<PAGE> 1
United States Securities & Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _______________
Commission file number 000-22161
Zindart Limited
(A Hong Kong Corporation)
I.R.S. Employer Identification #: Not Applicable
Flat C&D, 25/F Block 1
Tai Ping Industrial Centre
57 Ting Kok Road, Tai Po
N.T., Hong Kong
011-852-2665-6992
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of common stock outstanding as of July 15, 1998
was 8,813,625 (including the assumed issuance of 666,667 shares of common stock
reserved for future issuance pursuant to the acquisition of Hua Yang Holdings
Co., Ltd.).
Page 1 of 11
Exhibit Index Page 11
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION 9
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE PAGE 10
EXHIBIT INDEX 11
</TABLE>
<PAGE> 3
REPORTS TO SHAREHOLDERS
The Company is publishing this report on Form 10-Q in order to
provide additional information to the Company's shareholders. However, the
Company, as a foreign private issuer, is not required to publish these reports
on these forms and may discontinue doing so at any time without prior notice.
Moreover, as a foreign private issuer, the Company is and will remain exempt
from Section 14(a), 14(b), 14(c) and 14(f) of the Securities Exchange Act of
1934 (the "Exchange Act"), and the Company's officers, directors and principal
shareholders are and will remain exempt from the reporting and "short-swing"
profit recovery provisions contained in Section 16 of the Exchange Act, until
such time as the Company ceases to be a foreign private issuer.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated statements of operations for the first
quarter ended June 30, 1997 were prepared on both a restated basis and pro forma
basis as described in Notes (1) and (2) below. The Company believes that the pro
forma data may better present the Company's historical performance because it
gives retroactive effect to, among other things, the interest expense and
amortization of goodwill resulting from the acquisition referred to in Notes (1)
and (2) below. However, neither the pro forma data nor the restated data are
necessarily indicative of the results that would have been achieved had the
acquisition been effected on the dates indicated. The audited consolidated
balance sheet as of March 31, 1998, the unaudited consolidated statement of
operations for the first quarter ended June 30, 1998, the unaudited consolidated
balance sheet as of June 30, 1998 and the unaudited consolidated statements of
cash flows for the first quarter ended June 30, 1998 were prepared on an actual
basis.
Consolidated Statement of Operations
(Unaudited)
(in thousands of United States dollars, except per share amounts)
<TABLE>
<CAPTION>
(Pro forma) (1) (Restated) (2)
Three Months Three Months Three Months
Ended June 30, Ended June 30, Ended June 30,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 29,367 $ 25,966 $ 25,966
Cost of sales (20,227) (18,013) (18,013)
-------- -------- --------
Gross profit 9,140 7,953 7,953
Selling, general and administrative expenses (5,002) (4,366) (4,290)
Other income (expense), net (135) (995) 180
Amortization of goodwill (150) (154) (2)
-------- -------- --------
Income before income taxes 3,853 2,438 3,841
Provision for income taxes (314) (351) (351)
-------- -------- --------
Income before minority interests 3,539 2,087 3,490
Minority interests (453) (59) (830)
-------- -------- --------
Net income $ 3,086 $ 2,028 $ 2,660
======== ======== ========
Basic earnings per share $ 0.35 $ 0.28 $ 0.38
======== ======== ========
Weighted average number of shares outstanding - Basic 8,772 7,369 6,983
======== ======== ========
Diluted earnings per share $ 0.35 $ 0.27 $ 0.38
======== ======== ========
Weighted average number of shares outstanding - Diluted 8,839 7,379 6,992
======== ======== ========
</TABLE>
<PAGE> 4
(1) Pro Forma Basis. The pro forma data give effect to the acquisition of
Hua Yang Holdings Co., Ltd. ("Hua Yang") as if it had occurred on April
1, 1997 for the three months ended June 30, 1997. The pro forma
financial data set forth above reflect pro forma adjustments that are
based upon available information and certain assumptions that the
Company believes are reasonable. Further details regarding the pro
forma basis are contained in the Company's Registration Statement on
Form F-1, as amended (Registration Number 333-1834) (the "Registration
Statement"). Pro forma adjustments are comprised primarily of (i) an
increase in interest expense arising from borrowings to finance the
acquisition and the reduction of interest income due to utilization of
cash for the payment of part of the consideration of the acquisition of
Hua Yang and the redemption by Hua Yang of certain of its outstanding
preferred stock prior to the acquisition; (ii) an increase in goodwill
amortization resulting from the acquisition; (iii) a reversal of the
minority interests in the results of Hua Yang relating to shareholdings
in Hua Yang not held under common control; and (iv) amortization of
underwriting and management fees with respect to the borrowings to
finance the acquisition.
