<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-17973
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
1,400,000 AMERICAN DEPOSITARY SHARES
REPRESENTING 1,400,000 ORDINARY SHARES
ZINDART LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER.)
------------------------
<TABLE>
<S> <C> <C>
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)
</TABLE>
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)
------------------------
CT CORPORATION SYSTEM
1733 BROADWAY, NEW YORK, NEW YORK 10019
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS SHOULD BE SENT TO:
<TABLE>
<S> <C>
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 94303-0913 PALO ALTO, CA 94301
(415) 846-4000 (415) 324-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------
Ordinary Shares represented by
American Depositary Shares(3)............ 1,610,000 $12.00 $19,320,000 $6,662.07
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes (a) 1,400,000 Ordinary Shares represented by 1,400,000 American
Depositary Shares that are to be sold in the Offering, and (b) 210,000
Ordinary Shares represented by 210,000 American Depositary Shares 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.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ZINDART INDUSTRIAL COMPANY LIMITED
CROSS REFERENCE SHEET
Pursuant to Rule 404(a) and Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
----------------------------------------- -----------------------------------------
<S> <C> <C>
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
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
</TABLE>
<PAGE> 3
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 FEBRUARY 3, 1997
1,400,000 AMERICAN DEPOSITARY SHARES
REPRESENTING 1,400,000 ORDINARY SHARES
LOGO
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 ADSs have been
approved for inclusion on the Nasdaq National Market under the symbol ZNDT upon
commencement of this Offering. Zindart Pte Limited ("Zindart Singapore") owns
100% of the Shares prior to the Offering, and after the Offering will own 78.1%
of the Shares, thereby retaining control of the Company. ZIC Holdings Limited
("ZICHL") owns 76.0% of the shares of Zindart Singapore. Funds under the
management of ChinaVest Group ("ChinaVest") own 67.8% of the shares of ZICHL.
Two directors of the Company are partners of ChinaVest, and may be deemed to
beneficially own the Shares held by Zindart Singapore. See "Principal
Shareholders."
THE ADSS OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," COMMENCING ON PAGE 9.
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per ADS............................ $ $ $
- -----------------------------------------------------------------------------------------------
Total (3).......................... $ $ $
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(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 30-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 Discounts
and Commissions 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. 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 FEBRUARY , 1997
<PAGE> 4
REPORTS TO SECURITIES HOLDERS
As of the date of this Prospectus, the Company will become subject to
certain periodic reporting and informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, will file reports and other information with the Securities and
Exchange Commission (the "Commission"). As a foreign private issuer, the Company
is exempt from the rules and regulations under the Exchange Act requiring the
furnishing and content of proxy statements, and its officers, directors and
principal shareholders are exempt from the reporting and "short-swing" profit
recovery provisions contained in Section 16 of the Exchange Act. Under the
Exchange Act, the Company will not be required to publish financial statements
as frequently, as promptly or containing the same information as United States
("U.S.") companies. 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 intends to make publicly available
certain summary financial information 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.
------------------------
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.
------------------------
THE ADSs MAY NOT BE OFFERED OR SOLD IN THE UNITED KINGDOM OTHER THAN TO
PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING
OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR
BUSINESS OR OTHERWISE IN CIRCUMSTANCES WHICH HAVE NOT RESULTED AND WILL NOT
RESULT IN AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF THE
PUBLIC OFFERS OF SECURITIES REGULATIONS 1995 OF THE UNITED KINGDOM, AND THIS
PROSPECTUS MAY ONLY BE ISSUED OR PASSED ON IN THE UNITED KINGDOM TO A PERSON WHO
IS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1986
(INVESTMENT ADVERTISEMENT) (EXEMPTIONS) ORDER 1996 OR IS A PERSON TO WHOM SUCH A
DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
3
<PAGE> 5
CURRENCY CONVERSIONS
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 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 or represented
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 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) claims against the Company or such
persons predicated upon United States federal or state laws in original actions
brought in the PRC or Hong Kong.
4
<PAGE> 6
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements 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 thereto 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-molded 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, and together accounted for 66.3%, 63.3% and
52.9% of the Company's sales in fiscal years 1994, 1995 and 1996, respectively.
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, farm and 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
Sieper Werke Gmbh ("SWG"), Revell-Monogram, Inc., a subsidiary of Hallmark
("Revell-Monogram"), Hasbro, Inc. and Drumwell Limited. 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 PRC
(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 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." The Company believes that, based on projected
demand, upon completion of Phase II of the construction of the Dongguan
Facility, currently scheduled for the fourth quarter of fiscal year 1998, it
will operate the Dongguan Facility at approximately 80% of full capacity. The
Company projects that growth in demand from both new and existing customers will
enable the Company to operate at or near full capacity by the second quarter of
5
<PAGE> 7
fiscal year 1999. The Company's ability to use the Dongguan Facility as
projected is dependent upon several factors, most of which are beyond the
Company's control, and accordingly there can be no assurance that the Company
will be able to meet any such projections. See "Risk Factors." The Company also
intends to establish a sales, marketing and investor relations office in the
U.S. in 1997.
Zindart's net sales for the fiscal year ended March 31, 1996 were $46.9
million, an increase of 27.3% from the prior fiscal year. Net sales for the nine
months ended December 31, 1996, were $48.7 million, an increase of 37.4% from
the prior year's comparable period, and consisted of die-cast collectibles
(38.74% of net sales), collectible holiday ornaments (28.01%), action figures
and miniature figurine playsets (13.93%) and molds (15.32%). As a percentage of
sales for the 12 months ended December 31, 1996, sales in each quarter during
such period were 19.3%, 26.1%, 26.8% and 27.8%, 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 December 31,
1996, Zindart had orders on hand of approximately $24.1 million, compared to
$20.9 million at December 31, 1995. The Company's net income for the nine months
ended December 31, 1996 was $4.2 million, versus $3.8 million for the prior
year's comparable period. See "Summary Consolidated Financial Data."
Zindart's largest beneficial 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 indirect 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 e-mail 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............ Of the approximately $13,000,000 net proceeds
anticipated from the Offering, approximately
$7,000,000 will be used to finance Phase II of the
construction of the Dongguan Facility, $1,600,000
to purchase equipment, $1,480,000 to repay certain
indebtedness to unaffiliated commercial banks and
equipment lessors, 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."
NASDAQ NATIONAL
MARKET SYMBOL............ ZNDT.
6
<PAGE> 8
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 Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $29,116 $35,603 $35,583 $36,879 $46,930 $35,423 $48,670
Gross profit............................... 7,037 8,294 10,546 11,235 12,814 10,006 12,390
Operating income........................... 2,178 3,214 4,195 4,429 6,316 4,684 5,830
Interest income (expense), net............. (7) (1) (21) 91 (194) 15 (572)
Other income (expense), net................ 52 122 80 492 (416) 70 168
Income before income taxes................. 2,223 3,335 4,254 5,012 5,706 4,769 5,426
Income before minority interests........... 2,004 3,033 3,818 4,529 5,218 4,365 4,962
Minority interests(1)...................... 0 0 83 337 622 525 734
------- ------- ------- ------- ------- ------- -------
Net income................................. $ 2,004 $ 3,033 $ 3,735 $ 4,192 $ 4,596 $ 3,840 $ 4,228
======= ======= ======= ======= ======= ======= =======
Earnings per share(2)...................... $ 0.40 $ 0.61 $ 0.75 $ 0.84 $ 0.92 $ 0.77 $ 0.85
======= ======= ======= ======= ======= ======= =======
Weighted average number of shares
outstanding.............................. 5,000 5,000 5,000 5,000 5,000 5,000 5,000
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1996 DECEMBER 31, 1996
-------------- ---------------------------
ACTUAL ACTUAL AS ADJUSTED(3)
-------------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,294 $ 4,873 $ 8,193
Working capital............................................. 3,401 6,676 10,643
Property, plant and equipment, net.......................... 10,800 11,632 20,232
Total assets................................................ 31,710 37,187 48,729
Short-term debt(4).......................................... 8,899 5,711 5,064
Long-term debt and capital lease obligations................ 2,128 1,827 994
Shareholders' equity........................................ 11,608 15,836 28,858
</TABLE>
- ---------------
(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/period
by 5,000,000, the weighted average number of ordinary shares outstanding
during the years/periods, on the basis that the 20 for 1 stock split had
been consummated prior to the years/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.
7
<PAGE> 9
ORGANIZATION OF THE COMPANY
The following chart shows the organization of the Company, its principal
shareholders and operating subsidiaries prior to giving effect to the Offering.
OPERATING STRUCTURE
The following chart shows the operating structure of the Company's three
manufacturing facilities.
8
<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.
LIMITED REPORTING REQUIREMENTS
As a foreign private issuer, the Company is exempt from the rules and
regulations under the Exchange Act prescribing the furnishing and content of
proxy statements, and its officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. Under the Exchange Act, the Company is not
required to publish financial statements as frequently, as promptly or
containing the same information as U.S. companies. See "Reports to Securities
Holders."
RISKS RELATING TO THE COMPANY
Dependence on Major Customers; Cancellable Orders. 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 Chief Executive Officer
of Ertl is a director of the Company. See "Management." In addition, sales to
four other customers, Hasbro, Inc., SWG, Drumwell Limited, and Revell-Monogram,
as a percentage of the Company's total net sales during fiscal years 1994, 1995
and 1996 in the aggregate were approximately 20.9%, 20.7%, and 23.0%,
respectively. The Company's dependence on these 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 any 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 respective 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
9
<PAGE> 11
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 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, financial condition and results of operations.
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 its 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 effect 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
10
<PAGE> 12
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's ability to
terminate in a cost-effective and timely manner its obligations under the joint
venture agreement relating to the Xin Xing Facility and the sub-contracting
agreement relating to the Zhong Xin Facility. 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 substantial costs associated with
terminating such agreements 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 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, the Zhong Xin
Facility, 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, the Xin Xing Facility, 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 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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 purchased more than five percent of its raw materials from the
following companies in one or more of fiscal years 1994, 1995 and 1996 and the
nine months ended December 31, 1996: Sogen (Far East) Limited, Starlite Printers
Limited, Wing Fu Carton & Printing Company Limited, Lee Kee Metal Company
Limited, Y.T. Cheng (Ching Tai) Limited, and Cominco Ltd. The Company has no
formal written agreements with any of 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 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 would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that it could continue to obtain needed raw
materials in the event that it experiences significant rapid growth, in light of
the current availability of such raw materials on the world markets. However, to
the extent the Company is unable to obtain needed raw
11
<PAGE> 13
materials in such circumstances in sufficient quantities or at affordable
prices, such inability would 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, nor has it been in the past, 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 and the adverse publicity that could
accompany any harm caused to a consumer by a product manufactured by the Company
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 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
business 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's comparable quarter due to the
timing of receipt of orders from customers for die-cast collectibles, toys and
molds and the shipment of such products. As a result, it is possible that the
Company may experience quarterly variations in operating results, and
accordingly, the trading price of the Company's ADSs may be subject to
fluctuations in response to such quarterly variations. 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
12
<PAGE> 14
control of the Company. See "Principal Shareholders." In addition, Feather S.Y.
Fok, Chief Operating Officer, Chief Financial Officer and a director of the
Company, is a director of Zindart Singapore. Alexander M.K. Ngan, a director of
the Company, is a partner in ChinaVest. Robert A. Theleen, who is director of
the Company, is a partner in ChinaVest. Subject to an agreement with the
Representative not to sell or dispose of any Shares of the Company for a lock-up
period of 180 days following the closing of the Offering, the ChinaVest private
equity funds have the right, acting in their own interest, to sell or dispose of
such Shares. 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 180 day 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 over time from a complete exemption to a
partial exemption, then to no exemption 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. The Hong Kong
statutory income tax rate is currently 16.5%, and the PRC tax rate on joint
ventures is currently 27.0%. Since the Company has historically derived its
revenues primarily from its sales activities in Hong Kong and since the
Company's PRC joint ventures historically have produced minimal profits and are
not expected to produce significant profits in the future, the Company does not
believe that the expiration or loss of the PRC tax holiday will have a material
impact on the Company's net income. 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 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 extent 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 it 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 manufacturing and assembly
workers are young women who come from various rural regions in the PRC for the
purpose of working for wages higher than are
13
<PAGE> 15
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 $6.50 from the
initial public offering price, assuming an offering price of $11.00 per Share.
Existing shareholders will incur an immediate increase in the net tangible book
value per Share from $3.15 to $4.50, an increase of $1.35 per Share. 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 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
All of the Company's sales are denominated either in U.S. Dollars or Hong
Kong 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. The Company does not currently
hedge its foreign exchange positions. 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.
14
<PAGE> 16
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 effect.
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 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 could adversely affect the Company's business by
raising prices for its products in the United States, which could 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
15
<PAGE> 17
market position could be materially jeopardized, and there could be no assurance
that the Company could continue its manufacturing operations. 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, 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.
16
<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 and commissions, 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 $1,480,000 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>
647,000 9.5% December 1997
97,000 9.5% December 1998
65,000 9.5% December 1998
121,000 9.5% March 1999
550,000 9.5% May 1999
-----
Total.... $ 1,480,000
</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 fiscal year
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 fiscal
year 1996.
17
<PAGE> 19
DILUTION
As of December 31, 1996, the net tangible book value of the Company was
approximately $15,766,000, or $3.15 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 December 31, 1996, other
than to give effect to the 20 for 1 stock split and 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 and
commissions, the pro forma net tangible book value per Share as of December 31,
1996, on a consolidated basis, would have been approximately $28,788,000, or
$4.50 per Share. This represents an immediate increase in the net tangible book
value of $1.35 per Share to existing shareholders and an immediate dilution of
$6.50 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 December 31, 1996......... $ 3.15
Increase per Share attributable to the Offering................... 1.35
-------
Pro forma net tangible book value per Share after the Offering.... 4.50
--------
Dilution to purchasers of ADSs in the Offering.................... $ 6.50
========
</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 December 31, 1996
would have been $30,936,000 or $4.68 per Share, resulting in dilution to
purchasers of ADSs of $6.32 per Share.
The following table summarizes, on a pro forma basis at December 31, 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% $15,836,000 50.7% $ 3.17
New investors (1).............. 1,400,000 21.9% 15,400,000 49.3% 11.00
---------
Total................ 6,400,000 100.0% $31,236,000 100.0%
=========
</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 $33,546,000.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the pro forma consolidated capitalization of
the Company at December 31, 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 DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Short-term bank borrowings........................................... $ 4,446 $ 4,446
Current portion of long-term loans................................... 834 187
Current portion of capital lease obligations......................... 431 431
------ ------
Total short-term debt........................................ 5,711 5,064
------ ------
Long-term debt:
Long-term bank loans................................................. 1,161 328
Capital lease obligations, long-term................................. 666 666
------ ------
Total long-term debt......................................... 1,827 994
Minority interest...................................................... 1,335 1,335
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.................................................... 15,513 15,513
------ ------
Total shareholders' equity................................... 15,836 28,858
------ ------
Total capitalization................................................... $18,998 $31,187
====== ======
</TABLE>
19
<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 nine months ended December 31, 1995
and 1996 and the selected balance sheet data as of December 31, 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>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- ---------------------
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 $35,423 $48,670
Cost of goods sold............................ 22,079 27,309 25,037 25,644 34,116 25,417 36,280
------ ------ ------ ------ ------ ------ ------
Gross profit.................................. 7,037 8,294 10,546 11,235 12,814 10,006 12,390
Selling, general and administrative
expenses.................................... 4,859 5,080 6,351 6,806 6,498 5,322 6,560
Operating income.............................. 2,178 3,214 4,195 4,429 6,316 4,684 5,830
Interest expenses............................. 211 165 150 137 402 180 661
Interest income............................... 204 164 129 228 208 195 89
Other income (expense), net................... 52 122 80 492 (416) 70 168
------ ------ ------ ------ ------ ------ ------
Income before income taxes.................... 2,223 3,335 4,254 5,012 5,706 4,769 5,426
Provision for income taxes.................... 219 302 436 483 488 404 464
------ ------ ------ ------ ------ ------ ------
Income before minority interests.............. 2,004 3,033 3,818 4,529 5,218 4,365 4,962
Minority interests(1)......................... 0 0 83 337 622 525 734
------ ------ ------ ------ ------ ------ ------
Net income.................................... $ 2,004 $ 3,033 $ 3,735 $ 4,192 $ 4,596 $ 3,840 $ 4,228
====== ====== ====== ====== ====== ====== ======
Earnings per share(2)......................... $ 0.40 $ 0.61 $ 0.75 $ 0.84 $ 0.92 $ 0.77 $ 0.85
====== ====== ====== ====== ====== ====== ======
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
DECEMBER 31, 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 $ 4,873 $ 8,193
Working capital............................... 2,621 3,775 3,210 5,399 3,401 6,676 10,643
Property, plant and equipment, net............ 1,528 1,882 2,545 3,902 10,800 11,632 20,232
Total assets.................................. 10,445 13,905 16,846 23,070 31,710 37,187 48,729
Short-term debt(5)............................ 1,528 1,052 1,020 1,780 8,899 5,711 5,064
Long-term debt and capital lease
obligations................................. 566 745 420 859 2,128 1,827 994
Shareholders' equity.......................... 3,552 5,112 6,887 10,011 11,608 15,836 28,858
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------------------------------- ---------------------
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 $ 6,785 $ 2,154
</TABLE>
- ---------------
(1) Certain third parties own minority equity interests in the Company's
manufacturing and mold-making subsidiaries in the PRC. See
"Business -- Subsidiaries."
(2) Earnings per share is computed by dividing net income for each year/period
by 5,000,000, the weighted average number of ordinary shares outstanding
during the years/periods, on the basis that the 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 each year/period 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.
For the nine months ended December 31, 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.
20
<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 year ended March 31, 1996 is referred to herein as FY 1996, the
fiscal year ended March 31, 1995 period is referred to herein as FY 1995 and the
fiscal year ended March 31, 1994 is referred to herein as FY 1994.
OVERVIEW
The Company manufactures a wide range of high-quality, detailed die-cast
and injection-molded products including (i) die-cast collectibles, (ii)
collectible holiday ornaments and (iii) action figures and miniature figurine
playsets used primarily as toys. In FY 1996, the Company manufactured products
for approximately 20 customers, most of which are leading U.S. designers and
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 and
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 both in operating income as a percentage of net
sales and in 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, training new employees and the manufacture of a larger
percentage of toy products, which have a lower profit margin than the Company's
collectible and giftware products. The Company intends to seek to reduce its
cost of goods sold by (i) maintaining the same overall percentage of toy sales
but focusing on high margin toy products; and (ii) improving operating
efficiency by consolidating its operations in the Dongguan Facility. There can
be no assurance, however, that the Company will be able to achieve a reduction
in the cost of goods sold due to several factors beyond the Company's control,
including lower customer demand for higher margin products, and an increase in
raw material prices, personnel costs, inflation and other costs.
21
<PAGE> 23
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 nine months ended December 31, 1995 and 1996.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------- ---------------
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% 28.2% 25.5%
Selling, general, and administrative expenses...... 17.9% 18.5% 13.8% 15.0% 13.5%
Operating income................................... 11.8% 12.0% 13.5% 13.2% 12.0%
Income before income taxes......................... 12.0% 13.6% 12.2% 13.5% 11.1%
Provision for income taxes......................... 1.2% 1.3% 1.0% 1.1% 1.0%
Minority interests................................. 0.2% 0.9% 1.3% 1.5% 1.5%
Net income......................................... 10.5% 11.4% 9.8% 10.8% 2.7%
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
Net Sales. Net sales for the nine months ended December 31, 1996 totaled
$48,670,000, compared to $35,423,000 in the nine months ended December 31, 1995,
an increase of $13,247,000 or 37.4%. This increase resulted from an increase in
sales volume in all finished product categories. Sales of the Company's die-cast
collectibles increased from $13,802,000 to $18,854,000 or 36.6%, due to
increased sales to Ertl. Sales of collectible holiday ornaments increased from
$8,546,000 to $13,633,000, or 59.5%. Sales of action figures and miniature
figurine playsets increased from $5,020,000 to $8,727,000, or 73.8%, primarily
due to sales to two new customers. Mold sales remained at approximately $8
million, because during the period ended December 31, 1996 the Company's
mold-making subsidiaries focused on manufacturing molds for the Company's
products rather than for sales to third parties.
Gross Profit. Gross profit for the nine months ended December 31, 1996
totaled $12,390,000, compared to $10,006,000 in the nine months ended December
31, 1995, an increase of $2,384,000, or 23.8%. 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 28.2% to 25.5% because of costs associated with operating the Dongguan
Facility at less than full capacity, training new employees and an increase in
the production of the Company's lower-margin toy products.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the nine months ended December 31, 1996
totaled $6,560,000, compared to $5,322,000 for the nine months ended December
31, 1995, an increase of $1,238,000, or 23.3%, as a result of increased sales
and a corresponding increase in selling expenses. As a percentage of net sales,
SG&A declined from 15.0% to 13.5%.
Operating Income. Income from operations for the nine months ended
December 31, 1996 totaled $5,830,000, compared to $4,684,000 for the nine months
ended December 31, 1995, an increase of $1,146,000, or 24.5%, due to the factors
described above. Income from operations as a percentage of net sales decreased
from 13.2% to 12.0%.
Other Income (Expense), Net. Other income (expense) for the nine months
ended December 31, 1996 totaled $168,000, compared to $70,000 for the nine
months ended December 31, 1995, an increase of $98,000, or 140.0%.
Interest Expense. Interest expense for the nine months ended December 31,
1996 totaled $661,000, compared to $180,000 for the nine months ended December
31, 1995, an increase of $481,000, or 167.2%. The increase in interest expense
resulted from the Company's assumption of additional indebtedness to finance
Phase I of the construction of the Dongguan Facility. Approximately $1,480,000
of the proceeds from this Offering will be used to repay indebtedness.
22
<PAGE> 24
Provision for Income Taxes. The effective tax rate remained relatively
constant at approximately 8.6% of pre-tax income in for the nine months ended
December 31, 1996, and 8.5% for the nine months ended December 31, 1995.
Net Income. Net income during the nine months ended December 31, 1996 was
$4,228,000, compared to $3,840,000 for the nine months ended December 31, 1995,
an increase of $388,000, or 10.1%, due to the factors described 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. The prices of the Company's raw materials, zinc
(approximately 13% of net sales) and plastic (approximately 7% of net sales)
increased substantially in the first half of FY 1996. The Company was able to
pass on the increase in the cost of zinc to its customers but had to absorb part
of the increase in the cost of plastic. In FY 1996, the annual average price of
zinc alloy increased by approximately 6.5% over the annual average price in FY
1995, but the Company was able to increase the average price of zinc alloy
charged to its customers by approximately 5.6%, nearly offsetting the price
increase. The price of a plastic resin frequently used by the Company increased
by approximately 16.9% from FY 1995 to FY 1996, and the Company was unable to
pass on the majority of this additional cost to its customers. As a result, the
Company's gross profit margin suffered in FY 1996. The Company does not believe
that increases in the price of raw materials have materially affected the
Company's results of operations in any other period.
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 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 FY 1995 to 13.5% of net
sales in FY 1996.
Other Income (Expense), Net. Other income (expense) totaled a net expense
of $435,000 for FY 1996 compared to a net income of $455,000, a decrease of
$890,000. The decrease was due primarily to (i) a difference of $321,000
resulting from aggregate losses from foreign currency transactions in FY 1996,
versus aggregate gains from foreign currency transactions in FY 1995 and (ii) a
$358,000 write-off related to listing expenses for a proposed public offering in
Singapore that was not completed during FY 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 Phase
I of the construction of the Dongguan Facility.
23
<PAGE> 25
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 $4,228,000 in FY 1996, an increase of
$388,000, or 10.1% from $3,840,000 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 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.
Other Income (Expense), Net. Other income (expense) totaled a net income
of $492,000 for FY 1995, compared to a net income of $80,000 for FY 1994, and
increase of $412,000, due primarily to aggregate gains from foreign currency
transactions in FY 1995 versus aggregate losses from foreign currency
transactions in FY 1994, as well as other miscellaneous receipts and
adjustments.
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 $4,873,000 at December 31,
1996, while total indebtedness at March 31, 1996 was $11,027,000 and $7,538,000
at December 31, 1996.
Cash flows from operating activities were $5,471,000, $4,485,000,
($360,000) and $7,828,000 for FY 1994, FY 1995, FY 1996, and the nine-month
period ended December 31, 1996, respectively. The Company's operating activities
are historically financed by cash flows from operations; the anomalous cash flow
figure for FY 1996 was due to a significant increase in accounts receivable and
inventories. Cash flows from investing activities were ($1,388,000),
($1,989,000), ($7,507,000) and ($2,153,000) for FY 1994, FY 1995, FY 1996 and
the nine-month period ended December 31, 1996, primarily as a result of
expenditures for the acquisition of property, plant and equipment. Cash flows
from financing activities were ($3,927,000),
24
<PAGE> 26
($2,446,000), $7,043,000 and ($4,096,000) in FY 1994, FY 1995, FY 1996 and the
nine-month period ended December 31, 1996.
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 December 31, 1996, the outstanding principal amount of
this loan was $1,500,000. 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 of the outstanding balance in February 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 December 31, 1996, the aggregate outstanding amount under
these three leases was $1,097,000.
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 December 31, 1996, these lines of credit allow for aggregate
borrowings of up to $26,711,000. As of December 31, 1996, the Company had
$16,066,000 of loans and letters of credit outstanding 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 minimum net 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 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 expenditure for FY 1994, FY 1995, FY 1996, and the nine-month
period ended December 31, 1996, was $1,491,000, $3,197,000, $7,341,000, and
$2,154,000, 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 denominated either in U.S. Dollars or Hong
Kong Dollars. The largest portion of the Company's expenses are denominated in
Hong Kong Dollars, followed by Renminbi and U.S. 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
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 been able to reduce
the impact of inflation on profitability by increasing the prices of its
products and reducing operating costs. For example, in FY 1995 and FY 1996,
respectively, the Company increased the price of its products by 4.0% and 3.0%,
and reduced operating costs by 0.2% and 1.5%. No assurance can be given that the
Company will be able to minimize the impact of inflation on profitability in the
future.
