registration.
The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
SECTION 4.5. Conversion of Foreign Currency.
Whenever the Depositary shall receive foreign currency, by way of
dividends or other distributions or the net proceeds from the sale of
securities, property or rights, and if at the time of the receipt thereof the
foreign currency so received can in the judgment of the Depositary be converted
on a reasonable basis into Dollars and the resulting Dollars transferred to the
United States, the Depositary shall convert or cause to be converted, by sale or
in any other manner that it may determine, such foreign currency into Dollars,
and such Dollars shall be distributed to the Owners entitled thereto or, if the
Depositary shall have distributed any warrants or other instruments which
entitle the holders thereof to such Dollars, then to the holders of such
warrants and/or instruments upon surrender thereof for cancellation. Such
distribution may be made upon an averaged or other practicable basis without
regard to any distinctions among Owners on account of
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<PAGE> 23
exchange restrictions, the date of delivery of any Receipt or otherwise and
shall be net of any expenses of conversion into Dollars incurred by the
Depositary as provided in Section 5.9.
If such conversion or distribution can be effected only with the
approval or license of any government or agency thereof, the Depositary shall
file such application for approval or license, if any, as it may deem desirable.
If at any time the Depositary shall determine that in its judgment
any foreign currency received by the Depositary is not convertible on a
reasonable basis into Dollars transferable to the United States, or if any
approval or license of any government or agency thereof which is required for
such conversion is denied or in the opinion of the Depositary is not obtainable,
or if any such approval or license is not obtained within a reasonable period as
determined by the Depositary, the Depositary may distribute the foreign currency
(or an appropriate document evidencing the right to receive such foreign
currency) received by the Depositary to, or in its discretion may hold such
foreign currency uninvested and without liability for interest thereon for the
respective accounts of, the Owners entitled to receive the same.
If any such conversion of foreign currency, in whole or in part,
cannot be effected for distribution to some of the Owners entitled thereto, the
Depositary may in its discretion make such conversion and distribution in
Dollars to the extent permissible to the Owners entitled thereto and may
distribute the balance of the foreign currency received by the Depositary to,
or hold such balance uninvested and without liability for interest thereon for
the respective accounts of, the Owners entitled thereto.
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SECTION 4.6. Fixing of Record Date.
Whenever any cash dividend or other cash distribution shall become
payable or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary causes a change in the number of Shares that are
represented by each American Depositary Share, or whenever the Depositary shall
receive notice of any meeting of holders of Shares or other Deposited
Securities, the Depositary shall fix a record date (a) for the determination of
the Owners who shall be (i) entitled to receive such dividend, distribution or
rights or the net proceeds of the sale thereof or (ii) entitled to give
instructions for the exercise of voting rights at any such meeting, or (b) on
or after which each American Depositary Share will represent the changed number
of Shares. Subject to the provisions of Sections 4.1 through 4.5 and to the
other terms and conditions of this Deposit Agreement, the Owners on such record
date shall be entitled, as the case may be, to receive the amount
distributable by the Depositary with respect to such dividend or other
distribution or such rights or the net proceeds of sale thereof in proportion
to the number of American Depositary Shares held by them respectively and to
give voting instructions and to act in respect of any other such matter.
SECTION 4.7. Voting of Deposited Securities.
Upon receipt of notice of any meeting of holders of Shares or other
Deposited Securities, if requested in writing by the Issuer the Depositary
shall, as soon as practicable thereafter, mail to the Owners a notice, the form
of which notice shall be in the sole discretion of the Depositary, which shall
contain (a) such information as is contained in such notice of meeting, and (b)
a statement that the Owners as of the close of business on a specified record
date will be entitled, subject to any applicable provision of
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________________________law and of the Articles of Association of the Issuer, to
instruct the Depositary as to the exercise of the voting rights, if any,
pertaining to the amount of Shares or other Deposited Securities represented
by their respective American Depositary Shares and (c) a statement as to the
manner in which such instructions may be given. Upon the written request of an
Owner on such record date, received on or before the date established by the
Depositary for such purpose, (the "Instruction Date") the Depositary shall
endeavor, in so far as practicable, to vote or cause to be voted the amount of
Shares or other Deposited Securities represented by the American Depositary
Shares evidenced by such Receipt in accordance with the instructions set forth
in such request. The Depositary shall not vote or attempt to exercise the right
to vote that attaches to the Shares or other Deposited Securities, other than in
accordance with such instructions.