(2) Restated Basis. The restated financial information is presented after
inclusion of the operating results of Hua Yang to give retroactive
effect to the acquisition of Hua Yang as a reorganization of companies
under common control, similar to a pooling of interests, for all
periods presented. Under such presentation, net income is reduced
through the minority interests for the portion of shareholdings in Hua
Yang not held under common control. Further details regarding the
restated basis are contained in the Registration Statement.
Consolidated Balance Sheets
(in thousands of United States dollars)
<TABLE>
<CAPTION>
As of June 30, As of March 31,
1998 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and bank deposits $ 9,981 $ 22,373
Accounts receivable, net 30,813 24,700
Deposits and prepayments 1,856 1,897
Inventories, net 11,221 13,950
--------- ---------
Total current assets 53,871 62,920
Property, machinery, equipment, net 29,825 29,177
Construction-in-progress -- 403
Long-term investment 179 179
Goodwill, net 11,811 11,963
Deferred expenditures 1,091 1,185
--------- ---------
Total assets $ 96,777 $ 105,827
========= =========
Liabilities, minority interests and shareholders' equity
Current liabilities:
Accounts payable $ 6,423 $ 6,362
Receipts in advance 2,304 3,278
Accrued liabilities 12,226 12,670
Taxation payable 445 364
--------- ---------
Total current liabilities 21,398 22,674
Revolving credit facility 14,000 30,000
Deferred taxation 910 910
--------- ---------
Total liabilities 36,308 53,584
--------- ---------
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
As of June 30, As of March 31,
1998 1998
--------- ---------
(Unaudited)
<S> <C> <C>
Minority interests 1,866 1,416
--------- ---------
Shareholders' equity:
Common stock 526 500
Common stock reserved and to be issued 43 43
Additional paid-in capital 38,401 33,593
Reorganization adjustment (8,180) (8,180)
Retained earnings 27,943 24,857
Cumulative translation adjustments (130) 14
--------- ---------
Total shareholders' equity 58,603 50,827
--------- ---------
Total liabilities, minority interests and shareholders' equity $ 96,777 $ 105,827
========= =========
</TABLE>
Consolidated Statements of Cash Flows
(in thousands of United States dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income 3,086 2,660
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill 150 2
Depreciation of property, machinery and equipment 1,021 1,032
Minority interests 450 862
Amortization of deferred expenditures 94 --
(Increase) Decrease in operating assets:
Accounts receivable, net (6,113) (2,596)
Bills receivable -- (466)
Due from related companies -- 166
Deposits and prepayments 41 (1,110)
Inventories, net 2,729 (1,566)
Increase (Decrease) in operating liabilities:
Accounts payable 61 1,608
Receipts in advance (974) 382
Accrued liabilities (444) 2,593
Taxation payable 81 220
------- -------
Net cash provided by operating activities 182 3,787
------- -------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Investing Activities:
Acquisition of property, machinery and equipment (1,264) (992)
Additions of construction-in-progress -- (2,738)
Effect of reorganization adjustment -- 24
------- -------
Net cash used in investing activities (1,264) (3,706)
------- -------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock 4,834 1,942
Repayment of short-term bank loans -- (2,108)
Repayment of long-term bank loans -- (305)
Repayment of revolving credit facility (16,000) --
Repayment of capital element of capital lease obligations -- (305)
-------- --------
Net cash used in financing activities (11,166) (776)
-------- --------
Effect of cumulative translation adjustments (144) --
-------- --------
Net decrease in cash and bank deposits (12,392) (695)
Cash and bank deposits, as of the beginning of the period 22,373 21,286
-------- --------
Cash and bank deposits, as of the end of the period 9,981 20,591
======== ========
</TABLE>
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relates to the statement of operations data of
the Company for the three months ended June 30, 1998 and for the same period
during the prior year. The consolidated statement of operations for the three
months ended June 30, 1998 discussed below were prepared on an actual basis and
the consolidated statement of operations for the three months ended June 30,
1997 discussed below were prepared on a pro forma basis. The pro forma data give
effect to the acquisition of Hua Yang for the three months ended June 30, 1997
as if it had occurred on April 1, 1997. The pro forma financial data reflect pro
forma adjustments that are based upon available information and certain
assumptions that the Company believes are reasonable. Further details regarding
the pro forma basis are contained in the Registration Statement. The Company
believes that the pro forma data may better present the Company's historical
performance than the restated data set forth in "Item 1 - Financial Statements"
above because they give retroactive effect to, among other things, the interest
expense and amortization of goodwill resulting from the acquisition of Hua Yang.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. These statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated. These risks and uncertainties include, but
are not limited to, the Company's dependence on major customers and on parties
located in the People's Republic of China, changes in market demand for the
Company's products, economic factors that include the international financial
situation in Asia, the Company's reliance on key personnel and those other
factors discussed in the section titled "Risk Factors" and elsewhere in the
Company's Form 10-K, as amended, for the fiscal year ended March 31, 1998, as
well as those discussed elsewhere in this Form 10-Q. The Company undertakes no
obligation to revise these forward-looking statements to reflect subsequent
events or circumstances.