25
<PAGE> 27
BUSINESS
Zindart manufactures high-quality, detailed die-cast and injection-molded
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-molded 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 for its mold- and
model-making operations and other capable but relatively inexpensive laborers
for its manufacturing and assembly operations. 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 members of management
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 two original 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."
The Company's Xin Xing and Dongguan facilities are owned by Sino-foreign
joint ventures ("CJVs") in which PRC parties own minority interests. The Company
structured these facilities in this format in order to avail itself of certain
tax holidays granted to CJVs and to gain the assistance of local parties in
establishing and operating the facilities. Such assistance principally involves
representing the CJVs to government authorities responsible for the allocation
and use of land, the provision of municipal services and labor relations. The
Company continues to rely on such PRC parties for the efficient provision of
services that are material to the conduct of operations at these facilities. See
"Notes to Financial Statements -- Note 14" and "Risk Factors -- Dependence on
PRC Parties."
26
<PAGE> 28
MARKETS, PRODUCTS AND CUSTOMERS
Die-cast Collectibles
Zindart manufactures a wide range of metal die-cast collectible scale model
replicas of automobiles, such as Mercedes Benz, BMW, Corvette and Mustang,
trucks, planes, farm implements and construction 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 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. for
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 are 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 fiscal year
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 year 1995 and fiscal year 1996, sales to
Ertl accounted for 32.1% and 25.9% of the Company's net sales, respectively.
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 Company's
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.
for 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 fiscal year
1995 and fiscal year 1996, respectively.
27
<PAGE> 29
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. for 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.
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 volume (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 multiple companies usually required to perform the different steps of
the development and production of a single product. Marketers must often hire
different companies 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 the 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 highly trained workforce, including skilled, technically trained
craftsmen using modern equipment for the Company's mold-and model-making
operations, and other capable but relatively inexpensive laborers for its
manufacturing and assembly operations 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 with the capacity 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 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 gains in production efficiency.
- 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 participant in the
28
<PAGE> 30
manufacturing process instead of the multiple participants previously required;
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 they become
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 combined 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 construction of the Dongguan Facility
will provide the Company with additional production space. Zindart also intends
to purchase new equipment for this facility and to 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.
29
<PAGE> 31
MANUFACTURING
A significant problem facing the Company's customers is eliminating the
cost, time and complexity of locating and managing the multiple companies
usually required to perform the different steps of the product development and
production cycle of a single product. Several 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.
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 integrate product engineering,
model making and mold making with the production of the finished product, and
thereby meet all of a customer's design engineering and manufacturing needs
(other than the design and printing of product packaging), thus eliminating the
need for a Hong Kong intermediary. Zindart's commitment to providing a
comprehensive product development service is carried out by a team currently
consisting of approximately 130 engineers and technicians, approximately 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 quality
requirements.
- Using the model, Zindart produces tooling casts and then the 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 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 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>
30
<PAGE> 32
COMPETITION
The Company faces competition from several companies for the manufacture of
die-cast collectibles and from 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
In 1982, Zindart acquired a facility of approximately 14,700 square feet at
Tai Po in Hong Kong's New Territories, which currently serves as the Company's
headquarters. The Tai Po facility is staffed by approximately 80 persons in the
Company's customer service, quality control, material control and purchasing,
finance and accounting, marketing, project management and engineering, personnel
and other administrative departments. 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 Guangzhou Tian He Dongpu Economic
Development Company, the local economic development authority, which provides
Zindart with the factory building and facilities as well as the pool of labor.
Zindart pays subcontracting fees for the use of these facilities and labor, and
provides machinery, equipment and raw materials. Zindart owns all of the
production machinery and equipment used in the plant. Under the subcontract
processing agreement, Zindart has the right to operate and manage the production
facility, including the authority to hire 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 provides a factory space of approximately
170,000 square feet, and employs a workforce of approximately 1,500. In December
1993, Zindart entered into a contractual joint venture agreement with Guangzhou
Xinjiao Huangbu Economic Development Company ("Guangzhou Xinjiao"), 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, Guangzhou Xinjiao receives an annual fee from Zindart approximating
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 Hengli
Trading General Company ("Dongguan Hengli"), 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 15 years. At the end of this
31
<PAGE> 33
term, Zindart will continue to own the principle assets of the joint venture,
including the 50-year land lease. Pursuant to the contractual joint venture
agreement, Dongguan Hengli receives an annual service fee, but does not share in
the profits or losses of the venture. Phase I of the construction of the
Dongguan Facility, 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 provide
approximately 887,000 square feet of manufacturing space and approximately
385,000 square feet of space 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 target delivery dates. These purchase orders may be cancelled by the customer
upon reimbursement of actual costs incurred and payment of a portion of lost
profits, as determined on a case-by-case basis. As is customary in the PRC, each
year 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 December 31, 1996, Zindart had orders on hand of approximately $24.1
million, compared to $20.9 million at December 31, 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 PRC
laws and regulations for environmental protection.
32
<PAGE> 34
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 PRC
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 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 relating to
human rights, including a prohibition on use of child labor, and guidelines
regarding 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 the
Company's 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 has
been informed that two minority shareholders of ZICHL have asserted a claim that
they are entitled to receive additional shares in ZICHL, such that their total
beneficial ownership in the Company would increase from 9.6% to 14.16%. No
assurance can be given that such persons will not initiate litigation to pursue
this claim. See "Principal Shareholders."
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.
33
<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION AGE
- --------------------------------- ---------------------------------------------------- ---
<S> <C> <C>
Robert A. Theleen................ Chairman of the Board 51
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(1).............. 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
George B. Volanakis.............. Director 48
James E. Gilleran(2)............. Director 63
Leo Paul Koulos(2)............... Director 63
Stanley Wang(2).................. Director 54
</TABLE>
- ------------------
(1) Mr. Mok has informed the Company that he intends to leave the Company's
employ in the third quarter of calendar year 1997 to establish his own
business. In the interim, the Company will undertake a search for another
Vice President of Marketing.
(2) Messrs. Gilleran, Koulos and Wang will join the Board of Directors following
the closing of the Offering.
Robert A. Theleen, 51, serves as Chairman of the Board of the Company and
is the founder and Chairman of ChinaVest. Mr. Theleen joined the Board of
Directors in January, 1997. Mr. Theleen is a director of several privately held
ChinaVest portfolio companies. Mr. Theleen is a founding member of the executive
committee of the Hong Kong-Taipei Business Cooperation Committee of the Hong
Kong General Chamber of Commerce. Mr. Theleen received a B.A. degree from
Duquesne University and an MBA from the American School of International
Management.
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 Audit & Business and Advisory Services division of Arthur Andersen
& Co. 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.
34
<PAGE> 36
Andrew C. H. Mok, 45, has served as Vice President of Marketing since
January 1995, and is responsible for 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 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 privately held 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.
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.
James E. Gilleran, 63, will join the Board immediately following the
closing of this Offering. Mr. Gilleran has served as Chairman of the Board and
Chief Executive Officer of Bank of San Francisco since 1994. Prior thereto, Mr.
Gilleran served as Superintendent of Banks of the California State Banking
Department. In addition, Mr. Gilleran serves as a director of The Fritz
Companies and Cooper Development Company. Mr. Gilleran received a B.B.A. degree
from Pace University.
Leo Paul Koulos, 63, will join the Board immediately following the closing
of this Offering. Mr. Koulos is President and Chief Executive Officer of
National Coupon Redemption Service, Inc., a national clearinghouse for
manufacturers' cents off coupons. Mr. Koulos is also Chairman and Chief
Executive Officer of Coupon Processing Associates, Inc. and of its Mexican
affiliate, Enlace Vital, S.A. de C.V. Mr. Koulos received a B.S. degree from the
University of San Francisco.
Stanley Wang, 54, will join the Board immediately following the closing of
this Offering. Mr. Wang is President and Chief Executive Officer of PanTronix
Corporation, which provides manufacturing services for
35
<PAGE> 37
semiconductor components, subsystems and modules. Mr. Wang received a business
degree from the National Taiwan University and an M.B.A. degree from Temple
University.
BOARD OF DIRECTORS
The Directors of the Company who are not executive officers currently do
not receive compensation for serving on the Board of Directors or any committee
thereof. All 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, two independent
directors were appointed to 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 fiscal year 1996 was
$939,145, of which $182,859 was paid as discretionary bonuses. In addition,
$27,772 was contributed to the Company's provident fund (i.e., the Company's
defined contribution benefit plan administered by Jardine Matheson) in fiscal
year 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 Operating Officer recommends the size of the bonus pool to the 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
three directors, one of whom is the Chief Operating Officer.
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 is
expected to provide for the issuance of options to purchase up to 10% of the
outstanding Shares following the Offering.
LIMITATION OF LIABILITY
The liability of officers and directors in Hong Kong is governed by common
law, which imposes general fiduciary duties such as the duty to act for the
benefit of the company, to act with due skill, care and attention, and to avoid
conflicts of interest.
Under Hong Kong law, the organizational documents of a company may not
contain any provisions limiting the personal liability of directors to the
Company or its shareholders or indemnifying directors, officers, employees and
agents of the Company for acts performed in such capacity. 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 and affords
certain rights of contribution 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.
36
<PAGE> 38
PRINCIPAL SHAREHOLDERS
The following table sets forth beneficial ownership of the Shares as of
January 31, 1997 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 67.8% 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 ZICHL (76.0%),
Longvest Management Limited (14.0%) and Ertl (Hong Kong) Limited (10.0%).
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, a former director
of ZICHL and the Company. 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, a former director of
ZICHL and the Company. 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 limited partnership; ChinaVest IV-A, L.P., a
Delaware limited partnership; and ChinaVest IV-B, 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) Each of Robert A. Theleen and Alexander M.K. Ngan is a partner of
ChinaVest. On that basis, Messrs. Theleen and Ngan may be deemed to own
beneficially the Shares held by ChinaVest. Messrs. Theleen and Ngan each
disclaims beneficial ownership of such Shares, except to the extent of his
pecuniary interest therein.
37
<PAGE> 39
DISPUTE BETWEEN CERTAIN BENEFICIAL SHAREHOLDERS
The Company has been informed that, in January 1997, ChinaVest made an
offer to purchase the shares of ZICHL beneficially owned by Messrs. Hu and Tong.
The offer included a settlement of claims ChinaVest believes it has against such
persons. In response to the offer, ChinaVest received a letter from counsel to
Messrs. Hu and Tong asserting certain claims against ChinaVest and Advent,
including a claim that they are entitled to receive additional shares in ZICHL
under their prior employment agreements, such that their total beneficial
ownership of Shares in the Company would equal 14.16% of the outstanding Shares
of the Company prior to the Offering (an increase of 4.86% over their current
total beneficial ownership of 9.6% of the Shares outstanding prior to the
Offering). In this letter, Messrs. Hu and Tong also offered to sell their
current holdings in ZICHL and the additional ZICHL shares that they are
demanding to ChinaVest at a substantial premium over the offering price of the
ADSs in this Offering. In addition, the letter threatened litigation if the
parties do not reach an amicable settlement of this dispute. ChinaVest has
informed the Company that it believes that the claims of Messrs. Hu and Tong are
without merit and that it intends to continue to pursue settlement or
adjudication of the parties' respective claims. No assurance can be given that
the Company would not be named as a defendant in any litigation that might be
filed by Messrs. Hu and Tong, or, if such proceedings were commenced, as to the
outcome of such proceedings or the costs associated therewith.
38
<PAGE> 40
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 "ZEL Transaction"). 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 ZEL 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 year 1994 on an interest-free
basis for working capital purposes. These advances were repaid in fiscal year
1995 (the "ZICHL Advance").
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 fiscal year 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 "Sinomex Loan"). 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 fiscal year 1996.
The Company does not intend to enter into any future transactions with
affiliates similar to the ZEL Transaction, the ZICHL Advance or the Sinomex
Loan, and intends that all future transactions with affiliates will be approved
by a committee of disinterested directors.
39
<PAGE> 41
DESCRIPTION OF SHARES
As of January 31, 1997, the authorized shares of the Company consisted of
10,000,000 Ordinary Shares with a par value of approximately $0.065, 5,000,000
of which were issued and outstanding. The following statements are summaries of
the material 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.
The ADSs have been approved for inclusion 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 shareholders 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 shareholders as are entitled to,
and do, vote in person or by proxy at a general meeting of the Company.
Generally, resolutions of the shareholders of the Company are passed by ordinary
resolution. However, the Companies Ordinance stipulates that certain matters,
such as amendment of the Company's Memorandum or Articles of Association,
repurchases of Shares by the Company, removing a director and winding up the
Company, 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 shareholder who is present in person at a
general meeting of the Company shall have one vote, and on a poll every
shareholder 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
the holders 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
40
<PAGE> 42
meeting is required by law to be held. If such approval is given, the unissued
Shares of the Company 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 term
only upon the vote of not less than three-quarters of the issued 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 shareholders 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 of Directors.
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 shareholders 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
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 income. 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.
41
<PAGE> 43
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of the material 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, including the
form of ADRs, which has been filed as an exhibit to the Company's Registration
Statement of which this Prospectus is a part. 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 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.
42
<PAGE> 44
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 the 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
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 therefor in
such form as it deems appropriate. If the Depositary determines in its
discretion that it
43
<PAGE> 45
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 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.
44
<PAGE> 46
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.
45
<PAGE> 47
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; and (g) 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
referred to above which would have been charged as a result of the deposit of
such securities (for purposes of this
46
<PAGE> 48
clause (h) treating all such securities as if they were Shares), but which
securities are instead distributed by the Depositary to Owners.
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 Foreign 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 the Deposit Agreement or the ADRs, the surrender of outstanding
ADRs and withdrawal of the deposited Shares
47
<PAGE> 49
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
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.
48
<PAGE> 50
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 ADSs representing the 1,400,000 Shares 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").
Pursuant to an Agreement Regarding Future Share Distributions dated as of
January 31, 1997 among the Representives of the Company and Zindart Singapore
(the "Share Distribution Agreement), the Company and its sole shareholder 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, (collectively, "Transfer") except
to the Underwriter pursuant to the Underwriting Agreement, for a period of 180
days after the closing date of the Offering without the prior written consent of
the Representative, subject to certain exceptions.
In addition, the Company and its sole shareholder have agreed in the Share
Distribution Agreement not to Transfer any Shares of the Company for a period of
two years except: (i) in a private transaction not involving a public offering,
(ii) in a registered public distribution in the United States by means of an
offering of ADSs into the U.S. market pursuant to Rule 144, or (iii) in a public
offering outside of the United States as long as the Company and the
Representative mutually agree that a public offering of ADSs could not be
effected in the United States at such time on commercially reasonable terms. The
sole shareholder may transfer Shares to its shareholders if they agree to be
bound by the terms of the Share Distribution Agreement.
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 the 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 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.
49
<PAGE> 51
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 and the material Hong Kong taxes applicable to the Company's operations
in Hong Kong. The discussion under "PRC Taxation" generally summarizes the
material PRC taxes applicable to the Company's investment in the PRC. 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 summarizes, in the opinion of McCutchen, Doyle,
Brown & Enersen, LLP, Palo Alto, California, the United States federal income
tax considerations that are likely to be material to 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 its 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 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.
50
<PAGE> 52
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.
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 as 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 for prior taxable years and believes
that it will not be treated as a PFIC for the current and future taxable years,
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.
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
51
<PAGE> 53
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 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 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
52
<PAGE> 54
(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.
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.
53
<PAGE> 55
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 the 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 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 Foreign
Investment Enterprise Tax Law 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.
54
<PAGE> 56
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."
55
<PAGE> 57
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."
56
<PAGE> 58
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..................................................................... 1,400,000
=========
</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.
The Company's sole shareholder has 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
the closing of this Offering 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 the closing of this
Offering, 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,
57
<PAGE> 59
officers, directors 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. In addition, the Company and its
sole shareholders have agreed on certain additional restrictions on the issuance
and sale of Shares of the Company under the Share Distribution Agreement for a
period of two years following the Closing of the Offering. See "Shares Eligible
for Future Sale."
Each of the Underwriters has represented and agreed that: (i) it has not
offered or sold and will not offer or sell the ADSs to persons in the United
Kingdom, other than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 of the
United Kingdom; (ii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issue and sale of the ADSs to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisement) (Exemptions)
Order 1996 or is a person to whom such a document may otherwise lawfully be
issued or passed on; and (iii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the ADSs, from or otherwise involving the
United Kingdom.
LEGAL MATTERS
The validity of the issuance of the ADSs offered hereby and certain matters
as to United States law are being passed upon for the Company by its United
States counsel, McCutchen, Doyle, Brown & Enersen, LLP, Palo Alto, California.
The validity of the issuance of the Shares 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 are being passed upon for the
Company by the Guangzhou Law Office, Guangzhou, the PRC. Certain legal matters
as to United States law are being passed upon for the Underwriters by Heller
Ehrman White & McAuliffe, Palo Alto, California. The matters included herein
under the heading "Enforceability of Civil Liabilities" have been passed upon by
Robert W.H. Wang & Co. as to Hong Kong law and the Guangzhou Law Office as to
PRC law. The matters included herein under the heading "United States Federal
Income Taxation," "Hong Kong Taxation" and "PRC Taxation" under the caption
"Taxation" have been passed upon by McCutchen, Doyle, Brown & Enersen, LLP as to
United States taxation, Robert W.H. Wang & Co. as to Hong Kong taxation and the
Guangzhou Law Office as to PRC taxation, and are stated herein on their
respective authority.
EXPERTS
The financial statements of the Company as of March 31, 1995 and 1996 and
for the 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.
58
<PAGE> 60
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.
59
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ZINDART LIMITED:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets -- audited as of March 31, 1995 and 1996 and unaudited
as of December 31, 1996.......................................................... F-3
Consolidated Statements of Operations -- audited for each of the three years ended
March 31, 1994, 1995 and 1996 and unaudited for the nine-month periods ended
December 31, 1995 and 1996....................................................... F-4
Consolidated Statements of Cash Flows -- audited for each of the three years ended
March 31, 1994, 1995 and 1996 and unaudited for the nine-month periods ended
December 31, 1995 and 1996....................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity -- audited for each of
the three years ended March 31, 1994, 1995 and 1996 and unaudited for the
nine-month period ended December 31, 1996........................................ F-7
Notes to financial statements....................................................... F-8
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Zindart Limited:
We have audited the accompanying consolidated balance sheets of Zindart
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
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,
January 31, 1997.
F-2
<PAGE> 63
ZINDART LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1995 AND 1996 (AUDITED)
AND DECEMBER 31, 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------- 1996
1996 -------------
------ $'000
1995 $'000 (UNAUDITED)
------
$'000
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and bank deposits......................................... 4,123 3,294 4,873
Accounts receivable, net....................................... 4,300 8,315 9,123
Due from immediate holding company............................. -- 3 --
Due from ultimate holding company.............................. 95 -- --
Due from related companies..................................... 1,752 -- 49
Deposits and prepayments....................................... 1,575 1,528 1,115
Inventories, net............................................... 5,347 7,514 9,585
------ ------ ------
Total current assets........................................ 17,192 20,654 24,745
Property, plant, equipment and capital leases, net............... 3,902 10,800 11,632
Loan receivable from a related company........................... 1,889 -- --
Long-term investment............................................. -- 179 179
Deferred stock issuance costs.................................... -- -- 561
Goodwill, net.................................................... 87 77 70
------ ------ ------
Total assets................................................ 23,070 31,710 37,187
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings..................................... 1,269 7,055 4,446
Long-term bank loans, current portion.......................... 261 811 834
Capital lease obligations, current portion..................... 250 1,033 431
Accounts payable............................................... 2,305 4,107 3,459
Receipts in advance............................................ 1,321 958 1,480
Accrued liabilities............................................ 4,596 2,806 6,598
Due to related companies....................................... 52 -- --
Due to a director.............................................. 66 -- --
Taxation payable............................................... 600 483 821
Dividend payable............................................... 1,073 -- --
------ ------ ------
Total current liabilities................................... 11,793 17,253 18,069
Long-term bank loans............................................. 733 1,754 1,161
Capital lease obligations........................................ 126 374 666
Deferred taxation................................................ 120 120 120
------ ------ ------
Total liabilities........................................... 12,772 19,501 20,016
------ ------ ------
Minority interests............................................... 287 601 1,335
------ ------ ------
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 15,513
Cumulative translation adjustments............................. 5 -- --
------ ------ ------
Total shareholders' equity.................................. 10,011 11,608 15,836
------ ------ ------
Total liabilities, minority interests and shareholders' 23,070
equity.................................................... 31,710 37,187
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 64
ZINDART LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED) AND
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
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 35,423 48,670
Cost of goods sold................ (25,037) (25,644) (34,116) (25,417) (36,280)
------- ------- ------- ------- -------
Gross profit.................... 10,546 11,235 12,814 10,006 12,390
Selling, general and
administrative expenses......... (6,351) (6,806) (6,498) (5,322) (6,560)
Interest expenses................. (150) (137) (402) (180) (661)
Interest income................... 129 228 208 195 89
Other income (expenses), net...... 80 492 (416) 70 168
------- ------- ------- ------- -------
Income before income taxes...... 4,254 5,012 5,706 4,769 5,426
Provision for income taxes........ (436) (483) (488) (404) (464)
------- ------- ------- ------- -------
Income before minority
interests.................... 3,818 4,529 5,218 4,365 4,962
Minority interests................ (83) (337) (622) (525) (734)
------- ------- ------- ------- -------
Net income...................... 3,735 4,192 4,596 3,840 4,228
======= ======= ======= ======= =======
Earnings per common share......... $ 0.75 $ 0.84 $ 0.92 $ 0.77 $ 0.85
======= ======= ======= ======= =======
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> 65
ZINDART LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED) AND
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
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 3,840 4,228
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation of property, plant and
equipment......................... 762 946 1,021 744 1,321
Amortization of goodwill............. -- 10 10 7 7
Net gain on disposals of property,
plant and equipment............... (37) (121) (6) (109) --
Minority interests................... 83 337 622 525 734
Provision for deferred taxation...... 70 -- -- -- --
(Increase) Decrease in operating
assets -- Accounts receivable, net... 46 (1,395) (4,015) (2,279) (808)
Deposits and prepayments............. 24 266 47 (2,004) 413
Inventories, net..................... (104) (1,589) (2,167) (1,546) (2,071)
Increase (Decrease) in operating
liabilities -- Accounts payable...... (503) 82 1,802 2,456 (648)
Receipts in advance.................. (156) 738 (363) 287 522
Accrued liabilities.................. 1,212 1,112 (1,790) (993) 3,792
Taxation payable..................... 339 (93) (117) 288 338
------ ------ ------ ------ ------
Net cash provided by (used in)
operating activities............ 5,471 4,485 (360) 1,216 7,828
------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash inflow from acquisition of a
subsidiary........................ -- 168 -- -- --
Acquisition of long-term
investment........................ -- -- (179) (179) --
Acquisition of property, plant and
equipment......................... (1,491) (3,197) (7,341) (6,785) (2,154)
Proceeds from disposals of property,
plant and equipment............... 103 1,040 13 206 1
------ ------ ------ ------ ------
Net cash used in investing
activities...................... (1,388) (1,989) (7,507) (6,758) (2,153)
------ ------ ------ ------ ------
</TABLE>
F-5
<PAGE> 66
ZINDART LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED) AND
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 (UNAUDITED) -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
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 1,910 359 (1,392)
Increase (Decrease) in short-term
bank loans........................ (119) 25 3,876 2,555 (1,217)
New long-term bank loans............. -- 1,035 2,565 2,460 --
Repayment of long-term bank loans.... (120) (283) (994) (421) (570)
New capital lease obligations ....... 209 107 776 585 727
Repayment of capital element of
capital lease obligations......... (470) (300) (330) (150) (1,037)
Stock issuance costs paid............ -- -- -- -- (561)
Due from immediate holding company... -- -- (3) -- 3
Due from ultimate holding company.... -- (95) 95 95 --
Due from related companies........... (466) (1,286) 647 939 (49)
Due to related companies............. (1,545) 52 (52) (52) --
Due from a director.................. (77) 77 -- -- --
Due to a director.................... -- (63) (66) (66) --
Dividends paid....................... (1,473) (1,959) (1,073) (956) --
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 5,348 (4,096)
------ ------ ------ ------ ------
Effect of cumulative translation
adjustments.......................... -- 5 (5) -- --
------ ------ ------ ------ ------
Net increase (decrease) in cash and
bank deposits........................ 156 55 (829) (194) 1,579
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 3,929 4,873
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 67
ZINDART LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 (AUDITED)
AND FOR THE NINE MONTHS ENDED DECEMBER 31, 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)............................ -- -- 4,228 --
-- --
---- ----- ------- -
Balance as of December 31, 1996 (Unaudited)....... 5,000 323 15,513 --
==== ===== ======== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 68
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Zindart Limited, formerly known as 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 ("ZPL"; 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 and ZPL are majority owned by ZIC Holdings Limited ("ZICHL"; a
company incorporated in the Cayman Islands).
On December 11, 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 has increased its authorized share
capital from HK$2,500,000 to HK$5,000,000 by authorizing an increase of
5,000,000 ordinary shares of HK$0.50 each, ranking pari passu to the then
existing shares. The Share Split has been reflected retrospectively in the
accompanying balance sheets and in all per share computations. Effective
December 27, 1996, the Company changed its name from Zindart Industrial Company
Limited to Zindart Limited, its present one.
The Company and its subsidiaries are principally engaged in the
manufacturing of die-cast and injection-molded 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.
F-8
<PAGE> 69
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUBSIDIARIES -- (CONTINUED)
There is no restriction on the distribution of retained earnings by the
subsidiaries.