There can be no assurance that Owners generally or any Owner in
particular will receive the notice described in the preceding paragraph
sufficiently prior to the Instruction Date to ensure that the Depositary will
vote the Shares or Deposited Securities in accordance with the provisions set
forth in the preceding paragraph.
SECTION 4.8. Changes Affecting Deposited Securities.
In circumstances where the provisions of Section 4.3 do not apply,
upon any change in nominal value, change in par value, split-up, consolidation
or any other reclassification of Deposited Securities, or upon any
recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Issuer or to which it is a party, any securities which shall be
received by the Depositary or a Custodian in exchange for or in conversion of or
in respect of Deposited Securities,
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<PAGE> 26
shall be treated as new Deposited Securities under this Deposit Agreement, and
American Depositary Shares shall thenceforth represent the new Deposited
Securities so received in exchange or conversion, unless additional Receipts are
delivered pursuant to the following sentence. In any such case the Depositary
may, and shall if the Issuer shall so request, execute and deliver additional
Receipts as in the case of a dividend in Shares, or call for the surrender of
outstanding Receipts to be exchanged for new Receipts specifically describing
such new Deposited Securities.
SECTION 4.9. Reports.
The Depositary shall make available for inspection by Owners at its
Corporate Trust Office any reports and communications, including any proxy
soliciting material, received from the Issuer which are both (a) received by the
Depositary as the holder of the Deposited Securities and (b) made generally
available to the holders of such Deposited Securities by the Issuer. The
Depositary shall also, upon written request, send to the Owners copies of such
reports furnished by the Issuer pursuant to Section 5.6. Any such reports and
communications, including any such proxy soliciting material, furnished to the
Depositary by the Issuer shall be furnished in English.
SECTION 4.10. Lists of Owners.
Promptly upon request by the Issuer, the Depositary shall, at the
expense of the Issuer, furnish to it a list, as of a recent date, of the names,
addresses and holdings of American Depositary Shares by all persons in whose
names Receipts are registered on the books of the Depositary.
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SECTION 4.11. Withholding.
In the event that the Depositary determines that any distribution in
property (including Shares and rights to subscribe therefor) is subject to any
tax or other governmental charge which the Depositary is obligated to withhold,
the Depositary may by public or private sale dispose of all or a portion of such
property (including Shares and rights to subscribe therefor) in such amounts and
in such manner as the Depositary deems necessary and practicable to pay any such
taxes or charges and the Depositary shall distribute the net proceeds of any
such sale after deduction of such taxes or charges to the Owners entitled
thereto in proportion to the number of American Depositary Shares held by them
respectively.
ARTICLE 5. THE DEPOSITARY, THE CUSTODIANS AND THE ISSUER.
SECTION 5.1. Maintenance of Office and Transfer Books by the Depositary.
Until termination of this Deposit Agreement in accordance with its
terms, the Depositary shall maintain in the Borough of Manhattan, The City of
New York, facilities for the execution and delivery, registration, registration
of transfers and surrender of Receipts in accordance with the provisions of this
Deposit Agreement.
The Depositary shall keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners, provided that such inspection shall not be for the purpose of
communicating with Owners in the interest of a business or object other than the
business of the Issuer or a matter related to this Deposit Agreement or the
Receipts.
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<PAGE> 28
The Depositary may close the transfer books, at any time or from
time to time, when deemed expedient by it in connection with the performance of
its duties hereunder.
If any Receipts or the American Depositary Shares evidenced thereby
are listed on one or more stock exchanges in the United States, the Depositary
shall act as Registrar or appoint a Registrar or one or more co-registrars for
registry of such Receipts in accordance with any requirements of such exchange
or exchanges.