Results of Operations
The table below sets forth certain statement of operations data as a
percentage of net sales for the three months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1998 1997
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 31.1% 30.6%
Selling, general and administrative
expenses 17.0% 16.8%
Operating income 14.1% 13.8%
Other expense, net 0.5% 3.8%
Amortization of goodwill 0.5% 0.6%
Income before income taxes 13.1% 9.4%
Provision for income taxes 1.1% 1.4%
Minority interests 1.5% 0.2%
Net income 10.5% 7.8%
</TABLE>
Net sales. Net sales for the three months ended June 30, 1998 were
$29.4 million, an increase of $3.4 million, or 13.1%, from the same period in
1997. The increase primarily was due to the increase in sales of die-cast
collectibles to Mattel.
<PAGE> 8
Gross Profit. Gross profit was $9.1 million for the three months ended
June 30, 1998, an increase of $1.2 million, or 14.9%, from the same period in
1997. Gross margin was 31.1% for the three months ended June 30, 1998 as
compared to 30.6% for the same period in 1997. This margin growth was resulted
from improved cost control and reduced subcontracting activities during the
three months ended June 30, 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $5.0 million for the three months ended June 30,
1998, an increase of $0.6 million, or 14.6%, from the same period in 1997. This
increase resulted from additional selling expenses and personnel costs
associated with supporting the growth of the Company's business.
Other income (expenses), net. Other expenses were $0.1 million for the
three months ended June 30, 1998, a decrease of $0.9 million, or 86.4%, from the
same period in 1997. This decrease resulted from (1) lower interest expense due
to loan repayments during the three months ended June 30, 1998 and (2) $504,000
transaction costs associated with the acquisition of Hua Yang expensed during
the three months ended June 30, 1997.
Net income. As a result of the factors discussed above, net income was
$3.1 million for the three months ended June 30, 1998, an increase of $1.1
million, or 52.2%, from the same period in 1997.
Liquidity and Capital Resources
During the three months ended June 30, 1998, Zindart financed its
operations through cash from operations. Cash and cash equivalents and total
indebtedness were $10.0 million and $14.0 million, respectively, at June 30,
1998. Cash generated from operating activities was $182,000 for the three months
ended June 30, 1998. Cash used by investing activities was $1.3 million,
primarily as a result of (1) increased capital expenditure for Phase III of the
Company's Dongguan facility and (2) acquisition of property, machinery and
equipment.
During the three months ended June 30, 1998, Zindart repaid $16.0
million of its revolving credit facility from Credit Suisse First Boston. As of
June 30, 1998, the outstanding amount for such indebtedness was $14.0 million.
The Company repaid approximately $6.0 million of such indebtedness in August
1998 and currently has approximately $22.0 million available for borrowing under
this credit facility.
Zindart has revolving lines of credit with two banks: Standard
Chartered Bank and The Hong Kong and Shanghai Corporation Limited. As of June
30, 1998, the Company had banking facilities with these banks of up to $16.9
million. In May 1998, Zindart renegotiated these banking facilities. As a
result, these banks have released all loan covenants, mortgages over properties
and pledges on inventory and accounts receivable.
Consistent with industry practices, 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 loans. The Company's accounts receivable
balance at June 30, 1998 was $30.8 million.
The Company's capital expenditures for the three months ended June 30,
1998 were $1.3 million. Phase III of Dongguan facility is now under construction
and expected to be completed in December 1998.