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
nine months ended December 31, 1995 and 1996 was approximately $7,000 and
approximately $7,000, respectively. Accumulated amortization as of March 31,
1995 and 1996 and December 31, 1996 was $10,000, $20,000 and approximately
$27,000, 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 nine months ended December 31, 1995 and 1996 were
approximately $259,000 and $26,000, respectively.
f. Long-term investments
Investments held for the long-term are stated at market value. Income from
long-term investments is accounted for to the extent of dividends received and
receivable.
F-9
<PAGE> 70
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
g. Sales
Sales represent the invoiced value of merchandise/molds supplied to
customers. Sales are recognized upon delivery of goods and passage of title to
customers.
h. Income Taxes
The Group accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
i. Operating Leases
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
j. Foreign Currency Translation
The Company considers United States dollars as its functional currency as
most of the Group's business activities are based in United States dollars and
Hong Kong dollars ("HK$") (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),
$182,000 and $(160,000), respectively, and for the nine months ended December
31, 1995 and 1996 were approximately $22,000 and $72,000, 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> 71
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable comprised:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------- 1996
1996 -------------
--------- $'000
1995 $'000 (UNAUDITED)
---------
$'000
<S> <C> <C> <C>
Trade receivables................................. 4,339 8,354 9,162
Less: Allowance for doubtful accounts............. (39) (39) (39)
----- ----- ------
Accounts receivable, net.......................... 4,300 8,315 9,123
===== ===== ======
</TABLE>
5. DEPOSITS AND PREPAYMENTS
Deposits and prepayments comprised:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, -------------
----------------------- $'000
1995 1996 (UNAUDITED)
--------- ---------
$'000 $'000
<S> <C> <C> <C>
Deposits for acquisition of molds................. 1,268 1,083 570
Prepayments....................................... 287 352 531
Rental and utility deposits....................... 12 12 11
Other receivables................................. 8 81 3
----- ----- -----
1,575 1,528 1,115
===== ===== =====
</TABLE>
6. INVENTORIES
Inventories comprised:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
MARCH 31, -------------
--------------- $'000
1995 1996 (UNAUDITED)
----- -----
$'000 $'000
<S> <C> <C> <C>
Raw materials.......................................... 3,840 5,204 7,480
Work-in-process........................................ 903 1,170 946
Finished goods......................................... 663 1,199 1,218
----- ----- -----
5,406 7,573 9,644
Less: Allowance for obsolescence....................... (59) (59) (59)
----- ----- -----
Inventories, net....................................... 5,347 7,514 9,585
===== ===== =====
</TABLE>
F-11
<PAGE> 72
ZINDART 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, DECEMBER 31,
----------------- 1996
1996 -------------
------ $'000
1995 $'000 (UNAUDITED)
------
$'000
<S> <C> <C> <C>
Property, plant and equipment:
Properties.............................................. 2,303 7,940 8,194
Machinery and tools..................................... 3,631 4,212 5,547
Furniture and office equipment.......................... 1,094 1,367 1,621
Capital leases:
Machinery and tools..................................... 711 1,993 1,646
Furniture and office equipment.......................... 566 636 589
----- ------ ------
Cost.................................................... 8,305 16,148 17,597
Less: Accumulated depreciation
Property, plant and equipment........................... (3,558) (3,740) (3,947)
Capital leases.......................................... (845) (1,608) (2,018)
----- ------ ------
Property, plant, equipment and capital leases, net...... 3,902 10,800 11,632
===== ====== ======
</TABLE>
As of March 31, 1995 and 1996 and December 31, 1996, properties with a net
book value of approximately $1,409,000, $7,225,000, and $7,165,000,
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 December 31, 1996.
9. SHORT-TERM BANK BORROWINGS
Short-term bank borrowings comprised:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996
--------- DECEMBER 31,
1996
1995 $'000 -------------
--------- $'000
$'000 (UNAUDITED)
<S> <C> <C> <C>
Bank overdrafts................................... 456 2,366 974
Short-term bank loans............................. 813 4,689 3,472
----- ----- -----
1,269 7,055 4,446
===== ===== =====
</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 8.72% to 10.50% per
annum as of December 31, 1996. They are collateralized 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> 73
ZINDART 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 nine months ended December 31, 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%
===== ===== ==== ====
DECEMBER 31, 1996 (UNAUDITED)
Bank overdrafts.................. 3,646 1,803 10.17% 9.57%
===== ===== ==== ====
Short-term bank loans............ 6,590 4,310 8.97% 8.95%
===== ===== ==== ====
</TABLE>
10. ACCRUED LIABILITIES
Accrued liabilities comprised:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996
--------- DECEMBER 31,
1996
1995 $'000 -------------
--------- $'000
$'000 (UNAUDITED)
<S> <C> <C> <C>
Accruals for operating expenses
-- Workers, wages and bonus..................... 560 467 1,072
-- Management bonus............................. 1,146 535 513
-- Rental expenses.............................. 457 408 584
-- Subcontracting charges....................... 622 271 254
-- Repair and maintenance....................... 714 -- --
Accruals for plant relocation expenses............ -- -- 65
Accruals for raw materials purchases.............. 75 339 1,822
Payable for land cost in the PRC.................. 531 98 --
Others............................................ 491 688 2,288
----- ----- -----
4,596 2,806 6,598
===== ===== =====
</TABLE>
F-13
<PAGE> 74
ZINDART 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 December 31, 1996 and
are repayable as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------- 1996
1996 -------------
----- $'000
1995 $'000 (UNAUDITED)
-----
$'000
<S> <C> <C> <C>
Payable during the following period:
Within one year...................................... 261 811 834
Over one year but not exceeding two years............ 259 1,594 835
Over two years but not exceeding three years......... 259 160 326
Over three years but not exceeding four years........ 215 --
---- ----- -----
Total bank loans....................................... 994 2,565 1,995
Less: Current maturities............................... (261) (811) (834)
---- ----- -----
Long-term bank loans................................... 733 1,754 1,161
==== ===== =====
</TABLE>
12. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments under capital leases as of March 31, 1995 and
1996 and December 31, 1996, together with the present value of the minimum lease
payments are:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
---------------- 1996
1996 -------------
------ $'000
1995 $'000 (UNAUDITED)
-----
$'000
<S> <C> <C> <C>
Payable during the following period:
Within one year..................................... 306 1,151 504
Over one year but not exceeding two years........... 87 438 371
Over two years but not exceeding three years........ 88 -- 327
Over three years but not exceeding four years....... -- -- 87
---- ----- ------
Total minimum lease payments.......................... 481 1,589 1,289
Less: Amount representing interest.................... (105) (182) (192)
---- ----- ------
Present value of minimum lease payments............... 376 1,407 1,097
Less: Current portion................................. (250) (1,033) (431)
---- ----- ------
Non-current portion................................... 126 374 666
==== ===== ======
</TABLE>
F-14
<PAGE> 75
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. NET SALES
Net sales comprised:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED
------------------------ DECEMBER 31,
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 27,367 41,214
Sales of molds.......................... 4,132 4,391 8,624 8,056 7,456
------ ------ ------ ------ ------
35,583 36,879 46,930 35,423 48,670
====== ====== ====== ====== ======
</TABLE>
Substantially all of the sales of merchandise and molds are shipped to
North 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, are 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.
If the tax holiday for the joint venture enterprises established in the PRC
did not exist, the Group's income tax liabilities would have been increased by
approximately $71,000 and $63,000 for the years ended March 31, 1995 and 1996,
respectively; and approximately $36,000 and $50,000 for the nine months ended
December 31, 1995 and 1996, respectively. Earnings per ordinary share would have
been approximately $0.82 and $0.91 for the years ended March 31, 1995 and 1996,
respectively; and approximately $0.76 and $0.84 for the nine months ended
December 31, 1995 and 1996, respectively.
Significant components of provision for income taxes are:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED
--------------------------------- DECEMBER 31,
1994 1995 1996 -------------------------
--------- --------- --------- 1995 1996
$'000 $'000 $'000 ----------- -----------
$'000 $'000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current tax
-- Hong Kong profits tax........... 366 483 488 404 464
Deferred tax....................... 70 -- -- -- --
--- --- --- --- ---
436 483 488 404 464
=== === === === ===
</TABLE>
F-15
<PAGE> 76
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES -- (CONTINUED)
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
--------- --------- --------- NINE MONTHS ENDED
DECEMBER 31,
-------------------------
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%) (0.8%) (0.9%)
Non-taxable income arising from
activities which qualified as
offshore......................... (7.3%) (5.5%) (6.8%) (7.2%) (7.0%)
----- ---- - ---- - ---- - ---- -
Effective income tax rate.......... 10.2% 9.6% 8.6% 8.5% 8.6%
===== ===== ===== ===== =====
</TABLE>
Components of deferred tax balances as of March 31, 1995 and 1996 and
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------- 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, NINE MONTHS ENDED
--------------------------------- DECEMBER 31,
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 December 31, 1996, the Group had capital
commitments amounting to approximately $3,368,000, $975,000 and $4,537,000,
respectively, in respect of construction of factories in the PRC.
F-16
<PAGE> 77
ZINDART 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, $936,000
and $624,000, respectively, and for the nine months ended December 31, 1995 and
1996 were approximately $392,000 and $536,000, respectively. Most leases contain
renewal options. Future minimum rental payments as of March 31, 1996 and
December 31, 1996, under agreements classified as operating leases with
non-cancelable terms in excess of one year, are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
$'000 $'000
(UNAUDITED)
<S> <C> <C>
Payable during the following period:
Within one year............................................ 500 66
Over one year but not exceeding two years.................. 63 3
Over two years but not exceeding three years............... 3 1
--- ---
566 70
=== ===
</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 December 31, 1996 are analyzed as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
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................................................. 348 319
--- ---
543 514
=== ===
</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
employer's contributions made by the Group (net of forfeited contributions)
during the years ended
F-17
<PAGE> 78
ZINDART LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. RETIREMENT PLAN -- (CONTINUED)
March 31, 1994, 1995 and 1996 were approximately $62,000, $97,000, and $71,000,
respectively, and during the nine months ended December 31, 1995 and 1996 were
approximately $4,000 and $32,000, respectively.
The Group has no other post-retirement or post-employment benefit plans.
18. BANKING FACILITIES
As of March 31, 1996 and December 31, 1996, the Group had banking
facilities of approximately $10,754,000 and $15,957,000, respectively, for
overdrafts, loans and trade financing. Unused facilities as of the same dates
amounted to approximately $1,129,000 and approximately $9,516,000, respectively.
These facilities were secured by:
a. Mortgages over the Group's properties with a net book value of
approximately $7,225,000 and $7,165,000 as of March 31, 1996 and December
31, 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 December 31, 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, and not to create any debenture without a bank's prior consent. The
Group has complied with all such covenants.
19. RELATED PARTY TRANSACTIONS
The Group entered into the following transactions with related parties:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------- ------------------------
1995 1996 1995 1996
--------- --------- ----------- -----------
1994 $'000 $'000 $'000 $'000
--------- (UNAUDITED) (UNAUDITED)
$'000
<S> <C> <C> <C> <C> <C>
Sales to ERTL and ERTL's related
company (Note a)................... 13,576 11,824 12,081 9,113 14,451
Management fee paid to ZICHL......... -- 23 -- -- --
Management fee paid to related
companies.......................... -- 171 -- -- --
Rental income from a related
company............................ -- -- 8 -- --
Interest income from related
companies (Note c)................. -- 85 68 82 --
Interest expense paid to a related
company (Note d)................... -- -- 3 -- --
Interest expense paid to a director
(Note d)........................... -- 1 7 -- --
====== ====== ====== ===== ======
</TABLE>
F-18
<PAGE> 79
ZINDART 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, DECEMBER 31,
--------------------- 1996
1996 -------------
--------- $'000
1995 $'000 (UNAUDITED)
---------
$'000
<S> <C> <C> <C>
Accounts receivable from ERTL and its related
company (Note a)................................ 1,140 1,536 2,139
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 -- 49
Due to related companies (Note f)................. 52 -- --
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 as of March 31, 1995 of approximately
$1,889,000 and the amount due from that related company as of March 31, 1995
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. No such receivable was outstanding as of March 31, 1996 and
December 31, 1996.
c. Included in amounts due from related companies as of March 31, 1995 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 nine months ended December 31, 1995 and 1996 were approximately
$82,000 and Nil, respectively. No such receivable was outstanding as of March
31, 1996 and December 31, 1996.
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 nine
months ended December 31, 1995 and 1996 were approximately Nil 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>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------- ---------------------------
1995 1996 1995 1996
---- ---- ----------- -----------
1994 $'000 $'000 $'000 $'000
---- (UNAUDITED) (UNAUDITED)
$'000
<S> <C> <C> <C> <C> <C>
Interest............................. 150 160 608 439 687
=== === === === ===
Income taxes......................... 165 742 605 82 117
=== === === === ===
</TABLE>
F-19
<PAGE> 80
ZINDART 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 nine months ended December 31, 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> 81
ZINDART 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, NINE MONTHS
---------------------- ENDED
1994 1995 1996 DECEMBER 31,
---- ---- ---- 1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Hallmark Cards (HK) Limited (a subsidiary of
Hallmark Cards Inc.)............................ 28.1% 31.2% 27.0% 28.0%
ERTL and its related company (Note a)............. 38.2% 32.1% 25.9% 29.7%
Hasbro Far East Limited........................... 8.0% 8.1% 9.3% 2.4%
A buying office of Sieper Werke GmbH.............. 7.0% 7.4% 6.2% 7.0%
Drumwell Limited.................................. 0.1% 0.7% 4.5% 6.2%
Revell/Monogram, Inc.............................. 5.8% 4.5% 3.0% 1.2%
==== ==== ==== ======
</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
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1995 1996
--------- --------- DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Five largest accounts receivable.................. 85% 52% 62%
== == ==
</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> 82
ZINDART 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
--------- --------- --------- NINE MONTHS
ENDED
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sogen (Far East) Limited................ 0.4% 2.5% 9.8% 3.1%
Starlite Printers Limited............... 3.3% 4.8% 8.3% 7.0%
Wing Fu Carton & Printing Company
Limited............................... 5.0% 5.5% 6.3% 4.1%
Lee Kee Metal Company Limited........... 2.0% 9.0% 4.8% 4.9%
Y.T. Cheng (Ching Tai) Limited.......... 4.0% 7.2% 4.7% 2.3%
Cominco Ltd............................. 16.4% 1.2% 0.9% 5.3%
==== === === ===
</TABLE>
22. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the consolidated statements of
operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------- -------------------------
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............................. 458 658 759 553 1,009
assets held under capital leases......... 304 288 262 191 312
Interest expenses for
bank overdrafts and loans................ 70 91 519 380 587
capital lease obligations................ 80 68 79 54 100
amount due to a director................. -- 1 7 5 --
amount due to a related company.......... -- -- 3 -- --
Less: amount capitalized as property, plant
and equipment............................ -- (23) (206) (259) (26)
---- --- ---- ---- ---
150 137 402 180 661
Operating lease rentals for
rented premises.......................... 590 913 613 387 517
machinery and equipment.................. 25 23 11 5 19
Repairs and maintenance expenses........... 636 456 514 409 380
Interest income from
bank deposits............................ 129 143 140 107 89
amount due from related companies........ -- 85 68 88 --
Net foreign exchange (loss) gain........... (102) 182 (160) (22) 72
==== === ==== ==== ===
</TABLE>
F-22
<PAGE> 83
LOGO
<PAGE> 84
APPENDIX
DESCRIPTION OF GRAPHICS AND ART
INSIDE FRONT COVER:
Photo of a die-cast 1932 Cadillac V-16 Sport Phaeton produced by the Company.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT ARE INTENDED TO STABLIZE 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.
GATEFOLD:
Three strips of photos of products made by the Company: Hallmark Keepsake
Ornaments, die-cast collectibles and figurines.
Caption 1- "Hallmark Cards, Inc. is a major customer of Zindart. Zindart
manufactures many of Hallmark's Keepsake Ornaments, which consist of a variety
of Christmas ornaments, holiday-themed pieces and other giftware, both in
die-cast zinc alloy and plastic. Production of the Keepsake Ornaments requires
highly developed hand painting skills and attention to quality by each member
of the workforce in order to meet exacting aesthetic and quality requirements."
Caption 2- "Zindart manufactures high-quality, die-cast scale model replicas of
automobiles, trucks, planes, farm implements, construction equipment and
similar items for many of the premier U.S. marketers of such items, including
The Ertl Company, Inc. These die-cast replicas are sold to adults and children
through hobby shops, collectors' clubs, car and equipment dealers, and toy and
gift stores."
Caption 3- "Zindart manufactures high-quality action figures and miniature
figurine playsets for various designers and marketers of toys. The production
of these types of toys requires the high-quality and detailed manufacturing
skills of the type offered by Zindart."
PAGE 8:
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 30:
This flow chart shows the steps in the manufacturing process that make up the
Turnkey Manufacturing Service.
INSIDE BACK COVER:
A Photo of computer-aided design work being done by a Company engineer. A photo
of the Dongguan Facility.
LAST PAGE OF PROSPECTUS:
A Map of the southern PRC, locating the Dongguan Facility, the Xin Xing
Facility and the Zhong Xin Facility.
<PAGE> 85
- ------------------------------------------------------
- ------------------------------------------------------
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.......... 3
Currency Conversions................... 4
Enforceability of Civil Liabilities.... 4
Prospectus Summary..................... 5
Risk Factors........................... 9
Use of Proceeds........................ 17
Dividends and Dividend Policy.......... 17
Dilution............................... 18
Capitalization......................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results
of Operations........................ 21
Business............................... 26
Management............................. 34
Principal Shareholders................. 37
Certain Transactions................... 39
Description of Shares.................. 40
Description of American Depositary
Receipts............................. 42
Shares Eligible for Future Sale........ 49
Taxation............................... 50
Certain Foreign Issuer
Considerations....................... 56
Underwriting........................... 57
Legal Matters.......................... 58
Experts................................ 58
Additional Information................. 59
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
LOGO
------------------------------
PROSPECTUS
------------------------------
VAN KASPER & COMPANY
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 86
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.................................................. $ 6,662.07
NASD filing fee....................................................... 2,432.00
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................................................ 251,000.00
-------------
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 is 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.
Under Hong Kong law, the organizational documents may not contain any
provisions indemnifying directors, officers, employees and agents of the Company
for acts performed in such capacity. The Company intends to purchase standard
directors' and officers' liability insurance on behalf of its directors and
executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
To be provided by amendment.
<TABLE>
<C> <C> <S>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
1.1 -- Form of Underwriting Agreement between Zindart Limited and Van Kasper &
Company
3.1 -- Memorandum of Association of the Company
3.2 -- Articles of Association of the Company
4.1 -- Deposit Agreement between Zindart Limited and The Bank of New York
5.1 -- Opinion of Robert W.H. Wang & Co., Hong Kong counsel to the Company as to
certain legal matters with respect to the legality of the Shares
5.2 -- Opinion of McCutchen, Doyle, Brown & Enersen, LLP, U.S. counsel to the
Company, as to certain legal matters with respect to the ADSs
8.1 -- Opinion of McCutchen, Doyle, Brown & Enersen, LLP, as to certain tax matters
in the United States
8.2 -- Opinion of Guangzhou Law Office, the PRC counsel to the Company, as to certain
tax matters in the PRC
10.1(a) -- Sino-Foreign Co-Operation Contract, Zindart Toys (Dongguan) Company Limited,
between Dongguan Hengli Trading General Company and Zindart Industrial Company
Limited, dated September 8, 1994
</TABLE>
II-1
<PAGE> 87
<TABLE>
<C> <C> <S>
10.1(b) -- Sino-Foreign Co-Operation, Zindart Toys (Dongguan) Company Limited,
Supplemental Contract, between Dongguan Hengli Trading General Company and
Zindart Industrial Company Limited, dated December 5, 1995
10.1(c) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned
(1993) No. 49
10.1(d) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned
(1994) No. 664
10.1(e) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned
(1994) No. 665
10.1(f) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned
(1994) No. 666
10.2(a) -- Sino-Foreign Co-Operation Contract, Zindart (Xinxing) Toys (Guangdong) Company
Limited, between Guangzhou Xinjiao Huangbu Economic Development Company and
Zindart Industrial Company Limited, dated December 26, 1993
10.2(b) -- Sino-Foreign Co-Operation, Zindart (Xinxing) Toys (Guangzhou) Company Limited,
Supplemental Contract, between Guangzhou Xinjiao Huangbu Economic Development
Company Xinxing Toys Factory and Zindart Industrial Company Limited, dated
November 1996
10.3 -- Contract between Guangzhou Tianhe Dongpu Economic Development General Company
and Zindart Industrial Company Limited, dated February 18, 1996
10.4(a) -- Bank of China, General Banking Facilities, dated May 27, 1991
10.4(b) -- Bank of China, General Banking Facilities, dated October 26, 1995
10.5 -- Standard Chartered Bank, Banking Facilities, dated December 24, 1996
10.6 -- HongKong Bank, Banking Facilities, dated May 22, 1996
10.7 -- Agreement Regarding Future Share Distributions, between Van Kasper & Company,
Zindart Pte Limited and Zindart Limited
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen & Co., independent auditors
23.2 -- Consent of Robert W.H. Wang & Co. (included in Exhibit 5.1)
23.3 -- Consent of McCutchen, Doyle, Brown & Enersen, LLP (included in Exhibit 5.2)
23.4 -- Consent of Guangzhou Law Office (included in Exhibit 8.2)
23.5 -- Consent of James E. Gilleran
23.6 -- Consent of Leo Paul Koulos
23.7 -- Consent of Stanley Wang
</TABLE>
- ---------------
(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,
II-2
<PAGE> 88
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-3
<PAGE> 89
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 an Amendment No. 1 to 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 January 30, 1997.
(Registrant)
ZINDART LIMITED
By /s/ GEORGE K.D. SUN
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 January 30 ,1997
- ---------------------------------------- Director (Principal Executive
George K.D. Sun Officer)
/s/ FEATHER S.Y. FOK Chief Operating Officer, Chief January 30, 1997
- ---------------------------------------- Financial Officer and Director
Feather S.Y. Fok (Principal Financial Officer)
/s/ VICKIE W.K. SO Financial Controller (Principal January 30, 1997
- ---------------------------------------- Accounting Officer)
Vickie W.K. So
/s/ ALEXANDER M.K. NGAN Director January 30, 1997
- ----------------------------------------
Alexander M.K. Ngan
/s/ GEORGE VOLANAKIS Director January 30, 1997
- ----------------------------------------
George Volanakis
/s/ TONY D.H. LAI Director January 30, 1997
- ----------------------------------------
Tony D.H. Lai
/s/ ROBERT A. THELEEN Authorized U.S. Representative, January 30, 1997
- ---------------------------------------- Director
Robert A. Theleen
</TABLE>
II-4
<PAGE> 90
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholders and Board of Directors of Zindart Limited:
We have audited, in accordance with generally accepted auditing standards
in the United States of America, the consolidated balance sheets of Zindart
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 January 31, 1997. 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,
January 31, 1997.
S-1
<PAGE> 91
SCHEDULE II
ZINDART 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 $ (1,870) $ -- $ -- $ --
====== ====== ======= ====== ====== ======
</TABLE>
- ---------------
* This amount was distributed to Zindart Pte Limited, the Company's then sole
shareholder, as dividends in kind.
S-2
<PAGE> 92
SCHEDULE IV
ZINDART 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> 93
SCHEDULE IX
ZINDART 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> 94
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
-------- ---------------------------------------------------------------------------------------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement between Zindart Limited and Van Kasper & Company
3.1 -- Memorandum of Association of the Company
3.2 -- Articles of Association of the Company
4.1 -- Deposit Agreement between Zindart Limited and The Bank of New York
5.1 -- Opinion of Robert W.H. Wang & Co., Hong Kong counsel to the Company as to certain
legal matters with respect to the legality of the Shares
5.2 -- Opinion of McCutchen, Doyle, Brown & Enersen, LLP, U.S. counsel to the Company,
as to certain legal matters with respect to the ADSs
8.1 -- Opinion of McCutchen, Doyle, Brown & Enersen, LLP, as to certain tax matters in
the United States
8.2 -- Opinion of Guangzhou Law Office, the PRC counsel to the Company, as to certain
tax matters in the PRC
10.1(a) -- Sino-Foreign Co-Operation Contract, Zindart Toys (Dongguan) Company Limited,
between Dongguan Hengli Trading General Company and Zindart Industrial Company
Limited, dated September 8, 1994
10.1(b) -- Sino-Foreign Co-Operation, Zindart Toys (Dongguan) Company Limited, Supplemental
Contract, between Dongguan Hengli Trading General Company and Zindart Industrial
Company Limited, dated December 5, 1995
10.1(c) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1993)
No. 49
10.1(d) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994)
No. 664
10.1(e) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994)
No. 665
10.1(f) -- Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994)
No. 666
10.2(a) -- Sino-Foreign Co-Operation Contract, Zindart (Xinxing) Toys (Guangdong) Company
Limited, between Guangzhou Xinjiao Huangbu Economic Development Company and
Zindart (Xinxing) Toys (Guangzhou) Company Limited, dated December 26, 1993
10.2(b) -- Sino-Foreign Co-Operation, Zindart (Xinxing) Toys (Guangzhou) Company Limited,
Supplemental Contract, between Guangzhou Xinjiao Huangbu Economic Development
Company Xinxing Toys Factory and Zindart Industrial Company Limited, dated
November 1996
10.3 -- Contract between Guangzhou Tianhe Dongpu Economic Development General Company and
Zindart Industrial Company Limited, dated February 18, 1996
10.4(a) -- Bank of China, General Banking Facilities, dated May 27, 1991
10.4(b) -- Bank of China, General Banking Facilities, dated October 26, 1995
10.5 -- Standard Chartered Bank, Banking Facilities, dated December 24, 1996
10.6 -- HongKong Bank, Banking Facilities, dated May 22, 1996
10.7 -- Agreement Regarding Future Share Distributions, between Van Kasper & Company,
Zindart Pte Limited and Zindart Limited
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen & Co., independent auditors
23.2 -- Consent of Robert W.H. Wang & Co. (included in Exhibit 5.1)
23.3 -- Consent of McCutchen, Doyle, Brown & Enersen, LLP (included in Exhibit 5.2)
23.4 -- Consent of Guangzhou Law Office (included in Exhibit 8.2)
23.5 -- Consent of James E. Gilleran
23.6 -- Consent of Leo Paul Koulos
23.7 -- Consent of Stanley Wang
</TABLE>
<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,
600 California Street, Suite 1700
San Francisco, California 94108
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 its 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:
- ------------------
(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. 333-17973) 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"
-2-
<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.