SECTION 5.2. Prevention or Delay in Performance by the Depositary or the
Issuer.
Neither the Depositary nor the Issuer shall incur any liability to
any Owner or holder of any Receipt, if by reason of any provision of any present
or future law or regulation of the United States or any other country, or of any
governmental or regulatory authority or stock exchange, or by reason of any
provision, present or future, of the Articles of Association of the Issuer, or
by reason of any act of God or war or other circumstances beyond its control,
the Depositary or the Issuer shall be prevented or forbidden from, or be subject
to any civil or criminal penalty on account of, doing or performing any act or
thing which by the terms of this Deposit Agreement it is provided shall be done
or performed; nor shall the Depositary or the Issuer incur any liability to any
Owner or holder of any Receipt by reason of any non-performance or delay, caused
as aforesaid, in the performance of any act or thing which by the terms of this
Deposit Agreement it is provided shall or may be done or performed, or by reason
of any exercise of, or failure to exercise, any discretion provided for in this
Deposit Agreement. Where, by the terms of a distribution pursuant to Sections
4.1, 4.2, or 4.3 of the Deposit Agreement, or an offering or distribution
pursuant to Section 4.4 of the Deposit Agreement, or for any other reason, such
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distribution or offering may not be made available to Owners, and the Depositary
may not dispose of such distribution or offering on behalf of such Owners and
make the net proceeds available to such Owners, then the Depositary shall not
make such distribution or offering, and shall allow any rights, if applicable,
to lapse.
SECTION 5.3. Obligations of the Depositary, the Custodian and the Issuer.
The Issuer assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to Owners or holders of Receipts, except
that it agrees to perform its obligations specifically set forth in this Deposit
Agreement without negligence or bad faith.
The Depositary assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to any Owner or holder of any Receipt
(including, without limitation, liability with respect to the validity or worth
of the Deposited Securities), except that it agrees to perform its obligations
specifically set forth in this Deposit Agreement without negligence or bad
faith.
Neither the Depositary nor the Issuer shall be under any obligation
to appear in, prosecute or defend any action, suit or other proceeding in
respect of any Deposited Securities or in respect of the Receipts, which in its
opinion may involve it in expense or liability, unless indemnity satisfactory to
it against all expense and liability shall be furnished as often as may be
required, and the Custodian shall not be under any obligation whatsoever with
respect to such proceedings, the responsibility of the Custodian being solely to
the Depositary.
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<PAGE> 30
Neither the Depositary nor the Issuer shall be liable for any action or
nonaction by it in reliance upon the advice of or information from legal
counsel, accountants, any person presenting Shares for deposit, any Owner or
any other person believed by it in good faith to be competent to give such
advice or information.
The Depositary shall not be liable for any acts or omissions made by a
successor depositary whether in connection with a previous act or omission of
the Depositary or in connection with any matter arising wholly after the
removal or resignation of the Depositary, provided that in connection with the
issue out of which such potential liability arises the Depositary performed its
obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be responsible for any failure to carry out
any instructions to vote any of the Deposited Securities, or for the manner in
which any such vote is cast or the effect of any such vote, provided that any
such action or nonaction is in good faith.
No disclaimer of liability under the securities Act of 1933 is intended
by any provision of this Deposit Agreement.
SECTION 5.4. Resignation and Removal of the Depositary.
The Depositary may at any time resign as Depositary hereunder
by written notice of its election so to do delivered to the Issuer, such
resignation to take effect upon the appointment of a successor depositary and
its acceptance of such appointment as hereinafter provided.
The Depositary may at any time be removed by the Issuer by written
notice of such removal effective upon the
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appointment of a successor depositary and its acceptance of such appointment as
hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or be
removed, the Issuer shall use its best efforts to appoint a successor
depositary, which shall be a bank or trust company having an office in the
Borough of Manhattan, The City of New York. Every successor depositary shall
execute and deliver to its predecessor and to the Issuer an instrument in
writing accepting its appointment hereunder, and thereupon such successor
depositary, without any further act or deed, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor; but such
predecessor, nevertheless, upon payment of all sums due it and on the written
request of the Issuer shall execute and deliver an instrument transferring to
such successor all rights and powers of such predecessor hereunder, shall duly
assign, transfer and deliver all right, title and interest in the Deposited
Securities to such successor, and shall deliver to such successor a list of the
Owners of all outstanding Receipts. Any such successor depositary shall
promptly mail notice of its appointment to the Owners.
