<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1996.
REGISTRATION NO. 333 -
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 5047 13-3097642
(JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
7201 WISCONSIN AVENUE,
BETHESDA, MARYLAND 20814,
(301) 215-7777
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERTA LIPSON, PRESIDENT
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.,
7201 WISCONSIN AVENUE, BETHESDA,
MARYLAND 20814,
(301) 215-7777
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
GARY J. SIMON, ESQ. SHELDON E. MISHER, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP BACHNER, TALLY, POLEVOY & MISHER, LLP
1211 AVENUE OF THE AMERICAS 380 MADISON AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10017
(212) 704-6000 (212) 687-7000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]_______
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES PRICE AGGREGATE REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Units(2).................................................. 11,500 Units $1,000 $11,500,000 $ 3,965.52
Units, each consisting of one share of Common Stock,
$.01 par value per share and one Class B Warrant(3)..... 2,415,000 Units $ 6.50 $15,697,500 $ 5,412.93
Common Stock, $.01 par value per share(4)................. 4,830,000 Shares $ 8.75 $42,262,500 $ 14,572.28
Unit Purchase Option(5)................................... 1 Option $ .001 $ .001 $ .00
Units(2)(6)............................................... 1,000 Units $1,200 $ 1,200,000 $ 413.79
Units, each consisting of one share of Common Stock,
$.01 par value per share and one Class B Warrant(7)..... 210,000 Units $ 6.50 $ 1,365,000 $ 470.69
Common Stock, $.01 par value per share(8)................. 420,000 Shares $ 8.75 $ 3,675,000 $ 1,267.24
Total Registration Fee............................... $ 26,102.45
===================================================================================================================================
</TABLE>
(footnotes on next page)
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 A 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
(footnotes from cover)
(1) Estimated solely for purposes of calculating the registration fee.
(2) Each Unit will consist of a minimum of 140 and a maximum of 210 IPO Units.
Each IPO Unit consists of one share of Common Stock, $.01 par value per
share, one Class A Warrant and one Class B Warrant. Each Class A Warrant
entitles the registered holder thereof to purchase one share of Common
Stock and one Class B Warrant. Each Class B Warrant entitles the registered
holder thereof to purchase one share of Common Stock. Also includes 1,500
Units subject to the Underwriter's over-allotment option.
(3) Issuable upon exercise of the Class A Warrants included in the Units to be
sold to the public.
(4) Issuable upon exercise of the Class B Warrants included in both the Units
to be sold to the public and the Class A Warrants underlying such Units.
(5) To be issued to the Underwriter.
(6) Issuable upon exercise of the Underwriter's Unit Purchase Option.
(7) Issuable upon exercise of the Class A Warrants underlying the Units
included in the Underwriter's Unit Purchase Option.
(8) Issuable upon exercise of the Class B Warrants included in both the Units
included in the Unit Purchase Option to be issued to the Underwriter and
the Class A Warrants underlying such Units.
Pursuant to Rule 416, there are also being registered such additional
shares as may become issuable pursuant to anti-dilution provisions of the
Warrants and the Unit Purchase Option.
2
<PAGE>
<PAGE>
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 SEPTEMBER 27, 1996
PROSPECTUS
- ----------
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
10,000 UNITS
EACH CONSISTING OF A MINIMUM OF 140 AND A MAXIMUM OF 210 IPO UNITS,
EACH CONSISTING OF ONE SHARE OF COMMON STOCK,
ONE REDEEMABLE CLASS A WARRANT AND ONE REDEEMABLE CLASS B WARRANT
[LOGO]
Each unit ("Unit") hereby offered (the "Offering") by U.S.-CHINA INDUSTRIAL
EXCHANGE, INC., a New York corporation (the "Company"), consists of a minimum of
140 and a maximum of 210 units (the "IPO Units"). Each IPO Unit is identical to
the units sold in the Company's initial public offering, which was completed in
August 1994 ("IPO"), and consists of one share of Common Stock, $.01 par value
("Common Stock"), one redeemable Class A Warrant ("Class A Warrant") and one
redeemable Class B Warrant ("Class B Warrant"). The components of the Units and
IPO Units will be transferable separately immediately upon issuance. It is
currently expected that the offering price will be $1,000 per Unit. The actual
number of IPO Units to be included in each Unit will be determined by
negotiations between the Company and D.H. Blair Investment Banking Corp. (the
"Underwriter"), based primarily on the market price of the outstanding IPO Units
and a determination of the number of IPO Units needed to successfully market the
Units in light of market conditions. Each Class A Warrant entitles the
registered holder thereof to purchase one share of Common Stock and one Class B
Warrant at an exercise price of $6.50, subject to adjustment, at any time until
August 18, 1999. Each Class B Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $8.75, subject to
adjustment, at any time until August 18, 1999. The Class A Warrants and the
Class B Warrants (collectively, the "Warrants") are subject to redemption by the
Company at a redemption price of $.05 per Warrant on 30 days' prior written
notice, provided the average of the closing bid prices of the Common Stock
exceeds $9.10 with respect to the Class A Warrants or $12.25 with respect to the
Class B Warrants (subject to adjustment in each case) for 20 consecutive
business days ending within 15 days of the date on which notice of redemption is
given. See "Description of Securities."
The Common Stock and the Company's Class B Common Stock, $.01 par value (the
"Class B Common Stock"), are essentially identical, except that the Class B
Common Stock has six votes per share and the Common Stock has one vote per share
and each share of Class B Common Stock is convertible into one share of Common
Stock. Upon completion of this Offering, the holders of the Class B Common Stock
will control approximately 76.9% of the total voting power and will therefore be
able to elect all of the Company's directors and to control the Company. The
shareholders of the Company immediately prior to this Offering, who are
executive officers and certain members of their immediate families, hold all of
the outstanding shares of Class B Common Stock. The Class B Common Stock is
automatically converted into Common Stock upon any sale or transfer, except to
certain permitted transferees. The holders of the Class B Common Stock could
significantly reduce their ownership of such stock while retaining control of
the Company. See "Principal Shareholders" and "Description of Securities."
The IPO Units, Common Stock, Class A Warrants and Class B Warrants are
traded on the National Association of Securities Dealers Automated Quotation
("Nasdaq") SmallCap Market under the symbols CHDXU, CHDX, CHDXW and CHDXZ,
respectively, and the Common Stock is traded on the Nasdaq National Market under
the symbol CHDX. The last sale prices of these securities on September 24 , 1996
as reported by Nasdaq were $7.3438, $4.125, $1.9375 and $.75, respectively. See
"Price Range of Securities and Dividend Policy." The Units offered hereby will
not be listed separately on Nasdaq. The exercise prices and other terms of the
Class A Warrants and Class B Warrants were determined by negotiation between the
Company and the Underwriter at the time of the IPO and do not necessarily bear
any relationship to the Company's assets, book value, results of operations, net
worth or any other recognized criteria of value. FOR INFORMATION CONCERNING A
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION RELATING TO THE UNDERWRITER,
SEE "RISK FACTORS" AND "UNDERWRITING."
------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Unit.................................................................. $ $ $
Total (3)................................................................. $ $ $
==================================================================================================================================
</TABLE>
(footnotes on following page)
The Units are offered on a "firm commitment" basis by the Underwriter when,
as and if delivered to and accepted by the Underwriter, and subject to the
Underwriter's right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of the certificates representing the
Units will be made at the offices of D.H. Blair Investment Banking Corp., 44
Wall Street, New York, New York 10005, on or about , 1996.
------------------------------
D.H. BLAIR INVESTMENT BANKING CORP.
------------------------------
The date of this Prospectus is , 1996
<PAGE>
<PAGE>
(footnotes from cover)
(1) Does not include additional compensation to the Underwriter in the form of
(i) a non-accountable expense allowance in the amount of $300,000 ($345,000
if the Over-Allotment Option referred to below is exercised in full) or
$30.00 per Unit; and (ii) an option (the 'Unit Purchase Option') to purchase
up to 1,000 Units at $ per Unit over a period of three years
commencing on the second anniversary of the date of this Prospectus. In
addition, the Company has agreed to indemnify the Underwriter against
certain civil liabilities under the Securities Act of 1933, as amended. See
'Underwriting.'
(2) Before deducting estimated expenses of $300,000 and the non-accountable
expense allowance, both of which are payable by the Company.
(3) The Company has granted the Underwriter a 45-day option (the 'Over-Allotment
Option') to purchase up to 1,500 additional Units upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
the Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See 'Underwriting.'
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMPANY'S SECURITIES ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE 'RISK FACTORS - POSSIBLE
RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES' AND
'UNDERWRITING.'
ENFORCEABILITY OF CIVIL LIABILITIES
Certain of the directors and officers of the Company are or may be
residents of China and all or a substantial portion of the assets of such
persons are or may be located outside the United States. 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 the United
States courts, including judgments predicated upon the civil liability
provisions of the United States federal securities laws. The Company understands
that the United States does not currently have a treaty providing for reciprocal
recognition and enforcement of judgments in civil and commercial matters with
China and that there is doubt (i) whether a final judgment for the payment of
money rendered by a federal or state court in the United States based on civil
liability, whether or not predicated solely upon the civil liability provisions
of the United States federal securities laws, would be enforceable in China
against the Company or certain of the Company's officers and directors and (ii)
whether an action could be brought in China against the Company or certain of
the Company's officers and directors in the first instance on the basis of
liability predicated solely upon the provisions of the United States federal
securities laws.
EXPLANATORY NOTE
Pursuant to Rule 429 under the Securities Act of 1933 (the 'Act'), this
Prospectus also relates to and may be used in connection with securities
previously registered under the Act pursuant to Registration Statement No.
33-78446 and consisting of (i) 5,520,000 shares of Common Stock issuable upon
exercise of the Warrants issued in the IPO; (ii) 160,000 shares of Common Stock,
Class A Warrants and Class B Warrants issuable upon exercise of unit purchase
options received by the Underwriter and a finder in connection with the IPO;
(iii) 160,000 shares of Common Stock and Class B Warrants issuable upon exercise
of such Class A Warrants; and (iv) 320,000 shares of Common Stock issuable upon
exercise of all such Class B Warrants.
FURTHER INFORMATION
The Company intends to furnish its shareholders and holders of Warrants
with annual reports containing audited financial statements and such interim
reports as it deems appropriate or as may be required by law.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus does not give
effect to the exercise of (i) the Over-Allotment Option, (ii) the Warrants,
(iii) the Unit Purchase Option, (iv) options to purchase shares of Common Stock
reserved for issuance under the Company's 1994 Stock Option Plan, and (v) other
outstanding warrants. Except as otherwise indicated, all share and per share
information in this Prospectus has been restated to reflect (i) a 15,000-for-one
stock split of the Common Stock, which became effective in April 1994, (ii) a
1.2-for-one stock split of the Common Stock, which became effective in July
1994, (iii) a 10-for-nine stock split of the Common Stock, which became
effective in August 1994, and (iv) the conversion of the outstanding shares of
Common Stock into 2,000,000 shares (giving effect to the foregoing stock splits)
of Class B Common Stock, which became effective in April 1994.
THE COMPANY
U.S.-China Industrial Exchange, Inc. (the 'Company') is an established
independent marketing and sales organization in the People's Republic of China
('China') for certain Western products, including medical and industrial
equipment. The Company provides United States, European and other manufacturers
with access to the Chinese marketplace and offers a wide range of marketing,
sales and technical services for their products. The Company further provides
marketing research and consulting services to its manufacturers for a variety of
business activities in China. The Company conducts its marketing and sales and
provides its services exclusively to end-users located in China. The Company is
the exclusive sales representative in China for several major manufacturers of
high-technology medical equipment, construction, mining and other industrial
machinery and scientific research instrumentation. The Company also sells
certain products on a non-exclusive basis. The Company's administrative and
national sales and technical support staff in China, comprised of 122 full-time
employees, operates from its office in Beijing, regional offices in Shanghai and
Guangzhou, and through its wholly-owned subsidiaries in the special economic
Tianjin Free Trade Zone and in Hong Kong.
In 1995, the Company began a process of expansion into the related field of
providing health care services. The Company has taken initial steps to providing
Western-standard health care services to targeted market segments in China. The
Company believes that demographic developments in China, including the growth of
the expatriate business and diplomatic community, continue to create increasing
needs for these services. In this regard, the Company established the Beijing
United Family Health Center ('Beijing United'), a 90%-owned joint venture
between the Company and a company controlled by the Chinese Academy of Medical
Sciences. Beijing United expects to provide the expatriate business and
diplomatic community in Beijing with complete Western-standard maternity and
birthing services as well as neonatal and pediatric care. The Company is
considering establishing a series of clinics in other major metropolitan centers
in China over the next several years.
The Company was founded in June 1981 by Roberta Lipson and Elyse Beth
Silverberg in response to specific marketing opportunities presented by the
commercial opening of China to the West in the late 1970's and early 1980's and
the normalization of relations between the United States and China in 1979.
Mmes. Lipson and Silverberg opened initial offices in Beijing and New York with
the objective of supplying marketing, sales and technical support services to
Western manufacturers of electronic instrumentation and industrial machinery.
Subsequent Chinese economic reforms have significantly decentralized the import
purchasing authority of the Chinese with respect to the products marketed by the
Company. As this process of decentralization and related market orientation
progressed, the Company responded by opening regional offices in Guangzhou
(southern China) and Shanghai (central China) and established wholly-owned
subsidiaries in the special economic Tianjin Free Trade Zone (northern China)
and in Hong Kong to expand its sales and technical service capability.
The Company's strategy is to grow through expansion of its marketing and
sales activities in China, Hong Kong and other Asian countries, and to establish
its proposed health care services operations. The Company intends to build on
its 15-year continuous operating presence in China, the relationships
3
<PAGE>
<PAGE>
in China established by the Company's executives and senior sales staff and the
Company's policy of representing what it believes are first-quality products in
their respective markets. In order to implement its marketing and sales
expansion strategy, the Company intends to increase its marketing, sales and
service capability in China through the addition of qualified personnel,
including technical service engineers, through the establishment of new regional
offices in China and through strategic acquisitions. In conjunction with its
expansion of marketing and sales capability, the Company intends to increase the
variety of products marketed and services provided. For example, the Company
currently is developing plans to commence distribution of health care products
and pharmaceuticals in China.
Substantially all of the Company's revenues are pursuant to agency
arrangements between the Company and its suppliers. The Company's revenues are
derived in two principal ways: through the sale by the Company for its own
account of products (principally medical products) purchased from manufacturers
and through the receipt of commissions from the sale of products by
manufacturers for which the Company acts as agent. The Company often elects the
form of each transaction based on the circumstances of the transaction,
including the nature of the products and parties involved.
During 1996, the Company recognized $8.4 million in sales as a result of
the shipment of goods sold to end-users under a single financing arrangement
with the United States Export-Import Bank. This financing arrangement was the
first of its kind for the Company and, the Company believes, was the first of
its kind for purchasers in China. The Company's results of operations for the
three and six months ended June 30, 1996 were significantly and positively
impacted by this financing and are not expected to be indicative of the
Company's results of operations for the remaining fiscal quarters or the fiscal
year ending December 31, 1996. Although the Company continues to seek similar
financing arrangements with the Export-Import Bank, no such financing
commitments have been received and there can be no assurance that any such
commitments will be obtained in the future.
In addition to its offices in Beijing, Guangzhou, Shanghai, Tianjin and
Hong Kong, the Company maintains executive and administrative offices at 7201
Wisconsin Avenue, Bethesda, Maryland 20814. The telephone number of the Company
in the United States is (301) 215-7777. Unless the context requires otherwise,
as used herein any reference to the Company includes the Company's wholly-owned
subsidiaries, Chindex, Inc., a New York corporation, Chindex Holdings
International Trade (Tianjin) Ltd., registered in China's special economic
Tianjin Free Trade Zone, and Chindex Hong Kong Limited, a Hong Kong corporation,
as well as Beijing United, its 90%-owned joint venture with a company controlled
by the Chinese Academy of Medical Sciences.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company............ 10,000 Units, each consisting of a minimum of 140 and a maximum of
210 IPO Units. Each IPO Unit consists of one share of Common
Stock, one redeemable Class A Warrant and one redeemable Class B
Warrant. See "Description of Securities."
Terms of Warrants............................ Each Class A Warrant is exercisable at $6.50 to purchase one share
of Common Stock and one Class B Warrant until August 18, 1999,
subject to earlier redemption by the Company. Each Class B
Warrant is exercisable at $8.75 to purchase one share of Common
Stock until August 18, 1999, subject to earlier redemption by
the Company. See "Description of Securities -- Warrants."
Number of Shares of Capital Stock
Outstanding:
Before the Offering (1)................. 2,000,000 shares of Class B Common Stock, of which 450,000 shares
are being held in escrow(3)
1,840,000 shares of Common Stock
After the Offering (1)(2)............... 3,940,000 shares of Common Stock(4)
2,000,000 shares of Class B Common Stock, of which
450,000 shares are being held in escrow(3)
Rights of Common Stock and Class B Common
Stock...................................... The rights of the holders of Common Stock and Class B Common Stock
are essentially identical, except that holders of Common Stock
are entitled to one vote per share and holders of Class B Common
Stock are entitled to six votes per share, and each share of
Class B Common Stock is convertible into one share of Common
Stock. The Class B Common Stock is automatically converted into
Common Stock upon any sale or transfer, except to certain
permitted transferees. See "Description of Securities -- Common
Stock and Class B Common Stock."
Nasdaq Symbols............................... Units -- CHDXU
Common Stock -- CHDX
Class A Warrants -- CHDXW
Class B Warrants -- CHDXZ
Use of Proceeds.............................. For general corporate purposes, including expansion of operations,
financing of sales and strategic acquisitions. See "Use of
Proceeds."
Risk Factors................................. An investment in the securities offered hereby involves a high
degree of risk and immediate substantial dilution to public
investors. See "Risk Factors" and "Dilution."
</TABLE>
- ------------
(1) Does not include (i) 2,140,000 shares of Common Stock issuable upon exercise
of the 2,140,000 Class A Warrants outstanding prior to this Offering (the
"Outstanding Class A Warrants"); (ii) 2,140,000 shares issuable upon
exercise of the 2,140,000 Class B Warrants outstanding prior to this
Offering (the "Outstanding Class B Warrants"); and (iii) 2,140,000 shares
issuable upon exercise of the 2,140,000 Class B Warrants underlying the
Outstanding Class A Warrants. All of the Outstanding Class A Warrants and
Outstanding Class B Warrants are held by the current shareholders of the
Company.
(2) Does not include (i) a minimum of 420,000 and a maximum of 630,000 shares
issuable upon exercise of the Over-Allotment Option and the Class A Warrants
included in the Units issuable upon exercise of the Over-Allotment Option;
(ii) a minimum of 1,400,000 and a maximum of 2,100,000 shares issuable upon
exercise of the Class A Warrants included in the Units offered hereby; (iii)
a minimum of 280,000 and a maximum of 420,000 shares issuable upon exercise
of the Unit Purchase Option and the Class A Warrants included in the Units
underlying the Unit Purchase Option; (iv) a
(footnotes continued on next page)
5
<PAGE>
<PAGE>
(footnotes continued from previous page)
minimum of 3,500,000 and a maximum of 5,250,000 shares issuable upon
exercise of the Class B Warrants included in, and issuable upon exercise of
the Class A Warrants included in, the Units offered hereby, the Units
issuable upon exercise of the Over-Allotment Option and the Units underlying
the Unit Purchase Option; (v) 6,420,000 shares of Common Stock reserved for
issuance upon exercise of the Outstanding Class A Warrants and Outstanding
Class B Warrants; and (vi) 228,000 shares reserved for issuance under the
Company's 1994 Stock Option Plan. The Company expects to amend its
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 18,000,000 to 28,000,000 at a special meeting of
shareholders scheduled for November 6, 1996. See 'Management -- Stock Option
Plan,' 'Description of Securities' and 'Underwriting.'
(3) In connection with the IPO, 450,000 shares of Class B Common Stock (the
'Escrow Shares') were deposited in escrow by certain shareholders of the
Company, which Escrow Shares may be transferred to the Company for no
consideration if the Company does not attain certain earnings levels or the
market price of the Common Stock does not reach certain targets during the
period from the date of the IPO to August 18, 1999. See 'Principal
Shareholders -- Escrow Shares.'
(4) Assumes each Unit consists of the maximum 210 IPO Units. If each Unit
consists of the minimum 140 IPO Units, 3,240,000 shares of Common Stock will
be outstanding after this Offering.
6
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.............................. $10,613,000 $13,002,000 $ 4,425,000 $12,578,000
Cost of sales...................... 7,658,000 9,667,000 3,469,000 8,497,000
----------- ----------- ----------- -----------
Gross profit on sales.............. 2,955,000 3,335,001 956,000 4,081,000
Net commission income.............. 2,625,000 2,115,000 561,000 304,000
----------- ----------- ----------- -----------
TOTAL GROSS PROFIT ON SALES AND NET
COMMISSION INCOME................ 5,580,000 5,450,000 1,517,000 4,385,000
Selling, general and administrative
expenses(1)...................... 4,862,000 6,239,000 2,942,000 3,519,000
----------- ----------- ----------- -----------
718,000 (789,000) (1,425,000) 866,000
Other income (expense), net........ 108,000 340,000 203,000 532,000
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes..................... 826,000 (449,000) (1,222,000) 1,398,000
Income tax benefit (provision)..... (319,000) 132,000 432,000 (525,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS).................. $ 507,000 $ (317,000) $ (790,000) $ 873,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE(1)..... $0.23 $(0.09) $(0.23) $0.26
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares
of Common Stock outstanding(1)... 2,218,000 3,390,000 3,390,000 3,390,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, --------------------------------
1995 ACTUAL AS ADJUSTED(2)
------------ ----------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 6,595,000 $ 7,436,000 $15,836,000
Total assets........................................... 15,434,000 18,436,000 26,836,000
Total liabilities...................................... 6,925,000 9,054,000 9,054,000
Shareholders' equity................................... 8,509,000 9,382,000 17,782,000
</TABLE>
- ------------
(1) Share information is based upon the number of shares of Common Stock and
Class B Common Stock treated as a single class, and excludes the Escrow
Shares.
(2) As adjusted to give effect to the sale of 10,000 Units offered hereby
(assuming the Over-Allotment Option is not exercised) at an offering price
of $1,000 per Unit and the application of the net proceeds. See "Use of
Proceeds."
7
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<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. Prospective investors, prior to making an investment decision, should
carefully consider the following risk factors.
This Prospectus contains forward-looking statements within the meaning of
the 'safe harbor' provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for future operations, assumptions underlying such plans and
objectives and other forward-looking statements included in 'Prospectus
Summary,' 'Use of Proceeds,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and 'Business' in this Prospectus. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties which could cause actual results to differ
materially from those described in the forward-looking statements. Factors which
could cause such results to differ materially from those described in the
forward-looking statements include those set forth in the risk factors below.
RISKS RELATING TO OPERATIONS IN CHINA
The Company conducts its marketing and sales and provides its services
exclusively to end-users located in China. The Company expects to continue to
focus its efforts on the Chinese markets. As such, there are risks involved with
the conduct of the Company's business in China, including the following:
Restrictions on Imports. The Chinese government regulates the import into
China of certain of the Company's products. The approval of imports by the
government is based to some extent on the lack of qualified
domestically-produced products and strategic plans for the development of local
Chinese industry. There can be no assurance that the government's policies will
continue to allow the products marketed by the Company to be imported into
China. Changes in the current policies could materially and adversely affect the
Company. See 'Business -- China.'
Most Favored Nation Trading Status. At present, a significant portion of
the economic activity in China is export-driven and, therefore, is affected by
developments in the economies of China's principal trading partners. The U.S.
Congress considers annually the renewal of 'Most Favored Nation' trading status,
which currently is in place, for China and may attach conditions to the renewal
of such status which China may decline, or be unable, to meet. In 1994,
President Clinton announced delinkage of such status to China's achievement of
overall significant progress in the area of human rights. Prior to this
announcement, renewal of such status had been contingent on the achievement of
such progress. There can be no assurance that renewal of such status in the
future will not be linked to human rights issues or other requirements or that,
notwithstanding continuing presidential support for such status, Congress for
any reason in the future will not deny such status beyond the President's
ability to veto such denial. Revocation or conditional extension by the United
States of China's 'Most Favored Nation' trading status could have a material
adverse effect on the trade and economic development of China and on the
operations of the Company. See 'Business -- China.'
Internal Political Risks. The Company's interests may be adversely affected
by the political environment in China. China is a socialist state which since
1949 has been, and is expected to continue to be, controlled by the Communist
Party of China. Changes in the top political leadership of the Chinese
government may have a significant impact on policy and the political and
economic environment in China. Moreover, economic reforms and growth in China
have been more successful in certain provinces than in others, and the
continuation or increase of such disparities could affect political or social
stability. See 'Business -- China.'
Government Control Over Economy. China only recently has permitted greater
provincial and local economic autonomy and private economic activities, and the
government of China has exercised and continues to exercise substantial control
over virtually every section of the Chinese economy through regulation and state
ownership. Accordingly, government actions in the future, including any decision
not to continue to support the economic reform program that commenced in the
late 1970's and possibly to return to the more centrally-planned economy that
existed prior thereto, could have a significant effect on economic conditions in
China and on the operations of the Company.
8
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<PAGE>
As part of its economic reform, China has designated certain areas as
special economic zones, including the Tianjin Free Trade Zone in the major city
of Tianjin, where the Company has registered its wholly-owned subsidiary,
Chindex Holdings International Trade (Tianjin) Ltd. ('Chindex Tianjin'). Chindex
Tianjin and other foreign enterprises in these areas benefit from greater
economic autonomy and more favorable tax treatment than enterprises in other
parts of China. Changes in the policies or laws governing these special economic
zones could have a material adverse effect on the operations of Chindex Tianjin
and, consequently, the Company.
The Company's business is dependent to a certain extent upon the allocation
of funds in the government's budgeting processes. Since these processes are not
necessarily subject to fixed time schedules, the Company's operations may be
adversely affected by extended periods of budgeting freezes or restraints and
the Company's quarterly revenues and operating results may fluctuate in
accordance with these budgeting processes. See 'Risk Factors -- Timing of
Revenues; Fluctuations in Financial Performance and Impact of Single Financing'
and 'Business -- China.'
In addition, the Company's business also is dependent to a certain extent
upon the availability of credit to the Company's customers from the banking
system in China. During approximately the last two years, in response to
inflationary concerns and other economic factors, the Chinese government has
imposed restrictions on the funds available for lending by the banking system.
These restrictions on the availability of credit negatively impacted the
Company's operations during the last two years and continue to negatively impact
operations. In response to these credit restrictions, the Company commenced
efforts to provide alternative financing arrangements to its customers. The
recent tied aid credits from the Export-Import Bank for the purchasers of the
Company's products provided such an attractive financing alternative. The
Company has not received any further Export-Import Bank financing commitments
and there can be no assurance that any commitments will be obtained in the
future. Other efforts include the provision of extended payment terms to certain
customers, applications for additional loan or loan guarantees from the
Export-Import Bank of the United States and the consideration of other
alternative financing arrangements. There can be no assurance that these
efforts, which entail increased risks for the Company, will be successful. In
addition, there can be no assurance as to whether the restrictions on the
availability of credit will ease and, if so, the nature and timing of such
changes. See 'Risk Factors -- Risks Relating to Operations in
China -- Inflation,' 'Risk Factors -- Timing of Revenues; Fluctuations in
Financial Performance and Impact of Single Financing,' 'Risk Factors -- Use of
Letters of Credit,' 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and 'Business -- China.'
Inflation. Over the last few years, China's economy has registered a high
growth rate and there have been recent indications that rates of inflation have
increased. In response, the Chinese government recently has taken measures to
curb the excessive expansion of the economy. These measures have included
devaluations of the Chinese currency, the Renminbi, restrictions on the
availability of domestic credit (reducing the purchasing capability of certain
of the Company's customers) and limited re-centralization of the approval
process for purchases of some foreign products. There can be no assurance that
these austerity measures alone will succeed in slowing down the economy's
excessive expansion or control inflation, nor that they will not result in
severe dislocations in the Chinese economy in general. To further combat
inflation, the Chinese government may adopt additional measures, including the
establishment of freezes or restraints on certain projects or markets, which may
have an adverse effect on the Company's operations. See 'Business -- China.'
Legal System. China's legal system is a civil law system which is based on
written statutes and in which decided legal cases have little precedential
value. China does not have a well-developed, consolidated body of laws governing
foreign investment enterprises. As a result, the administration of laws and
regulations by government agencies may be subject to considerable discretion. As
legal systems in China develop, foreign business entities may be adversely
affected by new laws, changes to existing laws (or interpretations thereof) and
preemption of provincial or local laws by national laws. In circumstances where
adequate laws exist, it may not be possible to obtain swift and equitable
enforcement thereof. See 'Business -- China.'
Foreign Trade Corporations. In order to conduct business in China, the
Company must make most of its sales through foreign trade corporations ('FTCs').
Although purchasing decisions are made by
9
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<PAGE>
the end-user, which is obligated to pay the applicable purchase prices, the
Company or its supplier enters into a formal purchase contract with only the
FTC. The FTCs, which are legally authorized by the Chinese government to conduct
import business, make purchases on behalf of the end-users. By virtue of its
direct contractual relationship with the FTC, rather than the end-user, the
Company is to some extent dependent upon the continuing existence of and
contractual compliance by the FTC until the particular transaction has been
consummated. The Company's business, however, is not dependent on any single FTC
or end-user. Although sales by the Company to certain industries involve repeat
transactions with FTCs that operate in those industries, the Company does not
believe that it is dependent upon relations with any particular FTC or that the
loss of relations with any particular FTC would have a material adverse effect
on the Company. Rather, FTCs, which earn commissions in transactions, compete
with each other for the right to handle end-users' business. See 'Business --
China.'