-3-
<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 equity 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. Each Chinese
contractual joint venture in which the Company is involved is operating in
compliance with the terms of its joint venture agreement.
(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
-4-
<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 registered capital 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
-5-
<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
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium and laws affecting creditors' rights
generally, and 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
-6-
<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 of the 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
-7-
<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
-8-
<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 Zindart Pte Limited, a
Singapore corporation which is the Company's sole shareholder ("Zindart
Singapore"), to the effect that Zindart Singapore 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) The Company has delivered to the Representative the
Agreement Regarding Future Share Distributions executed by the Company and
Zindart Singapore.
(v) 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. Except as
disclosed in the Registration Statement, 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.
(w) 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.
(x) 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.
-9-
<PAGE> 10
(y) 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.
(z) 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.
(aa) 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.
(bb) 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.
(cc) The Securities have been approved for inclusion for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(dd) 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.
(ee) The Company satisfies the requirements for filing a
registration statement on Form F-1.
-10-
<PAGE> 11
(ff) Except as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), 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.
-11-
<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 9 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.
-12-
<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. If the option to purchase the Option Shares is exercised, the Option
Shares shall be purchased severally, and not jointly, by each Underwriter, 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
as provided in Section 9 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
-13-
<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 page 3 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,
-14-
<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
-15-
<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
-16-
<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 in similar geographic locations,
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 will 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.
(n) The Company has not and will not, without the prior
written consent of the Representative, seek any exemption from the listing
requirements of the Nasdaq National Market.
(o) The Company will take all steps necessary to comply with
the requirements of the NASD in connection with the issuance and sale of the
Securities.
4. Representations and Warranties, and Covenants of, the Underwriters.
Each Underwriter, severally and not jointly represents and warrants to, and
agrees with the Company, that:
(a) It has not offered or sold and will not offer or sell the
Securities to persons in the United Kingdom, other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 of the United Kingdom;
(b) It has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with
the issue and sale of the Securities to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisement)
(Exemptions) Order 1996 or is a person to whom such a document may otherwise
lawfully be issued or passed on; and
(c) It has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the Securities from or otherwise involving the United
Kingdom.
5. 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
-17-
<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 by the
Company to the Underwriters; 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
8(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 8(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, but in no case more frequently than weekly) 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
-18-
<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 8(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 8(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, but in no case more frequently than weekly) 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 5(a)(ii)
and 5(b) above, including the amounts of any requested reimbursement payments or
advances, 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. 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 5(a)(ii) and 5(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 8 of this Agreement.
-19-
<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 6 of this Agreement is not satisfied, or because of any
termination pursuant to Section 10(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.
6. 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.
-20-
<PAGE> 21
(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)
Robert W.H. Wang & Co., Hong Kong counsel to the Company, and (iii) 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
-21-
<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 reflect that there is not 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.
-22-
<PAGE> 23
(h) On or prior to the Closing Date, the Representative shall
have received from the Company and/or Zindart Singapore the executed agreements
described in Section 1(t) and 1(u) of this Agreement.
(i) The Representative shall have received, on or before the
Closing Date, evidence that the Company has amended its Memorandum of
Association and Articles of Association to provide that directors of the
Company shall not be entitled to appoint any other person a "proxy director" to
attend all meetings of the Board of Directors of the Company or to vote upon
matters before the Board of Directors.
(j) 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 6 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 5 or Section 8 of this Agreement)
and without liability of the Underwriters to the Company (except as provided
in Section 8 of this Agreement).
7. Conditions of the Obligation of the Company. The obligations of the
Company 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.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) 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 any other federal, state
-23-
<PAGE> 24
or foreign statute, law or regulation, at common law or otherwise, except to
the extent such losses, claims, damages or liabilities are finally judicially
determined to have resulted solely from actions taken or the failure
to take action by the person claiming indemnification in bad faith or due
solely to gross negligence on the part of the person claiming indemnification,
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 8(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 8(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
-24-
<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 8(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
-25-
<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 8(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 8(a) and 8(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 8, 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 8(a) or 8(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 8(a) and 8(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
-26-
<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 8 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 8(a) or 8(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 8(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 8(d)
and to the considerations referred to in the third sentence of the first
paragraph of this Section 8(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
-27-
<PAGE> 28
first sentence of the first paragraph of this Section 8(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 8(d). Notwithstanding the
provisions of this Section 8(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 8(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
8(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 8(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
-28-
<PAGE> 29
interpreted by the courts in certain jurisdictions, may be contrary to certain
provisions of Sections 5(a)(ii), 5(b) and 5(c) and this Section 8 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 5(a)(ii), 5(b) or 5(c) or this Section 8
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 6 or Section
10 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 5 or Section 8 of this Agreement) and
without any liability on the part of any nondefaulting Underwriters to the
Company (except to the extent provided in Section 8 of this Agreement). Nothing
in this Section 9, and no action taken hereunder, shall relieve any defaulting
Underwriter from
-29-
<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 9.
10. 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 5 or Section 8 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 5 and Section 8 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
-30-
<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 10,
there shall be no liability of the Company to the Underwriters (except pursuant
to Section 5 and Section 8 of this Agreement) and no liability of the
Underwriters to the Company (except pursuant to Section 8 of this Agreement).
11. 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, 600 California Street, Suite 1700, San Francisco, California,
94108, Attention: Bruce P. Emmeluth (telecopier: (415) 954-8309); 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.
12. Persons Entitled to the Benefit of This Agreement. This Agreement
shall inure to the benefit of the Company, the several Underwriters and,
with respect to the provisions of Section 5 and Section 8 of this Agreement,
the several parties (in addition to the Company and the several Underwriters)
indemnified under the provisions of Section 5 and Section 8 and in addition,
as to Section 5, 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.
13. 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.
-31-
<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.
14. 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.
-32-
<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:
-------------------------------------
Feather Siu Yung Fok
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
VAN KASPER & COMPANY
By:
------------------------------------
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 =======
1,400,000
<PAGE> 1
EXHIBIT 3.1
THE COMPANIES ORDINANCE (CHAPTER 32)
Private Company Limited by Shares
MEMORANDUM OF ASSOCIATION
OF
ZINDART LIMITED
[GRAPHIC]
FIRST The name of the Company is "ZINDART LIMITED [GRAPHIC]".
SECOND The Registered Office of the Company will be situate in the
Colony of Hong Kong.
THIRD The objects for which the Company is established are:-
(1) To manufacture, assemble, process, produce, make,
import, export, sell, purchase, repair, maintain or
otherwise deal in equipment, machinery, tools,
products of any kind and materials of any nature
whatsoever to act as die casters, mechanical
electrical and electronic engineers, builders,
developers and generally to carry on any other
industrial or commercial enterprise and to provide
services of any description.
(2) To purchase, take on lease or in exchange, hire or
otherwise acquire any land and hereditaments of any
tenure or description, and messuages and tenements
and any estate or interest in any land or
hereditaments, messuages, or tenements and any
rights, easements or privileges to any land or
hereditaments, messuages or tenements belonging to or
appertaining therewith at any time used, held or
enjoyed for such consideration whether wholly or
partly of a pecuniary nature as the Company shall
think fit.
(3) To carry on the business of a house and estate agent
and a broker of land and hereditaments, messuages,
and tenements and any estate or interest therein
respectively in all or any or either of their
respective branches, and especially to negotiate and
arrange loans on land and hereditaments, messuages
and tenements and any estate or interest therein
respectively.
-1-
<PAGE> 2
(4) To carry on the business of construction and building
contractors, interior and exterior decorators, and
auctioneers of land and hereditaments, messuages and
tenements and any estate or interest therein
respectively, to manage estates and properties, to
receive and collect rents, and to act as attorneys or
factors and transact all kinds of agency and
commission business so far as regards lands and
hereditaments, messuages and tenements and any estate
or interest therein respectively for any person or
persons, company or corporation for such commission
or consideration and upon such terms and conditions
as the Company shall think fit.
(5) To develop and/or re-develop and turn to account any
land or other property purchased, leased, exchanged,
hired or otherwise acquired by the Company or in
which the Company is interested, and develop and turn
to account the resources of any property whether
belonging to the Company or not, and in particular by
laying out and preparing the same for building
purposes, constructing, altering, pulling down,
decorating, maintaining, furnishing, fitting up and
improving buildings, and by planting, paving,
draining, farming, cultivating, letting on building
lease or building agreement, and by advancing money
to and entering into contracts and arrangements of
all kinds with builders, tenants and others, and
generally to deal with and improve the property of
the Company or to which the Company is interested.
(6) To advance money by way of loan on any land or
hereditaments of any tenure, whether the same shall
be wholly or partly built on or not, or on any
messuages or tenements, or any estate or interest in
any land or hereditaments, messuages or tenements
to such amount, at such rate of interest and upon
such terms and conditions as the Company shall think
fit, and in particular to lend money to any person or
persons, company or corporation undertaking to build
on, or to develop or improve any property upon which
this Company shall advance or agree to advance money
or in which it is interested.
(7) To manage, demise and let, or agree to demise and
let, to accept surrenders of, divide or make
partition of, to exchange, mortgage, sell and
absolutely dispose of, to surrender to any
governments or authorities (supreme, municipal, local
or otherwise), or to any other person or persons, or
to grant rights of way over or otherwise howsoever to
deal with all or any or either of any parts or part
of the Company's lands, hereditaments, messuages and
tenements or any estate or interest therein
respectively.
(8) To obtain vacant possession of any land, buildings,
messuages, tenements and other erections belonging to
the Company or in which the Company is interested
either as owners, lessees, sub-lessees, contractors
or otherwise whatsoever by proceedings in or
applications to any court of law, tribunal or other
appropriate authority, having authority in that
behalf or in any lawful manner, for the purpose of
development or re-development by the erection of
- 2 -
<PAGE> 3
new buildings, tenements, messuages, houses and other
erections of every description, and to pay
compensation and other monies to the lessees,
tenants, sub-tenants and other occupiers thereof as
may be ordered by the court, tribunal or appropriate
authority or which may be otherwise payable.
(9) To lay out and prepare for building purposes any land
belonging to this Company or in which it is
interested, and to improve and develop any such land
by reclaiming, draining, planting, cleaning and
otherwise dealing with the same, and to construct or
procure the construction thereon or on some part
thereof of all kinds of buildings, and in particular
of offices, shops, hotels, garages, restaurants,
cafes, dwelling houses, factories, workshops,
warehouses and godowns, and to alter, pull down,
rebuild, repair, maintain, decorate and furnish any
buildings or erections situate on any such land.
(10) Generally to purchase, take on lease or in exchange,
hire or otherwise acquire in the said Colony or
elsewhere any real or personal property and any
rights or interests therein which the Company may
think necessary or convenient for effectuating any of
its objects, and in particular any lands,
plantations, houses, factories, warehouses, plant,
machinery, patents, concessions, trade marks, trade
names, copyrights, licences, stocks, material or
property of any description, and to work, use,
maintain, improve, manage, develop, lease, surrender,
mortgage, charge, sell, dispose of, turn to account
or otherwise deal with the same or any other property
of the Company, including, in respect of any patent
or patent rights belong to the Company, the grant of
licences or authorities to any person, corporation or
company to work the same.
(11) To carry on all or any of the businesses usually
carried on by land investment companies, land
development companies, land mortgage companies and
real estate companies in the Colony of Hong Kong or
any part of the world.
(12) To act as agents for the investment, loan, payment,
transmission and collection of moneys, and for the
purchase, sale, improvement, development and
management of properties or any estate or rights
therein, including business concerns and
undertakings, and generally to transact and undertake
all kinds of agency business, either gratuitously or
otherwise, and whether in respect of commercial or
financial matters, and to guarantee and become liable
for the payment of money or for the performance of
any obligations.
(13) To act as agents, brokers or trustees for any person,
firm or company, and to undertake and perform
sub-contracts, and also to act in any of the
businesses of the Company through or by means of
agents, brokers, sub-contractors or others.
- 3 -
<PAGE> 4
(14) To carry on the business of any investment company
and for that purpose to acquire and hold, trade or
deal in, either in the name of the Company or in that
of any nominee, share, stocks, debentures, debenture
stock, bonds, obligations and securities issued or
guaranteed by any company constituted in Hong Kong or
elsewhere and carrying on any business which the
Company is authorised to carry on, or any business
the carrying on of which may be in any way calculated
directly or indirectly to advance the interests of
the Company or to enhance the value of or render
profitable any of the Company's investments, property
or rights and any debentures, debenture stock, bonds,
obligations or securities issued or guaranteed by any
government, sovereign ruler, commissioners, public
body or authority, supreme, municipal, local or
otherwise, whether in the said Colony or elsewhere.
(15) To subscribe for, conditionally or unconditionally,
to underwrite, issue on commission or otherwise, and
convert any such stocks, shares or securities as
mentioned in the last preceding paragraph.
(16) To issue debentures, debenture stock, bonds,
obligations and securities of all kinds, and to
frame, constitute and secure the same as may seem
expedient with full power to make the same
transferable by delivery or by instrument of transfer
or otherwise, and either perpetual or terminable, and
either redeemable or otherwise, and to charge or
secure the same by trust deed or otherwise on the
undertaking of the Company, or upon any specific
property and rights, present and future, of the
Company (including, if thought fit, its uncalled
capital) or otherwise howsoever.
(17) To purchase or otherwise acquire, issue, re-issue,
sell, place and deal in shares, stocks, debentures,
debenture stock and other securities, and to give any
guarantee or security for the payment of dividends or
interest thereon or otherwise in relation thereto.
(18) To acquire any such shares, stocks, debentures,
debenture stock, bonds, notes, obligations or
securities by original subscription, contract,
tender, purchase, exchange, underwriting,
participation in syndicates or otherwise, and whether
or not fully paid up, and to subscribe for the same
subject to such terms and conditions (if any) as may
be thought fit.
(19) To exercise and enforce all rights and powers
conferred by or incident to the ownership of any such
shares, stocks, obligations or other securities
including, without prejudice to the generality of the
foregoing, all such powers of veto or control as may
be conferred by virtue of the holding by the Company
of some special proportion of the issued or nominal
amount thereof, and to provide managerial and other
executive, supervisory and consultant services for or
in relation to any company in which the Company is
interested upon such terms as may be thought fit.
- 4 -
<PAGE> 5
(20) To carry on the business of hotel, apartment rental,
guest house, restaurant, cafe, tavern, beer-house,
refreshment-room, and lodging-house keepers, licensed
victuallers, wine, beer and spirit merchants brewers,
maltsters, distillers, importers and manufacturers
of aerated, mineral and artificial waters and other
drinks, purveyors, caterers for public amusements
generally, proprietors of motor and other vehicles,
garage proprietors, livery-stable keepers,
jobmasters, farmers, dairymen, ice merchants,
importers and brokers of food, live and dead stock,
and colonial and foreign produce of all descriptions,
hair-dressers, perfumers, chemists, proprietors of
clubs, baths, lodging and apartment houses, dressing
rooms, laundries, reading, writing and newspaper
rooms, libraries, grounds, and place of amusement,
recreation, sport, entertainment, and instruction of
all kinds, tobacco and cigar merchants, agents for
railway, shipping and airplane companies and
carriers, theatrical and opera box office
proprietors, entrepreneurs and general agents, and
any other business which can be conveniently carried
on in connection therewith.
(21) To undertake and execute any trusts as the Company
may think fit, and also to undertake the office of
executor, administrator, treasurer or registrar, and
to keep for any company, government authority or body
any register relating to any stocks, funds, shares or
securities or to undertake any duties in relation to
the registration of transfers, the issue of
certificates or otherwise.
(22) To carry on business as capitalists, financiers,
concessionaries and merchants, and to undertake and
carry on and execute all kinds of financial,
commercial, trading and other operations, and to
advance, deposit, or lend money, securities and
property to or with such persons or companies and on
such terms as may deem expedient, and either with or
without security, and in particular to customers and
others having dealings with the Company, and to
guarantee the performance of contracts by any such
persons or companies.
(23) To take or otherwise acquire and hold shares in any
other company having objects altogether or in part
similar to those of this Company or any business
capable of being conducted so as directly or
indirectly to benefit this Company.
(24) To carry on all or any of the businesses of
importers, exporters, commission agents, general
merchants, traders, contractors, brokers, factors,
distributors, commercial, financial and general
agents, and generally to import, export, buy, sell
(either for cash or on credit), barter, exchange,
pledge, manipulate, prepare for market, make advances
upon or otherwise deal in goods, produce, commodities
and merchandise of all descriptions, both wholesale
and retail, and to transact every kind of agency
business, and to undertake the business of
manufacturers' representatives.
- 5 -
<PAGE> 6
(25) To carry on in such manner and in such place or
places, either in the said Colony or elsewhere as the
Company may think requisite or proper, any other
business whatsoever which may seem to the Company
capable of being conveniently carried on in
connection with the business of the Company or
calculated directly or indirectly to enhance the
value of or render profitable any of the Company's
property or rights.
(26) To establish and support or aid in the establishment
and support of associations, institutions, funds,
trusts and conveniences calculated to benefit
employees or ex-employees of the Company or its
predecessors in business, or the dependants or
connections of such persons, and to grant pensions
and allowances, and to make payments toward
insurance, and to subscribe or guarantee money for
charitable or benevolent objects, for any exhibition
or for any public, general or useful objects.
(27) To undertake or enter into any contract or
arrangement in connection with the undertaking or
property of any company in which the Company is
interested.
(28) To purchase or otherwise acquire, or undertake or
otherwise to participate in, deal in and turn to
account the whole or any part of the business, assets
and liabilities, including shares, stocks, bonds,
debentures, mortgages or other obligations, or any or
either of them, of any other company, corporation or
person carrying on any business in the said Colony or
elsewhere which this Company is authorised to carry
on or possessed of any property or right suitable for
the purposes of this Company, and to acquire the
business of any company or corporation, if deemed
expedient, by amalgamation with such company or
corporation instead of by purchase in the ordinary
way.
(29) To pay for any business or undertaking, or any
property, rights, stocks, shares, bonds, debentures
or other securities acquired by the Company, either
in cash or shares, with or without preferred or
deferred rights in respect of dividends or repayment
of capital or otherwise, or by any securities which
the Company has power to issue, or partly in one mode
and partly in another, and generally on such terms as
the Company shall determine.
(30) To sell or otherwise dispose of the business and
undertaking of the Company or any part thereof,
including any shares, stocks, bonds, debentures,
mortgages or other obligations or securities, or any
or either of them, patents, trade marks, trade names,
copyrights, licences or authorities, or any estate,
rights, property, privileges or assets of any kind
for such consideration as the Company may think fit
to accept, and in particular for shares, debentures
or securities of any other company having objects
altogether or in part similar to those of this
Company.
- 6 -
<PAGE> 7
(31) TO accept payment for the business and undertaking of
the Company or any part thereof or for any property
or rights sold or otherwise disposed of or dealt with
by the Company or corporation, with or without
deferred or preferred rights in respect of dividends
or repayment of capital or otherwise, or by means of
a mortgage, or by debentures, debenture stock or
mortgage debenture or bonds of any company, or partly
in one mode and partly in another, and generally on
such terms as the Company may determine.
(32) To engage in the said Colony or elsewhere in any
business or transaction within the limits of the
Company's objects either alone or in conjunction with
any other person, corporation, company or firm, and
to hold shares, stocks or bonds in any such company
or corporation.
(33) To invest and deal with the moneys of the Company not
immediately required upon such securities and in such
manner as may from time to time be determined.
(34) To lend and advance money or give credit to such
persons or companies and on such terms as may seem
expedient, and in particular to customers and others
having dealings with the Company, and to guarantee
the performance of contracts by any such persons or
companies, and/or to advance and lend money on the
security of land, buildings, hereditaments and
premises of any tenure or description, shares,
securities, merchandise and other property upon such
terms as may be arranged, and in particular so that
any loan including interest thereon may be made
repayable by monthly or quarterly instalments or
otherwise.
(35) To borrow or raise or secure the payment of money in
such manner as the Company shall think fit, and in
particular by the issue of debentures or debenture
stock (perpetual or otherwise), and to secure the
repayment of any money borrowed, raised or owing by
mortgage, charge or lien upon all or any of the
property or assets of the Company (both present and
future), including its uncalled capital, and also by
a similar mortgage, charge or lien to secure and
guarantee the performance by the Company or any other
person or company of any obligation or liability
undertaken by the Company or any other person or
company as the case may be, and to purchase, redeem
or pay off any such securities.
(36) To carry on business and maintain branches abroad in
any part of the world for all or any of the purposes
aforesaid or to establish agencies whereof and to
regulate or discontinue the same.
(37) To draw, make, accept, endorse, discount, execute and
issue promissory notes, bills of exchange, bills of
lading, godown receipts, warehouse receipts,
wharfinger's receipts, warrants, debentures, bonds
and other negotiable or transferable instruments.
- 7 -
<PAGE> 8
(38) To enter into partnership or into any arrangement for
sharing of profits, union of interests, co-operation,
joint adventure, reciprocal concession or otherwise
with any person or company carrying on or engaged in,
or about to carry on or engage in, any business or
transaction capable of being conducted so as directly
or indirectly to benefit this Company. And to lend
money to, guarantee the contracts of or otherwise
assist, any such person or company, and to take or
otherwise acquire shares and securities of any such
company, and to sell, hold, re-issue, with or without
guarantee, or otherwise deal with the same.
(39) To enter into any arrangements with any governments
or authorities (supreme, municipal, local or
otherwise), or any corporations, companies or persons
that may seem conducive to the attainment of the
Company's objects or any of them, and to obtain from
any such government, authority, corporation, company
or person, any charters, contracts, decrees, rights,
privileges and concessions, and to carry out,
exercise and comply with any such charters,
contracts, decrees, arrangements, rights, privileges
and concessions.
(40) To remunerate any person or company rendering
services to the Company, either by cash payment or by
the allotment to him or them of shares or securities
of the Company credited as paid up in full or in part
or otherwise as may be thought expedient.
(41) To promote, form, subsidize and establish any company
or companies, corporation or corporations, for the
purpose of acquiring all or any of the property,
rights and liabilities of the Company, or for any
purpose which may seem calculated directly or
indirectly to benefit this Company or to enhance the
value of any property or business of the Company, and
to place or guarantee the placing of, underwrite,
subscribe for or otherwise acquire, all or any part
of the shares or securities of any company as
aforesaid.
(42) To obtain all powers and authorities for enabling the
Company to carry any of its objects into effect, or
for dissolving the Company and re-incorporating its
members as a new company for any of the objects
specified in this Memorandum, or for effecting any
modification of the Company's constitution, or for
any other purposes which may seem expedient, and to
oppose any proceedings and applications which may
seem calculated directly or indirectly to prejudice
the Company's interests.
(43) To insure with any company or person against losses,
damages, risks and liabilities of all kinds which may
effect the Company.
(44) To procure the Company to be registered or recognised
in any foreign country or place.
- 8 -
<PAGE> 9
(45) To distribute any of the property of the Company
amongst its members in specie or otherwise as may be
resolved, but so that no distribution amounting to
a reduction of capital be made except with the
sanction (if any) for the time being required by law.
(46) To do all or any of the above things in any part of
the world and either as principals, agents,
contractors, trustees or otherwise, and by or through
agents, trustees, or otherwise, and either alone or
in conjunction with other or others.
(47) To do all such other things as are incidental or
conducive to the attainment of the above objects or
any of them.
AND it is hereby declared that the word "company" in this
clause, except where used in reference to this Company, shall
be deemed to include any partnership or other body of persons,
whether incorporated or not incorporated, and whether
domiciled in the Colony of Hong Kong or elsewhere, and the
intention is that the objects specified in each paragraph of
this clause shall, except where otherwise expressed in such
paragraph, be in nowise limited or restricted by reference to
or inference from the terms of any other paragraphs or the
name of the Company, and that in the event of any ambiguity
this clause shall be construed in such a way as to widen, and
not to restrict, the powers of the Company.
FOURTH The liability of the members is limited.
FIFTH The share capital of the Company is Two Million and Five
Hundred Thousand Dollars Hong Kong Currency (HK$2,500,000.OO)
divided into Five Million (5,000,000) shares of Fifty Cents
(HK$0.50) each. Upon any increase of capital the Company is to
be at liberty to issue any new shares either in Hong Kong
Dollars or in any other currency, or partly in one currency
and partly in another, and with any preferential, deferred,
qualified or special rights, privileges or conditions attached
thereto. The rights for the time being attached to any shares
having preferential, deferred, qualified or special rights,
privileges or conditions attached thereto, may be altered or
dealt with in accordance with the accompanying Articles of
Association, but not otherwise.
Dividends may be paid in cash or by the distribution in
specific assets or otherwise as provided by the Articles of
Association and/or Regulations of the Company for the time
being or otherwise.