Any corporation into or with which the Depositary may be merged or
consolidated shall be the successor of the Depositary without the execution or
filing of any document or any further act.
SECTION 5.5 The Custodians.
The Custodian shall be subject at all times and in all respects to the
directions of the Depositary and shall be responsible solely to it. Any
Custodian may resign and be discharged from its duties hereunder by notice of
such resignation delivered to the Depositary at least 30 days prior to the date
on which such resignation is to become effective. If
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upon such resignation there [shall be no Custodian acting hereunder, the
Depositary shall,] promptly after receiving such notice, appoint a substitute
custodian or custodians, each of which shall thereafter be a Custodian
hereunder. Whenever the Depositary in its discretion determines that it is in
the best interest of the Owners to do so, it may appoint substitute or
additional custodian or custodians, which shall thereafter be one of the
Custodians hereunder. Upon demand of the Depositary any Custodian shall deliver
such of the Deposited Securities held by it as are requested of it to any
other Custodian or such substitute or additional custodian or custodians.
Each such substitute or additional custodian shall deliver to the Depositary,
forthwith upon its appointment, an acceptance of such appointment satisfactory
in form and substance to the Depositary.
Upon the appointment of any successor depositary hereunder, each
Custodian, then acting hereunder shall forthwith become, without any further act
or writing, the agent hereunder of such successor depositary and the appointment
of such successor depositary shall in no way impair the authority of each
Custodian hereunder; but the successor depositary so appointed shall,
nevertheless, on the written request of any Custodian, execute and deliver to
such Custodian all such instruments as may be proper to give to such Custodian
full and complete power and authority as agent hereunder of such successor
depositary.
SECTION 5.6. Notices and Reports.
On or before the first date on which the Issuer gives notice, by
publication or otherwise, of any meeting of holders of shares or other
Deposited Securities, or of any adjourned meeting of such holders, or of the
taking of any action in respect of any cash or other distributions or the
offering of any rights, the Issuer agrees to transmit to the
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Depositary and the Custodian a copy of the notice thereof in the form given or
to be given to holders of Shares or other Deposited Securities.
The Issuer will arrange for the translation into English and the prompt
transmittal by the Issuer to the Depositary and the Custodian of such notices
and any other reports and communications which are made generally available by
the Issuer to holders of its Shares. If requested in writing by the Issuer, the
Depositary will arrange for the mailing, at the Issuer's expense, of copies of
such notices, reports and communications to all Owners. The Issuer will timely
provide the Depositary with the quantity of such notices, reports, and
communications, as requested by the Depositary from time to time, in order for
the Depositary to effect such mailings.
SECTION 5.7. Distribution of Additional Shares, Rights, etc.
The Issuer agrees that in the event of any issuance or distribution of
(1) additional Shares, (2) rights to subscribe for Shares, (3) securities
convertible into Shares, or (4) rights to subscribe for such securities, (each
a "Distribution") the Issuer will promptly furnish to the Depositary a written
opinion from U.S. counsel for the Issuer, which counsel shall be satisfactory
to the Depositary, stating whether or not the Distribution requires a
Registration Statement under the Securities Act of 1933 to be in effect prior
to making such Distribution available to Owners entitled thereto. If in the
opinion of such counsel a Registration Statement is required, such counsel
shall furnish to the Depositary a written opinion as to whether or not there is
a Registration Statement in effect which will cover such Distribution.
The Issuer agrees with the Depositary that neither the Issuer nor any
company controlled by, controlling under
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common control with the Issuer will at any time deposit any Shares, either
originally issued or previously issued and reacquired by the Issuer or any such
affiliate, unless a Registration Statement is in effect as to such Shares under
the Securities Act of 1933.