Hong Kong. One of the Company's wholly-owned subsidiaries, Chindex Hong
Kong Limited, conducts sales, marketing and other activities in Hong Kong.
Accordingly, the Company may be materially adversely affected by factors
affecting Hong Kong's political situation and its economy or in its
international political and economic relations. Hong Kong currently is a British
Crown Colony, but sovereignty over Hong Kong will be transferred to China
effective July 1, 1997. As a result, there can be no assurance as to the
continued stability of political, economic or commercial conditions in Hong
Kong.
TIMING OF REVENUES; FLUCTUATIONS IN FINANCIAL PERFORMANCE AND IMPACT OF SINGLE
FINANCING
The timing of the Company's revenues is affected by several significant
factors. Many end-users of the products sold by the Company depend to a certain
extent upon the allocation of funds in the budgeting processes of the Chinese
government and the availability of credit from the Chinese banking system. These
processes and the availability of credit are based on policy determinations by
the Chinese government and are not necessarily subject to fixed time schedules.
In addition, the sales of certain products, particularly high-priced vehicles
sold to the mining and construction industries, often require protracted sales
efforts, long delivery schedules and other time-consuming steps. Further, in
light of the dependence by purchasers on the availability of credit, the timing
of sales may depend upon the timing of the Company's or its purchasers'
abilities to arrange for credit sources. A relatively limited number of orders
and shipments may constitute a meaningful percentage of the Company's revenues
in any one period. Correspondingly, a relatively small reduction in the number
of orders can have a material impact on the Company's revenues in any one
quarter or year. In addition, because the Company recognizes revenues and
expenses relating to certain contracts as products are shipped, the timing of
shipments could affect the Company's operating results for a particular period.
As a result, the Company's operating results have varied and are expected to
continue to vary significantly from quarter to quarter and the results of
operations of the Company for any particular quarter are not necessarily
indicative of results that may be expected for any subsequent quarter or related
fiscal year.
As an example of the foregoing, during the three months ended June 30,
1996, the Company recognized $7.4 million in sales (as well as an additional $1
million in sales in the prior quarter) as a result of the shipment of goods sold
to end-users under a single Export-Import Bank financing arrangement, which
sales and financing had been arranged over a significantly longer period of time
prior to that period. This financing arrangement was the first of its kind for
the Company and, the Company believes, was the first of its kind for purchasers
in China. As a result of the financing, the Company recognized relatively
substantial sales during the three-month period. Accordingly, the Company's
results of operations for the three and six months ended June 30, 1996 were
significantly and positively impacted by the timing of the payments from the
financing and are not expected to be indicative of the Company's results of
operations for the remaining fiscal quarters or the fiscal year ending December
31, 1996. The Company has not received any further Export-Import Bank financing
commitments and there can be no assurance that any such commitments will be
obtained in the future by the Company or the end-users of its products. The
timing of these sales was subject to circumstances affecting the United States
Government, the Export-Import Bank, the Bank of China and other entities not
controlled by the Company.
10
<PAGE>
<PAGE>
In addition, in order to meet increased competition and difficult marketing
conditions caused by a restriction of credit available to domestic Chinese
organizations and to continue to expand its markets, the Company has increased
the number of sales in which it has offered certain customers extended payment
terms on purchases. The Company believes that its efforts with respect to
financing initiatives contributed substantially to the overall increase in sales
in 1995 and the six months ended June 30, 1996, particularly with respect to the
Export-Import Bank financed sales, although there can be no assurance that these
financial initiatives will continue to be available to offset or reduce the
continuing impact of credit restrictions. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and
'Business -- Strategy.'
RELATIONS WITH SUPPLIERS; RISK OF TERMINATION OF ARRANGEMENTS
The Company's relations with its product suppliers are based substantially
on mutual satisfaction with the relationship in addition to the terms of the
contractual arrangements between them. Although the Company believes that its
relations with its suppliers are good, there can be no assurance that some or
any of the Company's suppliers will not elect to change their method of
distribution into the Chinese marketplace to a form that does not utilize the
services of the Company. In addition, certain of the contracts between the
Company and its suppliers contain short-term cancellation provisions permitting
the contracts to be terminated on 30 days' to six months' notice, minimum sales
quantity requirements or targets and provisions triggering termination upon the
occurrence of certain events. From time to time, the Company and/or its
suppliers terminate or revise their respective distribution arrangements.
Although the Company is not aware of any threatened cancellations of its current
distribution arrangements, there can be no assurance that cancellations of or
other material adverse effects on its contracts will not occur. See
'Business -- Distribution Arrangements.'
DEPENDENCE ON CERTAIN SUPPLIERS
The Company relies on a limited number of suppliers for products which
represent a significant portion of its revenues. During 1995 and the six months
ended June 30, 1996, the Company's largest supplier, Acuson Corporation,
accounted for approximately 54.6% and 55.4%, respectively, of the Company's
revenues, which are comprised of net sales and net commission income. Acuson and
one other supplier were the only suppliers that represented at least 10% of
revenues during the periods. Although the Company believes that its relations
with its suppliers are good, the loss of any significant supplier or the
shortage or loss of any significant product line could adversely affect the
Company's ability to service customers and, as a result, could have a material
adverse effect on the Company's operating results. Since most of the Company's
arrangements with its suppliers involve the Company's agreement not to sell
directly competitive products of other suppliers, the Company does not pursue
alternatives to existing suppliers. There can be no assurance that the Company
would be able to fully replace the loss of any significant supplier.
DEPENDENCE ON KEY PERSONNEL; NEED TO RETAIN SALES AND TECHNICAL PERSONNEL
The Company's success, to a large extent, depends upon the continued
services of certain executive officers, particularly Roberta Lipson, Chairperson
of the Board of Directors, Chief Executive Officer and President and Elyse Beth
Silverberg, Executive Vice President and Secretary. Although the Company has
entered into employment agreements with each of Mmes. Lipson and Silverberg, the
loss of the services of either such executive officer could materially adversely
affect the Company. The Company maintains key-person life insurance coverage in
the amount of $2,000,000 on the lives of each of Mmes. Lipson and Silverberg.
See 'Management.'
The Company intends to continue to hire additional personnel as necessary
to meet its management, marketing, sales and technical service needs from time
to time and expects to use a portion of the proceeds of this Offering allocated
to general corporate purposes for such expansion. Although the Company believes
that, to date, it has been successful in attracting and retaining highly
qualified professionals and other administrative personnel as required by its
business, there can be no assurance that the Company will continue to be
successful in this regard. The Company believes that the future success and
development of its business is dependent to a significant degree on its ability
to continue to attract such individuals. See 'Use of Proceeds' and
'Business -- Employees.'
11
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RISKS RELATING TO COMMENCEMENT OF NEW OPERATIONS; POTENTIAL LIABILITY
Following this Offering, the Company intends to continue to develop its
proposed health care services operations. To date, the Company's efforts in this
regard have been in the development phase and the proposed initial clinic in
Beijing has not yet opened. Although the Company believes that the Beijing
United clinic is the first foreign-managed health care facility of its kind to
have been granted the necessary authorization to operate in Beijing by China's
Ministry of Health, all requisite approvals have not yet been obtained.
Following completion of construction of the facility, the Company must obtain an
occupancy permit and medical license from the appropriate Beijing municipal
authorities. There can be no assurance that all requisite approvals ultimately
will be obtained or continued in effect as necessary for clinic operations. Even
if the numerous preparatory and commencement requirements, including government
approvals, are satisfied, as to which there can be no assurance, the Company's
proposed health care services operations will be dependent upon a variety of
operating requirements, including the Company's ability to retain qualified
physicians and other health care professionals, among other things. See
' -- Dependence on Qualified Health Care Professionals' below. Neither the
Company nor any of its senior management has significant experience establishing
or operating health care facilities in China or elsewhere. In addition, the
Company's health care services operations will be significantly affected by the
Company's ability to implement effective marketing programs and to attract a
significant number of patients. There can be no assurance that the Company will
be able to successfully establish health care services operations or that such
operations will result in significant revenues or profitability.
The provision of health care services entails the risk of potential medical
malpractice and similar claims. The Company does not, itself, engage in the
practice of medicine or have responsibility for compliance with regulatory
requirements directly applicable to physicians and requires physicians
performing medical services at its facilities to maintain medical malpractice
insurance. Nevertheless, malpractice claims may be asserted against the Company
directly in the event that services rendered by the Company or procedures
performed at the Company's facilities are alleged to have resulted in injury or
other adverse effects. Although the Company intends to obtain and to cause
Beijing United to obtain liability insurance that it believes will be adequate
as to both risk and amounts, there can be no assurance that any such insurance
will be obtained or that successful malpractice claims will not exceed the
limits of the Company's insurance and thus have a material adverse effect on the
Company's business, financial condition or operating results. In any event, the
applicable laws in China relating to liability of this type are not as well
settled as in the United States and most other Western countries. Moreover, a
malpractice claim asserted against the Company could be costly to defend, could
consume management resources and could adversely affect the Company's reputation
and business, regardless of the merit or eventual outcome of such claim. In
addition, there can be no assurance that the Company will be able to obtain such
insurance on commercially reasonable terms in the future or that any such
insurance will provide adequate coverage against potential claims.
DEPENDENCE ON QUALIFIED HEALTH CARE PROFESSIONALS
The success of the Company is dependent upon its continuing ability to
recruit, train and retain qualified health care professionals in Beijing or any
other markets. The Company faces competition for these personnel from other
health care providers, research and academic institutions, government entities
and other organizations throughout the world. The availability of such personnel
is limited, and the inability to recruit and maintain relationships with these
individuals in China could have a material adverse effect on the Company's
future growth and operations. This fact is particularly significant for the
Company, since qualified Western or similar health care professionals may have
to be recruited from outside China and replacing any such professionals may
require significant recruiting efforts and lead time. In addition, the costs of
housing and otherwise compensating such professionals may be relatively high in
light of the housing costs in Beijing and certain other cities in China. There
can be no assurance that the Company will be successful in attracting, hiring
and retaining these qualified health care professionals. The unavailability of
sufficient numbers of qualified personnel could have a material adverse effect
on the Company's operations. In addition, a shortage of skilled personnel or the
delay resulting from a need to train personnel could have a material adverse
effect on the Company's results of operations.
12
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COMPETITION
The Company competes with other independent distributors in China. Given
the rapid pace of technological advancement, particularly in the medical
products field, other independent distributors may introduce products into the
Company's markets that compete directly with the Company's sales. In addition to
other independent distributors, the Company faces significant competition from
direct distributors of established manufacturers. In the medical products field,
for example, the Company competes with manufacturers such as Hewlett-Packard Co.
('Hewlett-Packard'), which maintains its own direct sales force in China. In
addition, to the extent that certain manufacturers, such as Hewlett-Packard,
market under one brand name a wide variety of products in China to different
market sectors, those manufacturers may be better able than the Company to
establish brand name recognition across industry lines. In the machinery field
the Company also faces significant competition from the direct sales operations
of Caterpillar Inc. and other large, international companies active in the same
equipment sectors as the Company. The Company also experiences competition from
domestic Chinese entities in various product areas. Such entities, whether joint
venture projects with foreign manufacturers or all-Chinese groups, often receive
preferential treatment by the governmental regulatory authorities, who seek to
curtail spending on imported equipment in favor of domestic Chinese industrial
development. Although the Company competes directly with products of certain
such joint ventures and all-Chinese groups, the Company does not believe that
this preference has had a material effect on the Company's operations. The
Company's competitive position further depends in part upon its ability to
attract and retain qualified personnel in sales, technical and administrative
capacities. See 'Business -- Competition.'
Elements of competition in the Company's industry include quality,
technology, product price and after-sale service and support. The Company
believes that the products it markets and distributes are competitive in these
regards and that the quality of the Company's technical service and support of
those products in particular enhances the Company's competitiveness in its
markets. The Company does not believe that there are significant barriers to the
entry of additional competition in its markets either by distributors such as
the Company or by manufacturers seeking to sell on a direct sale basis.
In response to increased competition, and, in an effort to expand its
business, the Company has entered into agreements with certain customers to
provide extended payment terms for purchase of goods. These arrangements,
limited to selected purchasers qualified by the Company, have assisted the
Company in competing with financing offered by competing manufacturers and
governments. See 'Risk Factors-Timing of Revenues; Fluctuations in Financial
Performance and Impact of Single Financing' and 'Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources.'
To date, except for sales made by Chindex Tianjin, all of the Company's
sales have been made in United States Dollars. The competitiveness of the
Company's products, however, is dependent in part on the currency, such as
United States Dollars or Swedish Kronas, of the country of the selling
manufacturer. To the extent that any such currencies are devalued in comparison
with the currencies in which competitive products are sold, the Company would
experience a competitive disadvantage. Chindex Tianjin sells goods directly to
end-users without the required involvement or cost of an FTC and receives
payment in local Chinese currency and uses the currency to pay for local
expenses. Any devaluation in the local Chinese currency may have a negative
impact on the Company's results of operations.
Upon commencement of its operations, Beijing United will compete with a
large number and variety of health care facilities in Beijing. There are
numerous Chinese hospitals available to the general populace in Beijing, as well
as two international clinics serving the expatriate business and diplomatic
community. The Company believes that the existing two international clinics do
not currently provide specialized Western-standard maternity and birthing
services and neonatal care. There can be no assurance that these or other
clinics or facilities will not commence such operations and compete with Beijing
United. Further, there can be no assurance that a qualified Western or other
health care organization, with greater resources or more experience than the
Company in the provision or management of health care services, will not decide
to engage in operations similar to those to be conducted by Beijing United. See
'Business -- Proposed Beijing Clinic' and ' -- Competition.'
13
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USE OF LETTERS OF CREDIT
To date, most of the Company's sales have been backed by letters of credit.
The Company currently intends to continue to use letters of credit in the
conduct of its business, although the percentage of sales backed by letters of
credit has declined over the last several years and is expected to decline in
the future. Further, as competition increases and the Company seeks to expand
its business, particularly in light of restrictions on the availability of
credit from the Chinese banking system, the Company may no longer continue to
obtain letters of credit on the same basis or as often, if at all. To the extent
that the Company continues to extend credit or otherwise makes sales to
end-users not supported by letters of credit, the Company will experience
greater risk of nonpayment. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES
In the event that any Escrow Shares are released to the shareholders of the
Company who are officers, directors, employees or consultants of the Company,
compensation expense will be recorded for financial reporting purposes as
required by generally accepted accounting principles ('GAAP'). Therefore, in the
event the Company attains any of the earnings thresholds or the Company's Common
Stock meets certain minimum bid prices required for the release of the Escrow
Shares, such release will be deemed additional compensation expense of the
Company. Accordingly, the Company will, in the event of the release of the
Escrow Shares, recognize during the period in which the earnings thresholds are
met or such minimum bid prices obtained what could be a substantial charge,
which would have the effect of substantially increasing the Company's loss or
reducing or eliminating earnings, if any, at such time. Although the amount of
compensation expense recognized by the Company will not affect the Company's
total shareholders' equity, it may have a depressive effect on the market price
of the Company's securities. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and 'Principal
Shareholders -- Escrow Shares.'
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING RIGHTS;
POSSIBLE DEPRESSIVE EFFECT ON THE PRICE OF THE COMPANY'S SECURITIES
The Company's present insider shareholders own 2,000,000 shares of Class B
Common Stock (excluding warrants but including the Escrow Shares), representing
52.1% of the Company's outstanding capital stock and approximately 86.7% of the
total voting power and will be able to elect all of the Company's directors and
otherwise control the Company's operations. Furthermore, the disproportionate
vote afforded the Class B Common Stock could also serve to impede or prevent a
change of control of the Company. As a result, potential acquirors will be
discouraged from seeking to acquire control of the Company through the purchase
of Common Stock, which could have a depressive effect on the price of the
Company's securities. In addition, the Company's present insider shareholders
own an aggregate of 300,000 Outstanding Class A Warrants and 300,000 Outstanding
Class B Warrants. See 'Principal Shareholders' and 'Description of Securities.'
DIVIDENDS UNLIKELY
The Company has not paid any cash dividends and does not presently intend
to pay cash dividends. It is not likely that any cash dividends will be paid in
the foreseeable future. See 'Price Range of Securities and Dividend Policy.'
POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES
DUE TO THE INVESTIGATION OF D.H. BLAIR INVESTMENT BANKING CORP. AND
D.H. BLAIR & CO., INC. BY THE SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission (the 'Commission') is conducting an
investigation concerning various business activities of the Underwriter and D.H.
Blair & Co., Inc. ('Blair & Co.'), a selling group member which will distribute
substantially all of the Units offered hereby. The investigation appears to be
broad in scope, involving numerous aspects of the Underwriter's and Blair &
Co.'s compliance with the Federal securities laws and compliance with the
Federal securities laws by issuers whose securities were underwritten by the
Underwriter or Blair & Co., or in which the
14
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<PAGE>
Underwriter or Blair & Co. made over-the-counter markets, persons associated
with the Underwriter or Blair & Co., such issuers and other persons. The Company
has been advised by the Underwriter that the investigation has been ongoing
since at least 1989 and that the Underwriter is cooperating with the
investigation. The Underwriter cannot predict whether this investigation will
ever result in any type of formal enforcement action against the Underwriter or
Blair & Co. or, if so, whether any such action might have an adverse effect on
the Underwriter, Blair & Co. or the securities offered hereby. The Company has
been advised that the Underwriter or Blair & Co. intends to make a market in the
securities following this Offering. An unfavorable resolution of the
Commission's investigation could have the effect of limiting such firm's ability
to make a market in the Company's securities, which could adversely affect the
liquidity or price of such securities. See 'Risk Factors -- Adverse Effect on
Liquidity Associated with Possible Restrictions on Market Making Activities in
the Company's Securities' and 'Underwriting.'
ADVERSE EFFECT ON LIQUIDITY ASSOCIATED WITH POSSIBLE RESTRICTIONS ON
MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES
The Underwriter has advised the Company that Blair & Co., among others,
intends to continue to make a market in the Company's securities. Rule 10b-6 of
the Commission under the Securities Exchange Act of 1934, as amended (the '1934
Act') may prohibit Blair & Co. from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, Blair & Co. may
be unable to provide a market for the Company's securities during the period
while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the market price of the
Company's securities. See 'Underwriting.'
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants may be redeemed by the Company at a redemption price of $.05
per Warrant upon 30 days' prior written notice if the average bid price per
share of the Common Stock exceeds $9.10 (subject to adjustment) with respect to
the Class A Warrants and $12.25 (subject to adjustment) with respect to the
Class B Warrants, for 20 consecutive trading days ending within 15 days of the
notice of redemption. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price therefor at a time when it may
be disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which, at the time the Warrants are called for
redemption, is likely to be substantially less than the market value of the
Warrants. See 'Description of Securities -- Warrants.'
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
Purchasers of Units and holders of Warrants will only be able to exercise
the Warrants if (i) a current prospectus under the Securities Act of 1933, as
amended (the 'Securities Act') relating to the securities underlying the
Warrants is then in effect and (ii) such securities are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of Warrants reside. Although the Company has
undertaken to use its best efforts to maintain the effectiveness of a current
prospectus covering the securities underlying the Warrants, there can be no
assurance that the Company will be able to do so. The value of the Warrants may
be greatly reduced if a current prospectus, covering the securities issuable
upon the exercise of the Warrants, is not kept effective or if such securities
are not qualified, or exempt from qualification, in the states in which the
holders of Warrants reside. See 'Description of Securities -- Warrants.'
POSSIBLE DEPRESSIVE EFFECT ON FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS
Immediately following this Offering, there will be an aggregate of
5,940,000 shares of Common Stock and Class B Common Stock outstanding (assuming
that each Unit consists of the maximum 210 IPO Units and that the Over-Allotment
Option is not exercised). In addition, an aggregate of 4,280,000
15
<PAGE>
<PAGE>
shares of Common Stock are issuable pursuant to the Outstanding Class A Warrants
and Outstanding Class B Warrants. Of all such shares, the shares of Common Stock
included as part of the Units offered hereby and the outstanding IPO Units will
be freely tradeable without restriction under the Securities Act. All other
shares of Common Stock and the shares of Class B Common Stock will be
'restricted securities' as that term is defined under the Securities Act, and in
the future may be sold in compliance with Rule 144 under the Securities Act or
pursuant to a Registration Statement filed under the Securities Act. Commencing
immediately after the date of this Prospectus, 2,000,000 shares of Common Stock
issuable upon conversion of the Outstanding Class B Common Stock will be
eligible for sale under Rule 144 (subject to the restrictions on transfer agreed
to between the current shareholders and the Underwriter, as set forth below, and
the restrictions on transfer with respect to the Escrow Shares). Rule 144
generally provides that a person holding restricted securities for a period of
two years may sell every three months in brokerage transactions and/or
market-maker transactions an amount equal to the greater of one percent (1%) of
(a) the Company's issued and outstanding Common Stock or (b) the average weekly
trading volume of the Common Stock during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of shares
without any quantity limitation by a person who is not an affiliate of the
Company and who has satisfied a three-year holding period. However, all of the
current shareholders of the Company owning 1% or more of the issued and
outstanding Common Stock have agreed not to sell, assign or transfer any of
their shares of the Company's securities for a period of 13 months from the
closing of this Offering without the Underwriter's prior written consent. See
'Underwriting.'
Commencing one year from the date of this prospectus, the Underwriter has
the right to two demand registrations of the IPO Units underlying its Unit
Purchase Option. The holder(s) of the Unit Purchase Option also will have
piggyback registration rights. These registration rights are in addition to the
registration rights granted to the holders of the outstanding unit purchase
options issued to the underwriter and a finder in connection with the initial
public offering of the Company in August 1994. These outstanding unit purchase
options represent the right to purchase in the aggregate up to 160,000 IPO Units
exercisable at $6.53 per IPO Unit until August 18, 1999. The registration rights
relating to these outstanding unit purchase options consist of the right to two
demand registrations of the IPO Units thereunder and piggyback registration
rights. The exercise of the registration rights relating to the Unit Purchase
Option or the outstanding unit purchase options may involve substantial expense
to the Company and have a depressive effect on the market price of the Company's
securities. See 'Description of Securities' and 'Shares Eligible for Future
Sale.'
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of 'blank check' preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval (but subject to applicable government regulatory restrictions), to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. See 'Description of Securities.'
16
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby,
at an assumed offering price of $1,000 per Unit, are estimated to be
approximately $8,400,000 ($9,705,000) if the Underwriter's Over-Allotment Option
is exercised in full), after deducting underwriting discounts and estimated
offering expenses.
The net proceeds of this Offering will be used for working capital
purposes, including the funding of the future expansion of the Company's
marketing and sales operations in China, Hong Kong and elsewhere in Asia and the
development, commencement and possible expansion of the Company's proposed
health care services operations. In connection with its proposed expansion of
marketing and sales activities, the Company contemplates recruiting and
employing various additional personnel in China and the United States. These
personnel may include expatriates and Chinese nationals for various regional
sales and technical service positions in China. The additional regional sales
personnel would be hired in connection with the Company's proposed territorial
expansion of the Company's facilities in China, which expansion may include the
opening of new regional offices. The Company may use a portion of the net
proceeds of this Offering to fund a portion of the start-up expenses of the
Beijing clinic and intends to use a portion of the net proceeds to finance the
clinic during the initial period of operations following its opening. In the
event that the clinic is successful and management deems it appropriate, the
Company may use additional amounts of the net proceeds of this Offering to
finance the consideration, development and commencement of similar clinics in
other metropolitan areas in China. The Company's proposed expansion also may
include the possible introduction of new product lines into the Company's
established markets, such as the marketing and sale of pharmaceuticals and other
medical consumables, as well as other products, to the health care system in
China.
Also in connection with its expansion activities, the Company has been
offering and intends to continue to offer alternative financing arrangements to
selected customers. In light of the uncertainty of the availability of financing
to the Company's markets, one such possible financing arrangement may involve
offering customers capital equipment on a lease, rather than sale, basis. Other
possible financing arrangement may include joint venture and/or cost and revenue
sharing projects. In the event that the Company determines to offer any of these
or other financing arrangements to its customers, significant capital
expenditures may be required by the Company, which expenditures may constitute a
significant portion of the net proceeds allocated to working capital purposes.
The feasibility of offering alternative financing arrangements currently is
being reviewed by the Company and no specific plans have been formulated to date
in this regard. In general, however, to the extent that the Company would be
providing any such financing, the Company believes that it may experience
increased risk of collection. For example, the Company recently has provided
extended payment terms to customers in its more familiar markets and under
controlled risk circumstances. The Company bears risks in connection with the
collection of those payments, which risks may be even greater in connection with
alternative financing arrangements. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.'
In order to complement its proposed expansion, the Company also may use a
portion of the net proceeds of this Offering for the acquisition of businesses
or assets that are consistent with the Company's current or proposed operations
or experience in China. The Company currently does not have any agreements,
commitments, arrangements or understandings with respect to any proposed
acquisition and there can be no assurance that any suitable acquisition will be
discovered or consummated.
The Company believes that the net proceeds of this Offering, available
sources and cash flow from operations will satisfy its cash needs for at least
24 months from the date of this Prospectus. The amounts actually expended for
the proposed purposes described above could vary significantly depending on the
Company's assessment of the various proposed financing initiatives, the hiring
of additional personnel and expansion of facilities, the addition of new product
lines and the prospect of any acquisitions, all of which are subject to the
ongoing evaluation by the Company as to suitability. Pending such uses, the
Company intends to invest the net proceeds from this Offering in short-term,
interest-bearing securities.
17
<PAGE>
<PAGE>
DILUTION
The following discussion and tables treat the Common Stock and the Class B
Common Stock as a single class, allocate no value to the Class A Warrants and
Class B Warrants contained in the IPO Units and assume no exercise of the
Underwriter's Over-Allotment Option.
As of June 30, 1996, the Company had a net tangible book value of
$9,382,000 or approximately $2.44 per share of Common Stock. Net tangible book
value per share represents the amount of the Company's total tangible assets,
less liabilities, divided by the number of shares of Common Stock outstanding.
Giving retroactive effect to the sale of the 10,000 Units offered hereby, at an
assumed price of $1,000 per Unit, the pro forma net tangible book value at June
30, 1996 would have been $3.39 per share if each Unit contains the minimum 140
IPO Units, representing an immediate increase in net tangible book value of $.95
per share to the present shareholders and an immediate dilution of $3.75 per
share to public investors from the public offering price, and $2.99 per share if
each Unit contains the maximum 210 IPO Units, representing an immediate increase
in net tangible book value of $.55 per share to the present shareholders and an
immediate dilution of $1.77 per share to public investors from the public
offering price. Dilution per share represents the difference between the public
offering price and the pro forma net tangible book per share value after the
Offering.
The following table illustrates the per share dilution to be incurred by
public investors from the public offering price:
<TABLE>
<CAPTION>
IF EACH UNIT IF EACH UNIT
CONTAINS THE CONTAINS THE
MINIMUM MAXIMUM
140 IPO UNITS 210 IPO UNITS
----------------- -----------------
<S> <C> <C> <C> <C>
Assumed public offering price per share of Common Stock.................... $7.14 $4.76
Net tangible book value before Offering............................... 2.44 2.44
Increase attributable to public investors............................. .95 .55
------ ------
Pro forma net tangible book value after Offering........................... 3.39 2.99
------- -------
Dilution of net tangible book value to public investors.................... $3.75 $1.77
------- -------
------- -------
</TABLE>
The following table sets forth the difference between the present
shareholders and the public investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share:
<TABLE>
<CAPTION>
IF EACH UNIT CONTAINS THE
MINIMUM 140 IPO UNITS
-----------------------------------------------------------------
PERCENT PERCENT AVERAGE PRICE
NUMBER OF TOTAL AMOUNT OF TOTAL PER SHARE
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Current Shareholders.............................. 3,840,000(1) 73.28% $ 9,464,577 48.62% $2.46
Investors in the Offering......................... 1,400,000 26.72% 10,000,000 51.38% $7.14
--------- -------- ----------- -------- ------
5,240,000 100.0% $19,464,577 100.0%
--------- -------- ----------- --------
--------- -------- ----------- --------
</TABLE>
<TABLE>
<CAPTION>
IF EACH UNIT CONTAINS THE
MAXIMUM 210 IPO UNITS
-----------------------------------------------------------------
PERCENT PERCENT AVERAGE PRICE
NUMBER OF TOTAL AMOUNT OF TOTAL PER SHARE
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Current Shareholders.............................. 3,840,000(1) 64.65% $ 9,464,577 48.62% $2.46
Investors in the Offering......................... 2,100,000 35.35% 10,000,000 51.38% $4.76
--------- -------- ----------- --------
5,940,000 100.0% $19,464,577 100.0%
--------- -------- ----------- --------
--------- -------- ----------- --------
</TABLE>
- ------------
(1) Includes the Escrow Shares. See 'Principal Shareholders -- Escrow
Arrangements.'
18
<PAGE>
<PAGE>
PRICE RANGE OF SECURITIES AND DIVIDEND POLICY
The Company's IPO Units, Common Stock, Class A Warrants and Class B
Warrants have traded separately on Nasdaq under the symbols CHDXU, CHDX, CHDXW
and CHDXZ, respectively, since August 18, 1994. The Units offered hereby will
not be listed or traded separately on Nasdaq. The following table sets forth the
high and low last sale prices for the Company's securities for the periods
indicated as reported by Nasdaq. These prices do not reflect retail mark-ups,
markdowns or commissions.