- 9 -
<PAGE> 10
We, the several persons, whose names, addresses and descriptions are
hereto subscribed, are desirous of being formed into a Company in
pursuance of this Memorandum of Association , and we respectively agree
to take the number of shares in the capital of the Company set opposite
to our respective names:-
<TABLE>
<CAPTION>
Number of
Shares taken
Names, Addresses and Descriptions of Subscribers by each
Subscriber
<S> <C>
PHILIP (NOMINIEES) LIMITED by
its Director :
(Sd.) CHAN CHUN YUEN
(Chan Chun Yuen One
Grand Building, 14th Floor,
Nos. 15-18 Connaught Road Central,
Hong Kong.
Corporation.
VINCENT (NOMINEES) LIMITED by
its Directors :-
(Sd.) CHIU CHI CHEUNG
(Chiu Chi Cheung One
Grand Building, 14th Floor,
Nos. 15- 18 Connaught Road Central,
Hong Kong.
Corporation.
Total Number of Shares Taken........ Two
</TABLE>
Dated the 4th day of July, 1977
WITNESS to the above signatures:
(Sd.) John Michael Seto
J. M. SETO
Solicitor
Hong Kong
- 10 -
<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.
-1-
<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.
-2-
<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.
-3-
<PAGE> 4
TRANSFER AND TRANSMISSION OF SHARES
12. 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.
13. 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.
14. 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.
15. 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.
-5-
<PAGE> 5
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
21. 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.
22. 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
-6-
<PAGE> 6
marriage, power of attorney, or other instrument.
23. 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.
-7-
<PAGE> 7
CONVERSION OF SHARES INTO STOCK
24. The Company may by ordinary resolution convert any paid-up shares into
stock, and reconvert any stock into paid-up shares of any denomination.
25. 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.
26. 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.
27. 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
28. 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.
29. 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.
30. The Company may by special resolution reduce its share capital, any
capital
-8-
<PAGE> 8
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
31. 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).
32. 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).
33. 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
34. The directors of the Company may, without the approval of the Company in
general meeting, offer to issue new shares in the Company to existing
shareholders pro rata to their holding of shares in the Company. The
directors may not issue new shares of the Company in any other manner
without the prior approval of the Company in general meeting. Any such
approval given in 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 meeting is required by law
to be held. If such approval is given, the unissued shares of the Company
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 Company may only issue shares, save in
respect of bonus shares, that are fully paid on the date of allotment. The
Company may not issue shares which are unpaid or partially paid on
allotment.
GENERAL MEETINGS
35. 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
-9-
<PAGE> 9
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.
36. All general meetings other than annual general meetings shall be called
extraordinary general meetings.
37. 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
38. 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.
39. 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
40. All business shall be deemed special business (as referred to in Article
38) 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
-10-
<PAGE> 10
the place of those retiring and the appointment of, and the fixing of the
remuneration of, the auditors.
41. 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.
42. 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.
43. 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.
44. 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.
45. 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.
46. 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
-11-
<PAGE> 11
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.
47. 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.
48. 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.
49. 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
50. 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.
51. 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.
52. 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.
53. 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.
54. 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
-12-
<PAGE> 12
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.
55. On a poll votes may be given either personally or by proxy.
56. 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.
57. 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.
58. 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.
59. An instrument appointing a proxy shall be in the following form (or a form
as near thereto as circumstances admit) or such other form as the
directors may from time to time determine:-
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 ,"
60. 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) or such
other form as the directors may from time to time determine:-
ZINDART LIMITED
I /We, of , being a
member/members of
-13-
<PAGE> 13
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."
61. The instrument appointing a proxy shall be deemed to confer authority to
demand or join in demanding a poll.
62. 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.
63. 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
64. 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
65. (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.
-14-
<PAGE> 14
(b) The number of directors of the Company shall not be less than two
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.
66. At each Annual General Meeting of the Company all the directors shall
retire, but shall be elegible for re-election. Notwithstanding any other
provision of these Articles, the memebers may at any time remove directors
upon the passing of a special resolution of the Company.
67. The remuneration of the directors shall be as determined from time to time
by the board of directors, provided that a director may not vote on a
resolution in respect of his own remuneration. 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.
68. 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.
69. 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.
BORROWING POWERS
70. 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
71. 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
-15-
<PAGE> 15
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.
72. 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.
73. 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.
74. 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.
75. (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
-16-
<PAGE> 16
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.
76. 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.
77. 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.
78. 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
79. 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.
80. Subject to the provisions of any agreement with the Company, a director
may
-17-
<PAGE> 17
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.
PROCEEDINGS OF DIRECTORS
81. The directors may meet together in Hong Kong or elsewhere in the world for
the
-18-
<PAGE> 18
dispatch 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 at least seven days
notice of any meeting of directors to all directors whether in Hong Kong
or for the time being absent from Hong Kong provided that a meeting of the
directors may be held on shorter notice if all directors shall agree.
82. The quorum necessary for the transaction of the business of the directors
may be fixed by the directors, and unless so fixed shall be 2.
83. 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.
84. 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.
-19-
<PAGE> 19
85. 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.
86. 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.
87. 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.
88. 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.
89. 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.
90. 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.
EXECUTIVE OFFICERS
91. The directors may from time to time appoint one or more of their body to
the office of Chairman of the board of directors, or any person to the
office of president, vice president, chief executive officer or such other
office 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. His appointment shall automatically determine if
he ceases from any cause to be a director.
92. An officer appointed pursuant to Article 91 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.
93. The directors may entrust to and confer upon an officer appointed under
Article 91 any of the 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.
-20-
<PAGE> 20
SECRETARY
94. 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.
95. 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
96. 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
97. The Company in general meeting may declare dividends, but no dividend
shall exceed the amount recommended by the directors.
98. 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.
99. No dividend shall be paid otherwise than out of profits.
100. 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.
101. 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
-21-
<PAGE> 21
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.
102. 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.
103. 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.
104. 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.
105. No dividend shall bear interest against the Company.
106. 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
107. 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;
-22-
<PAGE> 22
(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.
108. 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.
109. 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.
110. 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.
111. 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
112. 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
-23-
<PAGE> 23
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.
113. 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
114. Auditors shall be appointed and their duties regulated in accordance with
Sections 131, 132, 133, 140, 140A, 140B and 141 of the Ordinance.
NOTICES
115. 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).
116. 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.
117. (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;
-24-
<PAGE> 24
(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.
118. 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.
119. 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.
120. 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
121. 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
-25-
<PAGE> 25
accept any shares or other securities whereon there is any liability.
INDEMNITY
122. Subject to the provisions of the Ordinance but without prejudice to any
indemnity to which a director may otherwise be entitled, the Company may
by resolution of the board of directors, resolve to indemnify any director
or other officer or auditor of the Company out of the assets of the
Company against any liability incurred by him in the performance of his
duties, or in defending any proceedings, whether civil or criminal, in
which judgment is given in his favour or in which he is acquitted,
provided that no such indemnity shall apply in respect of liability for
negligence, default, breach of duty or breach of trust in relation to the
affairs of the Company unless relief is granted by the Court in respect
thereof pursuant to Section 358 of the Ordinance. The Company may charge
its assets in favour of a director, officer or auditor to secure permitted
indemnities referred to herein.
-26-
<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 _______, 1997
<PAGE> 2
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT dated as of _____________________, 1997 among Zindart
Limited, incorporated under the laws of Hong Kong (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
One (1) Share, 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 Banking Corporation Limited, as agent of the Depositary for
the purposes of this Deposit Agreement, and any other firm
- 2 -
<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; Hong Kong Dollars; HK$.
The term "Dollars" shall mean United States dollars. The term
"Hong Kong Dollars" or "HK$" shall mean Hong Kong dollars.
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
- 3 -
<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 Hong Kong, 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
- 4 -
<PAGE> 6
States or Hong Kong, 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 ordinary shares in registered
form of the Issuer, par value HK$0.50 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
- 5 -
<PAGE> 7
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.
- 6 -
<PAGE> 8
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 Hong Kong
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
- 7 -
<PAGE> 9
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
- 8 -
<PAGE> 10
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
- 9 -
<PAGE> 11
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
-10-
<PAGE> 12
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
- 11 -
<PAGE> 13
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
- 12 -
<PAGE> 14
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.
- 13 -
<PAGE> 15
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.
- 14 -
<PAGE> 16
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.
- 15 -
<PAGE> 17
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
- 16 -
<PAGE> 18
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 Hong Kong 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
- 17 -
<PAGE> 19
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
- 18 -
<PAGE> 20
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
- 19 -
<PAGE> 21
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.
- 20 -
<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
- 21 -
<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.
- 22 -
<PAGE> 24
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
- 23 -
<PAGE> 25
Hong Kong 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,
- 24 -
<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.
- 25 -
<PAGE> 27
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.
- 26 -
<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
- 27 -
<PAGE> 29
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.
- 28 -
<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
-29-
<PAGE> 31
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
-30-
<PAGE> 32
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
- 31 -
<PAGE> 33
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
- 32 -
<PAGE> 34
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.
- 33 -
<PAGE> 35
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 and (7) 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 (7) treating all such securities as if they were Shares), but
- 34 -
<PAGE> 36
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.
-35-
<PAGE> 37
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
-36-
<PAGE> 38
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
- 37 -
<PAGE> 39
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
-38-
<PAGE> 40
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 Zindart Industrial
Company Limited, flat C&D, 25/F Blk 1, Tai Ping Industrial Centre, 57 Ting Kok
Road, Tai Po, N.T., Hong Kong, 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
- 39 -
<PAGE> 41
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.
- 40 -
<PAGE> 42
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:
-------------------------------------
-41-
<PAGE> 1
Exhibit 5.1
[ROBERT W.H. WANG & CO. LETTERHEAD]
January 31, 1997
Zindart Limited
Flat C & D, 25/F Block 1
Tai Ping Industrial Centre
57 Ting Kok Road
Tai Po, New Territories
Hong Kong
Ladies and Gentlemen:
We have acted as Hong Kong counsel for Zindart Limited, a limited liability
company incorporated under the Companies Ordinance of Hong Kong (the "Company"),
in connection with the preparation and filing with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), of the Company's registration statement on Form F-1
(Registration Number 333-17973) (the "Registration Statement") relating to the
offering, as set forth in the Registration Statement and the form of prospectus
contained therein (the "Prospectus"), of up to 1,610,000 American Depositary
Shares (the "ADSs") of the Company each representing One Ordinary Share, par
value US $0.065 per share (the "Shares"), issued pursuant to the Deposit
Agreement to be entered into between the Company, Bank of New York as
Depositary, and the holders from time to time of ADSs issued thereunder.
We have reviewed the originals or copies, certified or otherwise identified to
our satisfaction of such instruments and other documents, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinion
expressed below. In particular, we have examined a copy of a directors'
resolution dated 31st January 1997, a copy of which is attached ("Resolution").
Based upon the foregoing, and subject to further qualifications set forth
below, we are of the opinion that:
1. the Shares comprise authorized share capital of the Company, which the
directors have authority to issue subject to the terms of the Resolution
authorized. When the Shares have been issued by the Company pursuant thereto and
duly delivered to and paid for by the purchasers thereof, the Shares will be
legally issued, fully paid and nonassessable; and
2. the statements under the headings "Risk Factors -- Taxation," "Taxation --
Hong Kong Taxation," "Description of Shares," and "Certain Foreign Issuer
Considerations" are accurate, complete and fair.
The foregoing opinion is subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles
of equity (whether considered in a proceeding in equity or at law).
This opinion is confined to and given on the basis of the laws of Hong Kong in
force at and as interpreted at the date of this opinion, and we express no
opinion in respect of those matters governed by or construed in accordance with
the laws of any jurisdiction other than Hong Kong.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and the opinion expressed
under the headings "Enforceability of Civil Liabilities," "Taxation," "Legal
Matters" and elsewhere as it appears in the Prospectus, without thereby
admitting that we are "experts" under the Securities Act or the rules and
regulations of the Commission thereunder for purposes of any part of the
Registration Statement.
Yours sincerely,
/s/ Robert Wang Co.
Robert W.H. Wang & Co.
<PAGE> 1
Exhibit 5.2
[McCutchen, Doyle Brown & Enersen, LLP LETTERHEAD]
January 31, 1997
Zindart Limited
Flat C & D, 25/F Block 1
Tai Ping Industrial Centre
57 Ting Kok Road
Tai Po, N.T., Hong Kong
Ladies and Gentlemen:
We have acted as United States counsel for Zindart Limited, a limited
liability company incorporated under the Companies Ordinance of Hong Kong (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), of the Company's registration statement on Form
F-1 (the "Registration Statement") relating to the offering, as set forth in
the Registration Statement and the form of prospectus contained therein (the
"Prospectus"), of American Depositary Shares (the "ADSs"), each ADS
representing one ordinary share, par value US$0.065 per share (the "Shares"),
issued pursuant to the Deposit Agreement to be entered into among the Company,
the Bank of New York, as depositary (the "Depositary"), and the holders from
time to time of the Shares issued thereunder (the "Deposit Agreement").
We have reviewed the originals or copies certified or otherwise
identified to our satisfaction of such instruments and other documents, and we
have made such investigations of law, as we have deemed appropriate as a basis
for the opinion expressed below.
Based on the foregoing, and subject to the further assumptions and
qualifications set forth below, it is our opinion that upon the due and valid
issuance by the Depositary of American Depositary Receipts ("ADRs") evidencing
ADSs against deposit of Shares in respect thereof and against payment therefor
in accordance with the provisions of this Agreement and the Deposit Agreement,
the persons in whose names the ADRs are registered will be entitled to the
rights of registered holders of ADRs specified in the ADRs and in the Deposit
Agreement.
<PAGE> 2
Zindart Limited
January 31, 1997
Page 2
The foregoing opinion is subject to the following qualifications: (i)
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general principles of equity (whether considered in a
proceeding in equity or law); (ii) the effect of judicial application of foreign
laws or foreign governmental actions affecting creditors' rights; and (iii) we
express no opinion as to the subject matter jurisdiction of the federal courts
of the United States over any action between two parties neither of which is a
"citizen" of any state for purposes of 28 U.S.C. Section 1332 or Article 3 of
the U.S. Constitution.
We are qualified to practice law only in the State of California, and we
express no opinion on the law of any jurisdiction other than the laws of the
State of California and the federal laws of the United States. In addition, we
express no opinion as to choice of law or conflicts of laws. We call your
attention to the fact that the Deposit Agreement states that it is governed by
the laws of the State of New York. We have assumed for purposes of this opinion
that the laws of the State of New York are the same as the laws of the State of
California.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the headings
"Taxation" and "Legal Matters" in the Prospectus, without thereby admitting
that we are "experts" under the Act or the rules and regulations of the
Commission thereunder for purposes of any part of the Registration Statement.
Very truly yours,
/s/ Lior O. Nuchi
------------------------------------
A Member of the Firm
McCUTCHEN, DOYLE, BROWN &
ENERSEN, LLP
<PAGE> 1
[McCUTCHEN LOGO]
Exhibit 8.1
January 30, 1997
Zindart Industrial Company Limited
Flat C & D, 25/F Block 1
Tai Ping Industrial Centre
57 Ting Kok Road
Tai Po, N.T.
Hong Kong
REGISTRATION STATEMENT ON FORM F-1
Gentlemen:
You have requested our opinion regarding certain United States federal
income tax considerations in connection with the offering of American
Depositary Shares representing Ordinary Shares of Zindart Industrial Company
Limited, a Hong Kong corporation, pursuant to Registration Statement on Form
F-1 that was filed with the Securities and Exchange Commission on December 16,
1996 (the "Registration Statement").
In our opinion, the discussions in the prospectus forming part of the
Registration Statement (the "Prospectus") under the headings "TAXATION --
United States Federal Income Taxation" and "TAXATION -- Special United States
Income Tax Considerations," fairly summarize the United States federal income
tax considerations that are likely to be material to a beneficial owner of the
American Depositary Shares or the Ordinary Shares.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to the name of our firm therein and
under the caption "TAXATION" in the Prospectus.
Very truly yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN
By: /s/ Roger D. Ehlers
--------------------------------
A Member of the Firm
[McCUTCHEN LETTERHEAD]
<PAGE> 1
Exhibit 8.2
[GUANGZHOU LAW OFFICE LETTERHEAD]
January 30, 1997
Zindart Limited
Flat C & D, 25/F Block 1
Tai Ping Industrial Centre
57 Ting Kok Road
Tai Po, New Territories
Hong Kong
Ladies and Gentlemen:
We have acted as counsel in the People's Republic of China (the "PRC") for
Zindart Limited, a limited liability company incorporated under the Companies
Ordinance of Hong Kong (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company's
registration statement on Form F-1 (Registration Number 333-17973) (the
"Registration Statement") relating to the offering, as set forth in the
Registration Statement and the form of the prospectus contained therein (the
"Prospectus"), of the Company's American Depositary Shares (the "ADSs") each
representing One Ordinary Share, par value US $0.065 per share (the "Shares"),
issued pursuant to the Deposit Agreement to be entered into between the
Company, Bank of New York as Depositary, and the holders from time to time of
ADSs issued thereunder.
We have reviewed the originals or copies, certified or otherwise identified to
our satisfaction of such instruments and other documents, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinion
expressed below.
Based upon the foregoing, and subject to further qualifications set forth below,
We are of the opinion that the statements in the Prospectus under the caption
"Risk Factors -- Taxation," "Environmental Matters," "Business --
Environmental Matters," and "Taxation -- PRC Taxation" are accurate, complete
and fair.
The foregoing opinion is subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles of
equity (Whether considered in a proceeding in equity or at law).
This opinion is confined to and given on the basis of the laws of the PRC, and
we express no opinion in respect of those matters governed by or construed in
accordance with the laws of any jurisdiction other than the PRC.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and the opinion expressed
under the headings "Enforceability of Civil Liabilities," "Taxation," "Legal
Matters" and elsewhere as it appears in the Prospectus, without thereby
admitting that we are "experts" under the Securities Act or the rules and
regulations of the Commission thereunder for purposes of any part of the
Registration Statement.
Yours sincerely,
/s/ Guangzhou Law Office
Guangzhou Law Office
<PAGE> 1
EXHIBIT 10.1(a)
SINO-FOREIGN CO-OPERATION CONTRACT
ZINDART TOYS (DONGGUAN) COMPANY LIMITED
1. General Principle
For the purpose of promoting economic co-operation between the parties
to this Contract, Dongguan Hengli Trading General Company and Zindart
Industrial Company Limited, upon friendly negotiations and based on the
principles of equality and mutual benefit, entered into this Contract in
Dongguan, PRC on 8 September 1994 in relation to the joint operation of
toys business, the terms of which are as follows:
2. The Parties
(1) Dongguan Hengli Trading General Company (hereinafter called
"Party A")
Registered Address: Hengquan Lu, Hengli, Dongguan, PRC
Legal Representative: Chen Ren-fei, Manager, PRC Nationality
(2) Zindart Industrial Company Limited (hereinafter called
"Party B")
Registered Address: Flats C & D, 25/F, Block 1, Taiping
Industrial Centre, 57 Ting Kok Road,
Tai Po, N.T., HK
Legal Representative: Wu Hai-Lin, Chairman of the Board,
Australian Nationality
3. Co-operative ("Co-op.") Enterprise
Name of Co-op. Enterprise: Zindart Toys (Dongguan) Company Limited
Registered Address: Xincheng Industrial District, Hengli,
Dongguan, PRC
Legal Representative: Wu Hai-lin, Chairman of the Board
Period of Co-operation: 15 years, as from the date of issuance
of the Co-op. Enterprise's business
license
The Co-op. Enterprise shall have the status of a PRC legal person, and
all activities shall comply with the relevant PRC laws, decrees and
pertinent rules.
4. Conditions of Co-operation and Sharing of Profits
Party A shall be responsible for provision of water and electricity
supply facilities, domestic product sales and administration.
Party B shall be responsible for investing HK$34 million on interest-
free terms, made up of the following:
- Facilities HK$14 million
- Working Capital HK$2 million
- Construction of Factory Premises and Living Areas HK$10 million
- Land Use Rights over 80,216 m(squared) of land
transferred by Dongguan Hengli Property
Development Co. HK$8 million
<PAGE> 2
Total investment capital of the Co-op. Enterprise HK$34 million
Total Registered Capital HK$34 million
Upon an audit by a PRC registered accountant of Party B's investment capital
of HK$34 million, the Co-op. Enterprise shall issue an investment
verification report to Party B. No depreciation charges shall be deducted
from this investment capital, and at the end of the co-operation period, all
fixed assets and land use rights shall belong to Party B.
Total Profits = Revenue generated by the Co-op. Enterprise LESS production
costs and other expenses; each party pays its own Income Tax; a deduction of
the "3 Reserve Funds" applies to post-tax profits; post-tax profits/losses
shall be split in the proportion of 10% : 90% (A:B)
Party B's post-tax profits may be remitted outside PRC in accordance with
the Provisional Regulations of the PRC on Exchange Control, through a
Dongguan bank which provides for foreign exchange settlements, to the bank
account designated by Party B.
Just before the expiry of the Period of Co-operation, if Party B could not
resume its investment capital, both parties may negotiate and extend the
Period of Co-operation accordingly, but they shall first seek approval from
the original examination and approval body.
5. Production and Sales
Agreed scope of business operations: production, further processing and
sales of alloy and plastic toys
Annual production: 10,000 tons
International Sales: 80% (Party B's responsibility)
Domestic Sales: 20% (Party A's responsibility)
Price of all products shall be fixed and the products shall be underwritten;
price is set at cost plus a reasonable profit margin, and shall be reviewed 1/2
yearly by the Board of Directors.
Preference shall be given to purchasing in PRC of all equipment, raw materials,
assessories etc. required by the Co-op. Enterprise if similar terms are
offered in both the PRC and international markets. Where importing is
necessary, the Co-op. Enterprise may arrange for the importing from abroad, or
appoint Party B to purchase the same from abroad. The amount of expenditure
shall be approved by both parties. In this case, Party B shall assign personnel
to supervise the installation of the equipment and to carry out production
skills training, so that the products meet the quality standards.
<PAGE> 3
6. Enterprise Management
Both parties shall appoint personnel to constitute the Board of
Directors, being the highest authority within the Co-op. Enterprise. It
shall have 9 members - 3 from Party A, 6 from Party B. The Chairman to
be appointed by Party B; the 2 Vice Chairmen to be appointed by A & B
respectively; the rest shall be Directors. Chairman and Directors shall
each have a tenure of 4 years, and may be extended by the appointing
parties. If at the expiry of their tenures no indication of extension is
given to them, then it is deemed to be an extension. The Board of
Directors' powers are set out in the Co-op. Enterprise's Articles of
Association.
The Board of Directors shall employ 1 general manager and 1 assistant
general manager to carry out the resolutions of the Board of Directors.
The terms of their employment and their powers are set out in the Co-op.
Enterprise's Articles of Association. If either the general manager or
the assistant general manager shall be guilty of corruption or serious
misconduct, the Board of Directors may by resolution remove him at any
time.
7. Wages and Welfare
The Board of Directors shall set the standard of wages, allowances,
bonuses etc. having regard to the relevant PRC Government's regulations,
other co-operative enterprises' existing methods, and Dongguan City's
actual inflation rate. Such standards shall be reasonably reviewed
upwards annually.
According to the Labour Department's regulation, before commencing its
operations, the Co-op. Enterprise shall approach the Dongguan Labour
Insurance Company to apply for the PRC party's employees' social labour
insurance, and to participate in employee injury insurance.
8. Finance, Accounting and Foreign Exchange Management
The Co-op. Enterprise is an independent legal entity. The
implementation of its accounting system is based on the relevant
provisions laid down by the PRC Government's finance and taxation
departments. The RMB is the base currency for accounting purposes.
All expenses relating to the Co-op. Enterprise's purchase of equipment
and raw materials shall be evidenced by the relevant receipts in order
to become valid. Receipts issued by foreign countries and the Hong
Kong/Macau Districts shall be accompanied by the relevant PRC customs
and excise declaration form and Duty Rate.
The Co-op. Enterprise may open foreign currency and RMB accounts at a
bank in Dongguan which provides for foreign exchange settlements. Such
bank shall manage and supervise all receipts and outgoings from
operations. Remittances of Party B's earnings abroad in accordance with
this Contract shall be done by the bank through which Party B opens its
banking accounts.
<PAGE> 4
9. REGISTRATION, TAXATION AND INSURANCE
The Co-op. Enterprise shall be registered with the PRC State
Administration for Industry and Commence (SAIC), obtain a business
licence, and be registered with the local taxation department. All
taxes shall be paid in accordance with the relevant PRC Government
taxation regulations. All insurance policies shall be taken out with
the People's Insurance Company, Dongguan Branch.
10. PORT OF IMPORT OF MATERIALS
All imports of machinery equipment, raw materials and packaging
materials, and all exports of finished goods, shall be done via any of
the Guangdong ports.
11. PERFORMANCE OF CONTRACT
Party B shall contribute the whole of its investment capital within 1
year after the date of approval of this Contract (first 15% of such
capital shall be contributed within 3 months after the issuance of the
business licence). Failure to do so without sufficient reason is
treated as Party B's breach of this Contract and a voluntary termination
of the co-operation; if sufficient reason is given, then 1 month's
extension is granted; failure to do so despite such extension is treated
as Party B's breach of this Contract and a voluntary termination of the
co-operation. The party not in breach may, in the above situation, apply
for unilateral termination of the co-operation, and request the party
in breach to compensate its losses.
Once this Contract is approved by the relevant PRC Government
departments, neither party shall terminate this Contract without cause.
Where under extraordinary circumstances one of the parties requests
termination of this Contract, such request shall be raised 6 months
before the proposed termination date, be consented to by both parties,
and the procedures for termination be carried out for approval by the
original examination and approval authorities. Where one party
terminates without cause or breaches this Contract, it shall compensate
the other party for losses suffered due to such termination/breach.
12. FORCE MAJEURE
In the event of fire etc. or other unforeseen circumstances directly
affecting the performance of this Contract by either party, the party
so affected shall forthwith by telex notify the other party of such
events, and shall within 15 days produce supporting documents (issued
by the notary public office in the district in which such events
occurred) in relation to such events. Depending on the extent to which
this Contract is affected by such events, both parties shall decide on
whether or not to continue with the whole or part of this Contract, or
an extension to the time of performance thereof, the decision shall be
submitted for approval by the original examination and approval
authorities.