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 (the PRC's currency) 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.
Year 2000 Compliance
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, those programs could cause date-related
transaction failures.
Such Year 2000 problems may affect the Company's production,
distribution, financial, administrative and communication operations. The
Company has established an internal committee to evaluate any Year 2000 problems
that may affect the Company's business. In addition, the Company's internal
information systems experts are examining Year 2000 readiness from pertinent
aspects of the Company's business, including customer order-taking,
manufacturing, raw materials supply and plant process equipment. Outside
companies such as vendors, major customers, service suppliers, communications
providers and banks are being asked to verify their Year 2000 readiness and
testing such systems where appropriate.
External and internal costs specifically associated with modifying
internal-use software for Year 2000 compliance are expensed as incurred. To this
point, those costs have not been material. Such costs would not include normal
system upgrades and replacements. Based on our current plans and efforts to
date, management expects that there will be no material adverse effect on the
Company's operations as a result of Year 2000 issues. The Company cannot
guarantee, however, that all problems will be foreseen and corrected, or that
material disruption of the Company's business will not occur.
<PAGE> 9
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Shareholders who hold at least five percent of the total number of the
Company's outstanding Ordinary Shares, or a group of at least 100 shareholders
who hold such Ordinary Shares on which there has been paid an average of at
least HK$2,000 per shareholder, may submit a proposal to be presented at the
Company's 1999 Annual General Meeting of Shareholders. Such proposals must be
deposited at the Company's registered office at least six weeks prior to the
Company's 1999 Annual General Meeting of Shareholders, which the Company
anticipates will take place in September 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
10.1 Consultancy Agreement between Alexander Ngan and Wealthy
Holdings Limited (a subsidiary of the Company) dated as of
August 10, 1998.
10.2 Employment Agreement between the Company and Alexander Ngan
dated as of August 10, 1998.
27.1 Financial Data Schedule
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZINDART LIMITED
/s/Feather Fok
------------------------------------
Dated: August 14, 1998 By: Feather Fok
Chief Financial Officer and
Chief Operating Officer
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
10.1 Consultancy Agreement between Alexander Ngan and Wealthy Holdings
Limited (a subsidiary of the Company) dated as of August 10, 1998.
10.2 Employment Agreement between the Company and Alexander Ngan dated as of
August 10, 1998.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
WEALTHY HOLDINGS LIMITED
CONSULTANCY AGREEMENT
FOR
ALEXANDER M.K. NGAN
Wealthy Holdings Limited, a corporation organized under the laws of the
British Virgin Islands (the "Company") agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 The Company will engage you and you shall serve as a
consultant to the Company and shall provide business advice to the Company
relating to the Company's business affairs in China (excluding Hong Kong) and
the United States of America ("USA"). You shall perform such services in China
and in the USA. You shall not perform such services in Hong Kong.
1.2 You will, to the best of your ability, devote your best
efforts to the performance of your services hereunder and the business and
affairs of the Company. You agree to perform such consulting duties as may be
assigned to you by the Company's Board of Directors from time to time. You will
be assigned such facilities and support staff necessary for you to perform the
consulting duties. 1.3 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business.
2. TERM OF CONSULTANCY; TERMINATION.
2.1 The effective date of this Agreement is May 8, 1998
("Effective Date").
2.2 Unless otherwise mutually agreed in writing, this
Agreement and your engagement by the Company pursuant to this Agreement shall be
terminated on the earliest of:
(a) your death, or any illness, disability or other
incapacity in such a manner that you are physically rendered unable regularly to
perform your duties hereunder for a period in excess of one hundred twenty (120)
consecutive days or more than one hundred eighty (180) days in any consecutive
twelve (12) month period;
(b) the date that is three (3) months after written
notice of termination of this Agreement from the Company to you or you to the
Company; or
(c) three (3) years from the date hereof.
1.
<PAGE> 2
2.3 The determination regarding whether you are physically
unable regularly to perform your duties under (a) above shall be made by the
Board of Directors. Your inability to be physically present on the Company's
premises shall not constitute a presumption that you are unable to perform such
duties.
2.4 Any notice required to be given pursuant to this Section 2
shall be given in accordance with the provisions of Section 9 hereof. The
exercise of either party's right to terminate this Agreement pursuant to
subsection (b) above shall not abrogate the rights and remedies of the
terminating party regarding the breach, if any, giving rise to such termination.