<TABLE>
<CAPTION>
IPO UNITS COMMON STOCK CLASS A WARRANTS
--------------- -------------------------- ------------------------
HIGH LOW HIGH LOW HIGH LOW
------------ ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1994
Third Quarter(1)................. 8 3/4 6 5 3/4 5 2 1
Fourth Quarter................... 9 7 6 3 3/4 2 1/4 1 3/4
Fiscal 1995
First Quarter.................... 8 1/4 6 1/2 4 3/4 3 1/2 2 1/2 1 5/8
Second Quarter................... 9 1/4 6 1/2 5 1/2 3 3/8 2 1/4 1 1/2
Third Quarter.................... 9 1/2 7 1/4 5 3/4 4 1/2 2 1/2 1 3/4
Fourth Quarter................... 9 1/4 8 5 3/4 4 7/8 2 3/4 2 1/8
Fiscal 1996
First Quarter.................... 9 6 5/8 5 1/2 4 2 3/4 1 3/8
Second Quarter................... 8 5/8 6 1/8 4 15/16 3 1/4 2 5/8 1 1/2
Third Quarter(2)................. 8 21/32 6 1/2 5 1/8 3 7/8 2 5/8 1 3/4
<CAPTION>
CLASS B WARRANTS
------------------------
HIGH LOW
---------- ----------
<S> <C> <C>
Fiscal 1994
Third Quarter(1)................. 1 1/2 1/2
Fourth Quarter................... 1 1/8 1/2
Fiscal 1995
First Quarter.................... 1 1/2
Second Quarter................... 1 1/4 1/2
Third Quarter.................... 1 3/8 7/8
Fourth Quarter................... 1 1/2 1
Fiscal 1996
First Quarter.................... 1 1/2 7/8
Second Quarter................... 1 3/8 3/4
Third Quarter(2)................. 1 3/8 3/4
</TABLE>
- ------------
(1) Includes the period from August 18, 1994 through September 30, 1994.
(2) Through September 24, 1996.
------------------------
The closing bid prices of these securities as of September 24, 1996 as
reported by Nasdaq were $7.34375 per IPO Unit, $4.125 per share of Common Stock,
$1.9375 per Class A Warrant, and $.75 per Class B Warrant, respectively.
As of September 24, 1996, there were nine record holders of the Company's
Common Stock and five record holders of the Company's Class B Common Stock.
The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
intends to retain any earnings to finance the growth of the Company. The Board
of Directors of the Company will review its dividend policy from time to time to
determine the feasibility and desirability of paying dividends, after giving
consideration to the Company's earnings, financial condition, capital
requirements and such other factors as the Board of Directors deems relevant.
19
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1996 the actual Capitalization
of the Company, and as adjusted to give effect to the sale of the 10,000 Units
at an assumed offering price of $1,000 per Unit and assuming the minimum 140 and
the maximum 210 IPO Units per Unit. See 'Use of Proceeds.'
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
AS ADJUSTED
--------------------------
ACTUAL MINIMUM MAXIMUM
----------- ----------- -----------
<S> <C> <C> <C>
Long term liabilities............................................... $ 1,364,000 $ 1,364,000 $ 1,364,000
Shareholders' equity
Preferred stock, $.01 par value: Authorized -- 5,000,000
shares; none issued.......................................... -- -- --
Common stock, $.01 par value:
Authorized -- 20,000,000 shares; issued and
outstanding -- 2,000,000 shares designated as Class B,
actual(1)............................................... 20,000 20,000 20,000
1,840,000 shares designated Common Stock, actual;
3,240,000 minimum and 3,940,000 maximum, as
adjusted(2)............................................. 18,000 32,000 39,000
Additional paid-in capital..................................... 7,477,000 15,863,000 15,856,000
Foreign currency translation adjustment........................ (8,000) (8,000) (8,000)
Retained earnings.............................................. 1,875,000 1,875,000 1,875,000
----------- ----------- -----------
Total shareholders' equity..................................... 9,382,000 17,782,000 17,782,000
----------- ----------- -----------
Total capitalization........................................... $10,746,000 $19,146,000 19,146,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------
(1) Includes the 450,000 Escrow Shares, all of which are shares of Class B
Common Stock. See 'Principal Shareholders -- Escrow Shares.'
(2) Does not include (i) a minimum of 420,000 and a maximum of 630,000 shares
issuable upon exercise of the Over-Allotment Option and the Class A Warrants
included in the Units issuable upon exercise of the Over-Allotment Option;
(ii) a minimum of 1,400,000 and a maximum of 2,100,000 shares issuable upon
exercise of the Class A Warrants included in the Units offered hereby; (iii)
a minimum of 280,000 and a maximum of 420,000 shares issuable upon exercise
of the Unit Purchase Option and the Class A Warrants included in the Units
underlying the Unit Purchase Option; (iv) a minimum of 3,500,000 and a
maximum of 5,250,000 shares issuable upon exercise of the Class B Warrants
included in, and issuable upon exercise of the Class A Warrants included in,
the Units offered hereby, the Units issuable upon exercise of the
Over-Allotment Option and the Units underlying the Unit Purchase Option; (v)
6,420,000 shares of Common Stock reserved for issuance upon exercise of the
Outstanding Class A Warrants and Outstanding Class B Warrants; and (vi)
228,000 shares reserved for issuance under the Company's 1994 Stock Option
Plan. The Company expects to increase the number of authorized shares of
Common Stock from 18,000,000 to 28,000,000 at a special meeting of
shareholders scheduled for November 6, 1996. See 'Management -- Stock Option
Plan,' 'Description of Securities' and 'Underwriting.'
20
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 1995, and for each
of the two years in the period ended December 31, 1995, have been derived from
the Company's consolidated financial statements, which statements have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
included elsewhere herein. The selected financial data for the six months ended
June 30, 1995 and 1996, have been derived from the unaudited consolidated
financial statements of the Company and, in the opinion of management, contain
all adjustments (consisting only of normal and recurring adjustments) that the
Company considers necessary for a fair presentation of such data. The results of
the interim periods are not necessarily indicative of the results of a full
year. All of the financial data set forth below should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
included elsewhere in this Prospectus and also with the information appearing
under the caption 'Management's Discussion and Analysis of Financial Condition
and Results of Operations.'
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------- -----------------------------
1994 1995 1995 1996
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $10,613,000 $ 13,002,000 $ 4,425,000 $12,578,000
Costs of sales................................. 7,658,000 9,667,000 3,469,000 8,497,000
----------- ------------ ------------ -------------
Gross profit on sales.......................... 2,955,000 3,335,000 956,000 4,081,000
Net commission income.......................... 2,625,000 2,115,000 561,000 304,000
----------- ------------ ------------ -------------
TOTAL GROSS PROFIT ON SALES AND NET COMMISSION
INCOME....................................... 5,580,000 5,450,000 1,517,000 4,385,000
Selling, general and administrative expenses... 4,862,000 6,239,000 2,942,000 3,519,000
----------- ------------ ------------ -------------
718,000 (789,000) (1,425,000 ) 866,000
Other income (expense), net.................... 108,000 340,000 203,000 532,000
----------- ------------ ------------ -------------
Income (loss) before provision for income
taxes........................................ 826,000 (449,000) (1,222,000 ) 1,398,000
Income tax benefit (provision)................. (319,000) 132,000 432,000 (525,000)
----------- ------------ ------------ -------------
NET INCOME (LOSS).............................. $ 507,000 $ (317,000) $ (790,000 ) $ 873,000
----------- ------------ ------------ -------------
NET INCOME (LOSS) PER SHARE(1)................. $0.23 $(0.09) $(0.23) $0.26
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
Weighted average number of shares of common
stock outstanding(1)......................... 2,218,000 3,390,000 3,390,000 3,390,000
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
BALANCE SHEET DATA:
Working capital.............................................................. $ 6,595,000 $ 7,436,000
Total assets................................................................. 15,434,000 18,436,000
Total liabilities............................................................ 6,925,000 9,054,000
Shareholders' equity......................................................... 8,509,000 9,382,000
</TABLE>
- ------------
(1) Share information is based upon the number of shares of Common Stock and
Class B Common Stock treated as a single class, and excludes the Escrow
Shares.
21
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto, and is
qualified in its entirety by the foregoing and by other more detailed financial
information appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The Company's revenues are derived in two principal ways: net sales by the
Company for its own account and net commission income consisting of commissions
on sales made by manufacturers that are represented by the Company. The Company
often elects the form of each transaction based on the circumstances of the
transaction, including the nature of the products and parties involved.
Consequently, the Company does not believe that the changes over periods in the
mix comprising total gross profit on sales and net commission income necessarily
reflect any trends.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company's net sales for the six months ended June 30, 1996 increased
$8,153,000 or 184% and net commission income decreased $257,000 or 46% over the
quarter ended June 30, 1995. The total gross profit on sales and net commission
income increased $2,868,000 or 189%.
During 1996, the Company shipped $8.4 million of goods financed by the
Export-Import Bank tied aid credits to certain identified Chinese organizations
for the purchase of equipment sold by the Company. Tied aid credits were made
available to development projects in specific geographic areas of China to match
offers being made by European suppliers for the sale of similar equipment on
below market loan terms. While the Company continues to explore additional
financing opportunities, including with the Export-Import Bank, there can be no
assurances that any such financing will be available in the future.
The Company believes that the total gross profit on sales and net
commission income has been negatively impacted during the periods by
restrictions imposed by the Chinese government on the availability of credit
from the Chinese banking system to the Company's customers. The Company believes
the restrictions on the availability of credit will continue to impact
operations for the immediate future.
The Company's gross profit on sales as a percentage of net sales for the
six months ended June 30, 1996 was 32% as compared to 22% for the six months
ended June 30, 1995. The improved gross profit margin is attributable primarily
to improved pricing achieved on the Export-Import Bank financed sales as well as
decreased freight and training costs for the six months ended June 30, 1996.
Selling, general and administrative expenses for the six months ended June
30, 1996 and 1995 were $3,519,000 and $2,942,000, respectively, representing an
increase of 20%. These expenses represent costs associated with an increase in
the number of Company employees, increased staff bonuses as a result of higher
sales, and increased rent expense related to the new building leased to house
the proposed Beijing United facility, offset somewhat by lower travel and
entertainment. As a percentage of net sales and net commission income, the
selling, general and administrative expenses decreased from 59% in the six
months ended June 30, 1995 to 27% in the six months ended June 30, 1996. The
reduction in percentage was due principally to shipment of the Export-Import
Bank financed $8.4 million sales and to the fact that substantially all of the
related selling and administrative expenses were incurred in prior periods.
As set forth above, the Company's net sales, total gross profit on net
sales and net commission income, and gross profit were in each case
significantly and positively impacted during the six months ended June 30, 1996
as a result of the shipment of goods financed by the Export-Import Bank. The
Company does not expect such positive results to continue in the following two
fiscal quarters or to be indicative of the results of operations for the fiscal
year ending December 31, 1996. This financing arrangement from the Export-Import
Bank was the first of its kind for the Company and, the Company believes, was
the first of its kind for purchasers in China. The Company has not received any
further
22
<PAGE>
<PAGE>
Export-Import Bank financing commitments and there can be no assurance that any
such commitments will be obtained in the future.
Interest income for the six months ended June 30, 1996 and 1995 were
$195,000 and $241,000 respectively. The decrease principally was due to a
reduction over the periods in the amount of proceeds remaining from the
Company's initial public offering. Most interest income was earned on these
proceeds. Miscellaneous income of $344,000 during the six months ended June 30,
1996 principally was due to the Company's three year sub-lease of a portion of
the building leased to house the proposed Beijing United facility.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
The Company's net sales for the year ended December 31, 1995 increased
$2,389,000 or 23%, and net commission income for 1995 decreased $510,000 or 19%
over the year ended December 31, 1994. The increase in net sales over the
periods was substantially due to the Company's offering of extended payment
terms with premium prices to selected customers, the hiring of additional sales
staff, and a broadening of its regional sales. The Company expects to continue
to offer such extended payment terms in the future. See 'Liquidity and Capital
Resources' below.
The Company believes that, notwithstanding the increase in net sales over
the past two years, revenues in general were negatively impacted over the
periods by restrictions imposed by the Chinese government in the availability of
credit from the Chinese banking system to the Company's customers. There can be
no assurance as to whether the restrictions on the availability of credit will
ease and, if so, the nature and timing of such changes.
The Company believes that the changes over the years in the components of
revenues, including the decrease in net commission income from fiscal year 1994
to fiscal year 1995, were due in part to the timing of the occurrence of sales,
both direct and on an agency basis. Another difficulty is the prediction of when
sales will occur. One example is the delay in the Export-Import Bank's final
commitment which resulted in recognition of $8.4 million in sales and related
profits being shifted to early 1996 rather than occurring during fiscal year
1995 when originally anticipated. See 'Timing of Revenues' below.
The Company's gross profit on sales as a percentage of net sales for 1995
was 26% compared to 28% for 1994. The decrease is largely attributable to
increased competition in certain markets resulting in some price pressures.
The Company's total gross profit on sale and net commission income was
$5,450,000 for 1995. Of that amount $3,335,000 or 61% consisted of gross profit
on sales and $2,115,000 or 39% consisted of net commission income. The Company's
total gross profit and net commission income was $5,580,000 for 1994. Of that
amount $2,955,000 or 53% consisted of gross profit on sales and $2,625,000 or
47% consisted of net commission income. The Company does not believe that the
changes over the periods in the mix comprising total gross profit on sales and
net commission income reflects any trends.
Selling, general and administrative expenses for 1995 and 1994 were
$6,239,000 and $4,862,000, respectively, representing an increase of $1,377,000
or 28%. The significant increase in selling, general and administrative expenses
in the 1995 year was the result of increased employees and their related
salaries, travel, and entertainment. These components represent 87% of the total
increase over the year is attributable to expanded marketing efforts.
Interest income increased substantially in 1995 over 1994, rising by
$275,000. This is related to the combination of two elements: income from the
investment of proceeds from the Company's initial public offering, and
amortization of the imputed interest from extended term accounts receivable.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company expects to enter into commitments for capital
expenditures in the approximate aggregate amount of $2,500,000 for equipment and
renovations in connection with the Beijing United facility. The Company believes
that the Beijing United facility, which currently is expected to open in late
1996, will provide much-needed Western standard health care services, including
maternity and birthing services as well as neonatal and pediatric care, to
specified target
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markets in China, including the expatriate business and diplomatic community in
Beijing. The Company intends to finance these capital expenditures principally
from its cash and cash equivalents available prior to this Offering. As of June
30, 1996 the Company had spent less than $500,000 in connection with developing
the Beijing United facility. The Company may use a portion of the net proceeds
of this Offering to fund a portion of the start-up expenses of the Beijing
United facility and intends to use a portion of the net proceeds to finance the
clinic during the initial period of operations following its opening. In the
event that the clinic is successful and management deems it appropriate, the
Company may use a portion of the net proceeds of this Offering to finance the
consideration, development and commencement of similar clinics in other
metropolitan areas in China. The Company believes that the net proceeds of this
Offering, available sources and cash flow from operations will satisfy the
Company's cash requirements for at least 24 months from the date of this
Prospectus, including in connection with such proposed health care services
operations and expansion. The Company, however, may be required to obtain
additional funds thereafter. There can be no assurance that such funds will be
available to the Company on favorable terms, if at all.
The Company received all of the cash receipts from the $8.4 million
Export-Import Bank financing by the end of July 1996 and made substantial
payments of accounts payable prior thereto. As of August 31, 1996 the Company
had cash and cash equivalents of almost $3.4 million.
In light of the uncertainty of available financing to the Company's
markets, the Company continues to search for alternate financing programs. The
recent tied aid credits from the Export-Import Bank for the purchasers of the
Company's products provided such an attractive financing alternative. The
Company has not received any further Export-Import Bank financing commitments
and there can be no assurance that any commitments will be obtained in the
future. Other efforts include the provision of extended payment terms to certain
customers, applications for additional loan or loan guarantees from the
Export-Import Bank and the consideration of other alternative financing
arrangements.
Recent increases in sales, which were substantially due to the Company's
offering of extended payment terms, resulted in a $1,812,000 increase in
accounts receivable from December 31, 1995 to June 30, 1996, offset somewhat by
a $1,643,000 increase in accounts payable and a decrease of $655,000 due to
collections of commission receivable over the period.
On August 19, 1996, the Company increased its existing credit facility with
First National Bank of Maryland from $900,000 to $1,300,000 for short-term
working capital needs, standby letters of credit, and spot and forward foreign
exchange transactions. In addition, First National Bank of Maryland has provided
a $420,000 standby letter of credit as a separate credit facility apart from the
increased line of credit. The $1,300,000 credit facility and the $420,000
standby letter of credit are payable on demand, fully secured and collateralized
by government securities acceptable to the Bank having an aggregate fair market
value of not less than $1,911,112. Generally, since the Company's assets
principally are located in China, the Company has experienced difficulties in
obtaining asset-based financing.
Inventory increased to $1,600,000 as of June 30, 1996 from $1,215,000 at
December 31, 1995 as the Company built up inventories in anticipation of sales
by its newly formed subsidiary, Chindex Tianjin. Although the Company formerly
sold products almost exclusively on a 'to-order' basis, Chindex Tianjin now
sells products on a cash basis, thus requiring maintenance of higher levels of
inventory. In addition, inventory growth resulted from internal delays in
Chindex Tianjin's marketing efforts and sales, which did not commence until late
in 1995 and which, as a result of various other factors typical for a new
business, have been relatively slow to develop. The delays related to start-up
issues, principally the time involved in organizing and developing a sales force
for the subsidiary's goods as well as establishing relationships with local
Chinese distribution companies. Although management is addressing these
difficulties, there can be no assurance that they will be favorably resolved or
not recur.
In order to meet increased competition and difficult marketing conditions
caused by a restriction of credit available to domestic Chinese organizations
and to continue to expand its markets, the Company has increased the number of
sales in which it has offered certain customers extended payment terms. In
addition, although the Company currently intends to continue to use letters of
credit in the conduct of its business, the percentage of sales backed by letters
of credit has declined over the past several years and is expected to decline in
the future. To the extent that the Company continues to extend credit or
otherwise makes sales not supported by letters of credit, the Company will
experience greater risk of
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non-payment and consequential impact on liquidity. In many cases the Company has
the choice to arrange to have a letter of credit opened by the Chinese customer
directly to the manufacturer or to the Company. In the former case, the
manufacturer processes the letter of credit, retains the agreed amount for the
cost of goods and provides the remainder to the Company, which classifies it as
a commission payment. If the Company arranges to have the letter of credit
opened to the Company, it is classified as a sale by the Company. In either
case, the Company receives the same net economic benefits from the sale.
In August 1994, the Company completed its initial public offering. The
Company received net proceeds of approximately $7.25 million from the offering
and subsequent sale of additional securities pursuant to an over-allotment
option held by the underwriter. Portions of the net proceeds already have been
applied to the Company's planned expansion of personnel and to the provision of
financing terms to increase product sales. In addition, the Company has financed
the development, including capital expenditures, of the Beijing United facility
principally from a portion of the net proceeds from the initial public offering.
TIMING OF REVENUES
The timing of the Company's revenues is affected by several significant
factors. Many end-users of the products sold by the Company depend to a certain
extent upon the allocation of funds in the budgeting processes of the Chinese
government and the availability of credit from the Chinese banking system. These
processes and the availability of credit are based on policy determinations by
the Chinese government and are not necessarily subject to fixed time schedules.
In addition, the sales of certain products often require protracted sales
efforts, long lead times and other time-consuming steps. Further, in light of
the dependence by purchasers on the availability of credit, the timing of sales
may depend upon the timing of the Company's or its purchasers' abilities to
arrange for credit sources. As a result, the Company's operating results have
varied and are expected to continue to vary significantly from period to period
and year to year. In addition, a relatively limited number of orders and
shipments may constitute a meaningful percentage of the Company's revenue in any
one period. Correspondingly, a relatively small reduction in the number of
orders can have a material impact on the Company's revenues in any year.
Further, because the Company recognizes revenues and expenses relating to
certain contracts as products are shipped, the timing of shipments could affect
the Company's operating results for a particular period.
In 1995, timing of the Company's revenues also was impacted when the
Export-Import Bank financing of the sale of $8.4 million of the Company's
medical equipment exports was delayed due to the U.S. Government shutdown and
delays in the legislative extension of the Export-Import Bank's authority to
provide the financing in question. Consequently, the shipments of goods and
resulting receipt of revenues did not take place until 1996 and the Company's
results of operations for the six months ended June 30, 1996 were significantly
and positively impacted thereby.
During the three months ended June 30, 1996, the Company recognized $7.4
million in sales (as well as an additional $1 million in sales in the prior
quarter) as a result of the shipment of goods sold to end-users under the
Export-Import Bank financing arrangement. This financing arrangement was the
first of its kind for the Company and, the Company believes, was the first of
its kind for purchasers in China. As a result of the financing, the Company's
net sales increased substantially during the three-month period. Accordingly,
the Company's results of operations for the three and six months ended June 30,
1996 were significantly and positively impacted by the timing of the payments
from the financing and are not expected to be indicative of the Company's
results of operations for the remaining fiscal quarters or the fiscal year
ending December 31, 1996. The Company has not received any further Export-Import
Bank financing commitments and there can be no assurance that any such
commitments will be obtained in the future by the Company or the end-users of
its products. As discussed above, the timing of these sales was subject to
circumstances affecting the United States Government, the Export-Import Bank,
the Bank of China and other entities not controlled by the Company.
In addition, in order to meet increased competition and difficult marketing
conditions caused by a restriction of credit available to domestic Chinese
organizations and to continue to expand its markets, the Company has increased
the number of sales in which it has offered certain customers extended
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payment terms. These sales were to familiar and qualified purchasers and were
structured so that the Company's risk of non-payment has been reduced. In
addition, the short-term cash flow implications on the Company have been reduced
because the Company's suppliers participate in extending reciprocal payment
terms to the Company for a significant portion of these extended payment
arrangements. There can be no assurance, however, that the Company's suppliers
will continue to so participate in the future, which would have a negative
impact on the Company's short-term cash flow. The Company believes that its
efforts with respect to financing initiatives contributed substantially to the
overall increase in sales in 1995 and the six months ended June 30, 1996,
although there can be no assurance that these financial initiatives will
continue to offset or reduce the continuing impact of credit restrictions or
that the Export-Import Bank financing will recur.
FOREIGN CURRENCY EXCHANGE AND IMPACT OF INFLATION
The results of operations of the Company for the periods discussed have not
been significantly affected by inflation or foreign currency fluctuation. To
date, substantially all of the Company's purchases and sales have been made in
U.S. dollars. Thus, the Company has not had extensive foreign currency risk.
However, changes in the valuation of the Chinese Renminbi may have an impact on
the Company's results of operations in the future. The Company's newly
established subsidiary, Chindex Tianjin, started selling products during 1995 in
Renminbi. The Renminbi is not a convertible currency and accordingly exchange
risks cannot be hedged.
Also, the Company has purchased and will continue to purchase some products
in currencies other than U.S. dollars and has sold and will continue to sell
such products in China for U.S. dollars. To the extent that the value of the
U.S. dollar declines against such a currency, the Company could experience a
negative impact on profitability. The Company anticipates hedging transactions
wherever possible to minimize such negative impacts.
China's economy has registered a high growth rate in recent years and rates
of inflation have been high. Although this inflation has not significantly
affected the Company's results of operations, measures taken by the government
to combat inflation, including the establishment of freezes or restraints on
financing available to Chinese customers, have had such an effect and may
continue to have such an affect in the future. See 'Results of Operations' and
'Liquidity and Capital Resources' above.
CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SHARES
In the event any Escrow Shares are released from escrow to shareholders of
the Company who are officers, directors or employees of, or consultants to, the
Company, compensation expense will be recorded for financial reporting purposes
as required by generally accepted accounting principles. Therefore, in the event
the Company attains any of the earnings thresholds or the Company's Common Stock
meets certain minimum bid prices required for the release of the Escrow Shares,
such release will be deemed additional compensation expense of the Company.
Accordingly, the Company will, in the event of the release of Escrow Shares from
escrow, recognize during the periods in which the earnings thresholds are met or
are probable of being met or such minimum bid prices are attained, what will
likely be a substantial charge equal to the fair market value of the Escrow
Shares released from escrow, which charge will have the effect of substantially
increasing the Company's loss or reducing or eliminating earnings, if any, at
such time. Furthermore, the release of the Escrow Shares would have a dilutive
effect on earnings per share and a corresponding reduction in loss per share, as
a result of the increase in the number of outstanding shares. Although the
amount of compensation expense recognized by the Company will not affect the
Company's total shareholders' equity or its working capital, it may have a
depressive effect on the market price of the Company's securities. See 'Risk
Factors -- Charge to Income in the Event of Release of Escrow Shares' and Note 5
of Notes to Consolidated Financial Statements.
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BUSINESS
GENERAL
The Company is an established, independent marketing and sales organization
in China for certain Western products, including medical and industrial
equipment. The Company provides United States, European and other manufacturers
with access to the Chinese marketplace and offers a wide range of marketing,
sales and technical services for their products. The Company further provides
marketing research and consulting services to its manufacturers for a variety of
business activities in China. The Company conducts its marketing and sales and
provides its services exclusively to end-users located in China. The Company is
the exclusive sales representative for several major manufacturers of high-
technology medical equipment, construction, mining and other industrial
machinery and scientific research instrumentation. The Company also sells
certain products on a non-exclusive basis. The Company's national sales and
technical support staff operates from its office in Beijing and regional offices
in Shanghai, Guangzhou, Tianjin and Hong Kong. In addition to its sales
activities, the Company also provides marketing research and consulting services
to its manufacturers for a variety of business activities in China. For purposes
of Chinese law, except for the operations of Chindex Tianjin, the Company
operates as a United States entity doing business in China through its
representative office in Beijing. This structure is distinguishable from
operations in China as a wholly foreign-owned enterprise (such as Chindex
Tianjin) or otherwise, all of which structures involve different legal, tax,
business and other issues.
In 1995, the Company established Chindex Tianjin, a wholly foreign-owned
subsidiary. Chindex Tianjin is registered in the special economic Tianjin Free
Trade Zone and is subject to specific Chinese legislation which governs the
activities of foreign-owned subsidiaries. In late 1995, this entity commenced
marketing and operations. Chindex Tianjin supplies certain products and
consumables directly to hospitals in China for domestic currency and will
provide a platform for future distribution activities. Another initiative taken
by the Company, in March 1996, was the establishment of an office in Hong Kong
through the formation under Hong Kong law of a 100%-owned subsidiary, Chindex
Hong Kong Limited ('Chindex Hong Kong').
In 1995, the Company began a process of expansion into the related field of
providing health care services. The Company has taken initial steps to providing
Western-standard health care services to targeted market segments in China. The
Company believes that demographic developments in China, including the growth of
the expatriate business and diplomatic community, continue to create increasing
needs for these services. In this regard, the Company established Beijing
United, a 90%-owned joint venture between the Company and a company controlled
by the Chinese Academy of Medical Sciences. Beijing United is being designed to
provide the expatriate business and diplomatic community in Beijing with
complete Western-standard maternity and birthing services as well as neonatal
and pediatric care. The Company will consider establishing a series of clinics
in other major metropolitan centers in China over the next several years.
HISTORY
The Company was founded in June 1981 by Roberta Lipson and Elyse Beth
Silverberg in response to specific marketing opportunities presented by the
commercial opening of China to the West in the late 1970's and early 1980's and
the normalization of relations between the United States and China in 1979.
Mmes. Lipson and Silverberg opened initial offices in Beijing and New York with
the objective of supplying marketing, sales and technical support services to
Western manufacturers of electronic instrumentation and industrial machinery.
During its early years of operation, the Company began work in the primary
market sectors in which it operates today. Relationships were initiated with
manufacturers of diagnostic ultrasound and off-road construction and mining
machinery, among other products. By the end of its second year, the Company had
hired its first in-house technical support personnel in order to provide service
in connection with its sales. Lawrence Pemble joined the Company in 1984 to
oversee United States operations while Mmes. Lipson and Silverberg continued to
reside in China on a full-time basis. By 1985, the Company's market position and
identity had developed to the extent that it organized into its
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current structure accommodating the marketing of a variety of product types. The
Company believes that the continuous presence in China of Mmes. Lipson and
Silverberg has been instrumental in the establishment and development of
relationships for the Company.
Beginning in the mid-1980's, China commenced economic reforms that
significantly decentralized the import purchasing authority of the Chinese with
respect to the products marketed by the Company. As this process of
decentralization and related market orientation progressed, the Company
responded by opening regional offices in Guangzhou (southern China) and Shanghai
(central China) to expand its sales and technical service capability. In this
regard, the Company established Chindex Tianjin and Chindex Hong Kong. As the
Company has expanded its operations, it has sought to maintain a balance of
administrative, sales and technical support capability in each of the Company's
product categories and geographic areas.
In August 1994, the Company completed its initial public offering in
furtherance of its expansion goals. The Company received net proceeds of
approximately $7.25 million from the offering and subsequent sale of additional
securities pursuant to an over-allotment option held by the underwriter.
Portions of the net proceeds already have been applied to the Company's planned
expansion of personnel and to the provision of financing terms to increase
product sales. In addition, the Company has financed the development, including
capital expenditures, of the Beijing United facility principally from a portion
of the net proceeds from the initial public offering. The Company believes that
the clinic will open by the end of 1996.
STRATEGY
The Company believes that it has a strong reputation in its markets in
China. This belief is based on several factors, including the Company's
continuous operating presence in China for the past 15 years, the relationships
in China established by the Company's executives and senior sales staff and the
Company's policy of representing what it believes are first-quality products in
their respective markets. The Company intends to build on its continuity,
relationships and standard of quality in two ways. First, the Company intends to
increase its marketing, sales and service capability in China through the
addition of qualified personnel, including technical service engineers, through
the establishment of new regional offices in China and, possibly, through
strategic acquisitions. Second, in conjunction with its expansion of marketing
capability, the Company intends to increase the variety of products marketed and
the services provided. For example, the Company currently is developing plans to
commence distribution of health care products and pharmaceuticals in China.