<PAGE> 5
13. TRADE MARKS
The policies for the use of trade marks on the Co-op. Enterprise's
products for domestic and foreign sales shall be determined between the
parties, but shall in any case comply with the rules regarding
application for registration in the relevant countries (districts) in
which the products are sold.
14. ARBITRATION
During the term of this Contract, if any dispute arises, both parties
shall enter into negotiations in order to resolve the dispute. If the
dispute is not resolved by means of negotiations, it shall be submitted
to the China International Economic and Trade Arbitration Commission
(CIETAC) (Shenzhen Branch) for arbitration and resolution, whose
decision shall be final.
15. SUPPLEMENTAL PRINCIPLES
Upon signing of this Contract by both parties, it shall come into force
on the date of its approval by the relevant PRC Government authorities.
Should there be any matters which have not been addressed in this
Contract, both parties may, upon negotiations, amend or supplement the
same. The approval by the original examination and approval authorities
of such amendments or supplements shall become part of this Contract.
PARTY A PARTY B
Dongguan Hengli Trading General Company Zindart Industrial Company Ltd.
Hengquan Lu. Hengli, Dongguan City, PRC Flats C & D, 25/F, Block 1, Taiping
Industrial Centre, 57 Ting Kok Road,
Tai Po, N.T., HK
Tel : 337 1829 Tel : 665 6992
Signed by Legal Representative: Signed by Legal Representative:
Chop of Dongguan Hengli Trading Chop of Zindart Industrial Company
General Company affixed Limited affixed
Date : 8 September 1994
at Dongguan City, PRC
<PAGE> 1
Exhibit 10.1(b)
SINO-FOREIGN CO-OPERATION
ZINDART TOYS (DONGGUAN) COMPANY LIMITED
SUPPLEMENTAL CONTRACT
Party A: Dongguan Hengli Trading General Company
Party B: Zindart Industrial Company Limited
By a Co-operation Contract dated 8 September 1994 signed and sealed by both
Party A and Party B ("the Co-op. Contract"), Zindart Toys (Dongguan) Company
Limited ("the Co-op. Company") was established. Owing to the fact that Party A
is unfamiliar with the international toys market, together with its lack of
experience in the operation and management of toys, the directors of both
parties negotiated with each other based on the principles of equality, mutual
benefit and mutual trust. Following Party B's request, Party A shall transfer
all the operation rights and business management of the Co-op. Company to Party
B, in accordance with the terms below:
1. Party B's Management Period
From the date of first production by the new factory premises to the
expiry of the Co-op. Contract.
2. Given that Party A shall not directly participate in management, and in
light of Clauses 4 and 5 of the Co-op. Contract in relation to profit
sharing and sales respectively, Party A shall not take part in the sales
activities, and both parties agree to adopt the following provision in
relation to profit sharing:
(i) Party B guarantees that Party A shall annually receive a sum of
RMBY300,000 representing depreciation charges and fixed profits,
which shall be paid in two equal half-yearly instalments.
3. Party B shall be solely responsible for the management and
administration of the Co-op. Company, together with the handling of its
receipts and outgoings.
4. All profits/losses in relation to the operation of the Co-op. Company
shall belong to Party B, and Party A shall not be responsible for any
such profits/losses.
5. At the expiry of this Contract, all water and electricity supply
facilities provided by Party A shall belong to Party B without
compensation.
6. Party B shall be responsible for fire prevention and safe production in
compliance with the regulations of the fire services authorities in the
district.
7. All activities in relation to production operation shall be in
compliance with the relevant laws and regulations of the PRC; Party B
shall be held responsible for any liability incurred and loss suffered
as a result of any breach of these PRC laws and regulations at any stage
of the internal or external production activities.
<PAGE> 2
8. Party A's Responsibilities
(i) Assist Party B in liaising with the various departments of this
district, including water supply, electricity supply, public
order, fire services, safety, health, environmental protection,
etc.;
(ii) Assist Party B in the proper resolution of any labour disputes
amongst the temporary labour;
(iii) Co-ordinate public relations and procedures for import/export
customs declarations; and
(iv) Assist Party B in employing labour and managing staff in
accordance with PRC's governmental policies.
9. Both parties agree that if, during this period, there are any important
changes to PRC governmental policies, rendering the contents of this
Contract inconsistent therewith, both parties shall accordingly make the
necessary adjustments or amendments to this Contract in the spirit of
friendly consultation.
10. This Contract shall become effective as from 1 January 1996. At the
expiry of the period of co-operation, this Contract shall terminate
accordingly.
Signed by Party A's Representative Signed by Party B's Representative
Chop of Dongguan Hengli Trading Chop of Zindart Industrial Co. Ltd
General Company
Date: 5 December 1995
<PAGE> 1
EXHIBIT 10.1(c)
DONGGUAN GOVERNMENT STATE-OWNED (1993) NO. 49
PEOPLE'S REPUBLIC OF CHINA
LAND USE CERTIFICATE
FOR STATE-OWNED LAND
<PAGE> 2
"Land in the cities is owned by the State.
Land in the rural and suburban areas is owned by collectives except for those
portions which belong to the State in accordance with the law; house sites and
private plots of cropland and hilly land are also owned by collectives.
The State may in the public interest take over land for its use in accordance
with the law.
No organisation or individual may appropriate, buy, sell or unlawfully transfer
land in other ways. The right to use land may be assigned in accordance with
the provisions of the law.
All organisations and individuals who use land must make rational use of the
land."
- -- Article 10, The Constitution of the People's Republic of China
"Ownership of and the right to use land shall be protected by law and no unit
or individual shall infringe upon these rights."
- -- Article 11, Law of the People's Republic of China on Land Management
According to the Law of the People's Republic of China on Land Management, in
order to safeguard the Socialist public ownership of land, and to protect the
legitimate rights of the Land User, the application for registration of land
use rights by the Land User has been approved after survey, examination and
approval by the Government, and this Certificate is hereby issued.
Seal for Use on Land Use Certificates affixed by
Guangdong Province People's Government
Undated
<PAGE> 3
Land User: Zindart Industrial Company Limited
Land Address: Tiankeng Administrative Zone, Hengli, Dongguan, PRC
Zoned Use: Industrial Land
Area of Land Use Rights:
- - Total Area: 6,275 square metres
- - Self Use Rights: 6,275 square metres
*
*
*
*
Period of Land Use: 50 years, from February 1993 to February 2043
Boundaries:
- - East : Dong-Huan Lu
- - South: Cheng-Xiang Lu
- - West : Xing-Tai Lu
- - North: Zindart Industrial Company Limited
Seal for Use on Land Use Certificates affixed by
Dongguan City People's Government 17 January 1996
Remarks : Transfer by agreement
<PAGE> 4
IMPORTANT NOTICE
1. This Certificate is the legitimate evidence of land use rights, and
takes effect upon the affixing of the seal by both the People's
Government at County or higher level and the land management office of
the PRC Government.
The registered land use rights shall be protected by law, and no unit or
individual shall infringe upon these rights.
2. This Certificate shall not in any way be amended without permission.
Such unauthorised amendments shall render this Certificate void.
3. This Certificate shall be taken care of properly; where it becomes lost
or damaged, application for re-issue must be submitted immediately.
4. Land Users shall comply with the land management laws of the PRC, shall
utilise the land in accordance with the approved land use, and shall
protect the whole of the registered area of land.
5. Alterations to the ownership of land or the right to use land shall be
registered in accordance with the legal procedures.
6. Upon enquiries from any level of the People's Government or the land
management office for the understanding of problems with the land, the
Land User shall take the initiative to produce this Certificate.
PRODUCED BY THE LAND MANAGEMENT OFFICE,
PEOPLE'S REPUBLIC OF CHINA
<PAGE> 1
EXHIBIT 10.1(d)
Dongguan Government State-Owned (1994) No. 664
PEOPLE'S REPUBLIC OF CHINA
LAND USE CERTIFICATE
FOR STATE-OWNED LAND
<PAGE> 2
"Land in the cities is owned by the State.
Land in the rural and suburban areas is owned by collectives except for those
portions which belong to the State in accordance with the law; house sites and
private plots of cropland and hilly land are also owned by collectives.
The State may in the public interest take over land for its use in accordance
with the law.
No organisation or individual may appropriate, buy, sell or unlawfully transfer
land in other ways. The right to use land may be assigned in accordance with
the provisions of the law.
All organisations and individuals who use land must make rational use of the
land."
- -- Article 10, The Constitution of the People's Republic of China
"Ownership of and the right to use land shall be protected by law and no unit
or individual shall infringe upon these rights."
- -- Article 11, Law of the People's Republic of China on Land Management
<PAGE> 3
According to the Law of the People's Republic of China on Land Management, in
order to safeguard the socialist public ownership of land, and to protect the
legitimate rights of the Land User, the application for registration of land
use rights by the Land User has been approved after survey, examination and
approval by the Government, and this Certificate is hereby issued.
Seal for Use on Land Use Certificates affixed by
Guangdong Province People's Government
December 1994
<PAGE> 4
Land User: Zindart Industrial Company Limited
Land Address: Tiankeng Administrative Zone, Hengli, Dongguan, PRC
Zoned Use: Industrial Land
Area of Land Use Rights:
- - Total Area: 33,006 square metres
- - Self Use Rights: 33,006 square metres
Period of Land Use: 50 years, from June 1994 to June 2044
Boundaries:
- - East: 30 Metres Bei-Huan Lu
- - South: Zindart Industrial Company Limited (Zone B)
- - West: 26 Metres Lu
- - North: 30 Metres Bei-Huan Lu
Seal for Use on Land Use Certificates affixed by
Dongguan City People's Government
22 December 1994
<PAGE> 1
EXHIBIT 10.1(e)
DONGGUAN GOVERNMENT STATE-OWNED (1994) NO. 665
PEOPLE'S REPUBLIC OF CHINA
LAND USE CERTIFICATE
FOR STATE-OWNED LAND
<PAGE> 2
"Land in the cities is owned by the State.
Land in the rural and suburban areas is owned by collectives except for those
portions which belong to the State in accordance with the law; house sites and
private plots of cropland and hilly land are also owned by collectives.
The State may in the public interest take over land for its use in accordance
with the law.
No organisation or individual may appropriate, buy, sell or unlawfully transfer
land in other ways. The right to use land may be assigned in accordance with
the provisions of the law.
All organisations and individuals who use land must make rational use of the
land."
- -- Article 10, The Constitution of the People's Republic of China
"Ownership of and the right to use land shall be protected by law and no unit
or individual shall infringe upon these rights."
__ Article 11, Law of the People's Republic of China on Land Management
<PAGE> 3
According to the Law of the People's Republic of China on Land Management, in
order to safeguard the socialist public ownership of land, and to protect the
legitimate rights of the Land User, the application for registration of land
use rights by the Land User has been approved after survey, examination and
approval by the Government, and this Certificate is hereby issued.
Seal for Use on Land Use Certificates affixed by
Guangdong Province People's Government
December 1994
<PAGE> 4
Land User: Zindart Industrial Company Limited
Land Address: Yuan Xia, Tiankeng Administrative Zone, Hengli,
Dongguan, PRC
Zoned Use: Industrial Land (Zone B)
Area of Land Use Rights:
- - Total Area: 33,001 square metres
- - Self Use Rights: 33,001 square metres
*
*
*
*
Period of Land Use: 50 years, from June 1994 to June 2044
Boundaries:
- - East : Bei-Huan Lu
- - South: Zindart Industrial Company Limited (Zone C)
- - West : Zindart Industrial Company Limited (Zone A)
- - North: Gui-Hua Gong Lu
Seal for use on Land Use Certificates affixed by
Dongguan City People's Government
22 December 1994
Remarks : Transfer by agreement
<PAGE> 1
EXHIBIT 10.1(f)
Dongguan Government State-Owned (1994) No. 666
PEOPLE'S REPUBLIC OF CHINA
LAND USE CERTIFICATE
FOR STATE-OWNED LAND
<PAGE> 2
"Land in the cities is owned by the State.
Land in the rural and suburban areas is owned by collectives except for those
portions which belong to the State in accordance with the law; house sites and
private plots of cropland and hilly land are also owned by collectives.
The State may in the public interest take over land for its use in accordance
with the law.
No organisation or individual may appropriate, buy, sell or unlawfully transfer
land in other ways. The right to use land may be assigned in accordance with
the provisions of the law.
All organisations and individuals who use land must make rational use of the
land."
- -- Article 10, The Constitution of the People's Republic of China
"Ownership of and the right to use land shall be protected by law and no unit
or individual shall infringe upon these rights."
- -- Article 11, Law of the People's Republic of China on Land Management
<PAGE> 3
According to the Law of the People's Republic of China on Land Management, in
order to safeguard the socialist public ownership of land, and to protect the
legitimate rights of the Land User, the application for registration of land
use rights by the Land User has been approved after survey, examination and
approval by the Government, and this Certificate is hereby issued.
Seal for Use on Land Use Certificates affixed by
Guangdong Province People's Government
December 1994
<PAGE> 4
Land User: Zindart Industrial Company Limited
Land Address: Tiankeng Administrative Zone, Hengli, Dongguan, PRC
Zoned Use: Industrial Land (Zone C)
Area of Land Use Rights:
- - Total Area: 7,934 square metres
- - Self Use Rights: 7,934 square metres
- -
- -
- -
- -
Period of Land Use: 50 years, from June 1994 to June 2044
Boundaries:
- - East: Bie-Huan Lu
- - South: Chen-Xiang Lu
- - West: Gui-Hua Gong Lu
- - North: Zindart Industrial Company Limited (Zone B)
Seal for Use on Land Use Certificates affixed by
Dongguan City People's Government
22 December 1994
Remarks : Transfer by agreement.
<PAGE> 5
IMPORTANT NOTICE
1. This Certificate is the legitimate evidence of land use rights, and
takes effect upon the affixing of the seal by both the People's
Government at County or higher level and the land management office of
the PRC Government.
The registered land use rights shall be protected by law, and no unit
or individual shall infringe upon these rights.
2. This Certificate shall not in any way be amended without permission.
Such unauthorised amendments shall render this Certificate void.
3. This Certificate shall be taken care of properly; where it becomes lost
or damaged, application for re-issue must be submitted immediately.
4. Land Users shall comply with the land management laws of the PRC, shall
utilise the land in accordance with the approved land use, and shall
protect the whole of the registered area of land.
5. Alterations to the ownership of land or the right to use land shall be
registered in accordance with the legal procedures.
6. Upon enquiries from any level of the People's Government or the land
management office for the understanding of problems with the land, the
Land User shall take the initiative to produce this Certificate.
PRODUCED BY THE LAND MANAGEMENT OFFICE,
PEOPLE'S REPUBLIC OF CHINA
<PAGE> 1
EXHIBIT 10.2(a)
SINO-FOREIGN CO-OPERATION CONTRACT
ZINDART (XINXING) TOYS (GUANGDONG) COMPANY LIMITED
CHAPTER I GENERAL PRINCIPLE
Guangzhou Xinjiao Huangbu Economic Development Company and Zindart (Xinxing)
Toys (Guangzhou) Company Limited hereby agree to enter into this Contract to
establish a co-operative enterprise in Guangzhou, Guangdong Province, PRC, in
accordance with the Law of the PRC on Sino-Foreign Co-operative Enterprise and
other relevant laws and regulations of China, and based on the principles of
equality and mutual benefit, and through friendly negotiations.
CHAPTER II THE PARTIES
Article 1 The parties to this contract are:
PARTY A:
GUANGZHOU XINJIAO HUANGBU ECONOMIC DEVELOPMENT COMPANY, an enterprise duly
incorporated in accordance with the laws of the PRC and registered with the
State Administration for Industry and Commerce, Haizhu District Branch,
Guangdong Province, PRC.
Registered Address: Huangbu Village, Xinjiao Town, Haizhu District,
Guangdong Province, PRC
Legal Representative: Gao Jing-fei, Manager, Chinese Nationality
PARTY B:
ZINDART (XINXING) TOYS (GUANGZHOU) COMPANY LIMITED ("PARTY B"), a company duly
incorporated in accordance with the laws of Hong Kong and registered with the
Hong Kong Business Registry.
Registered Address: Flats C & D, 25th Floor, Taiping Industrial Centre, 57
Ting Kok Road, Tai Po, N.T., Hong Kong.
Legal Representative: Wu Hailin, President, Australian Nationality
CHAPTER III ESTABLISHMENT OF CO-OPERATIVE ENTERPRISE
Article 2 Based on the Law of the PRC on Sino-Foreign Co-operative
Enterprise and other relevant laws and regulations of China,
the parties agree to establish Zindart (Xinxing) Toys
(Guangzhou) Company Limited ("the Company").
<PAGE> 2
Article 3 Name of Company: Zindart (Xinxing) Toys (Guangzhou)
Company Limited
Registered Address: 51, Xingang Road East, Guangzhou,
Guangdong, PRC
Article 4 All activities of the Company must be in compliance with the
laws, rules and regulations of the PRC.
Article 5 The Company shall be independently audited, self-balancing with
its debt liabilities limited to its assets. Each party's
liability for the Company's debts shall be determined in
accordance with its individual Conditions of Co-operation.
CHAPTER IV PURPOSE, SCOPE AND SCALE OF OPERATION
Article 6 Purpose: Strengthening economic co-operation and
technological exchange utilising advanced and
practical technology and scientific management
methods; producing high-quality goods and
developing new products; to be internationally
competitive in both pricing and quality; and
attaining for each party to this Contract
satisfactory economic benefits.
Article 7 Scope: Production, processing and sales of alloy and
plastic toys.
Article 8 Scale: Production of goods amounting to HK$50-60
million per year.
CHAPTER V TOTAL INVESTMENT AND REGISTERED CAPITAL
Article 9 Total Investment Capital HK$14 million
Article 10 Total Registered Capital HK$14 million
Article 11 Conditions of Co-operation:
Party A: Provision of land, factory premises, part of
the equipment, and water and electricity
supply facilities
Party B: Provision of equipment and working capital
worth HK$14 million in total, and be
responsible for the Company's technique
management.
Article 12 The parties shall contribute the registered capital into the
Company, and shall provide the Conditions of Co-operation,
within 6 months after the date of issuance of the business
license,
Article 13 Where one party to this Contract transfers all or part of its
Conditions of Co-operation to a third party, consent must be
obtained from the other party to this Contract, and shall be
approved by the original examining and approving authorities.
The other party shall also have a right of first refusal of
these Conditions of Co-operation.
<PAGE> 3
CHAPTER VI OBLIGATIONS OF PARTIES
Article 14 Unless otherwise provided in this Contract, the parties shall
perform the following obligations. All expenses incurred which
are necessary for completion of these obligations shall be borne
by the Company.
Party A's Obligations
1. To apply for approval and registration, and to obtain
the business license, from the relevant administrative
departments of the PRC Government for the purpose of
establishing the Company;
2. To assist the Company in the purchasing or leasing
within PRC of equipment, raw materials, fuel, office
supplies, motor vehicles, facilities for
telecommunication, etc.;
3. To assist the Company in connecting workable
infrastructures for supply of water, electricity and
traffic;
4. To assist the Company in employing operational
management personnel, technicians, labourers and other
necessary staff;
5. To assist foreign national staff members in applying for
entry visas, working permits and travelling formalities;
and
6. To handle other matters assigned by the Company.
Party B's Obligations
1. To transport all mechanical equipment and materials,
being its contribution into the Company, into a port in
Guangdong Province;
2. To purchase all mechanical equipment and materials
outside PRC at the Company's request;
3. To supply the necessary technicians for the purpose of
installation of equipment, test-runs and
test-productions, and also supply skilled personnel in
production and inspection;
4. To train the Company's skilled personnel and labourers;
5. The foreign party which is responsible for technological
exchange shall also ensure that the Company shall
constantly produce goods which meet the contractual
requirements within the stipulated time;
6. To handle other matters assigned by the Company.
<PAGE> 4
CHAPTER VII PRODUCT SALES
Article 15 The products of the Company shall be sold in the following
manner:-
Sales abroad: 70%; Domestic sales: 30%
Article 16 The Company may directly sell the products abroad.
Article 17 Domestic sales of the Company's products may be done through the
PRC Commodities or Commercial Departments by way of underwriting
or agency, or may be sold directly by the Company.
Article 18 The Company may, on obtaining approval from the relevant PRC
Government department, establish product service outlets within
or outside China, for the purpose of providing after sales
product services.
CHAPTER VIII BOARD OF DIRECTORS
Article 19 The Board of Directors of the Company shall be established as at
the date of registration of the Company.
Article 20 The Board of Directors shall have 9 members - 3 from Party A, 6
from Party B. The Chairman shall be appointed by Party B; the
Vice Chairman by Party A. The Chairman shall serve the Board for
4 years, and may be extended by the appointing parties.
Article 21 The Board of Directors is the highest authority within the
Company, and shall decide on all important matters. Resolutions
on all significant issues shall be decided on a unanimous vote;
resolutions on all other matters shall be passed by a majority
vote of two-thirds of the directors present.
The following is a list of matters which require unanimous
voting:-
1. Deciding on and approving important reports raised by the
general manager (e.g. development planning, annual
operational reports, funds, borrowing, etc.);
2. Approving financial statements, budgets and profit sharing
policies;
3. Amending the Company's important policies and regulations;
4. Deciding on establishing outlets;
5. Amending the Articles of Association of the Company;
6. Reviewing decision to cease business of or terminate the
Company, or to merge with or acquire other business
entities;
7. Deciding on the employment of the general manager, assistant
general manager, chief engineer, chief accountant, auditor,
etc.
<PAGE> 5
8. Deciding on matters in relation to the Company's winding up
at the end of the Term of Co-operation.
Article 22 The Chairman of the Board of Directors shall be the legal
representative of the Company. Where for whatever reason the
Chairman could not carry out his obligations, he may authorise
the Vice Chairman or other Directors to be the representative
for the time being.
Article 23 At least one meeting of the Board of Directors shall be held
annually, and the Chairman shall call and convene the meeting.
Upon request by at least one-third of the total number of
Directors, a provisional meeting of the Board of Directors may
be held. Minutes shall be filed accordingly.
CHAPTER IX BUSINESS MANAGEMENT OFFICE
Article 24 The Company shall establish a management office to be
responsible for its daily management work. The management office
shall have one general manager and 2 assistant general managers,
all of whom shall be employed by the Board of Directors with a
tenure of 2 years.
Article 25 The general manager shall be responsible for carrying out the
resolutions of the Board of Directors, and organising and
overseeing the day to day business management of the Company.
The assistant general managers shall assist the general manager
in carrying out these duties.
The business management department may appoint various
department heads to be in charge of each department's work, to
carry out the tasks assigned by the general manager and to be
responsible thereto.
Article 26 If either the general manager or the assistant general manager
shall be guilty of corruption or serious misconduct, the Board
of Directors may by resolution remove him at any time.
CHAPTER X PURCHASE OF RAW MATERIALS AND EQUIPMENT
Article 27 Preference shall be given to purchasing of all raw materials,
accessories, transportation vehicles and office supplies in the
PRC if similar terms are offered by both the PRC and
international markets.
Article 28 Where the Company appoints Party B to purchase equipment from
non-PRC markets, Party A's personnel shall be invited to
participate therein.
CHAPTER XI LABOUR MANAGEMENT
Article 29 The policies on recruitment, dismissal, wages, labour insurance,
welfare, discipline, etc. of the Company's staff shall be
determined by the Board of Directors having regard to the
Regulations of the PRC on Labour Management in Sino-Foreign
Joint Equity Enterprises and its Implementing Measures, and the
Company shall enter into labour contracts with the trade union
organisation in collectively or individually.
<PAGE> 6
On signing of the labour contracts, they shall be submitted to
the original examining and approving authorities for filing.
Article 30 The Board of Directors shall by resolution set the standards of
wages, social insurance, welfare, travelling allowances etc.,
and decide on the employment of management personnel.
CHAPTER XII TAXATION, FINANCE, ACCOUNTING
Article 31 The Company shall pay taxes in accordance with the PRC laws and
regulations.
Article 32 All foreign staff members of the Company shall pay individual
income tax in accordance with the Individual Income Tax Law of
the PRC, and all staff members of PRC nationality shall pay
individual income adjustment tax in accordance with the
Provisional Rules of the PRC on Individual Income Adjustment
Tax.
Article 33 The Company's financial accounting system shall be set out in
compliance with Accounting Law of the PRC and Law of the PRC on
Accounting Systems of Sino-Foreign Joint Venture Enterprises
having regard to the specific requirements of the enterprise
aggregate, and shall be submitted to the Finance Department of
Guangzhou City for filing.
Article 34 The Company may, in accordance with the provisions of the Law of
the PRC on Sino-Foreign Joint Venture Enterprises, withhold
funds for the reserve foundation, enterprise development
foundation and employee benefits and awards foundation. The
proportion as to how much to withhold every year shall be
determined by the Board of Directors depending on the status of
the business operations.
Article 35 The fiscal year of the JV Enterprise shall coincide with the
calendar year, i.e. from 1 January to 31 December on the
Gregorian calendar. All vouchers, account books, statements and
financial statements shall be written in Chinese.
Article 36 The Company shall appoint PRC-registered accountants to carry
out audits to the Company's accounts, and shall submit the
result of such audit to the Board of Directors and general
manager.
Where one party to the Contract wishes to appoint other
accountants to audit the Company's accounts for the year, the
other party shall give consent thereto, and the expenses for
such audit shall be borne by the party requesting the
appointment.
Article 37 During the first month of each fiscal year, the general manager
shall prepare the balance sheet, profit and loss statement and
profit sharing report of the previous fiscal year, and submit
the same to the Board of Directors for approval.