2.5 Your consultancy may be immediately terminated by the
Company in the sole discretion of the Company's Board of Directors, if it
determines that you have been convicted of any felony or of any crime involving
moral turpitude or dishonesty, or have participated in any fraud against the
Company, or have breached your duties to the Company, or have wrongfully
disclosed any trade secrets or other confidential information of the Company, or
have breached this Agreement.
2.6 If your consultancy is terminated by the Company in
accordance with this Agreement, you will have no right to work during the period
of notice provided hereunder (although the Company will have power to require
you to do so) provided that the Company provides you pay in lieu of such notice.
3. COMPENSATION:
3.1 For each year of your engagement under this Agreement,
during each of the first eleven months you shall receive a consulting fee of
Seventeen Thousand Five Hundred U.S. Dollars (U.S. $17,500) and for the twelfth
month you shall receive a fee which is double this amount, or Thirty-Five
Thousand U.S. Dollars (U.S. $35,000), subject to increase as determined in the
sole discretion of the Company's Board of Directors, and payable in installments
in accordance with Company policy. The fee to be paid you for the first eleven
months of each year shall be referred to herein as the "Basic Monthly Fee."
3.2 You shall be entitled to time off during the term of this
Agreement consistent with the Company's standard practice for its consultants.
3.3 In the event your consultancy is terminated due to a
"Change in Control" of the Company (defined below), in exchange for a general
release of all claims against the Company and all persons and entities
affiliated with it (the form of which must be satisfactory to the Company), the
Company will pay you an additional fee as follows:
(a) The Company will pay you the Basic Monthly Fee
applicable as of the date of the termination for a period of thirteen (13)
months following any such termination.
(b) For purposes of this Agreement, a "Change of
Control" shall mean (a) a merger or consolidation of the Company with, or any
sale of all or substantially
2.
<PAGE> 3
all of the assets of the Company to, any other person, corporation or entity,
unless as a result of such merger, consolidation or sale of assets the holders
of the Company's voting securities prior thereto hold at least fifty percent
(50%) of the total voting power represented by the voting securities of the
surviving or successor corporation after such transaction; or (b) any event or
series of events at the conclusion of which the stockholders of the Company
shall cease to beneficially own at least fifty percent (50%) of the outstanding
equity interest in the Company.
4. OTHER ACTIVITIES.
4.1 During the consultancy period, you will not acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by you to be adverse or antagonistic to the Company or its
associated group companies (the "Group"), its business or prospects, financial
or otherwise.
4.2 During the term of your consultancy with the Company and
for a period of two (2) years following termination of your consultancy with the
Company, you will not, either directly or through others, solicit or attempt to
solicit any employee of the Group, or any independent contractor who performs
forty (40) or more hours per month of services for the Group, to terminate his
or her relationship with the Group in order to become an employee, consultant or
independent contractor to or for any other person or entity.
5. REPRESENTATIONS.
5.1 You represent and warrant that your engagement as a
consultant by the Company will not conflict with and will not be constrained by
any prior employment or consulting agreement or relationship. You represent and
warrant that you do not possess confidential information arising out of any
prior engagement which, in your best judgment, would be utilized in connection
with your engagement by the Company, except in accordance with agreements
between your former employer and the Company.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any former employer might
be usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers (except in accordance with
agreements between the Company and any such former employer); but during your
engagement as a consultant by the Company you will use in the performance of
your duties all information which is generally known and used by persons with
training and experience comparable to your own and all information which is
common knowledge in the industry or otherwise legally in the public domain.
6. GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement will
be governed by and construed according to the laws of the British Virgin
Islands. You hereby expressly consent to the non-exclusive jurisdiction of the
British Virgin Islands
3.
<PAGE> 4
courts for any lawsuit filed there against you by the Company arising from or
related to this Agreement.
7. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Company or by you.
8. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If, moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
9. NOTICES. Any notice which the Company is required or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at the address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any such notice
shall be deemed to be the date of delivery thereof.
10. WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
11. COMPLETE AGREEMENT; AMENDMENTS. The foregoing is the entire
agreement of the parties with respect to the subject matter hereof and may not
be amended, supplemented, canceled or discharged except by written instrument
executed by both parties hereto.
12. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
13. ATTORNEY FEES. If either party hereto brings any action to enforce
its rights hereunder, the prevailing party in any such action shall be entitled
to recover his or its reasonable attorneys' fees and costs incurred in
connection with such action.