The Company emphasizes customer service and technical support in its
marketing efforts. Sales of medical equipment and scientific instrumentation
include the Company's responsibilities for servicing the products under the
manufacturers' warranties. The Company coordinates the after-sales support by
the manufacturer to the Chinese customer in sales of most construction mining
and other industrial machinery and scientific research instrumentation. The
Company believes that its purchasers place great emphasis on the prompt
availability and competence of the customer services that precede and follow a
sale. The Company's strategy is to further emphasize technical expertise and
customer service. In this regard, the Company intends to expand its existing
engineering and technical staff.
In order to meet increased competition and difficult marketing conditions
caused by a restriction of credit available to domestic Chinese organizations
and to continue to expand its markets, the Company increased the number of sales
in which it has offered certain customers extended payment terms. These sales
were to familiar and qualified purchasers and were structured so that the
Company's risk of non-payment has been reduced. In addition, the short term
cash flow implications on the Company are also minimized since the Company's
suppliers participate in extending reciprocal payment terms to the Company for a
significant portion of these extended payment arrangements. The Company believes
that its decision to undertake these financing initiatives contributed
substantially to the overall increase in sales in 1995 and the six months ended
June 30, 1996, although there can be no assurance that these financial
initiatives will continue to offset or reduce the continuing impact of credit
restrictions. In particular, during 1996, the Company concluded sales in the
aggregate amount of $8.4 million financed by the Export-Import Bank. This
financing from the Export-Import Bank for the purchasers of the Company's
products represented an innovative financing alternative. Although the Company
intends to
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continue to explore other innovative financing opportunities, there can be no
assurance that similar Export-Import Bank or other financings will be available
in the future.
The Company also proposes to explore initiatives which may allow it to
offer to customers certain types of capital equipment on a lease, rather than
sale, basis. The Company believes that this type of financing arrangement may
provide its Chinese customers with access to expensive capital equipment which
they otherwise might not be able to afford. Such a leasing initiative might be
undertaken in conjunction with a U.S. manufacturer, a Chinese company, or both.
The Company also is exploring possible joint venture projects for use of
equipment with Chinese partners on a cost and revenue sharing basis. The Company
currently is considering such alternative financing programs in the areas of
light construction machinery and diagnostic ultrasound imaging. The Company has
reached no conclusions as to the economic viability of leasing or cost/revenue
sharing. The Company is continuing its review and assessment of the relevant
factors, including cost-effectiveness and risk. There can be no assurance that
the Company will elect to implement any leasing or cost/revenue sharing program
or that any such program will provide the desired results.
The Company's strategy also includes expansion into the related field of
providing health care services. The Company believes that its knowledge of the
hospital and health care system in China, as well as management's continuous
presence in China over the past 15 years, positions the Company to take
advantage of perceived opportunities in this field. Further, demographic
developments in China, including the growth of the expatriate business and
diplomatic community, continue to create increasing needs for certain health
care services. In this regard, the Company expects to open the Beijing United
facility by the end of 1996 and to consider establishing a series of clinics in
other major metropolitan centers in China over the next several years.
PRODUCTS SOLD BY THE COMPANY
Medical Products
General
Medical products represent the largest category of products sold by the
Company. Medical product sales are arranged by specific product teams. A product
team normally is responsible for a single manufacturer's product line. In
certain cases where two manufacturers' products are sold to the same department
within a hospital, a product group will include both manufacturers. Each product
team is headed by a Product Manager who is responsible for all marketing and
sales for an assigned product. The Product Manager is further supported by sales
and/or clinical specialists and administrative support personnel. There
currently are approximately nine product teams engaged in medical product sales.
The product teams are based in Beijing and market and sell their assigned
product or products throughout China. Most sales of medical products are made
directly by the Company for its own account. The balance of the revenues
generated by the sale of medical products is net commission income paid by
manufacturers.
In addition to the Beijing-based product groups, the medical products also
are sold through the use of the regional offices of the Company in Shanghai and
Guangzhou and a network of territory sales managers. The sales personnel based
in the regional offices of the Company are responsible for identifying potential
medical business customers in the territory covered by the regional office and
coordinating the sales efforts of the Company with the appropriate product team.
In 1995 the Company established Chindex Tianjin, a wholly-owned foreign
subsidiary. Chindex Tianjin, which commenced marketing and operations in late
1995, is registered in the special economic Tianjin Free Trade Zone and is
subject to specific Chinese legislation governing the activities of
foreign-owned subsidiaries. Chindex Tianjin supplies certain products and
consumables directly to hospitals in China for domestic currency and will
provide a platform for future distribution activities. Further, in March 1996
the Company established Chindex Hong Kong, which represents expansion of the
Company's marketing, sales and technical service operations into Hong Kong.
Chindex Hong Kong currently performs the same services on behalf of Acuson in
Hong Kong as the Company currently performs in China.
The work of the technical service unit of the Company is particularly
related to the sale of medical products. The Company is responsible for the
technical support of most of the medical equipment sold
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by the Company. To support its medical business, the Company owns and operates a
full-service technical service center. Included in that technical service is a
cooperative arrangement with China National Medicines and Health Products Import
and Export Corporation ('MEHECO'), which provides the Company's technical
service operations with access to bonded warehousing facilities. The Company is
responsible for the day-to-day management, hiring, operating expenses and parts
supply for servicing. MEHECO is responsible for handling customs issues and
obtaining bonded warehousing from Chinese customs authorities. The service
personnel employed by the Company generally are biomedical and/or electrical
engineers with advanced university training, who have received further training
and certification by a manufacturer to service that manufacturer's products. The
service personnel ordinarily receive their training and certification at the
manufacturers' facilities in the United States, Europe or elsewhere. Due to the
highly sophisticated and technical nature of the medical products sold by the
Company, the technical service personnel receive continuing training by the
manufacturer as the product technology advances. Through the relationships
developed between the Company's technical service personnel and the customer
base, the Company believes that it is provided with important performance and
other after-sales information that is useful in its ongoing marketing and sales
efforts.
Manufacturers and Products
Acuson Corporation ('Acuson') is the largest supplier of medical products
sold by the Company. Sales by the Company of Acuson products represented
approximately 54.6% and 55.4% of the revenues of the Company during 1995 and the
six months ended June 30, 1996, respectively. The Company has an exclusive
distribution agreement in China with Acuson, which manufactures only ultrasound
imaging devices. The agreement provides that Acuson may terminate the
arrangement if the Company fails to purchase certain target quantities of
products in certain time periods. In addition, the Company recently was
appointed as Acuson's exclusive distributor in Hong Kong, which distribution is
managed by the Company's subsidiary, Chindex Hong Kong. The Acuson devices are
used exclusively in hospitals for non-invasive diagnostic purposes. The Acuson
machines may be customized to accommodate specific diagnostic applications,
including visual assessment of almost every part of the human body. See
'Distribution Arrangements.'
The Company believes that the ultrasound technology of the Acuson products
is suitable for large-scale marketing in China due to the relative economies of
the current alternatives for non-invasive imaging of the human body. In addition
to ultrasonic imaging, there exists conventional X-ray technology with its
inherent radiation risks, Computed Tomography ('CT'), which is also an X-ray
based technology, and magnetic resonance imaging ('MRI'), a technology based on
magnetic fields. With respect to the comparative initial equipment costs of
ultrasound, CT and MRI, an average CT scanner may be three to four times as
expensive as a high-end ultrasound machine, while an MRI scanner may be seven to
eight times as expensive. For China's developing health care system, the Company
believes that ultrasound represents appropriate and cost-effective non-invasive
imaging capability. In the high-end of the color Doppler ultrasound product
market, the Company's primary competition is Hewlett-Packard and Advanced
Technology Laboratories, Inc. ('ATL'). Hewlett-Packard maintains direct sales
operations in China through a joint venture. ATL sells products through an
independent, Hong Kong-based agent, which maintains offices in China. See
'Competition.'
The Company has been the exclusive distributor for Nova Biomedical, Inc.
('Nova'), a leading United States manufacturer of medical laboratory analysis
equipment, including electrolyte and blood analyzers since 1984. The Company's
arrangement with Nova is substantially based on an oral arrangement. The
purchase or sale by the Company of any minimum quantity of Nova products is not
required.
The Company has been the exclusive distributor for the Biomedical Division
of Nicolet Instrument Corporation ('Nicolet'), a manufacturer of
electrodiagnostic instrumentation, since 1987. These products are used to assist
in the diagnosis of neurological disorders, surgical monitoring, research and
hearing assessment. Until 1991, Nicolet was the only significant supplier of the
Company that provided its own after-sales service and support. In 1991, it
transferred those responsibilities to the Company. No arrangement exists between
the Company and Nicolet whereby the Company must purchase any minimum quantity
of product.
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In addition to the accounts described above, during the last two years the
Company has marketed and sold medical equipment on an exclusive basis for
numerous other manufacturers in such product areas as radiosurgical treatment
planning and stereotactic systems (Leibinger GmbH), bone densitometry systems
(Lunar Corporation), medical laser devices (Sharplan Lasers), ventilators, blood
processors, audiometric instruments and middle ear analyzers (Grason-Stadler,
Inc.), machines and consumables that utilize 'dry slide' clinical chemistry
technology (Johnson & Johnson Clinical Diagnostics) and production system for
hard currency transparencies of diagnostic images (Polaroid Medical Imaging
Systems).
Machinery Products
General
Machinery products sold by the Company consist primarily of a variety of
off-road construction, mining and heavy industrial vehicles, spare parts for
those vehicles and component parts for off-road vehicles. These products are
marketed to various mining, construction and industrial enterprises throughout
China. Substantially all of the revenues of the sale of machinery products are
in the form of net commission income on sales by manufacturers for which the
Company acts as agent.
The sale of machinery products is organized by product line and market
sector. Product Managers based in the Beijing office operate on a nationwide
basis. Each is responsible for business development in a specific market sector.
For example, one Product Manager will concentrate on the mining industry while
another will concentrate on ocean and inland shipping ports. The regional
offices of the Company offer sales and administrative support. Sales of
machinery products often are quantity purchases of a single product by large,
often government-run, enterprises. Such purchases are often regulated by China's
central government bureaucracies. These government agencies require significant
time in their decision-making processes. As such, the sale of machinery products
often requires protracted marketing efforts by the Product Managers and often
requires formal submission of bids by the respective manufacturers. All of the
Product Managers involved in the sale of machinery products are engineers who
have received extensive product sales training by the manufacturers of the
products. Technical support to the Chinese customers on sales of machinery
products is supplied directly by the manufacturers, with active coordination and
assistance by the Company.
As a condition of sale of such equipment, some degree of local content, or
'cooperative production' between the foreign suppliers and Chinese entities, of
the sold equipment often is required by the Chinese regulatory authorities. In
accordance with these requirements, the Company has incorporated into certain of
its product sales participation by local Chinese entities. For example, sales of
certain vehicles have included welding responsibilities on the part of local
Chinese in final assembly of the vehicles upon arrival in China. The Company
believes that it has successfully complied with these requirements, where
necessary, and that such compliance has not had a material effect on the
Company's operations. In addition, the Company has provided advice and guidance
to its manufacturers in the process of identifying appropriate Chinese partners
for 'cooperative production' projects and organizing an effective cooperative
structure between the partners. A 'cooperative production' project may take a
variety of forms. The project may be a joint venture between a Chinese
organization and a foreign entity in which the Chinese organization provides
facilities and labor in China for the manufacture of products and a foreign
entity provides production machinery and related technology. Another type of
'cooperative production' project may involve the Chinese participant providing
assembly of products manufactured in a foreign country. These arrangements
represent opportunities for the Chinese to work and become familiar with the
often more advanced machinery and technology from the foreign participant. In
addition, a 'cooperative production' project offers employment in China and may
involve economic participation in the venture. These arrangements similarly are
attractive to the foreign participants by permitting lower production costs.
Although not required to do so by its distribution agreements, the Company
also has advised and assisted certain of its manufacturers in evaluating
potential opportunities in China, such as licensing or joint venture production.
Although the Company has provided such advice or assistance in conjunction with
sales efforts on behalf of particular manufacturers, to date the Company has not
entered into any
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separate, formal agreements relating to the provision of such services.
Similarly, the Company has not yet received fees specifically for the rendering
of such services.
Manufacturers and Products
A large majority of the Company's sales of mining and construction
vehicles, and spare parts for those vehicles, were attributable to the sales of
the products of Volvo Construction Equipment Corp. (formerly VME International
Sales AB) and its joint venture company, Euclid-Hitachi Heavy Equipment, Inc.
('EHHE'). Sales by the Company of Volvo and EHHE products are sold on an agency,
rather than direct sale, basis, thereby generating net commission income, rather
than sales income. The Company represents Volvo through an exclusive sales
representative agreement with Volvo Construction Equipment Corp. in China and
also undertakes independent consulting responsibilities for Volvo. See 'Business
-- Distribution Arrangements.'
The Volvo product line includes articulated haulers and wheel loaders
(marketed under the brand name Volvo BM) and rigid haulers (marketed under the
brand name Euclid). The Euclid 'R170' and 'R190' haulers, which are of the 170-
and 190-ton capacity classes, respectively, have been purchased in various
quantities by Chinese organizations in the ferrous metals, nonferrous metals and
coal mining industries. Such mining operations, which the Company believes are
important development sectors in China's economic programs, ordinarily are
administered by the central government and the applicable industrial ministry.
Volvo recently reorganized such that its rigid haulers are manufactured by EHHE.
As a condition of sale of this type of equipment to the mining industries
in China, the government has required that foreign suppliers participate in a
cooperative production project with a Chinese partner, including a nominal level
of 'technology transfer' over time. In response to this requirement, the Company
has advised and assisted Volvo in initiating such relationships with several
Chinese entities. As co-production partners of Volvo, the Chinese entities
perform certain value-added services under Volvo's direction, such as local
sourcing and fabrication of parts and subassemblies for the articulated and
rigid haulers.
The Company believes that its competitors in the 170-ton and higher truck
classes are Caterpillar, Inc., Komatsu-Dresser (through a domestic co-production
arrangement), and Unit Rig (through a domestic co-production arrangement). The
Company believes that its primary competition is Caterpillar, Inc., Terex
(through a domestic co-production arrangement) and other domestic and foreign
manufacturers for the articulated hauler and wheel loader products.
The Company also represents Clark-Hurth Components, a division of Clark
Equipment Company which manufactures a variety of transmissions and axles for
use in construction and mining vehicles. The Company markets and sells the
Clark-Hurth products in China and also serves as consultant to Clark-Hurth for a
potential manufacturing joint venture project in China.
In addition, the Company sells Bobcat Skid-Steer Loaders, related
attachments and parts and mini-excavators pursuant to a non-exclusive agency
agreement with Melroe International Company, an unincorporated business unit of
Clark Equipment Company.
Project-related Products
General
The Company sells products relating to a variety of independent projects in
various industrial and scientific fields in two ways. First, with respect to
these products, the Company seeks to use its resources, including existing
customer relationships and the Company's reputation in the marketplace, to
identify potential marketing projects in China. Such projects may be identified
in a variety of industrial or research sectors. In conjunction with the business
development resources of the Company based in the United States, the Company
coordinates the strategic working groups necessary to pursue an initial project.
Such projects are often in industries or sectors that are new to the Company,
involving opportunities for the Company in new markets with new manufacturers.
In recent years the Company has completed initial industrial projects in mining
conveyance systems, electric power generation utilizing geothermal and waste
heat sources, specialized valves for the petroleum industry, ultrasonic
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flaw detection systems for metallurgical applications, quality control
instrumentation for the mining and metallurgical industries, and steel
pretreatment systems. Recent activities in scientific instrumentation have
included projects in optical spectrum analysis.
Second, the Company often seeks to use the success of a project as a link
towards an ongoing relationship with the supplier. The initial transactional
relationship may lead into a full agency relationship in which the Company would
create a marketing plan for the pursuit of additional sales in China. In
addition, the success of a project also presents the Company with the
opportunity of establishing a relationship with the customer in the project, and
the industry of that customer, for purposes of future projects. In order to
facilitate the often complex sales of project-related products, the Company is
active in setting up and administering strategic alliances between foreign
suppliers and local Chinese entities. In some cases the Company has provided
advice and other assistance to its manufacturers of product-related products on
marketing issues regarding local cooperative production, joint venture
structures and other issues related to ongoing marketing.
The sales of project-related products are often of a nature and complexity
requiring protracted marketing efforts. In many cases, the Company is introduced
to the manufacturers' products during the initial project and the Company's
personnel receive their first product sales and technical training 'on the job.'
As a relationship with a new manufacturer develops, more formalized product
training is arranged.
Manufacturers and Products
The sales of project-related products, which have been made on an agency,
rather than direct, basis, represent a variety of new and developing areas of
activity for the Company.
In the industrial sector, in addition to the sale of construction and
mining vehicles and equipment, in recent years the Company has completed
industrial projects in mining conveyance systems, electric power generation
utilizing geothermal and waste heat sources, specialized valves for the
petroleum industry, ultrasonic flaw detection systems for metallurgical
applications, quality control instrumentation for the mining and metallurgical
industries, steel pretreatment systems, coal processing analysis
instrumentation, coal preparation equipment and industrial air conditioning.
Recent activities in scientific instrumentation have included projects in
optical spectrum analysis, electrochemical analysis, infrared analytical
instrumentation and instrumentation for laser beam analysis.
SERVICE AND WARRANTY
The Company's exclusive distribution agreements for medical and scientific
products provide that the Company is responsible for servicing and other
post-sale matters during the applicable warranty periods. Manufacturer's
warranties on the medical and scientific products sold by the Company ordinarily
run for approximately 15 months from the date of installation (or, in certain
cases, 13-15 months from the date of shipment). In order to perform its
servicing and other after-sale responsibilities, the Company employs a staff of
12 engineering and technical support personnel, most of whom are biomedical
and/or electrical engineers with advanced university training and who have
received further training and certification for servicing at the particular
manufacturer's home facilities.
The technical support engineers are located at the Company's various
offices and are trained to handle service calls initially through advice and
consultation. If necessary, the engineers travel to the location of the unit and
perform required servicing. The Company maintains what it believes is an
adequate inventory of supplies, spare parts and tools to handle most servicing.
If parts require replacement under warranty, the Company may elect to replace
that part out of its own parts inventory with the understanding that the
manufacturer would in turn replace the part in the Company's inventory. The
technical service provided by the Company to the end-user ordinarily is included
in the contract purchase price. The Company believes that the terms of
warranties provided to the Company's customers are standard for the medical and
scientific instrument industries and in accordance with each manufacturer's
standard international warranty provisions.
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DISTRIBUTION ARRANGEMENTS
None of the contracts between the Company and its manufacturers represent
long-term obligations of the manufacturer. Each of the Company's agreements with
its two largest manufacturers requires that the Company use its best efforts to
promote the manufacturer's products. In addition, certain of the agreements
contain various sales office maintenance and confidentiality requirements. There
are significant differences in the form and content of the various agreements.
The Company's arrangements with certain of its manufacturers are not subject to
written agreements. The Company believes that its arrangement with each
manufacturer substantially depends upon the mutual satisfaction with the
relationship in addition to the terms of its operating agreement, if any. There
can be no assurance that the Company's manufacturers will not elect to change
their method of distribution into the China marketplace to a format that does
not to utilize the services of the Company.
Certain of the contracts between the Company and its suppliers contain
short-term cancellation provisions permitting the contracts to be terminated on
30 days' to six months' notice, minimum sales quantity requirements or targets
and provisions triggering termination upon the occurrence of certain events. The
Company has notified each of its significant suppliers as to the pendency of
this Offering. Although the Company is not aware of any threatened cancellations
of its distribution agreements, there can be no assurance that cancellations or
other material adverse effects on its contracts or arrangements will not occur.
Acuson Corporation
The Company commenced its contractual relationship with Acuson in 1987.
Under the terms of its current agreement, the Company is the authorized
distributor of Acuson diagnostic ultrasound equipment in China. In addition, the
Company's responsibilities include the training of all customers, the
maintenance and servicing of Acuson products and various promotional activities
within China. Acuson provides customers of the Company with a parts warranty of
up to thirteen months from the date of product shipment from the United States.
In accordance with such guarantee, Acuson will replace or repair any parts
defective as a result of original materials used or workmanship. Servicing this
warranty is the responsibility of the Company. The agreement with Acuson has
been renewed regularly since 1987. The current agreement with Acuson expires on
March 31, 1997 and is subject to automatic renewal for successive one year
periods unless either party gives timely notice of intent not to renew. Acuson,
however, has the right to terminate the agreement on 60 days' prior notice if
the Company fails to meet specified requirements, all of which the Company
believes it currently meets.
Volvo Construction Equipment Corp.
Since 1981, the Company has served as the representative for certain
products now marketed by Volvo Construction Equipment Corp. The current
agreement between the Company and Volvo has been in effect since January 1,
1989. That agreement was entered into with VME International Sales AB ('VME'), a
joint venture company jointly owned by Volvo AB and Clark Equipment Company. In
1995, Clark sold its shares of VME to Volvo AB and, since the conclusion of the
transaction, VME has been called Volvo Construction Equipment Corp. The Company
serves as the exclusive sales representative in all but two provinces of China
(in which the relationship is non-exclusive) for certain products now marketed
by Volvo Construction Equipment Corp. The products under this agreement are
wheel loaders, marked Volvo BM and/or Michigan, articulated haulers marked Volvo
BM, rigid haulers marked Euclid, excavator loaders marked Volvo BM and
replacement parts for such products. Volvo has the right to discontinue sales of
any product, make changes to any product or designate certain parts to be sold
as a component of a complete unit. In addition, Volvo may seek assistance of
other companies in the sale of such products in China under special
circumstances such as equipment being purchased by a foreign supplier for a
project in China or financing being provided by a third party for a project in
China. The territories of Guangdong and Hainan are handled on a non-exclusive
basis. Under the terms of the agreement, the Company has a duty to maintain
relationships with the local trade authorities, purchase organizations and
end-users of Volvo products, to relay inquiries for sales in China to and from
Volvo, to assist Volvo in the promotion of products and literature, to assist
Volvo in procuring any necessary governmental approvals, licenses, certificates
and permits that may be required
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and to maintain an adequate staff dedicated to the construction and mining
machinery business. The Company, however, has no duty to meet minimum sales
targets or other similar requirements. Volvo has recently reorganized such that
its rigid haulers are now manufactured by EHHE. The Company believes that its
arrangement with Volvo eventually will be modified to reflect the separate sales
undertaking for the rigid haulers.
CHINA
China has had a socialist economy for more than forty years. Approximately
17 years ago, however, China began implementing market-oriented reforms aimed at
improving the economy and the Chinese standard of living. The Chinese
government's express economic policy during the last 17 years has shifted away
from centralization toward a market economy in which the government occupies a
reduced role and market forces are given greater emphasis. This policy toward an
economy observing market forces has resulted in several gradual but significant
changes affecting the operations of the Company. Most importantly with respect
to the Company, although government-owned enterprises continue to constitute the
largest sector of the Chinese economy, the recent Chinese economic policy has
led to a decentralization of decision-making power and responsibility with
respect to matters such as allocation of funds and the regionalization of
economic development. In general, the policy includes an attempt to attract
foreign technology to China.
China, with more than one billion people, contains approximately one-fifth
of the world's population. With respect to the market for the Company's medical
products, China has 1.15 doctors for every 1,000 people and 15,000 hospitals at
or above the county level. Nationwide there are 2,500,000 hospital beds, which
is second in the world only to the former Soviet Union. According to the Chinese
Customs Authority, China imported a total of $440 million worth of medical
equipment in 1995.
The Company's machinery equipment typically is sold in connection with
large centrally-controlled open pit mining projects and the operation of
regional port facilities. With respect to the market for the Company's machinery
equipment, the major ferrous, nonferrous, mineral, chemical and coal mine
projects throughout China continue to play key roles as strategic development
industries in the country's economic five year plans. As such they continue to
receive central government funding and various projects are the recipients of
foreign government loans. China presently is developing major coal fields in the
northeast province. These large, open pit mines require large fleets of mining
haulers such as those marketed by the Company. In keeping with China's strategy
of increasing its foreign trade, the central government and regional port
authorities continue to focus on developing new ports and increasing the
handling of capacity of existing ones.
At present, a significant portion of the economic activity in China is
export-driven and, therefore, is affected by developments in the economies of
China's principal trading partners. The U.S. Congress considers annually the
renewal of "Most Favored Nation" trading status, which currently is in place,
for China and may attach conditions to the renewal of such status which China
may decline, or be unable, to meet. In 1994, President Clinton announced
delinkage of such status to China's achievement of overall significant progress
in the area of human rights. Prior to this announcement, renewal of such status
had been contingent on the achievement of such progress. There can be no
assurance that renewal of such status in the future will not be linked to human
rights issues or other requirements or that, notwithstanding continuing
presidential support for such status, Congress for any reason in the future will
not deny such status beyond the President's ability to veto such denial.
Revocation or conditional extension by the United States of China's 'Most
Favored Nation' trading status could have a material adverse effect on the trade
and economic development of China and on the operations of the Company.
MARKETING
General
The Company conducts a variety of marketing efforts. The Company's sales
personnel attend trade shows and exhibitions throughout China. At these trade
shows, the Company usually operates a separate promotional exhibit. The
Company's sales personnel also attend and sponsor seminars given to
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individual end-user organizations or industry groups. Marketing activities can
include presentations to central Ministry officials, product seminars conducted
at the prospective end-user site and technical seminars given to end-users and
other pertinent entities in China. In addition, the Company conducts extensive
advertising throughout China on a product-specific basis. The Company regularly
advertises its products in leading Chinese industrial, trade and clinical
journals. The Company's products are further described in various product
catalogues, which are produced by the Company and disseminated to customers
through the sales force, direct mail, product promotions and trade exhibits. The
Company further coordinates on a product-specific basis with its manufacturers
for the production of various Chinese language materials which may include, in
addition to promotional materials, operations and technical manuals. The Company
believes that there exists a substantial expanding market for its products in
the China marketplace and the further integration of the Chinese foreign trade
system into the established global economy through its application to the World
Trade Organization and other initiatives to further open the Chinese economy to
foreign participation will further enhance the market for the Company's
products.
Products
The Company markets its medical products to hospitals, through hospital
administrators and the doctors who are the ultimate users of the products. There
is virtually no private practice of medicine in China and all physicians are
affiliated with hospitals or similar institutions. Each hospital also has
various economic and administrative forces at work determining hospital policy
and practice. A hospital's decision to purchase products marketed by the Company
depends on those economic and administrative forces. The Company's marketing is
addressed to all relevant participants in the purchasing decision, including the
doctors and hospital administrators. Since a significant portion of the
Company's sales of medical products is repeat business, relations with the
Company's health field customers is an important aspect of the marketing efforts
for such products. Since 1988, the Company has sold products to approximately
750 hospitals in China, many of which have been repeat customers.
The Company markets its machinery products to industrial organizations in
the mining, construction and port development sectors. The principal purchasers
of these products are large-scale mining projects and port authorities as
administered by their relevant industrial ministry on a national or regional
basis. Many of the Company's purchasers in the mining industry involve open pit
mining operations for coal, ferrous metals and nonferrous metals. Unlike sales
of medical instruments, the sale of machinery to industrial groups is regulated
and/or coordinated by the applicable ministry or similar agency and usually
involves national funding concerns and interaction with centralized
bureaucracies. These same issues apply to the sale of machinery to port or
construction projects that are subject to national bureaucratic administration.
As such, the marketing efforts relating to the sale of machinery equipment are
designed for extended involvement by the Company over the full development cycle
of a particular sale, which often involves up to two years of pre-sale activity.
Other equipment sales can involve extensive work at a particular end-user site
to identify needs and assist in formulating specifications. In addition, the
contract performance period for the sale of machinery products in quantity in
the future may require an additional period of up to two or three years, with
suppliers being paid on an installment basis in accordance with deliveries.
The Company markets and sells its project-related products to a wide range
of end-users in a wide variety of circumstances. The marketing and sale of these
products occurs on a project-by-project basis rather than to a single,
established industry. With respect to project-related products, the Company
routinely engages in two phases of marketing activities which correspond to the
anticipated sequence of involvement with a manufacturer's product. The first
phase of marketing and promotion is directed specifically at the initial project
being pursued by the Company. This marketing may include product seminars
conducted at the prospective end-user site and technical seminars given to
end-users and other pertinent entities in China. In addition, on the occasions
that prospective Chinese customers visit the manufacturer in the United States
for product review and investigation, the Company may coordinate visits to
existing customers of the manufacturer for reference purposes. The second phase
of marketing and promotion begins after the commencement of the project
undertaking. At this time, the Company
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will employ traditional product marketing techniques such as advertising, sales
seminars, exhibitions and Chinese language promotional literature, among other
things.
Foreign Trade Corporations
Most purchases of the Company's products, regardless of the nature of the
end-user, are made through foreign trade corporations ('FTCs'). Although the
purchasing decision is made by the end-user, which may be an individual or a
group having the required approvals from their administrative organizations, the
Company enters into formal purchase contracts with FTCs. The FTCs make purchases
on behalf of the end-users and are legally authorized by the Chinese government
to conduct import business. These organizations are chartered and regulated by
the government and are formed to facilitate foreign trade. The Company markets
its products directly to end-users, but in consummating a sale the Company also
must interact with the particular FTC representing the end-user. For this
reason, the Company seeks to maintain ongoing relationships with the FTCs in its
industries. By virtue of its direct contractual relationship with the FTC,
rather than the end-user, the Company is to some extent dependent upon the
continuing existence of and contractual compliance by the FTC until the
particular transaction has been consummated. The Company's business, however, is
not dependent on any single FTC or end-user. Although sales by the Company to
certain industries involve repeat transactions with FTCs that operate in those
industries, the Company does not believe that it is dependent upon relations
with any particular FTC or that the loss of relations with any particular FTC
would have a material adverse effect on the Company. Rather, FTCs, which earn
commissions in transactions, compete with each other for the right to handle
end-users' business.