<PAGE> 7
CHAPTER XIII FOREIGN EXCHANGE CONTROL
ARTICLE 38 All matters of the Company concerning foreign exchange shall
be handled in accordance with the Provisional Regulations
Governing Foreign Exchange of the PRC and the pertaining
regulations.
ARTICLE 39 The Company shall open separate USD and RMB banking accounts.
ARTICLE 40 All foreign currency receipts of the Company shall be deposited
with the Bank of China or other banks designated by the State
General Administration of Exchange Control. All foreign
currency outgoings shall be paid out of the Company's foreign
currency savings account. The Company shall resolve its own
balance of foreign exchange income and expenditure.
ARTICLE 41 The foreign currency component of wages and other legitimate
income of foreign, Hong Kong and Macau staff members of the
Company, after payment of individual income tax, may be remitted
abroad in accordance with the law. Party B's foreign currency
profits may also be remitted abroad in accordance with the law
after payment of profits tax.
CHAPTER XIV PROFIT SHARING
ARTICLE 42 Profit sharing shall be in the following proportions:
Party A: 20%; Party B: 80%
CHAPTER XV TERM OF CO-OPERATION
ARTICLE 43 Term = 15 years, commencing on the date of issuance of the
Company's business licence.
On request by one of the parties and by unanimous resolution
of the Board of Directors, an application may be submitted to
the original examining and approving authorities, at least 6
months before the expiry of the Term, for extension of the Term.
CHAPTER XVI ASSET MANAGEMENT AT EXPIRY OF TERM
ARTICLE 44 At the expiry of the Term, the Company shall be liquidated in
accordance with the laws. All surplus assets at the end of the
liquidation process shall be distributed according to the
Conditions of Co-operation.
CHAPTER XVII INSURANCE
ARTICLE 45 The various types of insurances of the Company shall be taken
out with insurance companies in PRC. The insurance amount and
period of insurance shall be determined by the Company based
on the requirements of the PRC insurance companies.
<PAGE> 8
CHAPTER XVIII AMENDMENT, ALTERATION AND TERMINATION
ARTICLE 46 Amendments to this Contract shall be effected by written
agreement between both parties, and shall be approved by the
original examining and approving authorities before they become
legally effective.
ARTICLE 47 Where, due to situations beyond both parties' control, the
provisions of this Contract may not be carried out, or where
the Company may no longer carry on its business due to
continuing losses, the Company may, by unanimous resolution by
the Board of Directors and approved by the original examining
and approving authorities, terminate this Contract before expiry
of the Term.
ARTICLE 48 Where one party fails to perform or seriously breaches any of
the provisions of this Contract or the Articles of Association,
affecting the Company in such a way that it may no longer be
operated or meet its purpose of operation, the other party shall
not only have the right to demand compensation from the
defaulting party, but also to apply to the original examining
and approving authorities for termination of this Contract.
Where both parties agree to continue with this Contract, the
defaulting party shall compensate the Company for all economic
losses suffered.
CHAPTER XIX LIABILITY
ARTICLE 49 Where one party fails to contribute the capital and provide
co-operation in accordance with the provisions of Chapter V
herein, it shall, as of the first month of such failure, pay to
the other party 3% of its total capital contribution for each
month of continuing failure. Where such failure continues for 3
months, then not only shall the defaulting party pay a total of
9% of its total capital contribution to the other party, but the
other party shall, in accordance with Article 48 herein, have
the right to terminate this Contract and demand compensation
from the defaulting party.
ARTICLE 50 Where, due to one party's breach, this Contract and its
supplements may not be performed or fully performed, the
defaulting party shall bear all responsibilities of such breach.
Where both parties are in breach, then each party shall,
depending on the circumstances of the case, bear its own
responsibilities in relation to the breach.
ARTICLE 51 To ensure the performance of this Contract and its supplements,
both parties shall provide bank guarantees for performance of
this Contract.
<PAGE> 9
CHAPTER XX FORCE MAJEURE
Article 52 In the event of fire etc. or other unforeseen circumstances
directly affecting the performance of this Contract by either
party, the party so affected shall forthwith by telex notify the
other party of such events, and shall within 15 days produce
supporting documents (issued by the notary public office in the
district in which such events occurred) in relation to such
events. Depending on the extent to which this Contract is
affected by such events, both parties shall decide on whether or
not to continue with the whole or part of this Contract, or an
extension to the time of performance thereof. At the end of such
events, the affected party shall forthwith continue to perform
the remainder of this Contract.
CHAPTER XXI APPLICABLE LAW
Article 53 The formation, force, interpretation and performance of, and
resolution of disputes under, this Contract shall be governed
by the law of the PRC.
CHAPTER XXII DISPUTE RESOLUTION
Article 54 Where any dispute arises during, and in relation to, the
performance of this Contract, both parties shall enter into
negotiations in order to resolve the dispute. If the dispute is
not resolved by means of negotiations, it shall be submitted to
the CIETAC for arbitration and resolution, whose decision shall
be final and binding on the parties.
Article 55 During the process of arbitration, the parties shall continue
to perform the parts of this Contract which are not in dispute.
CHAPTER XXIII LANGUAGE
Article 56 This Contract shall be written in the Chinese language.
CHAPTER XXIV CONTRACT AND MISCELLANEOUS
Article 57 All supplemental documents formed in accordance with the
provisions of this Contract shall form part of this Contract.
Article 58 This Contract and its supplements shall come into force as from
the date of their approval by the original examining and
approving authorities.
Article 59 Where notices involving the rights and obligations of each
party are sent to the other party by telex or by facsimile,
notices in writing regarding the same shall forthwith be served
at the parties' respective registered addresses provided herein.
Article 60 This Contract is signed by the parties' respective authorised
representatives in Guangzhou, PRC, on 26 December 1993.
Chop of Party A affixed Chop of Party B affixed
<PAGE> 1
Exhibit 10.2(b)
SINO-FOREIGN CO-OPERATION
ZINDART (XINXING) TOYS (GUANGZHOU)
COMPANY LIMITED
SUPPLEMENTAL CONTRACT
Party A: Guangzhou Xinjiao Huangbu Economic Development
Company Xinxing Toys Factory
Party B: Zindart Industrial Company Limited
By a Co-operation Contract dated 26 December 1993 signed and sealed by both
Party A and Party B ("the Co-op. Contract"), Zindart (Xinxing) Toys (Guangzhou)
Company Limited ("the Co-op. Company") was established. Owing to the fact that
Party A is unfamiliar with the international toys market, together with its lack
of experience in the operation and management of toys, the directors of both
parties negotiated with each other based on the principles of equality, mutual
benefit and mutual trust. Following Party B's request, Party A shall transfer
all the operation rights and business management of the Co-op. Company to Party
B, in accordance with the terms below:
1. Party B's Management Period
1-1-1997 to 31-12-1997 (However, the Renewal Contract dated January
1995 has been expired, therefore this Contract prevails)
2. Party A's Responsibilities
(i) Assist Party B in liaising with the various departments of this
district, including water supply, electricity supply, public
order, fire services, safety, health, environmental protection,
etc.;
(ii) Assist Party B in the management of the factory's
administration and technical support work;
(iii) Assist Party B in the proper resolution of any labour disputes
amongst the temporary labour;
(iv) Co-ordinate public relations and procedures for import/export
customs declarations;
(v) Assist Party B in employing labour and managing staff in
accordance with PRC's governmental policies.
3. Party B's Responsibilities
To be fully responsible for the Co-op. Company's production, operation,
management and safety facilities.
<PAGE> 2
4. Regarding Clause 42 of the Co-op. Contract in relation to the sharing
of profits, both Parties agree as follows:
(i) Party B guarantees that Party A will annually receive a sum
representing depreciation charges and fixed profits, and for
1997 such sum shall be HK$2.1 million. Party B shall pay such
sum at the end of each quarter in equal monthly instalments,
failing which Party B shall pay to Party A an additional 5% of
such sum representing late charges.
(ii) Party B shall be entitled to all the profits of the Co-op.
Company, and Party A shall have no right to share in any of
those profits save for the depreciation charges and fixed
profits as outlined in (i) above.
5. Given that Party A will not assign its directors to the direct
management of the Co-op. Company, Party B agrees that during its
Management Period, it shall pay to Party A the sum of RMBY200,000,
payable during the last quarter of the year.
6. At the end of the Management Period, all of the assets originally
contributed by Party A, including land, factory premises, part of the
facilities such as 2 sets of 280kW electricity generators, 46 paint
spray cabinets, 3 wind pumps, 3 water pumps, and 1 set of electric
current alternator (250kN), shall be returned to Party A; Party B shall
be responsible for repairing, or compensating Party A, any damage or
shortage, whichever is the case, in relation to these assets.
7. During the Management Period, Party B may construct new factory premises
and resident quarters, or make extensions to the existing factory
premises and resident quarters, where the production development so
requires. At the end of the Management Period where Party B does not
renew the lease to the factory premises and resident quarters, the new
or extended factory premises and resident quarters, whichever is the
case, shall be transferred to Party A without compensation.
8. Party B shall be responsible for payment of all relevant taxes and
charges in relation to the production operations.
9. Party B shall be fully responsible for fire prevention and occupational
safety measures, in accordance with the requirements of the labour and
fire service authorities in the district.
10. The existing members of staff employed by the PRC party to Xinxing Toys
Factory shall, in principle, be retained, and their wages and welfare
shall be determined in accordance with the original policies. Where any
individual employee does not match a job description, Party B shall have
the right to dismiss such employee, but such dismissal shall only take
place after negotiations between both parties, and consent being given
by Party A; the relevant employees shall be referred to Party A to be
dealt with accordingly.
11. Party B is self-owned and self-operated, and shall be responsible for
its own profits and losses.
<PAGE> 3
12. All activities in relation to production operation shall be in compliance
with the relevant laws and regulations of he PRC; Party B shall be held
responsible for any liability incurred and loss suffered as a result of any
breach of these PRC laws and regulations at any stage of the internal or
external production activities.
13. Both parties agree that the term of this Contract shall be one year. If
during this period there are any important changes to PRC governmental
policies, rendering the contents of this Contract inconsistent therewith,
both parties shall accordingly make the necessary adjustments or amendments
to this Contract in the spirit of friendly consultation.
14. At the end of the term of this Contract, any renewal of this Contract shall
be separately negotiated between the parties.
15. If Party B terminates this Contract before the end of the term, Party B
shall pay to Party A the fixed profits for one full year, together with the
management fees of 200,000, before Party B may so terminate this Contract.
Signed by Party A's Representative Signed by Party B's Representative
Chop of Guangzhou Xinjiao Huangbu Chop of Zindart Industrial Co. Ltd.
Economic Development Company
Date: November 1996 (Renewal of Contract)
<PAGE> 1
Exhibit 10.3
CONTRACT
Party A: Guangzhou Tianhe Dongpu Economic Development General
Company
Address: 1 Da Ma Lu, Dongpu, Tianhe, Guangzhou, PRC
Telephone: 230 6496
Legal Representative: Mr Liang Xingquan, Manager
Party B: Zindart Industrial Company Limited
Address: Flats C & D, 25th Floor, Block 1, Taiping Industrial
Centre, 57 Ting Kok Road, Tai Po, N.T., Hong Kong
Telephone: 2665 6992
Legal Representative: Mr. Fok Xiaorong, Managing Director
In order to strengthen management of production and product quality, and to
increase the economic outcome of the Enterprise, Party A and Party B hereby
enter into this agreement in relation to Dongpu Zhongxin Toys Factory's
contracting-out management, the terms of which are as follows:
ARTICLE 1 NAME, NATURE AND ADDRESS
Name of the subject Enterprise: Guangzhou Dongpu Zhongxin Toys Factory ("the
Factory")
Economic Nature of Enterprise: "Further processing" town-collective-owned
enterprise
Address of factory premises: 7 Dongpu Da Ma Lu, Dongpu, Tianhe, Guangzhou,
PRC
ARTICLE 2 OBLIGATIONS OF PARTIES
Party A:
1. To provide the Factory's premises, together with its accompanying
buildings and open space, for production of toys by Party B. The total
area of land of this sector is 8,000 square metres (of which 6,335
square metres are occupied by the old factory premises, and 1,665 square
metres by the new factory premises). 4 of these buildings have shelving
structures, 3 with simple steel structured workshops and with power
room, canteen, duty room, power plant etc. having a total area of 14,700
square metres (of which 8,040 square metres belong to the old factory
premises, 6,660 square metres belong to the new factory premises, and
3,482 square metres being roadways and open space);
2. To provide the 4-inch water supply system and fire safety system, and
the whole set of existing 960kVA electricity loading and supply
facilities;
3. To provide the existing facilities and machinery, currently owned by
Party A, for Party B's use, and be responsible for the costs of
maintenance and repairs of the same during the Period of Contract (see
Attachment 1);
<PAGE> 2
4. Be responsible for appointing the factory manager, assistant factory
manager, accounts clerk, remittance clerk and customs declaration clerk
to assist Party B in the management of the Factory;
5. To assist Party B in recruitment of labour and matters concerning public
order;
6. To assist Party B in matters involving the use of water and electricity,
environmental protection, public health and prevention of diseases.
Party B:
1. To be responsible for the Factory's work regarding further processing,
production, operational management, skills management, quality
inspection, training of workers, etc.;
2. To be responsible for the Factory's equipment and their repair and
maintenance;
3. To pay for all the outgoings in relation to production, and also the
wages and bonuses of all staff;
4. To pay for all governmental taxes and charges incurred during the
production operation;
5. To pay the Contract Sums to Party A according to the stipulated time and
amount;
6. To pay for all fees in relation to staff's labour insurance, welfare,
allowances etc. in accordance with the law.
ARTICLE 3 PERIOD OF CONTRACTING-OUT MANAGEMENT
Period of Contract = from 1 January 1997 to 31 December 1999.
ARTICLE 4 CONTRACT SUMS
Party B shall, during the Period of Contract, annually pay Party A the
following Contract Sums:
Year 1 (1997): Total sum = RMBY2,182,110, comprised of RMB
Y1,048,110 from the old plastic toys factory, and RMB
Y1,134,000 from the alloy toys factory.
Year 2 (1998): Total sum = RMBY2,291,215, comprised of RMB
Y1,100,515 from the old plastic toys factory, and RMB
Y1,190,700 from the alloy toys factory.
Year 3 (1999): Total sum = RMBY2,405,776, comprised of RMB
Y1,155,540 from the old plastic toys factory, and RMB
Y1,250,236 from the alloy toys factory.
<PAGE> 3
The Contract Sums include management fees, welfare planning fees, depreciation
charges and profits. During the Period of Contract, Party A shall pay income
tax on the Contract Sums. Where Party A obtains a reduction or exemption of
income tax, any amount received in respect of such reduction or exemption shall
belong to Party A; where such reduction or exemption pertains to business tax,
50% of any amount received in respect thereof shall belong to Party A, and the
remaining 50% shall be used to update the Factory's development reserve fund.
ARTICLE 5 METHOD OF PAYMENT
1. Payment of the Contract Sums by Party B to Party A shall comply with the
regulations of the relevant State General Administration of Exchange
Control (SAEC) of the PRC, and shall be paid to the Factory; Party A
shall issue a receipt and collect the payment at the Factory.
2. Party B shall pay the Contract Sums during the Period of Contract in two
instalments, the first of which, being 50% of each Contract Sum, shall
be payable on 31 May of each year, the second of which, being the
remainder thereof, shall be payable on 30 November of each year. Where
Party B without the consent of Party A fails to pay any Contract Sum on
the due date, Party A shall receive from Party B an additional 0.1% of
that Contract Sum per day of delay.
3. Any foreign exchange bonus awarded to the Factory by the relevant SAEC,
together with any retained foreign currency amounts, shall belong to
Party A. Party A shall pay any tax on such bonus.
ARTICLE 6 FIXED ASSETS
Title to the factory premises, its accompanying buildings, water and electricity
supply, equipment, etc. provided by Party A shall remain with Party A, and
ownership of the production facilities and living commodities provided by Party
B without compensation shall remain with Party B.
ARTICLE 7 RECEIVABLES AND DEBTS
Prior to the contracting-out management, both parties shall finalise their
finance matters. Any receivables or debts accrued prior to the contracting-out
management shall be handled by Party A (See Attachment 2). During the Period of
Contract, all receivables and debts of the Factory shall be handled by Party B.
ARTICLE 8 FINANCIAL INSURANCE
As from the commencement of the Period of Contract, Party B shall take out
insurance policies and pay insurance premium on the Factory and its equipment
and facilities.
<PAGE> 4
ARTICLE 9 RECRUITMENT AND DISMISSAL OF STAFF
During the Period of Contract, Party B shall recruit and dismiss staff in
accordance with the relevant laws and regulations of the PRC. Also, before the
dismissal of regular staff of the town-collective-owned enterprise, consent
from Party A shall be obtained. Equally, where Party A re-allocates the regular
staff of town-collective-owned enterprise, consent from Party A shall be
obtained.
ARTICLE 10 LIABILITY FOR BREACH
1. As from the effective date of this Contract, both parties shall be bound
by the same. If any party shall breach this Contract, it shall
compensate non-breaching party for any economic losses suffered as a
result of the breach; if the breach shall continue, the non-breaching
party may have the right to unilaterally terminate this Contract.
2. During the production operation activities, Party B shall comply with
the relevant policies, decrees and regulations of the PRC, and shall not
operate in breach of this Contract. Where Party B's acts in breach of
this Contract, causing losses in operation or incurring legal liability,
Party shall be solely responsible; where the outcome is serious, Party A
shall have the right to terminate the performance of this Contract.
ARTICLE 11 TERMINATION
1. If Party B needs to extend this Contract at the end of the Period of
Contract, it shall within 6 months before the end of the Period of
Contract negotiate with Party A. Once agreed by Party A, this Contract
may be extended, and the Contract Sums shall be separately negotiated.
Where this Contract is not extended, it shall terminate accordingly.
2. Both parties may agree to terminate this Contract before its expiry.
3. At the expiry / termination of this Contract, the factory premises,
water and electricity supply facilities, and Party B's internal
renovations and new constructions shall be returned to Party A in good
condition. All production facilities, production and living commodities,
and working capital net of all debts shall be returned to Party B.
ARTICLE 12 ARBITRATION
During the Period of Contract, where a dispute arises between the parties, they
shall enter into negotiations to resolve the matter. Where the dispute could
not be resolved by negotiations, it may be handed over to arbitration in a
court of law in the district in which the Factory is situated.
<PAGE> 5
ARTICLE 13 OTHER MATTERS
1. During the Period of Contract, where Party B needs to repair or alter
the building structures or equipment within the Factory, or to carry out
civil engineering or construction works, it shall be consented to by
Party A. Party B shall be responsible for the costs thereof.
2. During the Period of Contract, if the State shall resume the land or if
matters beyond the parties' control occur, which causes the Factory to
be unable to continue production, both parties may, upon negotiations,
terminate this Contract before its expiry.
3. During the Period of Contract, where one party is genuinely in
difficulties and requires early termination of this Contract, consent
shall be obtained from the other party 6 months before the expiry of the
Period of Contract and, upon obtaining such consent, may carry out the
procedures for termination of this Contract.
4. Upon signing of this Contract, Party B shall not without permission
alter the scope of operations of the Factory, or sub-contract other
third party units to carry out the contracting-out management work.
5. Should there be any matters which have not been addressed in this
Contract, both parties may, upon negotiations, resolve the same or
supplement it by way of Supplemental Contract. Such Supplemental
Contract shall form an integral part of this Contract.
ARTICLE 14 EFFECTIVENESS OF CONTRACT
This Contract is made up of 4 identical parts, and each party shall hold 2
parts. Upon signing of this Contract by both parties, the same shall come into
effect.
Chop of Guangzhou Tianhe Dongpu Economic Chop of Zindart Industrial
Development General Company affixed Company Limited affixed
Signed by Legal Representative: Signed by Legal Representative:
Date: 18 February 1996
Signed at Dongpu Town, Tianhe District, Guangzhou City, PRC.
<PAGE> 1
[BANK OF CHINA HONG KONG BRANCH LETTERHEAD]
EXHIBIT 10.4(a)
Ref: CD/CI/910250/LS/rk
May 27, 1991
Zindart Industrial Company Limited,
Flat C & D, 25/F, Block 1,
Tai Ping Industrial Centre,
57 Ting Kok Road,
Tai Po,
New Territories.
Attn: Ms. Domina Leung
Dear Sirs,
Re: General Banking Facilities
We are pleased to offer you General Banking Facilities ("the Facilities") on
the following terms and conditions.
1. Allocation of the Facilities
1.1 The Facilities are available by way of:-
(a) Overdraft Facility up to the extent of HKD1,000,000.00. Interest
will be charged at 2% per annum over our best lending rate or
cost of fund, whichever is the higher, currently 12.5% p.a.,
subject to fluctuation at our sole and absolute discretion;
(b) Letters of Credit Issuance and Inward Bills Facility up to the
extent of HKD3,000,000.00 (within which Trust Receipt Facility
for period up to 120 days and/or Shipping Guarantees Issuance
Facility up to the extent of HKD2,000,000.00 is available).
1.2 The abovementioned Facilities shall be deemed automatically drawn down
by you and/or advanced by us to you when payment is made by us under
the relevant Facilities.
1.3 Without prejudice to Clause 3, we reserve the right at any time to
re-allocate at our sole and absolute discretion the various banking
facilities.
-1-
<PAGE> 2
[BANK OF CHINA HONG KONG BRANCH LETTERHEAD]
2. Interest Rate and Calculation
2.1 Save and except expressly provided otherwise in this letter, all amounts
advanced/drawn under the Facilities shall be charged with interest at the
relevant usual standard rates (as well after as before judgment) as we
may from time to time at our sole and absolute discretion charge our
customers on similar advances.
2.2 Interest will accrue from day to day and be calculated on the basis of
the actual number of days elapsed and a 365 day year for Hong Kong Dollar
and Sterling Pound and a 360 day year for any other currency.
2.3 All accrued interest shall be paid in arrears on any appointed date
according to our customary practice and if not so paid shall be
capitalized as principal advance and bear interest at the same rate.
2.4 We reserve the right to collect default interest on any sum overdue and
not paid which will be charged at the rate of 4.25% p.a. over the best
lending rate as may be quoted by us from time to time (as well after as
before judgment) from the date of default to actual payment in full.
3. Expiry of the Facilities
The Facilities will be subject to review on a regular basis and shall
expire forthwith as and when we have given you notice of termination.
Whilst it is our present intention that the Facilities should remain
available to you until that date and notwithstanding any other provision
of this letter, we nevertheless reserve the right at our sole and
absolute discretion to increase, reduce and/or vary the Facilities or any
part or parts thereof at any time to be effective forthwith by notice to
you.
4. Repayment
4.1 All amounts borrowed under the Facilities (including interest accrued
thereon) are repayable on demand.
4.2 All payments made by you to us are to be made in the currency of the
Facilities in immediately available funds without set-off or
counter-claim and free and clear of and without withholding or deduction
for any and all present or future taxes, duties or other charges.
-2-
<PAGE> 3
[Bank of China, Hong Kong Branch Letterhead]
4.3 Any payment made to us not in its correct currency may at our absolute
discretion be converted into the currency of the relevant Facilities to
cover your obligations and liabilities in that currency at the then
prevailing spot rate of exchange as conclusively determined by us for
purchasing the currency of the relevant Facilities with the existing
currency.
5. Conclusive Statement of Account
Any statement of account relating to the Facilities signed as correct by
any one of our officers shall be conclusive evidence of your
indebtedness to us and be binding on you, save for manifest errors.
6. Conditions Precedent
The Facilities will be available for drawing when we have received the
following documents in form and content satisfactory to us:
(a) The signed copy of the duplicate of this letter together with board
resolutions indicating your acceptance of the Facilities on terms
and conditions set out in this letter;
(b) An Agreement of Pledge duly executed by your authorized officer(s);
(c) A Running Trust Receipt Agreement duly executed by your authorized
officer(s);
(d) A General Shipping Guarantee duly executed by your
authorized officers(s);
(e) A General Letter of Hypothecation and Power of Attorney duly
executed by your authorized officer(s);
(f) A deposit for HKD1,000,000.00 (interest to be accumulated) with
Bank of China, Hong Kong Branch in name of Zindart Industrial
Company Limited under lien to us.
-3-
<PAGE> 4
[BANK OF CHINA HONG KONG BRANCH LETTERHEAD]
7. Further Covenants
All necessary corporate resolutions required to be passed by you and on
the part of your shareholders, directors and officers to authorize this
letter and its execution and performance have been properly passed in
accordance with the laws of Hong Kong and your Memorandum and Articles
of Association and this letter constitutes legal, valid and binding
obligations on your part.
8. Waivers and rights cumulative
No delay or omission on the part of us in exercising any right, power,
privilege or remedy in respect of this letter shall impair such right,
power, privilege or remedy, or be construed as a waiver of it, nor shall
any single partial exercise of any such right, power, privilege or
remedy preclude any further exercise of it or the exercise of any other
right, power, privilege or remedy. The rights, powers, privileges and
remedies provided in this letter are cumulative and not exclusive of any
rights, powers, privileges or remedies provided by law.
9. Handling Charges
Handling charges of HKD5,000.00 flat shall be paid by you upon
acceptance of this letter.
10. Expense
All expenses including but not limited to legal fees, communications and
other out-of-pocket expenses are for your account.
11. Governing Law
The laws of Hong Kong.
Please signify your understanding and acceptance of this offer by signing and
returning the duplicate of this letter to us on or before June 27, 1991,
failing which this offer shall lapse.
-4-
<PAGE> 5
[LETTERHEAD]
Bank of China
Should you have any queries, please do feel free to contact our Ms. Lian Chin
at 8265545 at any time. We are here to serve you better.
Yours faithfully,
For Bank of China, Hong Kong Branch
/s/ [signature illegible]
- -------------------------------
Authorized Signature(s)
After due and careful consideration of the terms of
this letter, we agree to observe and be bound by all
the terms and conditions herein set out.