SECTION 5.8. INDEMNIFICATION.
The Issuer agrees to indemnify the Depositary, its directors,
employees, agents and affiliates and any Custodian against, and hold each of
them harmless from, any liability or expense (including, but not limited to,
the fees and expenses of counsel) which may arise out of acts performed or
omitted, in accordance with the provisions of this Deposit Agreement and of the
Receipts, as the same may be amended, modified or supplemented from time to
time, (i) by either the Depositary or a Custodian or their respective
directors, employees, agents and affiliates, except for any liability or
expense arising out of the negligence or bad faith of either of them, or (ii)
by the Issuer or any of its directors, employees, agents and affiliates.
The Depositary agrees to indemnify the Issuer, its directors,
employees, agents and affiliates and hold them harmless from any liability or
expense which may arise out of acts performed or omitted by the Depositary or
its Custodian or their respective directors, employees, agents and affiliates
due to their negligence or bad faith.
SECTION 5.9. Charges of Depositary.
The Issuer agrees to pay the fees, reasonable expenses and
out-of-pocket charges of the Depositary and those of any Registrar only in
accordance with agreements in writing entered into between the Depositary and
the Issuer from time to time. The Depositary shall present its statement for
such charges and expenses to the Issuer once every three months.
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The charges and expenses of the Custodian are for the sole account of the
Depositary.
The following charges shall be incurred by any party depositing or
withdrawing Shares or by any party surrendering Receipts or to whom Receipts are
issued (including, without limitation, issuance pursuant to a stock dividend or
stock split declared by the Issuer or an exchange regarding the Receipts or
Deposited Securities or a distribution of Receipts pursuant to Section
4.3), whichever applicable: (1) taxes and other governmental charges, (2) such
registration fees as may from time to time be in effect for the registration of
transfers of Shares generally on the Share register of the Issuer or Foreign
Registrar and applicable to transfers of Shares to the name of the Depositary or
its nominee or the Custodian or its nominee on the making of deposits or
withdrawals hereunder, (3) such cable, telex and facsimile transmission expenses
as are expressly provided in this Deposit Agreement, (4) such expenses as are
incurred by the Depositary in the conversion of foreign currency pursuant to
Section 4.5 (5) a fee of $5.00 or less per 100 American Depositary Shares (or
portion thereof) for the execution and delivery of Receipts pursuant to Section
2.3, 4.3 or 4.4, and the surrender of Receipts pursuant to Section 2.5 or 6.2,
(6) a fee of $.02 or less per American Depositary Share (or portion thereof)
for any cash distribution made pursuant to the Deposit Agreement including,
but not limited to, Sections 4.1 through 4.4 hereof, (7) a fee of $1.50 or
less per certificate for a Receipt or Receipts for transfers made pursuant to
Section 2.4 and (8) a fee for the distribution of securities pursuant to
Section 4.2, such fee being in an amount equal to the fee for the execution
and delivery of American Depositary Shares referred to above which would have
been charged as a result of the deposit of such securities (for purposes of
this clause (8) treating all such securities as if they were Shares), but
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which securities are instead distributed by the Depositary to Owners.
The Depositary, subject to Section 2.9 hereof, may own and deal in any
class of securities of the Issuer and its affiliates and in Receipts.
SECTION 5.10 Retention of Depositary Documents.
The Depositary is authorized to destroy those documents, records, bills
and other data compiled during the term of this Deposit Agreement at the times
permitted by the laws or regulations governing the Depositary unless the Issuer
requests that such papers be retained for a longer period or turned over to the
Issuer or to a successor depositary.
SECTION 5.11 Exclusivity.
The Issuer agrees not to appoint any other depositary for issuance of
American Depositary Receipts so long as The Bank of New York is acting as
Depositary hereunder.
SECTION 5.12 List of Restricted Securities Owners.
From time to time, the Issuer shall provide to the Depositary a list
setting forth, to the actual knowledge of the Issuer, those persons or entities
who beneficially own Restricted Securities and the Issuer shall update that
list on a regular basis. The Issuer agrees to advise in writing each of the
persons or entities so listed that such Restricted Securities are ineligible
for deposit hereunder. The Depositary may rely on such a list or update but
shall not be liable for any action or omission made in reliance thereon.