PROPOSED BEIJING CLINIC
In 1995, the Company began a process of expansion into the related field of
providing health care services. The Company has taken initial steps to providing
Western-standard health care services to targeted market segments in China. The
Company believes that demographic developments in China, including the growth of
the expatriate business and diplomatic community, continue to create increasing
needs for these services. In this regard, the Company established Beijing
United, a 90%-owned joint venture between the Company and a company controlled
by the Chinese Academy of Medical Sciences. Beijing United is being designed to
provide the expatriate business and diplomatic community in Beijing with
complete Western-standard maternity and birthing services as well as neonatal
and pediatric care. The Company is considering establishing a series of clinics
in other major metropolitan centers in China over the next several years.
Expatriate women and children in China, in general, and in Beijing, in
particular, have not been able to obtain maternity and pediatric services to
which they are accustomed. Presently, foreign women and children in China make
use of local Chinese institutions, which lack the level of care and philosophy
typical in their home countries, return home for care or seek care from the few
foreign general practitioners (rather than obstetric or pediatric specialists)
in their area. In addition, an increasing number of affluent Chinese also seek
to obtain these services other than through the existing Chinese system. In
Beijing, for example, there are no contemporary Western-style facilities or
specialists generally available to provide these services. The Company believes
that it will be able to address the demand for these facilities and services
initially through the establishment of the proposed Beijing United facility.
Beijing United expects that substantially all of its patients will be on a
fee-for-service, private payor basis. Given the nature of the expatriate
community in China, Beijing United does not intend to participate in Medicare,
Medicaid or similar governmental reimbursement programs. The Company believes
that most of its targeted patient population are Westerners who are covered by
private third-party insurers and that Beijing United's services will be covered
thereby. The Company further believes that these insurers and/or patient
employers may experience less total cost as a result of the use of the clinic's
services. Such use should be expected to reduce these costs typically incurred,
since expatriates would not be expected to dislocate from China for extended
periods. Similarly, such use should be expected to reduce the personal upheaval
which such dislocation ordinarily creates for patients and their families.
Patients not covered by acceptable insurance will be required to pay in cash.
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The proposed facility is situated in a five-story building located near a
concentration of Beijing's expatriate residences. Although the Company leases
the entire building, consisting of approximately 43,000 square feet, the three
upper floors have been subleased to the International School of Beijing and
Beijing United will occupy only the lower two floors. During 1996, the Company
expects to enter into commitments for capital expenditures in the approximate
aggregate amount of $2,500,000 for equipment and renovations in connection with
the facility. The Company intends to finance these capital expenditures
principally from its cash and cash equivalents available prior to this Offering.
The Company may use a portion of the net proceeds of this Offering, however, to
fund a portion of the start-up expenses of the facility and intends to use a
portion of the net proceeds to finance the clinic during the initial period of
operations.
In addition to its lease, the Company will incur a variety of significant
costs in connection with the Beijing United facility, including construction and
improvements to the leased site, various medical equipment and supplies,
personnel costs relating to clinic management, medical staff and other employees
and other costs. The improvements to the site will include birthing suites
(containing resting and kitchen facilities), conference rooms, two operating
rooms, waiting rooms, examination rooms, office space, physician apartments, a
pharmacy area, hygienic facilities and other appropriate features. The Company
intends to supply the clinic with a variety of state-of-the-art equipment,
including requisite operating room equipment, ultrasound and other diagnostic
and imaging systems, incubators, respirators, neonatal monitors, laboratory
apparatus, pharmacy supplies and a wide variety of other necessary equipment.
Beijing United intends to provide a wide variety of services within a
well-defined protocol. These services will include full obstetric, maternity and
prenatal services, birthing services, women's health care, gynecology, fertility
services and counseling, genetic counseling, circumcision, baby care, general
pediatric services and extensive counseling in numerous related areas. Beijing
United is in the process of establishing its protocol regarding covered services
and patients. That protocol will identify high-risk patients and circumstances
to be referred to other appropriate providers and will dictate procedures for
accessing outside health care, where appropriate. Beijing United intends to make
arrangements with other medical institutions, including premier local hospitals,
and one or more of the leading emergency evacuation organizations in China in
order to provide extreme emergency or other outside health care services.
Beijing United will employ a Board certified obstetrician and gynecologist to be
on staff, as well as to provide planning and other operational guidance.
Further, Beijing United intends to hire nurses, nurse midwives, technicians and
other health care providers, as well as other appropriate staff and counselors.
To date, the Company's efforts in this regard have been in the development
phase and the proposed initial clinic in Beijing has not yet opened. Even if the
numerous preparatory and commencement requirements, including government
approvals, are satisfied, as to which there can be no assurance, the Company's
proposed health care services operations will be dependent upon a variety of
operating requirements, including the ability to attract and retain qualified
physicians and other health care professionals, among other things. There can be
no assurance that the Company will be able to successfully establish health care
services operations or that such operations will result in significant revenues
or profitability. Further, neither the Company nor any of its senior management
has significant experience establishing or operating health care facilities in
China or elsewhere.
The provision of health care services entails the risk of potential medical
malpractice and similar claims. Although the Company will provide medical
malpractice insurance for the physicians performing medical services at its
facilities, malpractice claims may be asserted against the Company directly in
the event that services rendered by the Company or procedures performed at the
Company's facilities are alleged to have resulted in injury or other adverse
effects. Although the Company intends to obtain and to cause Beijing United to
obtain liability insurance that it believes is adequate as to both risks and
amounts, successful malpractice claims could exceed the limits of the Company's
insurance and could have a material adverse effect on the Company's business,
financial condition or operating results. In any event, the applicable laws in
China relating to liability of this type are not as well-settled as in the
United States and most other Western countries. Moreover, a malpractice claim
asserted against the Company could be costly to defend, could consume management
resources and could adversely affect
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the Company's reputation and business, regardless of the merit or eventual
outcome of such claim. In addition, there can be no assurance that the Company
will be able to obtain such insurance on commercially reasonably terms in the
future or that any such insurance will provide adequate coverage against
potential claims.
The Company believes that the Beijing United clinic is the first
foreign-managed health care facility of its kind to have been granted the
necessary authorization to operate by China's Ministry of Health. All requisite
approvals, however, have not yet been obtained. Following completion of
construction of the facility, the Company must obtain an occupancy permit and
medical license from the appropriate Beijing municipal authorities. There can be
no assurance that all requisite approvals ultimately will be obtained or
continued as necessary for clinic operations.
COMPETITION
The Company competes with other independent distributors in China that
market similar products. Although the Company believes that it is one of the
largest independent distributors in its markets, there may be other distributors
with greater resources or other competitive advantages over the Company.
In addition to other independent distributors, the Company faces more
significant competition from direct distributors of established manufacturers.
With respect to its medical products, for example, the Company competes with
Hewlett-Packard, which maintains its own direct sales force in China. In
addition, since certain manufacturers, such as Hewlett-Packard, market under one
brand name a wide variety of products in China to different market sectors,
those manufacturers may be better able than the Company to establish name
recognition across industry lines. For example, Hewlett-Packard also
manufactures and markets computers in China as well as other medical instruments
not sold by the Company. The Company believes that Hewlett-Packard and Siemens
Corporation are the largest such direct competitors in the medical products
field. The Company believes that its products incorporate technologies that are
more advanced than those available in products currently available from domestic
Chinese manufacturers.
With respect to machinery products, the Company faces significant
competition from the direct sales operations of Caterpillar Inc. and other
large, international companies active in the same equipment sectors as the
Company. In addition, certain competition is presented by domestic Chinese
entities in various product areas. Certain of these competitors, whether joint
venture projects with foreign manufacturers or all-Chinese groups, often receive
preferential treatment by the government regulatory authorities, who seek to
curtail spending on imported equipment in favor of domestic Chinese industrial
development. Although the Company competes directly with products of certain
such joint ventures and all-Chinese groups, the Company does not believe that
this preference by the regulatory authorities is often applied to the material
detriment of the Company. In general, the Company believes that this preference
has not had a material effect on the Company's operations.
The Company's competitive position depends in part upon its ability to
attract and retain qualified personnel in sales, technical and administrative
capacities. In addition, many of the Company's various competitors have greater
resources, financial or otherwise, than does the Company.
Elements of competition in the Company's industry include quality,
technology, product price and after-sale service and support. The Company
believes that the products it markets and distributes are competitive in these
regards and that the quality of the Company's technical service and support of
those products in particular enhances the Company's competitiveness in its
markets. The Company does not believe that there are significant barriers to the
entry of additional competition in its markets either by distributors such as
the Company or by manufacturers seeking to sell on a direct sale basis.
In response to increased competition, and, in an effort to expand its
business, the Company has entered into agreements with certain customers to
provide extended payment terms for purchase of goods. These arrangements,
limited to selected purchasers qualified by the Company, have assisted the
Company in competing with financing offered by competing manufacturers and
governments. See 'Risk Factors -- Timing of Revenues; Fluctuations in Financial
Performance and Impact of Single Financing'
39
<PAGE>
<PAGE>
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
To date, most of the Company's sales have been backed by letters of credit
in order to ensure payment. As a result, the Company has not experienced
significant problems in the collection of accounts receivable. The Company
currently intends to continue to use letters of credit in the conduct of its
business. As competition increases and the Company seeks to expand its business,
particularly in light of restrictions on the availability of credit from the
Chinese banking system, however, the Company may no longer continue to obtain
letters of credit on the same basis or as often, if at all. In addition, to the
extent that the Company's competition increases, the Company's profit margins
may be reduced in order to remain competitive.
To date, except for sales made by Chindex Tianjin, all of the Company's
sales have been made in United States Dollars. The competitiveness of the
Company's products, however, is dependent in part on the currency, such as
United States Dollars or Swedish Kronas, of the country of the selling
manufacturer. To the extent that any such currencies are devalued in comparison
with the currencies in which competitive products are sold, the Company would
experience a competitive disadvantage. Chindex Tianjin sells goods directly to
end-users without the required involvement or cost of an FTC and receives
payment in local Chinese currency and uses the currency to pay for local
expenses. Any devaluation in the local Chinese currency may have a negative
impact on the Company's results of operations.
Upon commencement of its operations, Beijing United will compete with a
large number and variety of health care facilities in Beijing. There are
numerous Chinese hospitals available to the general populace in Beijing, as well
as two international clinics serving the expatriate business and diplomatic
community. The Company believes that the existing two international clinics do
not currently provide specialized Western-standard maternity and birthing
services and neonatal care. There can be no assurance that these or other
clinics or facilities will not commence such operations and compete with Beijing
United. Further, there can be no assurance that a qualified Western or other
health care organization, with greater resources or more experience than the
Company in the provision or management of health care services, will not decide
to engage in operations similar to those to be conducted by Beijing United.
CONTRACT PERFORMANCE
In addition to the protracted marketing and sales efforts often involved in
the Company's transactions, an extended period of time ordinarily is required in
contract performance with respect to the sale of machinery and project-related
products. The period from contract signing to product availability often
requires up to one year or longer. An additional period of six months or longer
may be involved before acceptance of delivery has occurred. At that time, the
warranty period commences.
In connection with the extended contract performance period, the payment of
the purchase price typically is made on installment basis. Although the terms
vary, generally 10% of a purchase price is withheld pending acceptance of
delivery of the products and an additional 5% is withheld pending the duration
of the warranty period.
EMPLOYEES
At September 1, 1996, the Company had 135 full-time salaried employees, 122
of whom are in China. Of the full-time personnel in China, 20 are expatriates
and 102 are Chinese nationals. Of the Company's China-based employees, 22 are
considered administrative personnel, 21 are engineering personnel and the
remainder are sales personnel. No employee of the Company currently is
represented by a labor union. Management considers its employee relations to be
good.
The Company intends to add employees as necessary to meet its management,
marketing, sales and technical service needs from time to time. To date, the
Company has been able to attract and retain highly qualified professionals and
other administrative personnel as required by its business. The Company believes
that the future success and development of the Company is dependent to a
significant degree on its ability to continue to attract such individuals.
40
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<PAGE>
FACILITIES
The Company's representative headquarters in China are located at a 12,000
square foot facility in Beijing pursuant to a lease expiring June 30, 2001. The
Company also leases regional offices in the Chinese cities of Shanghai, Guangzou
and Tianjin comprised of approximately 700, 350 and 700 square feet,
respectively, each lease expiring yearly. The Company's executive and
administrative offices are located in Bethesda, Maryland, which provides access
to nearby Washington, D.C. The lease for the Bethesda office, which consists of
approximately 2,700 square feet, expires on May 31, 1999. On November 8, 1995,
the Company entered into a five year lease for a four story building of
approximately 43,500 square feet in Beijing. The Company plans to utilize two
floors of the building for Beijing United's proposed birthing center and
pediatric clinic. Aggregate rental expense was approximately $348,000 and
$388,000 for the year ended December 31, 1995, and the six months ended June 30,
1996, respectively. The Company's current aggregate annual rent is $519,000.
The Company believes that the current facilities will be sufficient to
satisfy the Company's current requirements. In its strategy to expand
operations, however, the Company will explore new territories in China and will
seek to open new offices and will consider opening new clinics. Although the
Company believes that office space will be available at affordable prices, no
assurance can be given. The Company believes that, in the event any of the
existing leases that expire within five years are not renewed, adequate
alternative space is available in the same areas at comparable rates.
LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company or any
of its properties is subject, nor to the knowledge of the Company, are any such
legal proceedings threatened.
41
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of the Company, their ages and present positions
held with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Roberta Lipson(1).............. 41 Chairperson of the Board of Directors,
Chief Executive Officer and President
Elyse Beth Silverberg(1)....... 39 Executive Vice President, Secretary and Director
Lawrence Pemble................ 39 Executive Vice President Finance and Business Development and
Director
Robert C. Goodwin, Jr.......... 55 Executive Vice President Operations, Treasurer, Assistant
Secretary, General Counsel and Director
Morris Lipson(1)(2)............ 74 Director
A. Kenneth Nilsson(2).......... 63 Director
Julius Y. Oestreicher(2)....... 66 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
------------------------
The following is a brief summary of the background of each director and
executive officer of the Company:
ROBERTA LIPSON co-founded the Company in 1981. Ms. Lipson has served as the
Chairperson of the Board of Directors, Chief Executive Officer and President
since that time. From 1979 until founding the Company in 1981, Ms. Lipson was
employed in China by Sobin Chemical, Inc., a worldwide trading company, as
Marketing Manager, coordinating marketing and sales of various equipment in
China. Ms. Lipson was employed by Schering-Plough Corp. in the area of product
marketing until 1979. Ms. Lipson received a B.A. degree in East Asian Studies
from Brandeis University and an M.B.A. from Columbia University Graduate School
of Business. Ms. Lipson is the daughter of Morris Lipson.
ELYSE BETH SILVERBERG co-founded the Company in 1981. Ms. Silverberg has
served as the Company's Executive Vice President and Secretary and as a Director
since that time. Prior to founding the Company, from 1980 to 1981, Ms.
Silverberg worked with Ms. Lipson at Sobin Chemical, Inc. and was an intern in
China with the National Council for U.S.-China Trade from 1979 to 1980. Ms.
Silverberg received a B.A. degree in Chinese Studies and History from the State
University of New York at Albany.
LAWRENCE PEMBLE joined the Company in 1984 and has served as Executive Vice
President Finance and Business Development since January 1996. From 1986 until
1996, Mr. Pemble served as Vice President of Marketing. From 1986 through April
1992 and September 1993 to the present, Mr. Pemble has also served as a Director
of the Company. Prior to joining the Company, Mr. Pemble was employed by China
Books and Periodicals, Inc. as Manager, East Coast Center. Mr. Pemble received a
B.A. degree in Chinese Studies and Linguistics from the State University of New
York at Albany.
ROBERT C. GOODWIN, JR. has served as Executive Vice President Operations
since January 1996, as Assistant Secretary since June 1995 and as General
Counsel, Treasurer and a Director of the Company since October 1992. In addition
to his other duties, from October 1992 until January 1996, Mr. Goodwin served as
Vice President of Operations for the Company. Prior to joining the Company, Mr.
Goodwin was engaged in the private practice of law from 1979 to 1992, with a
specialty in international law, in Washington, D.C. and had served as the
Company's outside counsel since 1984. Prior to such employment, Mr. Goodwin
served for two years as the Assistant General Counsel for International Trade
and Emergency Preparedness for the United States Department of Energy and for
three years as the Deputy Assistant General Counsel for the Federal Energy
Administration. From 1969 until 1974, Mr. Goodwin served as an attorney-advisor
for the U.S. Department of Commerce. Mr. Goodwin received a B.A. degree from
Fordham University and a J.D. from Georgetown University Law Center.
42
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<PAGE>
MORRIS LIPSON has served as a Director of the Company since its founding in
1981. He is the founder and President of Lipson Bros., Inc., a garment
manufacturing company in New York since 1946. Mr. Lipson is the father of
Roberta Lipson.
A. KENNETH NILSSON has served as a Director of the Company since January
1996. Since 1989, Mr. Nilsson has served as Chairman of Eureka Group, Inc., a
consulting firm he founded in 1972. Prior to 1989, Mr. Nilsson served as Vice
Chairman of Cooper Companies, Inc., President of Cooper Laboratories, Inc., and
President of Cooper Lasersonics, Inc. He previously served as an officer of Max
Factor & Co., Ltd. and of Pfizer International, Inc. Mr. Nilsson received a B.A.
degree in Telecommunications from the University of Southern California and a
M.A. in Political Science from the University of California.
JULIUS Y. OESTREICHER has served as a Director of the Company since January
1996. Mr. Oestreicher has been a partner with the law firm of Oestreicher &
Ennis, LLP and its predecessor firms for thirty years, engaged primarily in
estate, tax and business law. He is a Certified Public Accountant admitted in
New York State. Mr. Oestreicher received a B.S. degree in Business
Administration from City College of New York and a J.D. from Fordham University
School of Law.
All Directors of the Company hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. The officers
of the Company are elected by the Board of Directors at the first meeting after
each annual meeting of the Company's shareholders, and hold office until their
death, until they resign or until they have been removed from office. The
Company has no executive or nominating committee. The Board of Directors has
established a Compensation Committee, which currently is composed of Roberta
Lipson, Elyse Beth Silverberg and Morris Lipson. The Compensation Committee was
established to administer the Company's 1994 Stock Option Plan, make other
relevant compensation decisions of the Company and such other matters relating
to compensation as may be prescribed by the Board of Directors. The Audit
Committee currently is composed of Morris Lipson, A. Kenneth Nilsson and Julius
Y. Oestreicher. The function of the Audit Committee is to make recommendations
concerning the selection each year of independent auditors of the Company, to
review the effectiveness of the Company's internal accounting methods and
procedures and to determine through discussions with the independent auditors
whether any instructions or limitations have been placed upon them in connection
with the scope of their audit or its implementation.
43
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation of the Company's Chief Executive Officer and the
Company's most highly compensated executive officers whose compensation was in
excess of $100,000 during the year ended December 31, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------------------- COMPENSATION
OTHER ---------------------------------
ANNUAL RESTRICTED SHARES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARD UNDERLYING OPTIONS
- -------------------------------- ---- -------- ------- ------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Roberta Lipson ................. 1995 $135,000 -- -- -- --
Chairperson of the Board, 1994 $118,483 -- -- -- --
Chief Executive Officer and 1993 $ 30,000 -- -- -- --
President
Elyse Beth Silverberg, ......... 1995 $130,000 -- $ 23,600(1) -- --
Executive Vice President and 1994 $108,333 -- $ 22,565(1) -- --
Secretary
Lawrence Pemble, ............... 1995 $123,733 -- -- -- --
Executive Vice President 1994 $106,020 $55,000 -- -- --
Finance and Business 1993 $ 36,110 -- -- $ 250,000(2) --
Development
Robert C. Goodwin, Jr. ......... 1995 $110,000 -- -- -- --
Executive Vice President 1994 $103,769 $20,000 -- -- 16,000
Operations, General Counsel,
Assistant Secretary and
Treasurer
</TABLE>
- ------------
(1) Includes yearly rental expense in the amount of $9,400 for Ms. Silverberg's
housing in China and tuition expense in the amounts of $14,200 for 1995 and
$13,165 for 1994 for Ms. Silverberg's son in China.
(2) Mr. Pemble was issued 100,000 restricted shares of the Company's Common
Stock in October 1993 in connection with his resumption of full-time
employment with the Company. Such restricted shares, which were converted to
restricted shares of the Company's Class B Common Stock in April 1994, were
valued at $250,000 for financial reporting purposes. The value of such
restricted shares as of December 31, 1995 was $531,250 (calculated by
multiplying the market value of one share of the Company's unrestricted
Common Stock on that date by the number of such restricted shares).
EMPLOYMENT AGREEMENTS
In May 1994, the Company entered into a three-year employment agreement
with each of Mmes. Lipson and Silverberg and Messrs. Pemble and Goodwin, which
as amended or revised to date, provide for annual base salaries of $167,670,
$161,460, $155,250 and $136,620, respectively. Each such executive officer also
receives additional benefits, including those generally provided to other
executive officers of the Company. In addition, Mmes. Lipson and Silverberg also
receive reimbursement of expenses relating to residing in China. The Company's
Board of Directors also may grant bonuses or increase the base salary payable to
any executive. The employment agreements also contain non-competition provisions
that preclude each executive from competing with the Company for a period of two
years from the date of his or her termination of employment unless his or her
employment is terminated by the Company without cause, as such term is defined
in the employment agreements.
The Company has obtained individual term life insurance policies covering
Roberta Lipson and Elyse Beth Silverberg in the amount of $2,000,000 per person.
The Company is the sole beneficiary under these policies.
In accordance with the terms of an agreement between the Underwriter and
the Company, the Company has agreed that the annual salary and bonuses of the
executive officers will not increase for 13 months after the closing of this
Offering.
44
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<PAGE>
In conformity with the Company's policy, all of its directors and officers
execute confidentiality and nondisclosure agreements upon the commencement of
employment with the Company. The agreements generally provide that all
inventions or discoveries by the employee related to the Company's business and
all confidential information developed or made known to the employee during the
term of employment shall be the exclusive property of the Company and shall not
be disclosed to third parties without prior approval of the Company. The
Company's employment agreements with Mmes. Lipson and Silverberg and Messrs.
Pemble and Goodwin also contain non-competition provisions that preclude each
employee from competing in certain respects with the Company for a period of two
years from the date of his or her termination of employment unless his or her
employment is terminated by the Company without cause, as such term is defined
in the employment agreements. Public policy limitations and the difficulty of
obtaining injunctive relief may impair the Company's ability to enforce the
non-competition and nondisclosure covenants made by its employees.
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company is paid for service on
the Board of Directors a retainer at the rate of $1,000 per annum and an
additional $500 for each meeting of the Board of Directors attended. The Company
also reimburses each Director for reasonable expenses in attending meetings of
the Board of Directors. Directors who are also employees of the Company are not
separately compensated for their services as Directors.
STOCK OPTION PLAN
In April 1994, the Board of Directors adopted and the shareholders approved
the Company's 1994 Stock Option Plan. In July 1994, the Board of Directors
adopted and the shareholders approved an amendment to the 1994 Stock Option Plan
(as amended, the 'Plan'). The Plan provides for the grant of (i) options that
are intended to qualify as incentive stock options ('Incentive Stock Options')
within the meaning of Section 422A of the Code to certain employees and
consultants and (ii) options not intended to so qualify to employees, directors
and consultants. The total number of shares of Common Stock for which options
may be granted under the Plan is 228,000 shares. As of the date of this
Prospectus, the Company has granted options to purchase 168,060 shares of Common
Stock to employees and consultants in accordance with the terms of the Plan, at
exercise prices ranging from $3.38 to $5.30 per share.
The Plan is administered by the Compensation Committee of the Board of
Directors, which determines the terms of options, including the exercise price,
the number of shares subject to the option and the terms and conditions of
exercise. No option granted under the Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee. The
exercise price of all stock options granted under the Plan must be at least
equal to the fair market value of such shares on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting rights
of the Company's outstanding capital stock, the exercise price of any Incentive
Stock Option must be not less than 110% of the fair market value on the date of
grant. The term of each option granted pursuant to the Plan may be established
by the Board, or a committee of the Board, in its sole discretion; provided,
however, that the maximum term of each Incentive Stock Option granted pursuant
to the Plan is ten years. With respect to any Incentive Stock Option granted to
a participant who owns stock possessing more than 10% of the total combined
voting power of all classes of the Company's outstanding capital stock, the
maximum term is five years.
45
<PAGE>
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the stock
ownership of each person known by the Company to be the beneficial owner of more
than five percent of the Company's Class B Common Stock or Common Stock, of the
Company's directors, each person named in the Executive Compensation Table and
all executive officers and directors as a group, as of the date of this
Prospectus. Neither prior to nor immediately following this Offering will any
officer, director or 5% shareholder known to the Company own any shares of
Common Stock:
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE VOTING
OF BENEFICIAL PERCENTAGE OWNERSHIP POWER
OWNERSHIP(2)(3): OF ALL COMMON STOCK AFTER
------------------------ OUTSTANDING OFFERING(5)(6)
CLASS B ----------------------------- --------------
NAME AND ADDRESS OF BENEFICIAL COMMON COMMON BEFORE AFTER
SHAREHOLDER(1) STOCK STOCK(4)(6) OFFERING(4) OFFERING(4)(5)
- -------------------------------------- --------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
486,000(7) 1,040,000(8) 35.3% 25.7% 41.0%
Roberta Lipson........................
324,000(9) 680,000 24.1% 16.0% 27.1%
Elyse Beth Silverberg.................
98,000(10) 200,000 7.6% 4.9% 8.1%
Lawrence Pemble.......................
18,000(11) 0 * * *
Robert C. Goodwin, Jr.................
60,000(12) 80,000(13) 3.6% 2.3% 3.4%
Morris Lipson.........................
3899 Live Oak Blvd.
Del Ray Beach, Florida
1,000 0 * * *
A. Kenneth Nilsson....................
P.O. Box 2510
Monterey, California
74,000(14) 0 1.9% 1.2% *
Julius Y. Oestreicher.................
235 Mamaroneck Avenue
White Plains, New York
All Executive Officers and Directors
as a Group (7 persons).............. 1,061,000(15) 2,000,000 62.7% 43.8% 76.9%
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise indicated, the business address of each person named in
the table is c/o U.S.-China Industrial Exchange, Inc., 7201 Wisconsin
Avenue, Bethesda, Maryland 20814.
(2) Except as otherwise indicated, each of the parties listed has sole voting
and investment power with respect to all shares indicated.
(3) Beneficial ownership is calculated in accordance with Rule 13d-3(d) under
the Securities Exchange Act of 1934, as amended.
(4) Based on an aggregate of 3,840,000 shares of Common Stock and Class B
Common Stock outstanding prior to this Offering and an aggregate of
5,940,00 shares of Common Stock and Class B Common Stock immediately after
this Offering (each Unit consisting of the maximum 210 shares). Mmes.
Lipson and Silverberg and Mr. Pemble have placed 240,000, 153,000 and
51,000 shares, respectively, of Class B Common Stock in escrow and may
vote, but not dispose of, any of such shares during the term of the escrow
agreement. See "Escrow Shares" below.
(5) Assumes the issuance of 2,100,000 shares of Common Stock contained in the
Units offered by the Company hereby and no exercise of (i) any Warrants
offered thereby, (ii) the Unit Purchase Option, (iii) the Underwriter's
Over-Allotment Option and (iv) options to purchase shares of Common Stock
reserved for issuance under the Company's 1994 Stock Option Plan. For the
purposes of this calculation, the Common Stock and the Class B Common Stock
are treated as a single class of Common Stock.
(6) The Class B Common Stock is entitled to six votes per share, whereas the
Common Stock is entitled to one vote per share.
(footnotes continued on next page)
46
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<PAGE>
(footnotes continued from previous page)
(7) Consists of shares that may be purchased pursuant to Class A Warrants and
Class B Warrants.
(8) Includes 40,000 shares held by the Ariel Benjamin Lee Trust, of which Ms.
Lipson is a Trustee.
(9) Consists of shares that may be purchased pursuant to Class A Warrants and
Class B Warrants.
(10) Includes 96,000 shares that may be purchased pursuant to Class A Warrants
and Class B Warrants.
(11) Includes 3,000 shares that may be purchased pursuant to Class A Warrants
and Class B Warrants and 14,000 shares that may be purchased pursuant to
currently-exercisable stock options.
(12) Includes 45,000 shares that may be purchased pursuant to Class A Warrants
and Class B Warrants.
(13) Consists of 40,000 shares held by the Daniel Lipson Plafker Trust and
40,000 shares held by the Jonathan Lipson Plafker Trust, both of which Mr.
Lipson is a Trustee.
(14) Does not include 40,000 shares of Common Stock beneficially owned by Mr.
Oestreicher's wife, which includes 30,000 shares that may be purchased
pursuant to Class A Warrants and Class B Warrants, as to which Mr.
Oestreicher disclaims beneficial ownership. Includes 64,000 shares issuable
upon the exercise of 16,000 Unit Purchase Options, as defined below. Each
option consists of one share of Common Stock, one Class A Warrant and one
Class B Warrant. Also includes 10,000 shares that may be purchased pursuant
to currently-exercisable stock options.