4.
<PAGE> 5
WEALTHY HOLDINGS LIMITED
By: /s/ Feather Fok
--------------------------------
Date: August 10,1998
-------------------------------
Accepted and agreed this
10th day of August, 1998.
/s/ ALEXANDER M.K. NGAN
- ----------------------------
ALEXANDER M.K. NGAN
5.
<PAGE> 1
EXHIBIT 10.2
ZINDART LIMITED
EMPLOYMENT AGREEMENT
FOR
ALEXANDER M.K. NGAN
Zindart Limited, a corporation organized under the laws of Hong Kong
(the "Company") agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 The Company will employ you and you shall serve in an
executive capacity as President and Chief Executive Officer ("CEO") of the
company and perform the duties customarily associated with such capacity from
time to time and at such place or places as the Company shall reasonably
designate or as shall be reasonably appropriate and necessary in connection with
such employment.
1.2 Subject to Section 4 below, you will, to the best of your
ability, devote your full time and best efforts to the performance of your
duties hereunder and the business and affairs of the Company and its
subsidiaries (the "Group"). You agree to continue your service as a director of
the Company and to perform such executive duties as may be assigned to you by
the Company's Board of Directors from time to time. You will be assigned such
facilities and support staff as are customarily associated with the position of
President and CEO. You will report to the Company's Board of Directors, and
employees of the Company will report to you.
1.3 You will duly, punctually and faithfully perform and
observe any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business, except to the extent
that such rules and regulations may be inconsistent with your executive
position.
2. TERM OF EMPLOYMENT; TERMINATION.
2.1 The effective date of this Agreement is May 8, 1998
("Effective Date").
2.2 Unless otherwise mutually agreed in writing, this
Agreement and your employment by the Company pursuant to this Agreement shall be
terminated on the earliest of:
(a) your death, or any illness, disability or other
incapacity in such a manner that you are physically rendered unable regularly to
perform your duties hereunder for a period in excess of one hundred twenty (120)
consecutive days or more than one hundred eighty (180) days in any consecutive
twelve (12) month period;
1.
<PAGE> 2
(b) three (3) months after you, for any reason, give
written notice to the Company of your termination;
(c) three (3) months after the Company, with or
without cause, gives written notice to you of your termination; or
(d) three (3) years from the date hereof.
2.3 The determination regarding whether you are physically
unable regularly to perform your duties under (a) above shall be made by the
Board of Directors. Your inability to be physically present on the Company's
premises shall not constitute a presumption that you are unable to perform such
duties.
2.4 Any notice required to be given pursuant to this Section 2
shall be given in accordance with the provisions of Section 12 hereof. The
exercise of either party's right to terminate this Agreement pursuant to
subsections (b) or (c) above shall not abrogate the rights and remedies of the
terminating party regarding the breach, if any, giving rise to such termination.
2.5 Your employment may be immediately terminated for cause
if, in the reasonable determination of the Company's Board of Directors, you are
convicted of any felony or of any crime involving moral turpitude or dishonesty,
or have participated in any fraud against the Group, or have breached your
duties to the Group, or have wrongfully disclosed any trade secrets or other
confidential information of the Group, or have breached this Agreement or the
Employee Proprietary Information And Inventions Agreement between you and the
Company (the "Proprietary Information Agreement").
2.6 If your employment is terminated by the Company in
accordance with this Agreement, you will have no right to work during the period
of notice provided hereunder (although the Company will have the power to
require you to do so) provided that the Company provides you pay in lieu of such
notice. On the termination of your employment, howsoever arising, you shall at
the request of the Company immediately resign from the position of Director of
the Company and all offices held by you in any company in the Group.
3. COMPENSATION:
3.1 For each year of your employment under this Agreement,
during each of the first eleven months you shall receive the basic monthly
salary of Seventeen Thousand Five Hundred U.S. Dollars (U.S. $17,500) and for
the twelfth month you shall receive a monthly salary which is double this
amount, or Thirty Five Thousand U.S. Dollars (U.S. $35,000), subject to increase
as determined in the sole discretion of the Company's Board of Directors in
accordance with Company policy. The salary to be paid you for the first eleven
months of each year shall be referred to herein as the "Basic Monthly Salary."
You shall also be eligible for discretionary benefits of the Company under
bonus, pension, group insurance, long-term disability, life insurance,
profit-sharing or other Company benefit plans which may be in force from time to
time and provided to the Company's employees generally.