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ARTICLE 6. AMENDMENT AND TERMINATION.
SECTION 6.1. Amendment.
The form of the Receipts and any provisions of this Deposit
Agreement may at any time and from time to time be amended by agreement between
the issuer and the Depositary in any respect which they may deem necessary or
desirable. Any amendment which shall impose or increase any fees or charges
(other than taxes and other governmental charges, registration fees, cable,
telex or facsimile transmission costs, delivery costs or other such expenses),
or which shall otherwise prejudice any substantial existing right of Owners,
shall, however, not become effective as to outstanding Receipts until the
expiration of thirty days after notice of such amendment shall have been given
to the Owners of outstanding Receipts. Every Owner at the time any amendment so
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by the Deposit Agreement as
amended thereby. In no event shall any amendment impair the right of the Owner
of any Receipt to surrender such Receipt and receive therefor the Deposited
Securities represented thereby, except in order to comply with mandatory
provisions of applicable law.
SECTION 6.2. Termination.
The Depositary shall at any time at the direction of the Issuer
terminate this Deposit Agreement by mailing notice of such termination to the
Owners of all Receipts then outstanding at least 90 days prior to the date
fixed in such notice for such termination. The Depositary may likewise
terminate this Deposit Agreement by mailing notice of such termination to the
Issuer and the Owners of all Receipts then outstanding if at any time 90 days
shall have expired after the Depositary shall have delivered to the Issuer a
written notice of its election to resign and a successor depositary shall not
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have been appointed and accepted its appointment as provided in Section 5.4. On
and after the date of termination, the Owner of a Receipt will, upon (a)
surrender of such Receipt at the Corporate Trust Office of the Depositary, (b)
payment of the fee of the Depositary for the surrender of Receipts referred to
in Section 2.5, and (c) payment of any applicable taxes or governmental
charges, be entitled to delivery, to him or upon his order, of the amount of
Deposited Securities represented by the American Depositary Shares evidenced by
such Receipt. If any Receipts shall remain outstanding after the date of
termination, the Depositary thereafter shall discontinue the registration of
transfers of Receipts, shall suspend the distribution of dividends to the
Owners thereof, and shall not give any further notices or perform any further
acts under this Deposit Agreement, except that the Depositary shall continue to
collect dividends and other distributions pertaining to Deposited Securities,
shall sell rights as provided in this Deposit Agreement, and shall continue to
deliver Deposited Securities, together with any dividends or other
distributions received with respect thereto and the net proceeds of the sale of
any rights or other property, in exchange for Receipts surrendered to the
Depositary (after deducting, in each case, the fee of the Depositary for the
surrender of a Receipt, any expenses for the account of the Owner of such
Receipt in accordance with the terms and conditions of this Deposit Agreement,
and any applicable taxes or governmental charges). At any time after the
expiration of one year from the date of termination, the Depositary may sell
the Deposited Securities then held hereunder and may thereafter hold uninvested
the net proceeds of any such sale, together with any other cash then held by it
hereunder, unsegregated and without liability for interest, for the pro rata
benefit of the Owners of Receipts which have not theretofore been surrendered,
such Owners thereupon becoming general creditors of the Depositary with
respect to such net proceeds. After making such sale, the termination, the
Depositary may sell the Deposited Securities then held hereunder and may
thereafter hold uninvested the net proceeds of any such sale, together with any
other cash then held by it hereunder, unsegregated and without liability for
interest, for the pro rata benefit of the Owners of Receipts which have not
theretofore been surrendered, such Owners thereupon becoming general creditors
of the Depositary with respect to such net proceeds. After making such sale, the
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Depositary shall be discharged from all obligations under this Deposit
Agreement, except to account for such net proceeds and other cash (after
deducting, in each case, the fee of the Depositary for the surrender of a
Receipt, any expenses for the account of the Owner of such Receipt in
accordance with the terms and conditions of this Deposit Agreement, and any
applicable taxes or governmental charges). Upon the termination of this Deposit
Agreement, the Issuer shall be discharged from all obligations under this
Deposit Agreement except for its obligations to the Depositary under Sections
5.8 and 5.9 hereof.