For and on behalf of
ZINDART INDUSTRIAL CO., LTD.
/s/ [signature illegible]
----------------------------
Date: June 13, 1991
[STAMP]
For and on behalf of
ZINDART INDUSTRIAL CO., LTD.
/s/ [signature illegible]
- ----------------------------
Director(s)
[STAMP]
[illegible]
<PAGE> 1
EXHIBIT 10.4(b)
[BANK OF CHINA HONG KONG BRANCH LETTERHEAD]
Ref: CD/CI/950597/L6/gt
October 26, 1995
Zindart Industrial Company Limited,
Flat C and D, 25th Floor, Block 1,
Tai Ping Industrial Centre,
57 Ting Kok Road,
Tai Po, New Territories.
Attn.: Ms. Domina Leung
Dear Sirs,
Re: General Banking Facilities
We are pleased to revise the existing General Banking Facilities ("the
Facilities") granted to you as per our letter dated May 27, 1991 under ref:
CD/CI/910250/L8/rk as follows:
1. Allocation of the Facilities
1.1 The Facilities are available by way of:-
(a) Overdraft Facility up to the extent of HKD3,000,000.00. Interest
will be charged at 2% per annum over our best lending rate or cost
of fund, whichever is the higher, currently 11% per annum, subject
to fluctuation at our sole and absolute discretion. Annual fee of
HKD2,083.00 flat shall be paid by you upon acceptance of this
letter and thereafter annually HKD7,500.00 flat upon renewal of
this Facility;
(b) Letters of Credit Issuance and Inward Bills Facility up to the
extent of HKD4,000,000.00 (within which Trust Receipt Facility for
period up to 120 days and/or Shipping Guarantees Issuance Facility
up to the extent of HKD4,000,000.00 is available).
6. Conditions Precedent
The Facilities will be available for drawing when we have received the
following documents in form and content satisfactory to us:-
(a) The signed copy of the duplicate of this letter together with
Board Resolutions indicating your acceptance of the Facilities on
terms and conditions set out in this letter;
(b) An Agreement of Pledge duly executed by your authorized officer(s);
<PAGE> 2
[LOGO]
BANK OF CHINA HONG KONG BRANCH
(c) A Running Trust Receipt Agreement duly executed by your authorized
officer(s);
(d) A General Shipping Guarantee duly executed by your authorized
officer(s);
(e) A General Letter of Hypothecation and Power of Attorney duly
executed by your authorized officer(s);
(f) Two deposits for HKD1,211,303.80 and DEM254,585.84 or the
equivalent amount of other currencies currently traded in Hong Kong
(interest to be accumulated) with Bank of China, Hong Kong Branch
in name of Zindart Industrial Company Limited under lien to us.
Save and except the above amendments, all other terms and conditions of the
said letter remain unchanged.
Please note that this letter supersedes our letter dated July 24, 1992 under
ref:CD/CI/920374/L6/rk.
Please signify your understanding and acceptance of this offer by signing and
returning the duplicate of this letter to us on or before November 26, 1995,
failing which this offer shall lapse.
Should you have any queries, please do feel free to contact our Ms. Sylvania
Fattedad at 28266544 at any time. We are here to serve you better.
Yours faithfully,
For Bank of China, Hong Kong Branch
[SIGNATURE]
Authorized Signature(s)
After due and careful consideration of the terms
of this letter, we agree to observe and be bound
by all the terms and conditions herein set out.
For and on behalf of
ZINDART INDUSTRIAL CO., LTD.
[SIGNATURE]
Authorized Signature(s)
Date:
Encl. (a) Form of Certified Extract of the Minutes of Board Resolutions.
(b) Form of General Letter of Hypothecation and Power of Attorney.
<PAGE> 1
EXHIBIT 10.5
[Standard [LOGO] Chartered]
[Letterhead]
Date: 24th December 1996
Our Ref: CBG/KLN/T&G1/BBG
CONFIDENTIAL
- ------------
Zindart Industrial Co. Ltd.
Flat C & D, 25/F
Block 1, Taiping Industrial Centre
No. 57 Ting Kok Road
Tai Po
New Territories
Attention: Ms. Domina W.K. Leung
Director of Finance
- --------------------------------------
Dear Sirs,
BANKING FACILITIES: ZINDART INDUSTRIAL CO. LTD.
We are pleased to confirm that the Bank is willing to make available to your
company (the "Company") the following working capital facilities up to the
amounts indicated.
1. CURRENT ACCOUNT OVERDRAFT - HKD5,000,000.-
Note:
- -----
This facility will only be available until 31st May 1997.
2. MONEYMARKET RATE BASED ADVANCES - HKD10,000,000.-
Advances may be drawn in multiples of HKD500,000.- for periods of 1, 2 or 3
months. Interest will be payable at the maturity of each advance. The
applicable rate of interest will be HIBOR plus 3.25% per annum. Every advance
shall be repaid on maturity and may be reborrowed. Prepayment is subject to
penalty.
Note:
- -----
Quarterly average utilisation below 80% will be subject to 0.25% commitment
fees on the full HIBOR Loan amount at the discretion of the Bank.
3. EXPORT FACILITIES - HKD40,000,000.-
Purchase of documentary bills on a "documents against acceptance" basis
unsecured by goods on approved drawees with usances of up to 90 days is
available up to a limit of HKD40,000,000.- Within this facility, purchase of
documentary bills on a "documents against payment" basis secured by goods on
approved drawees up to HKD40,000,000.-
Negotiation of discrepant documents, secured or unsecured by goods, with
recourse presented under export letters of credit issued by banks acceptable to
us up to a limit of HKD40,000,000.-.
<PAGE> 2
[Standard Chartered LOGO]
Page 2
Zindart Industrial Co. Ltd.
Condition:
Purchase of documentary bills on a "documents against acceptance" basis can be
used to finance 100% of export receivables for up to 45 days from invoice date
against presentation of (1) certified commercial invoices (2) copy of
non-negotiable transport documents/cargo receipt evidencing shipment in case of
local delivery to buyer or its forwarding agent. Payment from buyer is to be
credited into "charged current account" opened in name of the Company for
settlement of the corresponding export loan.
The Import Facilities mentioned below will be treated as sub-limits of the
Export Facilities, so that the combined outstandings are not to exceed the
amount of the Export Facilities.
4. IMPORT FACILITIES - HKD10,000,000.-
Sight and usance documentary letters of credit, secured by the underlying goods
and covering the procurement of working capital merchandise, with a
corresponding trust receipt loan facility. Within this facility sight and
usance documentary letters of credit not secured by the underlying goods, with
a corresponding import loan facility, are available up to a limit of
HKD10,000,000.-. The combined usance and loan period for any one transaction is
not to exceed 90 days. Prior evidence of insurance will be required for all
"free on board" and "cost and freight" shipments.
Offshore shipments permitted.
Shipping guarantees are also available under the trust receipt loan facility.
INTEREST, COMMISSIONS AND FEES
Unless otherwise specified, interest on all sums advanced will be payable
monthly in arrears at Prime plus 1.5% per annum. A default rate of Prime plus
8% per annum will apply to amounts not paid when due or in excess of agreed
facility amounts. "Prime" means the rate which we announce or apply from time
to time as our prime rate for lending Hong Kong Dollars and "HIBOR" means the
rate which we determine to be the Hong Kong Interbank Offered Rate for the
relevant period. Commissions will be charged at our standard rates unless
otherwise stipulated. Export bills will be discounted and import bills will be
financed at Prime plus 0.5% per annum. All past due bills shall bear interest
at 3% per annum above the rates charged on your regular bills outstandings.
Commission on opening letters of credit will be charged at 1/4% flat.
An arrangement fee of HKD50,000.- will be payable upon our receipt of your
acceptance of this letter. A handling fee in an amount to be mutually agreed
will be payable on each anniversary of the date of this letter if the
facilities are continuing. The fees will be debited to your current account.
You will reimburse the Bank for all legal fees and other expenses incurred in
arranging the above facilities.
<PAGE> 3
[LOGO]
[STANDARD = CHARTERED]
Zindart Industrial Co. Ltd. [Page 3]
AVAILABILITY AND REPAYMENT
The above facilities are subject to the Bank's periodic review, and it is
expressly agreed that they will at all times be available at the sole
discretion of the Bank. Notwithstanding any other provisions contained in this
letter or in any other document, the Bank will at all times have the right to
require immediate payment and/or cash collateralisation of all or part of any
sums actually or contingently owing to it.
DOCUMENTATION
Before the above facilities may be used, the enclosed copy of this letter must
be signed and returned to us together with a certified copy of appropriate
authorising board resolutions.
The following documentation are held/will also be required:
o General Customer Agreement executed by the Company.
o All monies charge over deposits held by the Company with the Bank in an
amount of not less than HKD2,500,000.- (10% extra margin required for
other foreign currency deposits.)
o Assignment over all receivable of the Company.
o A signed original copy of the Company's audited financial statements
within 9 months after its financial year end. A signed original copy of
the Company's quarterly management accounts within 30 days of quarter
end and monthly certified stock and debtor lists with aging analysis
within 30 days of month end. Such other information as the Bank may
request from time to time.
UNDERTAKINGS
The Company undertakes to the Bank that it will:
o Maintain its net worth at not less than HKD90,000,000.-
o Not mortgage, pledge or otherwise encumber any of its assets without the
prior written consent of the Bank.
o Maintain average 80% utilization of trade limits.
o Rank all banks pari-passu within 3 months subsequent to IPO.
o Restrict dividend payout ratio to a maximum of 50%.
<PAGE> 4
[LOGO]
[STANDARD CHARTERED]
Page 4
Zindart Industrial Co. Ltd.
o Immediately inform the Bank of any change of the Company's directors or
beneficial shareholders or amendment of its memorandum or articles of
association.
Please sign the enclosed copy of this letter and return it to the Bank's Credit
Operations at its Kowloon Main Office, 9th Floor, Miramar Tower, 1-23 Kimberley
Road, Tsimshatsui, Kowloon, for the attention of Ms. Rowena Ng, within one
month after the date of this letter, after which this offer will lapse. When
accepted, this letter will supersede any previous facility letter which the
Bank has issued to the Company. This letter will be governed by Hong Kong
law.
We enclose a set of documents which should also be completed and returned to
the Bank at the above mentioned address. If you have any queries regarding the
completion of the required documents, please contact Ms. Rowena Ng, whose
telephone number is 2378-6265. With regard to queries on banking arrangement,
you can contact your Senior Relationship Manager Mr. Christopher Chang, whose
telephone number is 2310-3828.
We are pleased to be of service to you and take this opportunity to thank you
for your custom.
Yours faithfully,
For and on behalf of STANDARD CHARTERED BANK
/s/ JOSEPHINE TO
- --------------------------------------------
Josephine To
Senior Credit Documentation Manager
JT/RN/bn
Encl.
Agreed.
For and on behalf of ZINDART INDUSTRIAL CO. LTD.
[SIG]
- --------------------------------------------
<PAGE> 1
Exhibit 10.6
[HongkongBank LETTERHEAD]
Ref: CORPORATE BANKING CENTRE ESD - TEAM C
CONFIDENTIAL
Zindart Industrial Co Ltd
Flat D 25/F Block 1
Tai Ping Industrial Centre
Lot No 1637 Ting Kok Road
Tai Po
New Territories
Attn: Madam Leung Wai King Domina 22 May 1996
Dear Madam
BANKING FACILITIES
A/C NO. 004-121141-001
With reference to our recent discussion, we are pleased to confirm our
agreement to revising the following banking facilities to your company. These
facilities are subject to review at any time and, in any event by 31 July 1996,
and also subject to our overriding right of withdrawal and repayment on demand,
including the right to call for cash cover on demand for prospective and
contingent liabilities.
New Previously
--- ----------
OVERDRAFT (A/C 004-121141-001) HKD20,000,000.-@ HKD5,000,000.-*
Interest on the overdraft facility
will continue to be charged on daily
balances at 0.75% over our best
lending rate, (currently 8.5% per
annum, but subject to fluctuation at
our discretion) and payable monthly
in arrears to the debit of your
current account.
@ Temporary limit until
30 November 1996
* Temporary limit until
31 May 1996
IMPORT/EXPORT FACILITIES HKD20,000,000.-# HKD20,000,000.-#
Documentary credits with import finance
up to 90 days (less any usance/credit
periods granted by your suppliers)
and/or D/P bills purchased on approved
drawees
<PAGE> 2
[LOGO]
CORPORATE BANKING CENTRE ESD - TEAM C
CONFIDENTIAL
Zindart Industrial Co Ltd 22 May 1996
-2-
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Previously
--- ----------
<S> <C> <C>
within which (HKD20,000,000.-#-) (HKD20,000,000.-#-)
- ------------
Goods under your control and/or
trust receipts and/or D/A bills
purchased up to 90 days on
approved drawees.
Interest on your HKD import loans
will be charged on a daily basis
at 1/2% over our best lending
rate (currently 8-1/2% per annum,
but subject to fluctuation at our
discretion) and payable monthly
in arrears to the debit of your
current account.
# Within Import/Export (Trust
Receipt/DA) line. HKD5,000,000.-
(HKD5,000,000.-) is switchable
to Overdraft facility.
- - A sub-limit of HKD5,000,000.- for
Clean Import Loan against valid
sales invoices and shipping/title
documents from regular unrelated
suppliers.
</TABLE>
<TABLE>
<CAPTION>
New SIBOR Lease Facility : USD equivalent of
- ------------------------ HKD5,000,000.-
<S> <C>
1. Lessee : Zindart Industrial Co Ltd
2. Location of Goods : China
3. Initial Rental : 50% of invoice value
4. Lease Period - Primary Period : 16 quarters
5. Lease Period - Secondary Period : 16 quarters (USD20.-per year, payable
annually in arrears)
6. Details of Goods : Various machines
7. Drawdown : Drawdown will be supported by invoices
with minimum amount of USD equivalent
to HKD1,000,000.-
</TABLE>
<PAGE> 3
[LOGO]
CORPORATE BANKING CENTRE ESD - TEAM C
CONFIDENTIAL
Zindart Industrial Co Ltd 22 May 1996
- 3 -
- -------------------------------------------------------------------------------
7. Rental-Primary period: Interest will be charged at 1-1/2%
over 3 months' Singapore Interbank
Offer Rate (SIBOR) payable in full on
maturity of each drawing to the debit
of your account with us.
8. Condition Precedent: The Lease will come into effect upon
receipt by us of:-
(a) a SIBOR Lease Agreement as
referred to below duly executed
on behalf of the Lessee; and
(b) the documents and evidence
referred to in the Appendix to
this letter, in form and content
satisfactory to us.
The leasing facility will be made available to you on our standard Terms and
Conditions as set out in the SIBOR Lease Agreement.
The terms and conditions of this offer are based on the current laws and
regulations. In the event of any material change in any law or regulation which
takes place between the date of the offer and the drawdown under the relevant
SIBOR Lease Agreement and which may affect this facility, the Bank reserves the
right to renegotiate the said terms and conditions.
Separate letter(s) will be issued to you upon receipt of the original
invoice(s) per drawdown.
Accrual of Interest and Other Sums
Please note that interest and other sums expressed to be chargeable or payable
on a periodic basis will nonetheless accrue from day to day and amounts so
accrued may be demanded at any time.
<PAGE> 4
[LOGO]
CORPORATE BANKING CENTRE ESD - TEAM C
CONFIDENTIAL
Zindart Industrial Co Ltd 22 May 1996
- 4 -
- -------------------------------------------------------------------------------
All other facilities, terms and conditions remain unchanged as previously
stated on our facility letters dated 21 August 1995 and 27 November 1995.
Please note that amendment fee of HKD15,000.- will be charged to the debit of
your current account upon receipt of your acceptance to these facilities.
Please arrange for the authorized signatories of your company, in accordance
with the terms of the mandate given to the bank, to sign and return to us the
duplicate copy of this letter to signify your continued understanding and
acceptance of the terms and conditions under which these facilities are granted.
These facilities will remain open for acceptance until the close of business on
12 June 1996 and if not accepted by that date will be deemed to have lapsed.
We look forward to be of continued assistance.
Yours faithfully
Carol K Y L Lui
Senior Corporate Relationship Manager
KM/rk
Enc
<PAGE> 5
[LOGO]
THE APPENDIX
CONDITION PRECEDENT DOCUMENTS
(1) Original Invoices bearing the following certification:-
"The goods are supplied to Zindart Industrial Co Ltd in their capacity
as agent for The Hongkong and Shanghai Banking Corporation Limited."
(2) Original signed delivery receipts acknowledging receipt of the Goods in
good condition (a copy of our standard form delivery receipt is
attached).
(3) Original insurance policies as required by the SIBOR Lease Agreement and
the premium receipts.
(4) A certified copy of a Board Resolution authorizing your company to enter
into the SIBOR Lease Agreement and naming two authorized signatories.
(5) Original receipt of initial rental.
FOR SALE AND LEASEBACK ARRANGEMENT
(6) A certified copy of a Board Resolution authorizing your company to enter
into the SIBOR Lease Agreement(s) and Sale & Purchase Agreement(s) and
naming two authorized signatories.
(7) A Sale & Purchase Agreement as per sample attached.
(8) "Disclaimer Letters" to Commissioner of Inland Revenue.
(9) Original receipts.
<PAGE> 1
EXHIBIT 10.7
AGREEMENT REGARDING FUTURE SHARE DISTRIBUTIONS
THIS AGREEMENT REGARDING FUTURE SHARE DISTRIBUTIONS (the "Agreement")
is made and entered into as of this ____ day of January, 1997, by and among VAN
KASPER & COMPANY ("VK"), ZINDART PTE LIMITED (the "Shareholder") and ZINDART
LIMITED ("Zindart").
RECITALS
A. The Shareholder owns 100 percent of the outstanding capital stock of
Zindart, consisting of 5,000,000 Ordinary Shares.
B. Zindart has filed a registration statement on Form F-1
(the "Registration Statement") with the Securities and Exchange Commission
relating to the proposed public offering of 1,400,000 American Depositary Shares
("ADSs"), representing 1,400,000 ordinary Shares of Zindart.
C. The ADSs will be evidenced by American Depositary Receipts ("ADRs"),
and Zindart has applied for inclusion of the ADSs on the Nasdaq National Market
(the "National Market").
D. VK is the representative of the underwriters in the proposed public
offering.
E. The parties desire to agree on the procedures to be followed for
future issuances of Ordinary Shares by Zindart and transfers of the outstanding
Ordinary Shares by the Shareholder, in order to provide a broad and active
trading market for ADSs.
<PAGE> 2
THE PARTIES AGREE AS FOLLOWS:
1. Lock Up.
In consideration of VK's agreement to purchase the ADSs and to
conduct the offering contemplated by the Registration Statement (the
"Offering"), the Shareholder agrees, for a period of 180 days following the
closing of the Offering (the "Lock-Up Period") not to directly or indirectly
sell, enter into a contract to sell, offer to sell, loan, pledge, assign,
distribute or otherwise transfer or dispose of (each a "Transfer") any Ordinary
Shares, ADSs or other securities of the Company evidencing, exchangeable or
exercisable for or convertible into Ordinary Shares (the "Securities") which the
undersigned now owns or hereafter acquires without the written consent of the
Company and VK. The Shareholder further agrees not to engage in any
hedging or other transaction which is designed, or is reasonably expected, to
lead to a Transfer of the Securities during the Lock-Up Period, even if the
Securities would be disposed of by someone other than the undersigned. Such
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any put or call option with
respect to the Securities.
2. Future Issuance of Ordinary Shares.
Subject to the terms and conditions of this Agreement and as an
inducement to VK to proceed with the Offering, Zindart hereby agrees that any
public distribution of its Securities during the term of this Agreement shall be
accomplished by means of an offering in the United States of ADSs representing
Ordinary Shares, and that Zindart shall take all steps necessary to have such
ADSs included on the
-2-
<PAGE> 3
National Market. Notwithstanding the foregoing, Zindart may conduct a public
distribution outside the United States if VK and Zindart mutually agree that an
offering in the United States cannot be accomplished on commercially reasonable
terms. Zindart and VK shall seek to reach agreement on whether or not an
offering in the United States can be so accomplished within 30 days of Zindart
notifying VK in writing that it desires to undertake an offering of Securities
and of the proposed terms thereof.
3. Future Transfers by the Shareholder.
Subject to the terms and conditions of this Agreement and as
an inducement to VK to proceed with the proposed public offering, the
Shareholder hereby agrees that any Transfers of Securities of Zindart
beneficially owned by the Shareholder shall, during the term of this Agreement,
be made only as follows:
(a) in a private transaction not involving any public offering in which
each transferee agrees in writing for the benefit of VK that such transferee's
future Transfers of such Securities shall be subject to this Agreement; or
(b) in a registered public distribution provided such distribution is
made in the United States by means of an offering of ADSs; or
(c) by means of the sale of ADSs into the US market pursuant to Rule
144.
4. Further Assurances.
The parties agree to take any and all actions reasonably
necessary and appropriate to carry out the intent of this Agreement. The
Shareholder and Zindart agree to legend all
-3-
<PAGE> 4
certificates representing Securities with an appropriate legend referencing this
Agreement and to take all other actions (including without limitation issuing
stop transfer instructions) necessary and appropriate to cause any transferees
of the Shareholder who receive Securities from the Shareholder pursuant to
Section 3(a) to be bound by the terms of this Agreement.
5. Term.
This Agreement shall be effective from and after the
effectiveness of the Registration Statement and shall terminate on the second
anniversary of such date.
6. Miscellaneous.
6.1. Governing Law. This Agreement shall be governed by the
laws of the State of California applicable to contracts between California
residents and wholly to be performed in California.
6.2 Consent to Jurisdiction. The Shareholder and Zindart each
hereby agree that any action brought with respect to this Agreement can be
brought in the United States District Court for the Northern District of
California, and Shareholder and Zindart each hereby consent to the jurisdiction
of such court.
6.3 Notices. All notices and other communications which are
given pursuant to this Agreement shall be in writing and shall be sent by
express mail or other overnight delivery service or transmitted by facsimile
addressed as follows:
If to VK: Van Kasper & Company
Facsimile (310)_________
If to the Shareholder: Zindart Pte Limited
-4-
<PAGE> 5
Facsimile____________
If to Zindart: Zindart Limited
Facsimile____________
6.4 Specific Performance. The Shareholder and Zindart
acknowledge that VK will have no adequate remedy at law in the event of a breach
of this Agreement and could suffer substantial and irreparable damages.
Accordingly, the Shareholder and Zindart agree that VK shall be entitled,
without the necessity of proving damages or posting bond, to obtain injunctive
relief in the event of a breach of this Agreement.
6.5 Entire Agreement. This Agreement represents the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior and contemporaneous discussions, correspondence, understandings and
agreements among the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
VAN KASPER & COMPANY ZINDART PTE LIMITED
By:_________________________ By:_________________________
Its_________________________ Its_________________________
ZINDART LIMITED
By:_________________________
Its_________________________
-5-
<PAGE> 1
Exhibit 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.
The Company has two other subsidaries, neither of which owns any
material assets or presently conducts operations: Onchart Industrial Limited, a
Hong Kong Company of which the Company owns 55%, and Wealthy Holdings Limited,
a British Virgin Islands company wholly owned by the Company.
<PAGE> 1
Exhibit 23.1
[ARTHUR ANDERSEN & CO. LETTERHEAD]
January 31, 1997
The Directors
Zindart Limited
Flat C & D, 25/F.
Tai Ping Industrial Centre - Block 1
57 Ting Kok Road
Tai Po
New Territories
Hong Kong
Dear Sirs,
As independent public accountants, we hereby consent to the use of our reports,
and to all references to our Firm included in or made a part of the
Registration Statement on Form F-1 (No. 333-17973).
Very truly yours,
/s/ ARTHUR ANDERSEN & CO.
<PAGE> 1
Exhibit 23.5
January 30, 1997
The Directors
Zindart Limited
Flat C & D, 25/F
57 Ting Kok Road
Tai Po, New Territories
Hong Kong
To the Board of Directors:
I, James E. Gilleran, will serve as a director on the Board of
Directors of Zindart Limited, a company incorporated under the laws of Hong
Kong (the "Company"), effective as of the closing of the offering of the
Company's American Depositary Shares, as set forth in the registration
statement on Form F-1 (Registration No. 333-17973) and the form of prospectus
contained therein (the "Prospectus").
I hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to me under the heading
"Management" in the Prospectus.
Yours sincerely,
James E. Gilleran
/s/ James E. Gilleran
<PAGE> 1
Exhibit 23.6
January 30, 1997
The Directors
Zindart Limited
Flat C & D, 25/F
57 Ting Kok Road
Tai Po, New Territories
Hong Kong
To the Board of Directors:
I, Leo Paul Koulos, will serve as a director on the Board of Directors of
Zindart Limited, a company incorporated under the laws of Hong Kong (the
"Company"), effective as of the closing of the offering of the Company's
American Depositary Shares, as set forth in the registration statement on Form
F-1 (Registration No. 333-17973) and the form of prospectus contained therein
(the "Prospectus").
I hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to me under the heading
"Management" in the Prospectus.
Yours sincerely,
/s/ Leo Paul Koulos
- --------------------------
Leo Paul Koulos
<PAGE> 1
Exhibit 23.7
January 30, 1997
The Directors
Zindart Limited
Flat C & D, 25/F
57 Ting Kok Road
Tai Po, New Territories
Hong Kong
To the Board of Directors:
I, Stanley Wang, will serve as a director on the Board of Directors of
Zindart Limited, a company incorporated under the laws of Hong Kong (the
"Company"), effective as of the closing of the offering of the Company's
American Depositary Shares, as set forth in the registration statement on Form
F-1 (Registration No. 333-17973) and the form of prospectus contained therein
(the "Prospectus").
I hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to me under the heading
"Management" in the Prospectus.
Yours sincerely,
/s/ Stanley Wang
- --------------------------
Stanley Wang