2.
<PAGE> 3
3.2 On the Effective Date, the Company will grant you an
incentive stock option in the amount of four hundred thousand (400,000) shares
of the Company's common stock (the "Option"), with an exercise price equal to
the fair market value of the shares on the grant date. One hundred thousand
(100,000) shares under the Option will immediately vest and become exercisable
on the Effective Date in recognition of your prior services to the Company as a
Director and advisor and one forty-eighth (1/48) of the remaining shares under
the Option will vest and become exercisable at the end of each month thereafter
until all shares of the Option are fully vested; provided, however, that you
must continue to render services to the Company continuously over such period.
The Option shall be subject to the terms of the Company's 1997 Equity Incentive
Plan (the "Plan") and your corresponding Stock Option Grant
3.3 You shall be entitled to vacation and illness days during
the term of this Agreement consistent with the Company's standard practice for
its employees generally.
3.4 In the event your employment is terminated due to a
"Change in Control" of the Company (defined below), in addition to amounts
payable under Section 7 hereof, if applicable, in exchange for a general release
of all claims against the Company and all persons and entities affiliated with
it (the form of which must be satisfactory to the Company), the Company will pay
you severance benefits as follows:
(a) The Company will pay you the Basic Monthly
Salary applicable as of the date of the termination for a period of thirteen
(13) months following any such termination; and
(b) Fifty percent (50%) of the unvested portion of
the Option at the time of the termination of your employment due to a Change in
Control will immediately vest and become exercisable on your employment
termination date; provided, however, that such vesting shall be nullified in the
event that such action would result in an acquisition of the Company that would
otherwise be eligible to be accounted for as a "pooling of interests" accounting
transaction to become ineligible for such accounting treatment. Additionally, in
the event that this nullification provided for in the immediately preceding
sentence by itself would result in an acquisition of the Company to become
ineligible to be accounted for as a "pooling of interests" accounting
transaction, then such nullification shall be deemed inoperative. Accounting
issues shall be determined by the Company's independent public accountants
applying U.S. Generally Accepted Accounting Principles.
(c) For purposes of this Agreement, a "Change of
Control" shall mean (a) a merger or consolidation of the Company with, or any
sale of all or substantially all of the assets of the Company to, any other
person, corporation or entity, unless as a result of such merger, consolidation
or sale of assets the holders of the Company's voting securities prior thereto
hold at least fifty percent (50%) of the total voting power represented by the
voting securities of the surviving or successor corporation after such
transaction; or (b) any event or series of events at the conclusion of which the
stockholders
3.
<PAGE> 4
of the Company shall cease to beneficially own at least fifty percent (50%) of
the outstanding equity interest in the Company.
4. OTHER ACTIVITIES DURING AND AFTER EMPLOYMENT.
4.1 Except with the prior written consent of the Company's
Board of Directors, you will not during the term of this Agreement undertake or
engage in any other employment, occupation or business enterprise, other than
ones in which you are a passive investor. You may engage in civic and
not-for-profit activities so long as such activities do not materially interfere
with the performance of your duties hereunder.
4.2 Except as permitted by Section 4.3, you will not acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by you to be adverse or antagonistic to the Group, its business
or prospects, financial or otherwise.
4.3 During the term of your employment by the Company and for
a period of one (1) year following termination of your employment with the
Company, except on behalf of the Company, you will not directly or indirectly,
whether as an officer, director, stockholder, owner, partner, proprietor,
associate, representative, consultant, or in any capacity whatsoever engage in,
become financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity whatsoever
which directly or indirectly competes with the Group in China and Hong Kong, in
any line of business engaged in (or planned to be engaged in) by the Group;
provided, however, that anything above to the contrary notwithstanding, you may
own, as a passive investor, securities of any competitor corporation, so long as
your direct holdings in any one such corporation shall not in the aggregate
constitute more than 1% of the voting stock of such corporation.
4.4 During the term of your employment with the Company and
for a period of two (2) years following termination of your employment with the
Company, you will not, either directly or through others, solicit or attempt to
solicit any employee of the Group, or any independent contractor who performs
forty (40) or more hours per month of services for the Group, to terminate his
or her relationship with the Group in order to become an employee, consultant or
independent contractor to or for any other person or entity.