ARTICLE 7. MISCELLANEOUS.
SECTION 7.1. Counterparts.
This Deposit Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument. Copies of this
Deposit Agreement shall be filed with the Depositary and the Custodians and
shall be open to inspection by any holder or Owner of a Receipt during business
hours.
SECTION 7.2. No Third Party Beneficiaries.
This Deposit Agreement is for the exclusive benefit of the
parties hereto and shall not be deemed to give any legal or equitable right,
remedy or claim whatsoever to any other person.
SECTION 7.3. Severability.
In case any one or more of the provisions contained in this
Deposit Agreement or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the
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validity, legality and enforceability of the remaining provisions contained
herein or therein shall in no way be affected, prejudiced or disturbed thereby.
SECTION 7.4 Holders and Owners as Parties; Binding Effect.
The holders and Owners of Receipts from time to time shall be parties
to this Deposit Agreement and shall be bound by all of the terms and conditions
hereof and of the Receipts by acceptance thereof.
SECTION 7.5. Notices.
Any and all notices to be given to the Issuer shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to
, or any other place to which the Issuer may have transferred
its principal office.
Any and all notices to be given to the Depositary shall be deemed to
have been duly given if in English and personally delivered or sent by mail or
cable, telex or facsimile transmission confirmed by letter, addressed to The
Bank of New York, 101 Barclay Street, New York, New York 10286, Attention:
American Depositary Receipt Administration, or any other place to which the
Depositary may have transferred its Corporate Trust Office.
Any and all notices to be given to any Owner shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to such Owner at the
address of such Owner as it appears on the transfer books for Receipts of the
Depositary, or, if such Owner shall have filed with the Depositary a written
request that notices intended for such
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Owner be mailed to some other address, at the address designated in such
request.
Delivery of a notice sent by mail or cable, telex or facsimile
transmission shall be deemed to be effected at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a
post-office letter box. The Depositary or the Issuer may, however, act upon any
cable, telex or facsimile transmission received by it, notwithstanding that
such cable, telex or facsimile transmission shall not subsequently be confirmed
by letter as aforesaid.
SECTION 7.6. Governing Law.
This Deposit Agreement and the Receipts shall be interpreted and all
rights hereunder and thereunder and provisions hereof and thereof shall be
governed by the laws of the State of New York.
SECTION 7.7 Compliance with U.S. Securities Laws.
Notwithstanding anything is this Deposit Agreement to the contrary, the
Issuer and the Depositary each agrees that it will not exercise any rights it
has under this Deposit Agreement to prevent the withdrawal or delivery of
Deposited Securities in a manner which would violate the U.S. securities laws,
including, but not limited to, Section I.A.(1) of the General Instructions to
the Form F-6 Registration Statement, as amended from time to time, under the
Securities Act of 1933.
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IN WITNESS WHEREOF, ZINDART LIMITED and THE BANK OF NEW YORK have duly
executed this agreement as of the day and year first set forth above and all
Owners shall become parties hereto upon acceptance by them of Receipts issued
in accordance with the terms hereof.
ZINDART LIMITED
By:
-------------------------------------
THE BANK OF NEW YORK,
as Depositary
By:
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Exhibit 21.1
21.1 Subsidiaries of the Registrant
The Company has two direct operating subsidiaries, both of which do
business in Guangzhou, the PRC. The Company owns 51% of the shares of Luen Tat
Mould Manufacturing Limited, organized under the laws of The British Virgin
Islands. The Company owns 55% of the shares of Onchart Industrial Limited, which
is organized in the British Virgin Islands.
In addition to these direct subsidiaries, the Company is party to two
contractual joint ventures, Dongguan Xinda Giftware Company Limited and
Guangzhou Zindart (Xin Xing) Giftware Company Limited, both of which are
organized under PRC law, which are treated as subsidiaries for accounting
purposes.