(15) Includes an aggregate of 1,038,667 shares that may be purchased pursuant to
Unit Purchase Options, Class A Warrants, Class B Warrants and
currently-exercisable stock options.
ESCROW SHARES
Of the 2,000,000 shares of Class B Common Stock outstanding on the date
hereof, 450,000 shares (the 'Escrow Shares') are held in escrow and will not be
assignable nor transferable (but may be voted) until such time, if ever, as the
Escrow Shares are released from escrow in accordance with terms of the escrow
agreement. Each current holder of Class B Common Stock of the Company has
contributed pro rata to the number of Escrow Shares in accordance with their
percentage ownership of Class B Common Stock. All Escrow Shares remaining in
escrow on March 31, 1999 will be forfeited and then canceled and contributed to
the Company's capital. The arrangement relating to the Escrow Shares was
required by the Underwriter as a condition to the Company's initial public
offering.
A shareholder's rights to his or her shares in escrow are not affected by
any change in his or her status as an employee, officer or director of, or his
or her relationship with, the Company, and, in the event of such shareholder's
death, the terms of the escrow agreement will be binding on such shareholder's
executor, administrator, estate and legatees.
All Escrow Shares will be released from escrow if and only if either: (a)
the Minimum Pretax Income (as defined below) is at least $3,000,000 for the
fiscal year ending December 31, 1996, or (b) the Minimum Pretax Income is at
least $3,750,000 for the fiscal year ending December 31, 1997, or (c) the
Minimum Pretax Income is at least $5,000,000 for the fiscal year ending December
31, 1998, or (d) the closing bid price of the Common Stock averages in excess of
$17.50 per share (subject to adjustment in the event of any stock split,
dividend or distribution, reverse stock split or other similar event) for 20
consecutive trading days at any time prior to August 18, 1997.
'Minimum Pretax Income' means for any fiscal year the Company's income
before provision for income taxes and exclusive of any extraordinary earnings
but inclusive of charges to income, if any, resulting from the release of any
Escrow Shares, all as reflected on the Company's audited financial statements.
For purposes of calculating Minimum Pretax Income, if additional shares of
Common Stock are issued, then the foregoing Minimum Pretax Income levels for any
year would increase proportionately; provided that no adjustments to such
Minimum Pretax Income levels shall be made upon the future issuance of shares of
Common Stock.
47
<PAGE>
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 18,000,000 shares
of Common Stock, $.01 par value per share, of which 1,840,000 are issued and
outstanding, 2,000,000 shares of Class B Common Stock, $.01 par value per share,
all of which are outstanding, and 5,000,000 shares of Preferred Stock, par value
$.01 per share, none of which are outstanding. The Company has proposed amending
its Certificate of Incorporation, at its special meeting of shareholders
scheduled for November 6, 1996, to increase the number of authorized shares of
Common Stock from 18,000,000 shares to 28,000,000 shares. As of September 1,
1996, the Company had nine record holders of its Common Stock and five holders
of its Class B Common Stock.
UNITS
Each Unit consists of a minimum of 140 and a maximum of 210 IPO Units. Each
IPO Unit consists of one share of Common Stock, one redeemable Class A Warrant
and one redeemable Class B Warrant. Each redeemable Class A Warrant entitles the
holder to purchase one share of Common Stock and one redeemable Class B Warrant.
Each Class B Warrant entitles the holder to purchase one share of Common Stock.
The Common Stock, Class A Warrants and Class B Warrants comprising the IPO Units
are immediately separately transferable.
COMMON STOCK
Holders of Common Stock have one vote per share on each matter submitted to
a vote of the shareholders and a ratable right to the net assets of the Company
upon liquidation. Holders of the Common Stock do not have preemptive rights to
purchase additional shares of Common Stock or other subscription rights. The
Common Stock carries no conversion rights and is not subject to redemption or to
any sinking fund provisions. All shares of Common Stock are entitled to share
equally in dividends from legally available sources as determined by the Board
of Directors, subject to any preferential dividend rights of the Preferred Stock
(described below). Upon dissolution or liquidation of the Company, whether
voluntary or involuntary, holders of the Common Stock are entitled to receive
assets of the Company available for distribution to the shareholders, subject to
the preferential rights of the Preferred Stock. All outstanding shares of Common
Stock are validly authorized and issued, fully paid and non-assessable.
CLASS B COMMON STOCK
The Class B Common Stock and the Common Stock are substantially identical
on a share-for-share basis, except that the holders of Class B Common Stock have
six votes per share on each matter considered by shareholders and the holders of
the Common Stock have one vote per share on each matter considered by
shareholders. The difference in voting rights increases the voting power of the
holders of Class B Common Stock and accordingly has an anti-takeover effect. The
existence of the Class B Common Stock may make the Company a less attractive
target for a hostile takeover bid or render more difficult or discourage a
merger proposal, an unfriendly tender offer, a proxy contest, or the removal of
incumbent management, even if such transactions were favored by the shareholders
of the Company other than the holders of Class B Common Stock. Thus, the
shareholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices in the event of a hostile takeover bid. Those
seeking to acquire the Company through a business combination will be compelled
to consult first with the holders of Class B Common Stock in order to negotiate
the terms of such business combination. Any such proposed business combination
will have to be approved by the Board of Directors, may be under the control of
the holders of Class B Common Stock, and if shareholder approval were required,
the approval of the holders of Class B Common Stock will be necessary before any
such business combination can be consummated.
Each share of Class B Common Stock is automatically converted into one
share of Common Stock upon (i) the death of the original holder thereof, or, if
such shares are subject to a shareholders
48
<PAGE>
<PAGE>
agreement or voting trust granting the power to vote such shares to another
original holder of Class B Common Stock, then upon the death of such other
original holder, or (ii) the sale or transfer to any person other than the
following transferees: (a) the spouse of a holder of Class B Common Stock; (b)
any lineal descendants of a holder of Class B Common Stock, including adopted
children (said descendants, together with the holder of Class B Common Stock and
his or her spouse are hereinafter referred to as 'Family Members'); (c) a trust
for the sole benefit of a Class B Common shareholder's Family Members; (d) a
partnership made up exclusively of Class B Common shareholders and their Family
Members or a corporation wholly owned by a holder of Class B Common Stock and
their Family Members, and (e) any other holder of Class B Common Stock thereof.
Mmes. Lipson and Silverberg, Mr. Pemble and certain trusts for the benefit of
members of the families of Mmes. Lipson and Silverberg hold all of the
outstanding shares of Class B Common Stock. Presently, there are 2,000,000
shares of Class B Common Stock issued and outstanding. There are no options and
warrants to purchase Class B Common Stock currently outstanding.
WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant, at an exercise price
of $6.50 until August 18, 1999. The Class A Warrants are redeemable by the
Company on 30 days' prior written notice at a redemption price of $.05 per Class
A Warrant, provided the average closing bid price of the Company's Common Stock
in the over-the-counter market as reported by The Nasdaq SmallCap Market or the
average last reported sale price as reported by Nasdaq-NMS for any 20
consecutive business days ending within 15 days of the notice of redemption
exceeds $9.10 per share (subject to adjustment by the Company, as described
below, in the event of any reverse stock split or similar events). The notice of
redemption will be sent to the registered address of the registered holder of
the Class A Warrant. All Class A Warrants must be redeemed if any are redeemed;
provided, however, that the Class A Warrants underlying the Unit Purchase
Options may only be redeemed under limited circumstances. See 'Underwriting.'
There currently are 2,140,000 Outstanding Class A Warrants.
Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $8.75 per share at
any time from the later of its date of issuance or the date of this Prospectus
until August 18, 1999. The Class B Warrants are redeemable by the Company on 30
days' prior written notice at a redemption price of $.05 per Class B Warrant,
provided the average closing bid price of the Company's Common Stock on the
over-the-counter market as reported by The Nasdaq SmallCap Market or the average
last reported sale price as reported by Nasdaq-NMS for any 20 consecutive
business days ending within 15 days of the notice of redemption exceeds $12.25
per share (subject to adjustment by the Company, as described below, in the
event of any reverse, stock split or similar events). The notice of redemption
will be sent to the registered address of the registered holder of the Class B
Warrant. All Class B Warrants must be redeemed if any are redeemed; provided,
however, that the Class B Warrants subject to the Unit Purchase Options may only
be redeemed under limited circumstances. See 'Underwriting.' There currently are
2,140,000 outstanding Class B Warrants.
The Class A Warrants and Class B Warrants (collectively, the 'Warrants')
will be issued pursuant to a warrant agreement (the 'Warrant Agreement') among
the Company, the Underwriter and American Stock Transfer & Trust Company as
warrant agent (the 'Warrant Agent'), and will be evidenced by warrant
certificates in registered form. The exercise prices of the Warrants were
determined by negotiation between the Company and the Underwriter and should not
be construed to be predictive of, or to imply that, any price increases will
occur in the Company's securities. The exercise price of the Warrants and the
number and kind of shares of Common Stock or other securities and property to be
obtained upon exercise of the Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or the
issuance of shares of Common Stock at less than the market price of the Common
Stock. Additionally, an adjustment would be made upon the sale of all or
substantially all of the assets of the Company for less than the market value, a
merger or other unusual events (other than share issuances pursuant to employee
benefit and stock incentive plans for directors,
49
<PAGE>
<PAGE>
officers and employees of the Company) so as to enable holders of Warrant, to
purchase the kind and number of shares or other securities or property
(including cash) receivable in such event by a holder of the kind and number of
shares of Common Stock that might otherwise have been purchased upon exercise of
such Warrant. No adjustment for previously paid cash dividends, if any, will be
made upon exercise of the Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date (or earlier redemption date) of such Warrants at
the offices of the Warrant Agent with the form of 'Election of Purchase' on the
reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of Warrants being exercised.
Shares of Common Stock issuable upon exercise of Warrants and payment in
accordance with the terms of the Warrants will be fully paid and non-assessable.
The Warrants do not confer upon the holders of Warrants any voting or other
rights of the shareholders of the Company. Upon notice to the holders of
Warrants, the Company has the right to reduce the exercise price or extend the
expiration date of the Warrants. Although this right is intended to benefit the
holders of Warrants, to the extent the Company exercises this right when the
Warrants would otherwise be exercisable at a price higher than the prevailing
market price of the Common Stock, the likelihood of exercise, and resultant
increase in the number of shares outstanding, may result in making more costly,
or impeding, a change in control in the Company.
The description above is subject to the provisions of the Warrant
Agreement, as amended, which has been filed as an exhibit to the Registration
Statement, of which this Prospectus forms a part, and reference is made to such
exhibit for a detailed description thereof.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of 'blank check' preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval (but subject to applicable government regulatory restrictions), to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future.
UNIT PURCHASE OPTION
See 'Underwriting' for a description of the material terms of the Unit
Purchase Option to be issued by the Company to the Underwriter upon completion
of this Offering.
TRANSFER AGENT AND WARRANT AGENT
The Company's transfer and warrant agent for the Units, Common Stock and
Warrants is American Stock Transfer & Trust Company, New York, New York.
50
<PAGE>
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this Offering, the Company will have outstanding an
aggregate of 3,840,000 shares of Common Stock and Class B Common Stock (assuming
no exercise of the Underwriter's Over-Allotment Option). In addition, an
aggregate of 4,280,000 shares of Common Stock are issuable pursuant to the
Outstanding Class A Warrants and Outstanding Class B Warrants. Of all such
shares, the 2,000,000 shares of Common Stock issuable upon conversion of the
currently outstanding Class B Common Stock will be eligible for sale under Rule
144 (subject to the restrictions on transfer agreed to between the current
shareholders and the Underwriter, as set forth below, and the restrictions on
transfer with respect to the Escrow Shares) and will be freely transferable
without restriction under the Securities Act except for any shares purchased by
any person who is or thereby becomes an 'affiliate' of the Company, which shares
will be subject to the resale limitations contained in Rule 144 promulgated
under the Securities Act. Of the 3,840,000 shares of Common Stock outstanding
prior to this Offering, 2,000,000 are 'restricted securities' as that term is
defined under Rule 144 (all of which are shares of Class B Common Stock, which
are not transferable except to certain permitted transferees).
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), with respect to restricted securities that satisfy
a two-year holding period, may sell within any three-month period a number of
restricted shares which does not exceed the greater of 1% of the then
outstanding shares of such class of securities or the average weekly trading
volume during the four calendar weeks prior to such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. Rule 144 also
permits, under certain circumstances, the sale of shares by a person who is not
an affiliate of the Company, with respect to restricted securities that satisfy
a three-year holding period, without regard to the volume or other resale
limitations. For shares issued in consideration of an unsecured or non-recourse
promissory note, the holding period does not commence until the note is paid in
full. The above is a brief summary of Rule 144 and is not intended to be a
complete description of the Rule.
The 'restricted' Common Stock currently is eligible for sale pursuant to
Rule 144. However, holders of all of the outstanding Common Stock have agreed
not to sell, assign or transfer any of their shares of Common Stock, options or
warrants for a period of 13 months after the closing date of this Offering
without the prior consent of the Underwriter. In addition, the Company has
granted certain registration rights with respect to the Unit Purchase Option and
the Units and securities underlying those options. See 'Underwriting.'
Following this Offering, no predictions can be made of the effect, if any,
of future public sales of restricted shares or the availability of restricted
shares for sale in the public market. Moreover, the Company cannot predict the
number of shares of Common Stock that may be sold in the future pursuant to Rule
144 or Rule 701 because such sales will depend on, among other factors, the
market price of the Common Stock and the individual circumstances of the holders
thereof. The availability for sale of substantial amounts of Common Stock
acquired through the exercise of the Class A Warrants and Class B Warrants,
under Rule 144 or Rule 701, other options or the Unit Purchase Option could
adversely affect prevailing market prices for the Common Stock.
Commencing one year from the date of this Prospectus, the Underwriter has
the right to two demand registrations of the IPO Units underlying its Unit
Purchase Option. The holder(s) of the Unit Purchase Option also will have
piggyback registration rights. These registration rights are in addition to the
registration rights granted to the holders of the outstanding unit purchase
options issued to the underwriter and a finder in connection with the initial
public offering of the Company in August 1994. These outstanding unit purchase
options represent the right to purchase in the aggregate up to 160,000 IPO Units
exercisable at $6.53 per IPO Unit until August 18, 1999. The registration rights
relating to these outstanding unit purchase options consist of the right to two
demand registrations of the IPO Units thereunder and piggyback registration
rights. The exercise of the registration rights relating to the Unit Purchase
Option or the outstanding unit purchase options may involve substantial expense
to the Company and have a depressive effect on the market price of the Company's
securities.
51
<PAGE>
<PAGE>
UNDERWRITING
D.H. Blair Investment Banking Corp. (the 'Underwriter') has agreed, subject
to the terms and conditions of the Underwriting Agreement, to purchase the
10,000 Units offered hereby from the Company on a 'firm commitment' basis, if
any are purchased. It is expected that D.H. Blair & Co., Inc. ('Blair & Co.')
will distribute as a selling group member substantially all of the Units offered
hereby. Blair & Co. is substantially owned by family members of J. Morton Davis.
Mr. Davis is the sole stockholder of the Underwriter.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus, and that it may allow, to selected dealers who are members of the
National Association of Securities Dealers, Inc. (the 'NASD') concessions, not
in excess of $ per Unit, of which not in excess of $ per Unit may be
reallowed to other dealers who are members of the NASD. After the public
offering, the public offering price, concessions and reallowances may be changed
by the Underwriter.
The Company has granted an option to the Underwriter exercisable during the
45-day period from the date of this Prospectus, to purchase up to 1,500
additional Units at the public offering price set forth on the cover page of
this Prospectus, less the underwriting discounts and commissions. The
Underwriter may exercise this option in whole, or, from time to time, in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the Units offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance representing 3% of the aggregate offering price of the Units offered
hereby (plus 3% of the aggregate offering price of any Units purchased pursuant
to the Underwriter's Over-Allotment Option), $30,000 of which has been paid to
date.
The Company has agreed to sell to the Underwriter and its designees, on the
closing date of this Offering, for nominal cost, the Unit Purchase Option (the
'Unit Purchase Option') to purchase up to 1,000 Units at an exercise price of
$ per Unit, subject to certain anti-dilution provisions. The Units purchasable
upon exercise of the Unit Purchase Option are identical to the Units offered
hereby, except that the Warrants contained therein are not subject to redemption
nor are callable by the Company unless on the redemption date, the Unit Purchase
Option has been exercised and the underlying Warrants are outstanding. The Unit
Purchase Option will be exercisable during the three-year period commencing two
years from the date of this Prospectus. The Unit Purchase Option may not be
transferred, sold, assigned or hypothecated for two years from the date of this
Prospectus except to any National Association of Securities Dealers, Inc.
('NASD') member participating in the offering or any officers of the Underwriter
or any such NASD member. The Company has agreed to register under the Securities
Act at its expense on one occasion, and at the expense of the Underwriter on
another occasion, the Unit Purchase Option and/or underlying securities at the
request of the holder thereof. The Company has also agreed to certain
'piggy-back' registration rights for the holders of the Unit Purchase Option
and/or the underlying securities.
For the life of the Unit Purchase Option, the holders are given the
opportunity to profit from a rise in the market price of the Company's Common
Stock and Warrants with a resulting dilution in the interest of other
shareholders. The Company may find it more difficult to raise additional equity
capital while the Unit Purchase Option is outstanding and, at any time when the
holders of the Unit Purchase Option might be expected to exercise it, the
Company would probably be able to obtain equity capital on terms more favorable
than those provided in the Unit Purchase Option.
All holders of 1% or more all of the issued and outstanding Common Stock of
the Company have agreed not to sell, transfer or assign any of their shares of
Common Stock, options or warrants without the prior written consent of the
Underwriter for a period of 13 months from the closing date of this Offering.
In connection with this Offering, the Company has extended the term of the
agreement providing for the payment of a fee to the Underwriter in the event the
Underwriter is responsible for a merger or other acquisition transaction to
which the Company is a party until four years from the date of this Prospectus.
52
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<PAGE>
The Underwriter acted as the sole underwriter for the Company's initial
public offering in August 1994. In connection therewith, the Underwriter
received a unit purchase option to purchase up to 144,000 option units, each
option unit consisting of one share of Common Stock, one Class A Warrant and one
Class B Warrant, at an exercise price of $6.75 per option unit, exercisable for
a period of two years commencing in August 1997.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities, including
liabilities under the Securities Act.
The Company has agreed with the Underwriter not to solicit Warrant
exercises other than through the Underwriter. Upon exercise of the Warrants
commencing one year from the date of this Prospectus, the Company will pay the
Underwriter a fee of 5% of the aggregate exercise price if (i) the market price
of the Company's Common Stock on the date the Warrant is exercised is greater
than the then exercise price of the Warrant; (ii) the exercise of the Warrant
was solicited by a member of the NASD; (iii) the Warrant is not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrant; and
(v) the solicitation of exercise of the Warrants was not in violation of Rule
10b-6 promulgated under the 1934 Act or respective state blue sky laws. Any
costs incurred by the Company in connection with the exercising of the Warrants
shall be borne by the Company.
Unless granted an exemption by the Commission from Rule 10b-6, the
Underwriter will be prohibited from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such other applicable period as Rule 10b-6 may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, the Underwriter
may be unable to continue to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
The public offering price of the Units and the exercise prices and other
terms of the Warrants have been determined by negotiations between the Company
and the Underwriter and are not necessarily related to the Company's asset
value, net worth or other established criteria of value. Factors considered in
determining the offering price of the Units and the exercise price and other
terms of the Warrants include the present state of the Company's development,
the future prospects of the Company, an assessment of management, the general
condition of the securities markets and other factors deemed relevant.
The Underwriter has informed the Company that the Commission is conducting
an investigation concerning various business activities of the Underwriter and
Blair & Co., a selling group member which will distribute substantially all of
the Units offered hereby. The investigation appears to be broad in scope,
involving numerous aspects of the Underwriter's and Blair & Co.'s compliance
with the Federal securities laws and compliance with the Federal securities laws
by issuers whose securities were underwritten by the Underwriter or Blair & Co.,
or in which the Underwriter or Blair & Co. made over-the-counter markets,
persons associated with the Underwriter or Blair & Co., such issuers and other
persons. The Company has been advised by the Underwriter that the investigation
has been ongoing since at least 1989 and that the Underwriter is cooperating
with the investigation. The Underwriter cannot predict whether this
investigation will ever result in a formal enforcement action against the
Underwriter or Blair & Co. or, if so, whether any such action might have an
adverse effect on the Underwriter, Blair & Co. or the securities offered hereby.
The Company has been advised that the Underwriter or Blair & Co. intends to make
a market in the securities following this Offering. An unfavorable resolution of
the Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could adversely
affect the liquidity or price of such securities.
53
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<PAGE>
LEGAL MATTERS
The validity of the Securities offered hereby has been passed upon for the
Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Bachner,
Tally, Polevoy & Misher, LLP, New York, New York, has served as counsel to the
Underwriter in connection with this Offering.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995,
and for each of the two years in the period ended December 31, 1995 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission'), Washington, D.C., a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in
such Registration Statement and the exhibits thereto. For further information
with respect to the Company and the Units, reference is hereby made to the
Registration Statement, exhibits and schedules which may be inspected without
charge at the public reference facilities maintained at the principal office of
the Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549 and
at the Commission's regional offices at 7 World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained upon written
request from the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Electronic registration
statements made through the Electronic Data Gathering, Analysis, and Retrieval
System are publicly available through the Commission's Web site
(http://www.sec.gov). Statements contained in the Prospectus as to the contents
of any contract or other document referred to herein are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. Such reports and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically. Reports and
other information concerning the Company may also be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
54
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Auditors......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited)...................... F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996 (unaudited)............................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996 (unaudited)............................................................. F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994 and 1995 and the
six months ended June 30, 1996 (unaudited)........................................................... F-6
Notes to Consolidated Financial Statements............................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
U.S.-China Industrial Exchange, Inc.
We have audited the accompanying consolidated balance sheet of U.S.-China
Industrial Exchange, Inc. as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1995. 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. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S.-China
Industrial Exchange, Inc. at December 31, 1995, and the consolidated results of
its operations and its cash flows for the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Vienna, Virginia ERNST & YOUNG LLP
February 28, 1996
F-2
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash & cash equivalents............................................. $ 3,599,000 $ 4,768,000
Accounts receivable, less allowance of $95,000 (1995) and $105,000
(1996)............................................................ 3,725,000 5,174,000
Commissions receivable.............................................. 962,000 307,000
Inventories......................................................... 1,215,000 1,600,000
Current portion -- long term accounts receivable.................... 2,396,000 2,370,000
Other current assets................................................ 690,000 907,000
------------ -----------
Total current assets........................................... 12,587,000 15,126,000
Property & equipment................................................ 406,000 442,000
Accounts receivable, long term...................................... 2,348,000 2,727,000
Other............................................................... 93,000 141,000
------------ -----------
Total assets................................................... $ 15,434,000 $18,436,000
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................... $ 4,139,000 $ 5,500,000
Accrued contract training........................................... 683,000 872,000
Current portion-long term accounts payable, net..................... 984,000 646,000
Income taxes payable................................................ 186,000 672,000
------------ -----------
Total current liabilities...................................... 5,992,000 7,690,000
Long term accounts payable, net..................................... 933,000 1,364,000
------------ -----------
Total liabilities.............................................. 6,925,000 9,054,000
Shareholders' equity:
Preferred stock, $.01 par value: Authorized -- 5,000,000 shares,
none issued
Common stock, $.01 par value
Authorized -- 20,000,000 shares (including 2,000,000 designated
Class B);
Common stock -- 1,840,000 shares issued and outstanding............. 18,000 18,000
Common stock -- Class B -- 2,000,000 shares issued and
outstanding....................................................... 20,000 20,000
Additional paid in capital.......................................... 7,477,000 7,477,000
Foreign currency equity translation adjustment...................... (8,000) (8,000)
Retained earnings................................................... 1,002,000 1,875,000
------------ -----------
Total shareholders' equity..................................... 8,509,000 9,382,000
------------ -----------
Total liabilities and shareholders' equity..................... $ 15,434,000 $18,436,000
============ ===========
</TABLE>
See accompanying notes
F-3
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................................... $10,613,000 $13,002,000 $ 4,425,000 $12,578,000
Cost of goods sold.................................. 7,658,000 9,667,000 3,469,000 8,497,000
----------- ----------- ----------- -----------
Gross profit on sales............................... 2,955,000 3,335,000 956,000 4,081,000
Net commission income............................... 2,625,000 2,115,000 561,000 304,000
----------- ----------- ----------- -----------
TOTAL GROSS PROFIT ON SALES AND NET COMMISSION
INCOME............................................ 5,580,000 5,450,000 1,517,000 4,385,000
Selling, general and administrative
Salaries and payroll taxes.......................... 1,981,000 2,682,000 1,244,000 1,593,000
Travel and entertainment............................ 931,000 1,440,000 639,000 623,000
Other............................................... 1,950,000 2,117,000 1,059,000 1,303,000
----------- ----------- ----------- -----------
718,000 (789,000) (1,425,000) 866,000
Other income and expenses
Interest expense............................... (72,000) (81,000) (41,000) (7,000)
Interest income................................ 152,000 427,000 241,000 195,000
Miscellaneous income/expenses.................. 28,000 (6,000) 3,000 344,000
----------- ----------- ----------- -----------
Income (loss) before (provision for)/benefit from
income taxes...................................... 826,000 (449,000) (1,222,000) 1,398,000
(Provision for)/benefit from income taxes........... (319,000) 132,000 432,000 (525,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS)................................... $ 507,000 $ (317,000) $ (790,000) $ 873,000
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE......................... $0.23 $(0.09) $(0.23) $0.26
=========== =========== =========== ===========
Weighted average shares outstanding................. 2,218,000 3,390,000 3,390,000 3,390,000
=========== =========== =========== ===========
</TABLE>
F-4
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................ $ 507,000 $ (317,000) $ (790,000) $ 873,000
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation & amortization......................... 81,000 121,000 74,000 65,000
Provision for doubtful accounts..................... 15,000 20,000 10,000 10,000
Provision for deferred taxes........................ (29,000) 46,000 (22,000) 0
Inventory write-down................................ 46,000 95,000 42,000 61,000
Amortization of discount from investment security... 0 (91,000) -- --
Changes in operating assets and liabilities:
Accounts receivable................................. (3,755,000) (3,602,000) (92,000) (1,812,000)
Commissions receivable.............................. (130,000) (32,000) 421,000 655,000
Inventories......................................... 93,000 (652,000) (292,000) (446,000)
Other current assets................................ (206,000) (288,000) (21,000) (217,000)
Other assets........................................ (123,000) 119,000 73,000 (48,000)
Accounts payable and accrued expenses............... 1,329,000 2,866,000 (104,000) 1,643,000
Income taxes payable................................ 330,000 (263,000) (442,000) 486,000
---------- ---------- ---------- ----------
Net cash (used in) provided by operating activities...... (1,842,000) (1,978,000) (1,143,000) 1,270,000
INVESTING ACTIVITIES
Sale/(Purchase) of investment security................... (2,544,000) 2,635,000 (70,000) 0
Purchase of property and equipment....................... (150,000) (189,000) (38,000) (101,000)
---------- ---------- ---------- ----------
Net cash (used in) provided by investing activities (2,694,000) 2,446,000 (108,000) (101,000)
FINANCING ACTIVITIES
Proceeds from issuance of common stock................... 7,250,000 -- -- --
Repayment of notes payable to shareholders............... (723,000) -- -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities................ 6,527,000 -- -- --
---------- ---------- ---------- ----------
Effect of foreign exchange rate changes on cash and cash
equivalents............................................ -- (8,000) (9,000)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..... 1,991,000 460,000 (1,260,000) 1,169,000
Cash and cash equivalents at beginning of period......... 1,148,000 3,139,000 3,139,000 3,599,000
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period............... $3,139,000 $3,599,000 $1,879,000 $4,768,000
========== ========== ========== ==========
Supplemental disclosure of cash flow information
Cash paid for interest................................... $ 33,000 $ 3,000 $ 2,000 $ --
========== ========== ========== ==========
Cash paid for income taxes............................... $ 19,000 $ 31,000 $ 25,000 $ 25,000
========== ========== ========== ==========
</TABLE>
See accompanying notes
F-5
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK -- CLASS B ADDITIONAL
------------------- ------------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- ------------------------ ------------------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.......... -- $ -- 2,000,000 $ 20,000 $ 245,000
Issuance of stock................... 1,840,000 18,000 -- -- 7,232,000
Net income for 1994................. -- -- -- -- --
Balance at December 31, 1994........ 1,840,000 18,000 2,000,000 20,000 7,477,000
Net loss for 1995................... -- -- -- -- --
--------- ------- ---------- ---------- ----------
Balance at December 31, 1995........ 1,840,000 18,000 2,000,000 20,000 7,477,000
Net income for six months ended June
30, 1996.......................... -- -- -- -- --
--------- ------- ---------- ---------- ----------
Balance at June 30, 1996............ 1,840,000 $18,000 2,000,000 $ 20,000 $7,477,000
========= ======= ========== ========== ==========
<CAPTION>
RETAINED TRANSLATION
EARNINGS ADJUSTMENT TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1994.......... $ 812,000 -- $1,077,000
Issuance of stock................... -- -- 7,250,000
Net income for 1994................. 507,000 -- 507,000
Balance at December 31, 1994........ 1,319,000 -- 8,834,000
Net loss for 1995................... (317,000) (8,000) (325,000)
---------- ---------- ----------
Balance at December 31, 1995........ 1,002,000 (8,000) 8,509,000
Net income for six months ended June
30, 1996.......................... 873,000 -- 873,000
---------- ---------- ----------
Balance at June 30, 1996............ $1,875,000 $ (8,000) $9,382,000
========== ========== ==========
</TABLE>
See accompanying notes
F-6
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Organization and Description of Business
U.S.-China Industrial Exchange, Inc. (the Company) is a sales
representative in China for several major U.S., European, and other
manufacturers of high-technology medical equipment, construction, mining and
other industrial machinery and scientific research instrumentation. The Company
markets and sells these products in China, and provides marketing, sales and
technical services for the products. Substantially all sales, commissions and
purchases are denominated in U.S. dollars.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Chindex, Inc., Chindex Holdings International
Trade (Tianjin), Chindex Hong Kong and the Beijing United Family Health Center.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
Sales and most commissions are recognized upon product shipment. Costs
associated with installation, after-sale servicing and warranty are not
significant and are recognized in cost of sales as they are incurred.