5. FORMER EMPLOYMENT.
5.1 You represent and warrant that your employment by the
Company will not conflict with and will not be constrained by any prior
employment or consulting agreement or relationship. You represent and warrant
that you do not possess confidential information arising out of any prior
employment which, in your best judgment, would be utilized in connection with
your employment by the Company, except in accordance with agreements between
your former employer and the Company.
5.2 If, in spite of the second sentence of Section 5.1, you
should find that confidential information belonging to any former employer might
be usable in connection with the Company's business, you will not intentionally
disclose to the
4.
<PAGE> 5
Company or use on behalf of the Company any confidential information belonging
to any of your former employers (except in accordance with agreements between
the Company and any such former employer); but during your employment by the
Company you will use in the performance of your duties all information which is
generally known and used by persons with training and experience comparable to
your own and all information which is common knowledge in the industry or
otherwise legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to be bound by the
provisions of the Proprietary Information Agreement, which you must sign at the
same time you sign this Agreement as a condition of your employment under this
Agreement.
7. POST-EMPLOYMENT CONSULTATION.
7.1 Upon the termination or expiration of your employment with
the Company pursuant to Section 2.2 above, the Company shall have the option to
retain you as a consultant by notifying you in writing of its desire to so
retain you within 30 days following the date of such termination or expiration.
Such notice shall be mailed to you at your last address as it appears in the
Company's records. Whether or not you are retained, you shall, for a period of
24 months after such termination or expiration, notify the Company of any change
of address and each subsequent employment (stating the name and address of the
employer and the nature of your position) or business activity in which you
engage during such 24 months.
7.2 If the Company retains you as a consultant, you shall
during the period of such retention hold yourself available to render consulting
services in your area of expertise or special competence for up to 24 months for
not more than 16 hours per month, for which the Company shall pay you monthly an
amount equal to 50% of your Basic Monthly Salary at the time of the termination
of your employment, whether or not you shall be called upon to render any
services in any such month. Any out-of-pocket expenses which your consulting
activities for the Company may require will be reimbursed against receipts and
vouchers therefor in accordance with the Company's policies in force from time
to time.
7.3 During any period in which you are retained by the Company
as a consultant, the Company may terminate your status as a consultant by giving
you 90 days written notice, during which 90-day period you shall continue to
receive your monthly consulting fee but shall not be obligated to render or hold
yourself available to render any consulting services during such period.
Thereafter the Company shall have no further liability for consulting fees. All
other prohibitions of the Proprietary Information Agreement shall survive
termination of your status as a consultant.
8. GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement will
be governed by and construed according to the laws of Hong Kong as such laws are
applied to agreements entered into and to be performed entirely within Hong Kong
between Hong Kong residents. I hereby expressly consent to the non-exclusive
jurisdiction of the Hong Kong courts for any lawsuit filed there against me by
the Company arising from or related to this Agreement.
5.
<PAGE> 6
9. REMEDIES. Your duties under the Proprietary Information Agreement
shall survive termination of your employment with the Company. You acknowledge
that a remedy at law for any breach or threatened breach by you of the
provisions of the Proprietary Information Agreement would be inadequate and you
therefore agree that the Company shall be entitled to injunctive relief in case
of any such breach or threatened breach.
10. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Company or by you.
11.SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, it shall be construed
by limiting and reducing it, so as to be enforceable to the extent compatible
with the applicable law as it shall then appear.
12. NOTICES. Any notice which the Company is required or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at the address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the Company
hereunder shall be given by personal delivery or by registered or certified
mail, return receipt requested, addressed to the Company at its principal
office, or at such other office as the Company may from time to time designate
in writing. The date of personal delivery or the date of mailing any such notice
shall be deemed to be the date of delivery thereof.
13. WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
14. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, together with the
Proprietary Information Agreement, is the entire agreement of the parties with
respect to the subject matter hereof and thereof and may not be amended,
supplemented, canceled or discharged except by written instrument executed by
both parties hereto.
15. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
16. ATTORNEY FEES. If either party hereto brings any action to enforce
its rights hereunder, the prevailing party in any such action shall be entitled
to recover his or its reasonable attorneys' fees and costs incurred in
connection with such action.
6.
<PAGE> 7
ZINDART LIMITED
By: /s/ Feather Fok
---------------------------------
Date: August 10,1998
-------------------------------
Accepted and agreed this
10th day of August, 1998.
/s/ ALEXANDER M.K. NGAN
- ----------------------------
ALEXANDER M.K. NGAN
.7
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