Inventories
Inventory purchased to fill signed sales contracts that remain undelivered
at year-end (Contract inventory) and inventory of peripheral components are
stated at the lower of cost or market using the specific identification method.
Certain items are purchased for demonstration purposes and subsequent sale
(Demonstration inventory). Management monitors the salability of such
demonstration inventory and reduces the carrying amount to net realizable value
when there is any impairment in value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight line method over the estimated useful lives of the related assets.
Useful lives for office equipment, vehicles and furniture and fixtures range
from 5 to 7 years. Leasehold improvements are amortized by the straight-line
method over the shorter of the estimated useful lives of the improvements or the
lease term.
Long Term Receivables and Payables
Long term receivables and payables are recorded at estimated present values
determined based on current rates of interest. Imputed interest is recognized
using the effective interest method.
Income Taxes
Provisions for income taxes are based upon earnings reported for financial
statement purposes and may differ from amounts currently payable or receivable
because certain amounts may be recognized for financial reporting purposes in
different periods than they are for income tax purposes. Deferred
F-7
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income taxes result from temporary differences between the financial statement
amounts of assets and liabilities and their respective tax bases.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Earnings Per Share
Earnings per share is based on the average number of common and common
equivalent shares outstanding during the year. Shares of common stock placed in
escrow at completion of the initial public offering (Note 5) have been excluded
from the calculation of earnings per share. In addition, shares have been
adjusted to give effect to the stock splits discussed in Note 5. Other shares
issuable upon the exercise of stock options and warrants were excluded from the
calculation because their effect would be antidilutive.
Dividends
The Company has not paid dividends to the shareholders of its common stock
and any dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
Recent Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-Based Compensation,' which is effective for the
Company's December 31, 1996 financial statements. SFAS No. 123 allows companies
to either account for stock-based compensation under the new provisions of SFAS
No. 123 or under the provisions of APB 25, but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS 123 had been adopted. The Company intends to continue accounting for its
stock-based compensation in accordance with the provisions of APB 25. As such,
the adoption of SFAS No. 123 will not impact the financial position or the
results of operations of the Company.
Unaudited Interim Statements
The unaudited consolidated financial statements for the six months ended
June 30, 1995 and 1996 have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial information for these interim periods, have
been made. The operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
F-8
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
<S> <C> <C>
Furniture and equipment......................................... $ 463,000 $ 564,000
Vehicles........................................................ 124,000 124,000
Leasehold improvements.......................................... 195,000 195,000
----------------- -----------------
782,000 883,000
Less: accumulated depreciation and amortization................. 376,000 441,000
----------------- -----------------
$ 406,000 $ 442,000
================ =================
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
<S> <C> <C>
Contract inventory.............................................. $ 521,000 $ 976,000
Demonstration inventory, net.................................... 616,000 585,000
Peripheral inventory............................................ 78,000 39,000
----------------- -----------------
$ 1,215,000 $ 1,600,000
================= =================
</TABLE>
4. EXTENDED PAYMENT TERM SALES ARRANGEMENTS
The Company has entered into agreements with certain customers to provide
extended payment terms. In conjunction with these transactions the Company has
negotiated agreements with certain vendors to grant matching extended terms.
Receivables and payables under these arrangements were discounted at 7.35%,
6.39% and 6.39% for the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1996, respectively.
At December 31, 1995, long term receivables and payables under these
arrangements mature as follows:
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE ACCOUNTS PAYABLE
------------------- ----------------
<S> <C> <C>
1996............................................................ $ 2,478,000 $1,022,000
1997............................................................ 1,826,000 811,000
1998............................................................ 534,000 213,000
1999............................................................ 211,000 23,000
2000............................................................ 89,000 0
------------------- ----------------
5,138,000 2,069,000
Less: imputed interest.......................................... 394,000 152,000
------------------- ----------------
4,744,000 1,917,000
Less: current portion........................................... 2,396,000 984,000
------------------- ----------------
$ 2,348,000 $ 933,000
=================== ================
</TABLE>
Amortization of imputed interest on long term accounts receivable was $47,000,
$183,000 and $119,000 for the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1996, respectively. Amortization of imputed interest on
long term accounts payable was $28,000, $78,000 and $7,000 for the years ended
December 31, 1994 and 1995 and the six months ended June 30, 1996, respectively.
F-9
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY
Common Stock and Preferred Stock
In April 1994, the Board of Directors and shareholders of the Company
approved an increase in the authorized capitalization of the Company to 20
million shares of common stock, par value $.01 per share, and 5 million shares
of preferred stock, par value $.01 per share. The 100 shares of common stock
outstanding at that time were split on the basis of 15,000-for-1 and the
resulting outstanding shares were designated Class B common stock. Furthermore,
in July 1994 and August 1994, the Board of Directors and shareholders of the
Company approved 1.2-for-1 and 10-for-9 stock splits, respectively. All share
and per share information in the consolidated financial statements has been
restated to reflect the stock splits and the designation of outstanding shares
as Class B common stock.
The holders of the outstanding 2,000,000 shares of Class B common stock
have placed 450,000 shares in escrow. These shares will not be assignable or
transferable (but may be voted) until such time as they are released from escrow
based upon the Company meeting certain earnings levels or the common stock
attaining certain price levels. All reserved shares remaining in escrow on March
31, 1999 will be forfeited and contributed to the Company's capital. In the
event the Company attains any of the earnings thresholds or stock prices for the
release of the escrowed shares to the original shareholders, the Company will
recognize compensation expense at such time based on the fair market value of
the shares released.
The Class B common stock and the common stock are substantially identical
on a share-for-share basis, except that the holders of Class B common stock have
six votes per share on each matter considered by shareholders and the holders of
common stock have one vote per share on each matter considered by shareholders.
Each share of Class B common stock will convert at any time at the option of the
original holder thereof into one share of common stock and is automatically
converted into one share of common stock upon (i) the death of the original
holder thereof, or, if such shares are subject to a shareholders agreement or
voting trust granting the power to vote such shares to another original holder
of Class B common stock, then upon the death of such original holder, or (ii)
the sale or transfer to any person other than specified transferees.
Public Offering, Common Stock, Warrants
On August 18, 1994 the Company completed its initial public offering
selling 1,600,000 common stock units for net proceeds to the Company of
approximately $6,206,000. Additionally, on September 13, 1994 the underwriters
exercised their overallotment option purchasing an additional 240,000 common
stock units for net proceeds to the Company of approximately $1,044,000. Each
unit consisted of one common share, one Class A warrant and one Class B warrant.
Class A warrants entitle the holders to acquire one share of common stock and a
Class B warrant at an exercise price of $6.50. Each Class B warrant entitles the
holder to acquire one share of common stock at an exercise price of $8.75.
Warrants are exercisable through December 31, 1999. The underwriters and a
consultant have also been granted options to purchase an additional 144,000 and
16,000 units, respectively, at $6.75 per unit. These options are exercisable at
any time during the four year period beginning August 18, 1995.
In April 1994 the Company issued 300,000 Class A and 300,000 Class B
warrants on a pro rata basis to each shareholder of record. The exercise prices
of these warrants are the same as the warrants sold in the Company's initial
public offering. These warrants are exercisable at any time through December 31,
1999.
Stock Option Plan
In April 1994, the Board of Directors adopted and the shareholders approved
the Company's 1994 Stock Option Plan (the Plan). The Plan provides for the
grant, at the discretion of the Board of Directors, of (i) options that are
intended to qualify as incentive stock options (Incentive Stock
F-10
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options) within the meaning of Section 422A of the Internal Revenue Code to
certain employees, consultants and directors, and (ii) options not intended to
so qualify (Nonqualified Stock Options) to employees, consultants and directors.
The total number of shares of common stock for which options may be granted
under the Plan is 228,000 shares. On August 18, 1994, the Company granted 82,000
of these options to purchase shares of common stock to employees and a
consultant. Such options are exercisable, generally for a term of ten years, at
the IPO price. During the year ended December 31, 1995, the Company granted
17,500 options to employees. The options granted during 1995 are exercisable at
the fair market value on the date of grant and provide for a term of ten years.
The Plan is administered by a compensation committee of the Board of
Directors, which determines the terms of options, including the exercise price,
the number of shares subject to the options and the terms and conditions of
exercise. No option granted under the Plan is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee.
The exercise price of options granted under the Plan must be at least equal
to the fair market value of such shares on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting rights of
the Company's outstanding capital stock, the exercise price of any Incentive
Stock Option may be not less than 110% of the fair market value on the date of
grant. With respect to any Incentive Stock Option granted to a participant who
owns stock possessing more than 10% of the total combined voting power of all
classes of the Company's outstanding capital stock, the maximum term is five
years.
As of December 31, 1995, 97,060 options were outstanding, of which 61,487
were exercisable. The balance become exercisable through December 31, 1997.
During the six months ended June 30, 1996 the Company granted to employees
63,000 options and 2,000 options were cancelled. No options were exercised
during 1996, 1995 or 1994.
Shares of Common Stock Reserved
At June 30, 1996 the Company has reserved 7,128,000 shares of common stock
for issuance upon exercise of stock options and purchase warrants.
6. INCOME TAXES
The (provision for)/benefit from income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Current:
Federal........................................................................ $ (270,000) $ 180,000
Foreign........................................................................ (18,000) (30,000)
State.......................................................................... (60,000) 28,000
------------ ------------
(348,000) 178,000
Deferred:
Federal........................................................................ 23,000 (36,000)
State.......................................................................... 6,000 (10,000)
------------ ------------
29,000 (46,000)
------------ ------------
$ (319,000) $ 132,000
============ ============
</TABLE>
The provisions for income taxes for the six months ended June 30, 1995 and
1996 were computed using the estimated annual tax rates expected to be
applicable for the full year.
F-11
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax asset is included in other current assets consists of
the following as of December 31:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Depreciation................................................................................ $ 4,000
Allowance for doubtful accounts............................................................. 30,000
Inventory write downs....................................................................... 44,000
Net operating loss carry forwards........................................................... 44,000
--------
122,000
Less valuation allowance.................................................................... (122,000)
--------
Net deferred tax asset...................................................................... $ --
========
</TABLE>
The Company's effective income tax rate varied from the statutory federal
income tax rate for the year ended December 31 as follows:
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Statutory federal income tax rate.................................................... (34.0)% 34.0%
Adjustments:
State income taxes, net of federal tax benefit.................................. (4.0) 4.0
Other, including permanent differences.......................................... (0.6) (8.6)
----- -----
Effective income tax rate............................................................ (38.6)% 29.4%
===== =====
</TABLE>
The Company and its subsidiaries file separate income tax returns; the
Company on a June 30 fiscal year and its subsidiaries on a December 31 fiscal
year.
The Company's net operating loss carryforward will expire in the year 2010.
7. COMMITMENTS
Employment Agreements
Effective May 1, 1994, the Company entered into three-year employment
agreements with four key executives which, as amended or revised to date,
provide for annual base salaries amounting to an aggregate of $621,000 per year.
Leases
The Company leases office space under operating leases. Future minimum
payments under these noncancelable operating leases consisting of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1996............................................................................... $ 519,000
1997............................................................................... 660,000
1998............................................................................... 629,000
1999............................................................................... 578,000
2000............................................................................... 571,000
Thereafter......................................................................... 357,000
----------
3,314,000
Less total minimum sublease rentals................................................ (2,470,000)
----------
Net minimum rental commitments..................................................... $ 844,000
==========
</TABLE>
The above leases require the Company to pay certain pass through operating
expenses and rental increases based on inflation.
Rental expense was approximately $274,000 in 1994, $348,000 in 1995 and
$388,000 for the six months ended June 30, 1996.
F-12
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had approximately $385,000 in inventory on hand at December 31,
1995 for which it had no customer contracts. Management currently is discussing
several bulk sale options with wholesalers for this equipment. No losses are
anticipated relating to the sale of this inventory subsequent to year end. At
June 30, 1996, this inventory still remains on hand.
8. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, investments, accounts
receivable and commissions receivable. Substantially all of the Company's cash
and cash equivalents at December 31, 1995 were held by two U.S. financial
institutions. All of the Company's sales during the year were to end-users
located in China. Most of the Company's accounts receivable are supported by
letters of credit with one Chinese financial institution. Sales on extended
payment terms usually have down payments in the form of a letter of credit and
additional payments are guaranteed through several methods. Before extended
payment terms are provided, the Company performs a thorough review of the local
operation, secures a guarantee from higher authorities than the end user, as
well as other additional steps.
Extended payment term transactions are entered into in the context of the
Company's sales activities in China and, as such, the risks attendant to doing
business in China apply to such transactions as well. The absence of a
comprehensive and effective legal system in China, among other concerns,
requires alternative arrangements in order to reduce the Company's credit risks.
Guarantees from higher governmental authorities, for example, usually involve
requiring customers to have a provincial or municipal governmental organization
sign a statement that the payment obligations will be satisfied. This political
commitment is, in the Company's experience, an effective method in helping
ensure payment of obligations in China. These commitments, however, are
different from traditional commercial guarantees in the United States, which
guarantees are not available in China for transactions of the type engaged in by
the Company.
In February 1995, the Company entered into a bank credit agreement (the
'Agreement'). The Agreement provides for a line of credit facility of up to
$500,000, a standby letter of credit facility of up to $200,000, and a forward
exchange facility of up to $200,000. The notes bear interest at 1% over the
bank's three month moving average cost of funds rate, 6.32% at December 31,
1995. The indebtedness under the Agreement is collateralized by $1,000,000 in
cash equivalents deposited with the bank. At December 31, 1995, letters of
credit issued by the bank amounted to approximately $97,000 and no amounts were
outstanding under the line of credit facility or the foreign exchange facility.
On August 19, 1996, the Company increased its existing credit facility with
First National Bank of Maryland from $900,000 to $1,300,000 for short-term
working capital needs, standby letters of credit, and spot and forward foreign
exchange transactions. In addition, First National Bank of Maryland has provided
a $420,000 standby letter of credit as a separate credit facility apart from the
increased line of credit. The $1,300,000 credit facility and the $420,000
standby letter of credit are payable on demand, fully secured and collateralized
by government securities acceptable to the Bank having an aggregate fair market
value of not less than $1,911,112.
The Company conducts its marketing and sales and provides its services
exclusively to buyers located in China. The Company's results of operations and
its ability to obtain financing could be adversely affected if there was a
deterioration in trade relations between the United States and China.
Of the Company's assets at December 31, 1995, approximately $1,350,000 of
such assets are located in China, consisting principally of inventories and
property and equipment.
9. SIGNIFICANT CUSTOMERS/SUPPLIERS
Substantially all purchases of the Company's products, regardless of the
end-user, are made through Chinese foreign trade corporations (FTCs). Although
the purchasing decision is made by the end-user, which may be an individual or a
group having the required approvals from their administrative organizations, the
Company enters into formal purchase contracts with FTCs. The FTCs make purchases
on behalf of the end-users and are authorized by the Chinese government to
conduct import
F-13
<PAGE>
<PAGE>
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
business. FTCs are chartered and regulated by the government and are formed to
facilitate foreign trade. The Company markets its products directly to
end-users, but in consummating a sale the Company must also interact with the
particular FTC representing the end-user.
Purchases from one supplier totaled approximately $4,816,000 and $4,670,000
for the years ended December 31, 1994 and 1995 and $3,947,000 for the six months
ended June 30, 1996, respectively.
F-14
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT QUALIFIED AND TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities......................................................................................... 2
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 8
Use of Proceeds............................................................................................................. 17
Dilution.................................................................................................................... 18
Price Range of Securities and Dividend Policy............................................................................... 19
Capitalization.............................................................................................................. 20
Selected Financial Data..................................................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 22
Business.................................................................................................................... 27
Management.................................................................................................................. 42
Principal Shareholders...................................................................................................... 46
Description of Securities................................................................................................... 48
Shares Eligible for Future Sale............................................................................................. 50
Underwriting................................................................................................................ 52
Legal Matters............................................................................................................... 54
Experts..................................................................................................................... 54
Available Information....................................................................................................... 54
Index to Consolidated Financial Statements.................................................................................. F-1
</TABLE>
U.S.-CHINA INDUSTRIAL
EXCHANGE, INC.
10,000 UNITS
EACH UNIT CONSISTING OF A MINIMUM OF 140
AND A MAXIMUM OF 210 IPO UNITS,
EACH CONSISTING OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE CLASS A WARRANT
AND
ONE REDEEMABLE CLASS B WARRANT
------------------------------
PROSPECTUS
------------------------------
D.H. BLAIR INVESTMENT
BANKING CORP.
, 1996
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 722 of the New York Business Corporation Law ('NYBCL') permits, in
general, a New York corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and reasonable expenses, including attorney's fees actually
and necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 723 of the NYBCL permits the corporation to pay in
advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 721 of the NYBCL provides that
indemnification and advancement of expenses provisions contained in the NYBCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expense may be entitled, provided no
indemnification may be made on behalf of any director or officer if a judgment
or other final adjudication adverse to the director or officer establishes that
his or her acts were committed in bad faith or were the result of active or
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
Article Seventh of the Company's Certificate of Incorporation provides, in
general, that the Company may indemnify, to the fullest extent permitted by
applicable law, every person threatened to be made a party to any action, suit
or proceeding by reason of the fact that such person is or was an officer or
director or was serving at the request of the Company as a director, officer,
employee, agent or trustee of another corporation, business, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses,
judgments, fines and amounts paid in settlement in connection with such suit or
proceeding. Article Seventh of the Certificate of Incorporation also provides
that the Company may indemnify and advance expenses to those persons as
authorized by resolutions of a majority of the Board of Directors or
shareholders, agreement, directors' or officers' liability insurance policies,
or any other form of indemnification agreement.
In accordance with that provision of the Certificate of Incorporation, the
Company shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the Company's
request) made, or threatened to be made, a party to an action or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he or she was serving in any of those capacities against judgments, fines,
amounts paid in settlement and reasonable expenses (including attorney's fees)
incurred as a result of such action or proceeding. Indemnification would not be
available under Article Seventh of the Certificate of Incorporation if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he or she personally gained in fact
a financial profit or other advantage to which he or she was not legally
entitled. Article Seventh of the Certificate of Incorporation further stipulates
that the rights granted therein are contractual in nature.
The Underwriting Agreement contains, among other things, provisions whereby
the Underwriter agrees to indemnify the Company, each officer and director of
the Company who has signed the Registration Statement and each person who
controls the Company within the meaning of Section 15 of the Securities Act
against any losses, liabilities, claims or damages arising out of alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriter for use in the Registration
Statement or Prospectus. See Item 28 'Undertakings.'
II-1
<PAGE>
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
It is estimated that the following expenses will be incurred in connection
with the proposed offering hereunder. All of such expenses will be borne by the
Company.
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission................................................ $ 26,102
NASD filing fee....................................................................................... 8,070
Nasdaq listing expenses...............................................................................
Transfer Agent and Warrant Agent fees and expenses....................................................
Legal fees and expenses...............................................................................
Accounting fees and expenses..........................................................................
Blue sky fees and expenses (including counsel fees)...................................................
Printing expenses.....................................................................................
Miscellaneous expenses................................................................................
--------
Total............................................................................................ $300,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information regarding sales of securities
of the Company issued within the past three years, which were not registered
pursuant to the Securities Act of 1933, as amended (the 'Securities Act').
During the three years immediately preceding the date hereof, no sales by
the Company of its securities were consummated other than the issuance on
October 5, 1993, to Lawrence Pemble, Vice President of Marketing and a Director
of the Company, of five shares of Common Stock (which shares currently amount to
100,000 shares as a result of the 15,000-for-one stock split of the Common Stock
which became effective in April 1994, the 1.2-to-one stock split of the Common
Stock which became effective in July 1994 and the 10-for-9 stock split of the
Common Stock which became effective in August 1994) at an aggregate value for
financial reporting purposes of $250,000. No sales commissions were paid in
connection with such issuance. The securities were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement*
1.2 --Form of IPO Underwriter's Unit Purchase Option (Incorporated by reference to Exhibit 1.2 of the Company's
Registration Statement on Form SB-2 (No. 33-78446) (the 'Registration Statement'))
1.3 --Form of Underwriter's Unit Purchase Option*
1.4 --Form of Finder's Unit Purchase Option (Incorporated by reference to Exhibit 1.3 to the Registration
Statement)
3.1 --Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the
Registration Statement)
3.2 --By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the Registration Statement)
4.1 --Form of Warrant Agreement (including forms of Class A and Class B Warrant Certificates) (Incorporated by
reference to Exhibit 4.1 to the Registration Statement)
4.2 --Form of Amendment to Warrant Agreement*
4.3 --Form of Specimen Certificate of the Company's Common Stock (Incorporated by reference to Exhibit 4.2 to
the Registration Statement)
4.4 --Form of Specimen Certificate of Class B Common Stock (Incorporated by reference to Exhibit 4.3 to the
Registration Statement)
4.5 --Form of Escrow Agreement (Incorporated by reference to Exhibit 4.6 to the Registration Statement)
5.1 --Opinion of Parker Chapin Flattau & Klimpl, LLP re: legality of securities being registered***
10.1 --The Company's 1994 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.1 to the
Registration Statement)
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<C> <S>
10.2 --Lease Agreement, dated as of July 1, 1987, between the Company and the Yiqing Hotel, relating to the
Registrant's Beijing, China Facility**+ (Incorporated by reference to Exhibit 10.2 to the Registration
Statement)
10.3 --Addendum to Lease Agreement between the Company and the Yiqing Hotel, relating to the Registrant's
Beijing, China Facility**+ (Incorporated by reference to Exhibit 10.3 to the Registration Statement)
10.4 --Lease Agreement, dated as of March 1994, between the Registrant and Central Properties Limited
Partnership, relating to the Registrant's Bethesda, Maryland facility (Incorporated by reference to Exhibit
10.4 to the Registration Statement)
10.5 --Employment Agreement, dated as of May 1, 1994, between the Registrant and Roberta Lipson (Incorporated by
reference to Exhibit 10.5 to the Registration Statement)
10.6 --Employment Agreement, dated as of May 1, 1994, between the Registrant and Elyse Beth Silverberg
(Incorporated by reference to Exhibit 10.6 to the Registration Statement)
10.7 --Employment Agreement, dated as of May 1, 1994, between the Registrant and Lawrence Pemble (Incorporated by
reference to Exhibit 10.7 to the Registration Statement)
10.8 --Employment Agreement, dated as of May 1, 1994, between the Registrant and Robert C. Goodwin, Jr.
(Incorporated by reference to Exhibit 10.8 to the Registration Statement)
10.9 --Employment Agreement dated as of September 6, 1994, between the Registrant and Ronald Zilkowski
(Incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994)
10.10 --Distribution Agreement dated as of April 29, 1996 between the Registrant and Acuson Corporation***
10.11 --Agreement for Representation in The People's Republic of China dated as of January 1, 1989 between the
Registrant and VME International Sales AB** (Incorporated by reference to Exhibit 10.13 to the Registration
Statement)
10.12 --Lease Agreement between the School of Posts and Telecommunications and the Registrant dated November 8,
1995 (Incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995)
10.13 --Sublease Agreement between the Registrant and the Beijing International School dated March 4, 1996
(Incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995)
10.14 --Contractual Joint Venture Contract between the Chinese Academy of Medical Sciences, Union Medical &
Pharmaceutical Group, Beijing Union Medical & Pharmaceutical General Corporation and the Registrant, dated
September 27, 1995 (Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995)
10.15 --First Investment Loan Manager Demand Promissory Note dated August 19, 1996 between First National Bank of
Maryland and Chindex, Inc.*
21.1 --List of subsidiaries (Incorporated by reference to Exhibit 21.1 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995)
24.1 --Consent of Ernst & Young LLP (see page II-6)*
24.3 --Consent of Parker Chapin Flattau & Klimpl, LLP (included in their opinion filed as Exhibit 5.1)***
</TABLE>
- ------------
* Filed herewith.
** Confidential treatment has been requested for a portion of this Exhibit.
*** To be filed by amendment.
+ English translation of summary from Chinese original.
II-3
<PAGE>
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such 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; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the 'Act') may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the 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 of the
Registrant 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 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes (i) that for purposes 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
of 1933 shall be deemed to be part of this Registration Statement as of the time
it was declared effective, and (ii) that for purposes 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.
II-4
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Bethesda, State of Maryland, on this 27th day of
September, 1996.
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
By /S/ ROBERTA LIPSON
...................................
ROBERTA LIPSON
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Roberta Lipson and Lawrence Pemble, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
------------- ------------ --------
<S> <C> <C>
/S/ ROBERTA LIPSON Chairperson of the Board of Directors, Chief September 27, 1996
......................................... Executive Officer and President
(ROBERTA LIPSON)
/S/ ELYSE BETH SILVERBERG Executive Vice President, Secretary and September 27, 1996
......................................... Director
(ELYSE BETH SILVERBERG)
/S/ LAWRENCE PEMBLE Executive Vice President Finance and September 27, 1996
......................................... Business Development and Director
(LAWRENCE PEMBLE) (principal financial and accounting
officer)
/S/ ROBERT C. GOODWIN, JR. Executive Vice President Operations, September 27, 1996
......................................... Treasurer, Assistant Secretary, General
(ROBERT C. GOODWIN, JR.) Counsel and Director
/S/ MORRIS LIPSON Director September 27, 1996
.........................................
(MORRIS LIPSON)
/S/ A. KENNETH NILSSON Director September 27, 1996
.........................................
(A. KENNETH NILSSON)
/S/ JULIUS Y. OESTREICHER Director September 27, 1996
.........................................
(JULIUS Y. OESTREICHER)
</TABLE>
II-5
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Experts' and
'Selected Financial Data' and to the use of our report dated February 28, 1996,
in the Registration Statement (Form SB-2 No. 333-00000) and related Prospectus
of U.S.-China Industrial Exchange, Inc. dated September 27, 1996.
ERNST & YOUNG LLP
Vienna, Virginia
September 26, 1996
II-6
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description Page
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement*
1.2 Form of IPO Underwriter's Unit Purchase Option (Incorporated by reference
to Exhibit 1.2 of the Company's Registration Statement on Form SB-2 (No.
33-78446) (the "Registration Statement"))
1.3 Form of Underwriter's Unit Purchase Option*
1.4 Form of Finder's Unit Purchase Option (Incorporated by reference to
Exhibit 1.3 to the Registration Statement)
3.1 Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registration Statement)
3.2 By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the
Registration Statement)
4.1 Form of Warrant Agreement (including forms of Class A and Class B Warrant
Certificates) (Incorporated by reference to Exhibit 4.1 to the
Registration Statement)
4.2 Form of Amendment to Warrant Agreement*
4.3 Form of Specimen Certificate of the Campany's Common Stock (Incorporated
by reference to Exhibit 4.2 to the Registration Statement)
4.4 Form of Specimen Certificate of Class B Common Stock (Incorporated by
reference to Exhibit 4.3 to the Registration Statement)
4.5 Form of Escrow Agreement (Incorporated by reference to Exhibit 4.6 to the
Registration Statement)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP re: legality of securities
being registered***
10.1 The Company's 1994 Stock Option Plan, as amended (Incorporated by
reference to Exhibit 10.1 to the Registration Statement)
10.2 Lease Agreement, dated as of July 1, 1987, between the Company and the
Yiqing Hotel, relating to the Registrant's Beijing, China Facility**+
(Incorporated by reference to Exhibit 10.2 to the Registration Statement)
10.3 Addendum to Lease Agreement between the Company and the Yiqing Hotel,
relating to the Registrant's Beijing, China Facility**+ (Incorporated
by reference to Exhibit 10.3 to the Registration Statement)
10.4 Lease Agreement, dated as of March 1994, between the Registrant and
Central Properties Limited Partnership, relating to the Registrant's
Bethesda, Maryland facility (Incorporated by reference to Exhibit 10.4 to
the Registration Statement)
10.5 Employment Agreement, dated as of May 1, 1994, between the Registrant
and Roberta Lipson (Incorporated by reference to Exhibit 10.5 to the
Registration Statement)
10.6 Employment Agreement, dated as of May 1, 1994, between the Registrant and
Elyse Beth Silverberg (Incorporated by reference to Exhibit 10.6 to
the Registration Statement)
10.7 Employment Agreement, dated as of May 1, 1994, between the Registrant and
Lawrence Pemble (Incorporated by reference to Exhibit 10.7 to the
Registration Statement)
10.8 Employment Agreement, dated as of May 1, 1994, between the Registrant and
Robert C. Goodwin, Jr. (Incorporated by reference to Exhibit 10.8 to the
Registration Statement)
10.9 Employment Agreement dated as of September 6, 1994, between the
Registrant and Ronald Zilkowski (Incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994)
10.10 Distribution Agreement dated as of April 29, 1996 between the Registrant
and Acuson Corporation***
10.11 Agreement for Representation in The People's Republic of China dated
as of January 1, 1989 between the Registrant and VME International Sales
AB** (Incorporated by reference to Exhibit 10.13 to the Registration
Statement)
10.12 Lease Agreement between the School of Posts and Telecommunications and
the Registrant dated November 8, 1995 (Incorporated by reference to
Exhibit 10.14 to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995)
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description Page
- ------- ----------- ----
<S> <C> <C>
10.13 Sublease Agreement between the Registrant and the Beijing International
School dated March 4, 1996 (Incorporated by reference to Exhibit 1O.15 to
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, l995)
10.14 Contractual Joint Venture Contract between the Chinese Academy of Medical
Sciences, Union Medical & Pharmaceutical Group, Beijing, Union Medical &
Pharmaceutical General Corporation and the Registrant, dated September 27,
1995 (Incorporated by reference to Exhibit 10.16 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995)
1O.15 First Investment Loan Manager Demand Promissory Note dated August 19,
1996 between First National Bank of Maryland and Chindex, Inc.*
21.1 List of subsidiaries (Incorporated by reference to Exhibit 21.1 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995)
24.1 Consent of Ernst & Young LLP (see page II-6)*
24.3 Consent of Parker Chapin Flattau & Klimpl, LLP (included in their opinion
filed as Exhibit 5.1)***
</TABLE>
- ------------
* Filed herewith.
** Confidential treatment has been requested for a portion of this Exhibit.
*** To be filed by amendment.
+ English translation of summary from Chinese original.
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as 'r'.
The trademark symbol shall be expressed as 'tm'.
<PAGE>
<PAGE>
10,000 Units
(each Unit consisting of___ units (the "IPO Units"),
which consist of one share of Common Stock, par
value $.01 per share; (ii) one redeemable Class A warrant to
purchase one share of Common Stock and one redeemable Class B warrant
at an exercise
price of $6.50 from the date of issuance through ____________,
2001 and (iii) one redeemable Class B warrant at an exercise price
of $8.75
from its date of issuance through ______________, 2001)
U.S. - CHINA INDUSTRIAL EXCHANGE, INC.
UNDERWRITING AGREEMENT
New York, New York
_____________, 1996
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
U.S. - CHINA INDUSTRIAL EXCHANGE, INC., a New York corporation
(the "Company"), proposes to issue and sell to D.H. Blair Investment Banking
Corp. ("you" or the "Underwriter") pursuant to this Underwriting Agreement (the
"Agreement"), an aggregate of 10,000 Units, each unit being hereinafter referred
to as a "Unit" and consisting of ____ units (the "IPO Units"), each consisting
of one (1) share of Common Stock ("Common Stock"), par value $.01 per share,
("Shares"), one (1) redeemable Class A Warrant ("Class A Warrants") and one (1)
redeemable Class B Warrant ("Class B Warrants"). Each Class A Warrant is
exercisable at a price of $6.50 to purchase one share of Class A Common Stock
and one Class B Warrant from the date of issuance through ___________, 2001.
Each Class B Warrant is exercisable from its date of issuance through
__________, 2001, at an exercise price of $8.75 to purchase one share of Class A
Common Stock. The Class A Warrants and Class B Warrants are collectively
referred to as the "Warrants". The Warrants are subject to redemption, in
certain instances commencing one year from the date of this Agreement. In
addition, the Company proposes to grant to the Underwriter the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 1,500
additional Units. Unless the context otherwise indicates, the term "Units" shall
include the 1,500 additional Units referred to above.
The aggregate of 11,500 Units to be sold by the Company, together
with all or any part of the 1,500 Units which the Underwriter has the option to
purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Common Stock of the
-1-
<PAGE>
<PAGE>
Company to be outstanding after giving effect to the sale of the Shares is
herein called the "Common Stock." The Shares and Warrants included in the Units
(including the Units which the Underwriter has the option to purchase) are
herein collectively called the "Securities."
You have advised the Company that you desire to purchase the
Units. The Company confirms the agreement made by it with respect to the
purchase of the Units by you, as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333-______) on
Form SB-2 relating to the public offering of the Units, including a form of
prospectus subject to completion, copies of which have heretofore been delivered
to you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
under the Act and one or more amendments to such registration statement may have
been so filed. 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 Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Units that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 under the Act a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A under
the Act or permitted by Rule 424(b) under the Act and in the case of either
clause (i)(A) or (i)(B) of this sentence, as have been provided to and approved
by you 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 Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement.
As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the Act
and included in the Prospectus (as hereinafter defined); 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) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule 424(b)(7) under
the Act,
-2-
<PAGE>
<PAGE>
together with the Preliminary Prospectus identified therein that such Term Sheet
supplements; (B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b) under the Act
or (C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to said Rule 424(b), such term means
the prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the prospectus
as so supplemented, or both, as the case may be; and the term "Term Sheet" means
any term sheet that satisfies the requirements of Rule 434 under the Act. Any
reference to the "date" of a Prospectus that includes a Term Sheet shall mean
the date of such Term Sheet.
(b) The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus. At the time the
Registration Statement becomes effective and at all times subsequent thereto up
to and on the Closing Date (as hereinafter defined) or the Option Closing Date,
as the case may be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus on page 2 with respect to stabilization,
under the heading "Underwriting" and the identity of counsel to the Underwriter
under the heading "Legal Matters" constitute the only information furnished in
writing by or on behalf of the Underwriter for inclusion in the Registration
Statement and Prospectus, as the case may be.
(c) The Company, each of its wholly-owned subsidiaries,
Chindex, Inc., Chindex Holdings International Trade (Tianjin) Ltd., and Chindex
Hong Kong Limited and its majority-owned subsidiary, Beijing United Family
Health Center (such wholly-owned and majority-owned subsidiaries referred to
herein as the "Subsidiaries"), have been duly incorporated and are validly
existing as corporations in good standing under the laws of their respective
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own their respective properties and conduct their respective business
as described in the Prospectus and each are duly qualified to do business as a
foreign corporation and are in good standing in all other jurisdictions in which
the nature of their respective business or the character or location of their
respective properties requires such qualification, except where failure to so
qualify will not materially affect the Company's or the Subsidiaries' respective
business, properties or financial condition.
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(d) The authorized, issued and outstanding capital stock
of the Company as of _______, 1996 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued and are
fully paid and non-assessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company have been granted or entered into by the
Company; and the capital stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and
when issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance upon the exercise
of the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof. The Warrant Agreement has been duly
authorized and, when executed and delivered pursuant to this Agreement, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms. The
Warrants and the Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase Option
have been duly authorized and, when duly issued and delivered, such Warrants
will constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option. The Shares included in the Unit Purchase Option (and the shares
of Common Stock issuable upon exercise of such Warrants) when issued and sold,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option and the
M/A Agreement have been duly and validly authorized, executed and delivered by
the Company. The Company has full power and lawful authority to authorize, issue
and sell the Units to be sold by it hereunder
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on the terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Units or the Unit Purchase Option, except
such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company
is not in violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
any of the property or assets of the Company is subject, nor will such action
result in any violation of the provisions of the articles of incorporation or
the by-laws of the Company, as amended, or any statute or any order, rule or
regulation applicable to the Company of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company.
(h) Subject to the qualifications stated in the
Prospectus, the Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material leases
and subleases under which the Company is the lessor or sublessor of properties
or assets or under which the Company holds properties or assets as lessee or
sublessee as described in the Prospectus are in full force and effect, and,
except as described in the Prospectus, the Company is not in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by anyone adverse to rights
of the Company as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease except as described or referred to in the
Prospectus; and the Company owns or leases all such properties described in the
Prospectus as are necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted as set forth in
the Prospectus.
(i) Ernst & Young LLP, who have given their reports on
certain financial statements filed and to be filed with the Commission as a part
of the Registration Statement, which are incorporated in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules and Regulations.
(j) The financial statements and Schedules together
with related notes, set forth in the Prospectus (or if the Prospectus is not in
existence, the most recent Preliminary Prospectus) or the Registration Statement
present fairly the financial position and results of operations and changes in
cash flow position of the Company on the basis stated in the
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Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and Schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved. The information set
forth under the captions "Dilution", "Capitalization", and "Selected Financial
Data" in the Prospectus fairly present, on the basis stated in the Prospectus,
the information included therein.
(k) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), neither
the Company or the Subsidiaries has incurred any liabilities or obligations,
direct or contingent, not in the ordinary course of business, or entered into
any transaction not in the ordinary course of business, which is material to the
business of the Company or the Subsidiaries, and there has not been any change
in the capital stock of, or any incurrence of short-term or long-term debt by,
the Company or the Subsidiaries or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or the Subsidiaries or any
adverse change or any development involving, so far as the Company can now
reasonably foresee a prospective adverse change in the condition (financial or
other), net worth, results of operations, business, key personnel or properties
of it which would be material to the business or financial condition of the
Company or the Subsidiaries and neither the Company or the Subsidiaries has
become a party to, and neither the respective business or property of the
Company or the Subsidiaries has become the subject of, any material litigation
whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not
now pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or any Subsidiary is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth, or
properties of the Company or any Subsidiary, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or any Subsidiary exist or are imminent which might be
expected to adversely affect the conduct of the business, property or operations
or the financial condition or results of operations of the Company or the
Subsidiaries.
(m) Except as disclosed in the Prospectus, the Company
and each of the Subsidiaries has filed all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due thereon;
and there is no tax deficiency which has been or to the knowledge of the Company
might be asserted against the Company or any Subsidiary.
(n) The Company and each of the Subsidiaries has
sufficient licenses, permits and other governmental authorizations currently
required for the conduct of its business or the ownership of its properties as
described in the Prospectus and is in all material respects complying therewith
and owns or possesses adequate rights to use all material patents, patent
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applications, trademarks, service marks, trade-names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the conduct of
such business and had not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company or the Subsidiaries are in
violation of, or cause the Company or the Subsidiaries to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
including the People's Republic of China (the "PRC") and Hong Kong, or of any
agency or body of the United States or of any state, county or locality, the
violation of which would have a material adverse impact upon the condition
(financial or otherwise), business, property, prospective results of operations,
or net worth of the Company or the Subsidiaries.
(o) Neither the Company or any Subsidiary has directly
or indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and each of the Subsidiaries' internal accounting controls
and procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all
transfer or other taxes, (including franchise, capital stock or other tax, other
than income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Units to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents of the Company
which are, under the Rules and Regulations, required to be filed as exhibits to
the Registration Statement have been so filed.
(r) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Units hereby.
(s) Except for the Subsidiaries, the Company has no
subsidiaries.
(t) The Company has not entered into any agreement
pursuant to which any person is entitled either directly or indirectly to
compensation from the Company for services as a finder in connection with the
proposed public offering.
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(u) Except as previously disclosed in writing by the
Company to the Underwriter, no officer, director or stockholder of the Company
has any affiliation or association with any member of the National Association
of Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the
proceeds from the sale of the Units will not be, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(w) The Company has not distributed and will not
distribute prior to the First Closing Date any offering material in connection
with the offering and sale of the Units other than the Preliminary Prospectus,
Prospectus, the Registration Statement or the other materials permitted by the
Act, if any.
(x) The conditions for use of Form SB-2, as set forth
in the General Instructions thereto, have been satisfied.
(y) There are no business relationships or
related-party transactions of the nature described in Item 404 of Regulation S-K
involving the Company, the Subsidiaries and any person described in such Item
that are required to be disclosed in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) and that have not been
so disclosed.
(z) The Company has complied with all provisions of
Section 517.075 Florida Statutes relating to doing business with the government
of Cuba or with any person or affiliate located in Cuba.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties, and agreements
herein contained, the Company agrees to issue and sell to the Underwriter, and
the Underwriter agrees, to buy from the Company at $_______ per Unit, at the
place and time hereinafter specified, the First Units. The First Units shall
consist of 10,000 Units to be purchased from the Company.
Delivery of the First Units against payment therefor shall
take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, New York, N.Y. (or at such other place as may be designated by agreement
between you and the Company) at 10:00 a.m., New York time, on ___________,
199__, or at such later time and date as you may designate, such time and date
of payment and delivery for the First Units being herein called the "First
Closing Date."
(b) In addition, subject to the terms and conditions of
this Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the
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Company hereby grants an option to the Underwriter to purchase all or any part
of an aggregate of an additional 1,500 Units at the same price per Unit as the
Underwriter shall pay for the First Units being sold pursuant to the provisions
of subsection (a) of this Section 2 (such additional Units being referred to
herein as the "Option Units"). This option may be exercised within 45 days after
the effective date of the Registration Statement upon notice by the Underwriter
to the Company advising as to the amount of Option Units as to which the option
is being exercised, the names and denominations in which the certificates for
such Option Units are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined by the
Underwriter but shall not be earlier than four nor later than ten full business
days after the exercise of said option, nor in any event prior to the First
Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Units against payment therefor shall take
place at the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, New
York, N.Y. The Option granted hereunder may be exercised only to cover
overallotments in the sale by the Underwriter of First Units referred to in
subsection (a) above. In the event the Company declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash, shares of Common
Stock or any other consideration, prior to the Option Closing Date, such
dividend or distribution shall also be paid on the Option Units on the Option
Closing Date.
(c) The Company will make the certificates for the
securities comprising the Units to be purchased by the Underwriter hereunder
available to you for checking at least two full business days prior to the First
Closing Date or the Option Closing Date (which are collectively referred to
herein as the "Closing Dates"). The certificates shall be in such names and
denominations as you may request, at least two full business days prior to the
Closing Dates. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriter.
Definitive certificates in negotiable form for the
Securities comprising the Units to be purchased by the Underwriter hereunder
will be delivered by the Company to you against payment of the purchase price,
by certified or bank cashier's checks in New York Clearing House funds, payable
to the order of the Company.
In addition, in the event the Underwriter exercises the
option to purchase from the Company all or any portion of the Option Units
pursuant to the provisions of subsection (b) above, payment for such Units shall
be made to or upon the order of the Company by certified or bank cashier's
checks payable in New York Clearing House funds at the offices of D.H. Blair
Investment Banking Corp., at the time and date of delivery of such Units as
required by the provisions of subsection (b) above, against receipt of the
certificates for the Securities comprising the Units by the Underwriter
registered in such names and in such denominations as the Underwriter may
request.
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It is understood that the you propose to offer the Units
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement becomes
effective.
3. Covenants of the Company. The Company covenants and
agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. Upon notification from the Commission that the Registration Statement has
become effective, the Company will so advise you and will not at any time,
whether before or after the effective date, file the Prospectus, Term Sheet or
any amendment to the Registration Statement or supplement to the Prospectus of
which you shall not previously have been advised and furnished with a copy or to
which you or your counsel shall have objected in writing or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (A) the completion by the Underwriter of the distribution of the Units
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary or
advisable in connection with the distribution of the Units.
As soon as the Company is advised thereof, the Company
will advise you, and confirm the advice in writing, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for amendment
of the Registration Statement or for supplementing of the Prospectus or for
additional information with respect thereto, of the issuance by the Commission
or any state or regulatory body of any stop order or other order or threat
thereof suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriter the use thereof is required to comply with the applicable provisions
of the Act
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and the Rules and Regulations. In case of the happening, at any time within such
period as a Prospectus is required under the Act to be delivered in connection
with sales by an underwriter or dealer of any event of which the Company has
knowledge and which materially affects the Company or the securities of the
Company, or which in the opinion of counsel for the Company or counsel for the
Underwriter should be set forth in an amendment of the Registration Statement or
a supplement to the Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the Prospectus is
required to be delivered to a purchaser of the Units or in case it shall be
necessary to amend or supplement the Prospectus to comply with law or with the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriter, except that in case the
Underwriter is required, in connection with the sale of the Units to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of the
Underwriter, amend or supplement the Registration Statement and Prospectus and
furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 and the rules and
regulations thereunder in connection with the offering and issuance of the
Units.
(b) The Company will use its best efforts to qualify to
register the Units for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may designate and will make such applications
and furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Units. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the Underwriter
may reasonably request.
(c) If the sale of the Units provided for herein is not
consummated for any reason caused by the Company, the Company shall pay all
costs and expenses incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriter.
(d) The Company will use its best efforts to (i) cause
a registration statement under the Securities Exchange Act of 1934 to be
declared effective concurrently with
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the completion of this offering and will notify the Underwriter in writing
immediately upon the effectiveness of such registration statement, and (ii) if
requested by the Underwriter, to obtain a listing on the Pacific Stock Exchange
and to obtain and keep current a listing in the Standard & Poors or Moody's
Industrial OTC Manual.
(e) For so long as the Company is a reporting company
under either Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants), in
reasonable detail and at its expense, will furnish to you during the period
ending five (5) years from the date hereof, (i) as soon as practicable after the
end of each fiscal year, a balance sheet of the Company and any of its
subsidiaries as at the end of such fiscal year, together with statements of
income, surplus and cash flow of the Company and any subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are available, a copy of all
reports (financial or other) mailed to security holders; (iv) as soon as they
are available, a copy of all non-confidential reports and financial statements
furnished to or filed with the Commission or any securities exchange or
automated quotation system on which any class of securities of the Company is
listed; and (v) such other information as you may from time to time reasonably
request.
(f) In the event the Company has an active subsidiary
or subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the order of the Underwriter, from
time to time until the effective date of the Registration Statement, as many
copies of any Preliminary Prospectus filed with the Commission prior to the
effective date of the Registration Statement as the Underwriter may reasonably
request. The Company will deliver to the Underwriter on the effective date of
the Registration Statement and thereafter for so long as a Prospectus is
required to be delivered under the Act, from time to time, as many copies of the
Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriter may from time to time reasonably request. The Company, not later
than (i) 5:00 p.m., New York City time, on the date of determination of the
public offering price, if such determination occurred at or prior to 12:00 noon,
New York City time, on such date or (ii) 6:00 p.m., New York City time, on the
business day following the date of determination of the public offering price,
if such determination occurred after 12:00 noon,
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New York City time, on such date, will deliver to the Underwriter, without
charge, as many copies of the Prospectus and any amendment or supplement thereto
as the Underwriter may reasonably request for purposes of confirming orders that
are expected to settle on the First Closing Date.
(h) The Company will make generally available to its
security holders and to the registered holders of its Warrants and deliver to
you as soon as it is practicable to do so but in no event later than 90 days
after the end of twelve months after its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the
sale of the Units for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will, promptly upon your request,
prepare and file with the Commission any amendments or supplements to the
Registration Statement, Preliminary Prospectus or Prospectus and take any other
action, which in the reasonable opinion of Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Units, and will use its best efforts to
cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Unit Purchase Option outstanding from time to time.
(l) For a period of 13 months from the First Closing
Date, no officer or director of the Company or beneficial holder of more than 1%
of the Company's outstanding stock (the "Principal Stockholders") will directly
or indirectly, offer, sell (including any short sale), grant any option for the
sale of, acquire any option to dispose of, or otherwise dispose of any shares of
Common Stock without the prior written consent of the Underwriter. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the shares owned by the Principal Stockholders until the end of such
period.
(m) Prior to completion of this offering, the Company
will make all filings required, including registration under the Securities
Exchange Act of 1934, to obtain the listing of the Units, Common Stock, and
Warrants on the Nasdaq Small Cap Market and the Nasdaq National Market (or a
listing on such other market or exchange as the Underwriter consents to), and
will effect and maintain such listing for at least five years from the date of
this Agreement.
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(n) The Company and each of the Principal Stockholders
represents that it or he has not taken and agree that it or he will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Units, Shares or the Warrants or to facilitate
the sale or resale of the Securities.
(o) On the Closing Date and simultaneously with the
delivery of the Units, the Company shall execute and deliver to you the Unit
Purchase Option. The Unit Purchase Option will be substantially in the form of
the Unit Purchase Option filed as an Exhibit to the Registration Statement.
(p) During the two year period from the First Closing
Date, the Company will not, without the prior written consent of the
Underwriter, offer or sell any of its securities pursuant to Regulation S under
the Act.
(q) The Company will not, without the prior written
consent of the Underwriter, grant registration rights to any person which are
exercisable sooner than 13 months from the First Closing Date.
(r) Roberta Lipson shall be President, Elyse Beth
Silverberg shall be Executive Vice President, Lawrence Pemble shall be Executive
Vice President Finance and Business Development and Robert C. Goodwin, Jr. shall
be Executive Vice President Operations and General Counsel of the Company on the
Closing Dates. Prior to completion of this offering, the Company will have
obtained key person life insurance on the lives of each of Ms. Lipson and Ms.
Silverberg in an amount of not less than $2 million and will use its best
efforts to maintain such insurance for a minimum period of either three years
form the Closing Date or the respective terms of the employment agreement
between the Company and such officers, whichever period is longer. For a period
of thirteen months from the First Closing Date, the compensation of the
executive officers of the Company shall not be increased from the compensation
levels disclosed in the Prospectus.
(s) On the Closing Date and simultaneously with the
delivery of the Units the Company shall execute and deliver to you, an agreement
with you regarding mergers, acquisitions, joint ventures and certain other forms
of transactions, in the form previously delivered to the Company by you (the
"M/A Agreement").
(t) So long as any Warrants are outstanding, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to you and each dealer as
many copies of each such Prospectus as you or such dealer may reasonably
request. The Company shall not call for redemption any of the Warrants unless a
registration statement covering the securities
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underlying the Warrants has been declared effective by the Commission and
remains current at least until the date fixed for redemption. In addition, for
so long as any Warrant is outstanding, the Company will promptly notify the
Underwriter of any material change in the business, financial condition or
prospects of the Company.
(u) Upon the exercise of any Warrant or Warrants
after _______, 1997, the Company will pay D.H. Blair Investment Banking Corp., a
fee of 5% of the aggregate exercise price of the Warrants, of which 1% may be
reallowed to the dealer who solicited the exercise (which may also be D.H. Blair
Investment Banking Corp.) if (i) the market price of the Company's Common Stock
is greater than the exercise price of the Warrants on the date of exercise; (ii)
the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc., (iii) the Warrant is not held in a
discretionary account; (iv) the disclosure of compensation arrangements has been
made in documents provided to customers, both as part of the original offering
and at the time of exercise, and (v) the solicitation of the Warrant was not in
violation of Rule 10b-6 promulgated under the Securities Exchange Act of 1934,
as amended. The Company agrees not to solicit the exercise of any Warrants other
than through D.H. Blair Investment Banking Corp. and will not authorize any
other dealer to engage in such solicitation without the prior written consent
of D.H. Blair Investment Banking Corp.
(v) For a period of five (5) years from the Effective
Date the Company (i) at its expense, shall cause its regularly engaged
independent certified public accountants to review (but not audit) the
Company's financial statements for each of the first three (3) fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly report and the mailing of quarterly financial
information to stockholders and (ii) shall not change its accounting firm
without the prior written consent of the Chairman or the President of the
Underwriter.
(w) As promptly as practicable after the Closing Date,
the Company will prepare, at its own expense, hard cover "bound volumes"
relating to the offering, and will distribute at least four of such volumes to
the individuals designated by the Underwriter or counsel to the Underwriter.
(x) For a period of five years from the First Closing
Date (i) the Underwriter shall have the right, but not the obligation, to
designate one director of the Board of Directors of the Company and (ii) the
Company shall engage a public relations firm acceptable to the Underwriter.
(y) The Company shall, for a period of six years after
date of this Agreement, submit which reports to the Secretary of the
Treasury and to stockholders, as the Secretary may require, pursuant to
Section 1202 of the Internal Revenue Code, as amended, or regulations
promulgated thereunder, in order for the Company to qualify as a "small
business" so that stockholders may realize special tax treatment with
respect to their investment in the Company.
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4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to purchase and pay for the Units which its has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof, and as of the
Closing Dates) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective
and you shall have received notice thereof not later than 10:00
A.M., New York time, on the date on which the amendment to the
registration statement originally filed with respect to the Units
or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the
Units has been filed with the Commission, or such later time and
date as shall have been agreed to by you; if required, the
Prospectus or any part thereof and any amendment or supplement
thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 434 and 424(b) under
the Act; on or prior to the Closing Dates no stop order
suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that or a similar purpose
shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the
Commission for additional information shall have been complied
with to the reasonable satisfaction of Bachner, Tally, Polevoy &
Misher LLP, counsel to the Underwriter;
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Parker Chapin
Flattau & Klimpl, LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriter, to the
effect that:
(i) each of the Company and the Subsidiaries have has
been duly incorporated and are validly existing as a
corporation in good standing under the laws of their
respective jurisdiction of incorporation, with full
corporate power and authority to own their respective
properties and conduct their respective business as
described in the Registration Statement and Prospectus and
are duly qualified or licensed to do business as a foreign
corporation in each jurisdiction in which the ownership or
leasing of their respective properties or conduct of their
respective business requires such qualification (except
where the failure to be so qualified or licensed would not
have a material adverse effect on the Company);
(ii) to the best knowledge of such counsel, (a) the
Company and each Subsidiary has obtained, or is in the
process of obtaining, all licenses, permits and other
governmental authorizations necessary to the conduct of
their respective business as described in the Prospectus,
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(b) such licenses, permits and other governmental
authorizations obtained are in full force and effect, and
(c) the Company and each Subsidiary are in all material
respects complying therewith, except where the failure to
obtain any such licenses, permits or authorizations would
not have a material adverse effect on the Company;
(iii) the authorized capitalization of the Company as
of _______, 1996 is as set forth under "Capitalization" in
the Prospectus; all shares of the Company's outstanding
stock requiring authorization for issuance by the
Company's board of directors have been duly authorized,
validly issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock of the
Company have not been issued in violation of the
preemptive rights of any shareholder and the shareholders
of the Company do not have any preemptive rights or other
rights to subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of any of the
Stock; the Common Stock, the Warrants, the Unit Purchase
Option and the Warrant Agreement conform to the respective
descriptions thereof contained in the Prospectus; the
Shares have been, and the shares of Common Stock to be
issued upon exercise of the Warrants and the Unit Purchase
Option, upon issuance in accordance with the terms of such
Warrants, the Warrant Agreement and Unit Purchase Option
have been duly authorized and, when issued and delivered,
will be duly and validly issued, fully paid,
non-assessable, free of preemptive rights and no personal
liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been
made in compliance with or under an exemption from
registration under the Act and applicable state securities
laws and no shareholders of the Company have any
rescission rights with respect to Company securities; a
sufficient number of shares of Common Stock has been
reserved for issuance upon exercise of the Warrants and
Unit Purchase Option and to the best of such counsel's
knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any
registration rights or other rights, other than those
which have been waived or satisfied for or relating to the
registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option, the
Warrant Agreement and the M/A Agreement have been duly and
validly authorized, executed and delivered by the Company
and, assuming due execution by each other party hereto or
thereto, each constitutes a legal, valid and binding
obligation of the Company enforceable against the Company
in accordance with its respective terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium
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or other laws of general application relating to or
affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal
or equitable, and except as rights to indemnity or
contribution may be limited by applicable law;
(v) the certificates evidencing the shares of Common
Stock are in valid and proper legal form; the Warrants
will be exercisable for shares of Common Stock of the
Company in accordance with the terms of the Warrants and
at the prices therein provided for; at all times during
the term of the Warrants the shares of Common Stock of the
Company issuable upon exercise of the Warrants have been
duly authorized and reserved for issuance upon such
exercise and such shares, when issued upon such exercise
in accordance with the terms of the Warrants and at the
price provided for, will be duly and validly issued, fully
paid and non-assessable;
(vi) such counsel knows of no pending or threatened
legal or governmental proceedings to which the Company or
any Subsidiary is a party which could materially adversely
affect the business, property, financial condition or
operations of the Company or the Subsidiaries; or which
question the validity of the Securities, this Agreement,
the Warrant Agreement, the Unit Purchase Option or the M/A
Agreement, or of any action taken or to be taken by the
Company pursuant to this Agreement, the Warrant Agreement,
the Unit Purchase Option, or the M/A Agreement; and no
such proceedings are known to such counsel to be
contemplated against the Company or any Subsidiary; there
are no governmental proceedings or regulations required to
be described or referred to in the Registration Statement
which are not so described or referred to;
(vii) neither the Company nor any Subsidiary is in
violation of or default under, nor will the execution and
delivery of this Agreement, the Unit Purchase Option, the
Warrant Agreement or the M/A Agreement, and the incurrence
of the obligations herein and therein set forth and the
consummation of the transactions herein or therein
contemplated, result in a breach or violation of, or
constitute a default under the certificate or articles of
incorporation or by-laws, in the performance or observance
of any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company or any
Subsidiary is a party or by which it or any of its
properties may be bound or in violation of any material
order, rule, regulation, writ, injunction, or decree of
any government, governmental instrumentality or court,
domestic or foreign;
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(viii) the Registration Statement has become effective
under the Act, and to the best of such counsel's
knowledge, no stop order suspending the effectiveness of
the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the
Registration Statement and the Prospectus (except for the
financial statements and other financial data contained
therein, or omitted therefrom, as to which such counsel
need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and
the Rules and Regulations;
(ix) such counsel has participated in the preparation
of the Registration Statement and the Prospectus and
nothing has come to the attention of such counsel to cause
such counsel to have reason to believe that the
Registration Statement or any amendment thereto at the
time it became effective or as of the Closing Dates
contained any untrue statement of a material fact required
to be stated therein or omitted to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of
a material fact or omits to state a material fact
necessary in order to make statements therein, in light of
the circumstances under which they were made, not
misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements,
notes thereto and other financial information and
schedules contained therein, as to which such counsel need
express no opinion);
(x) all descriptions in the Registration Statement
and the Prospectus, and any amendment or supplement
thereto, of contracts and other documents are accurate and
fairly present the information required to be shown, and
such counsel is familiar with all contracts and other
documents referred to in the Registration Statement and
the Prospectus and any such amendment or supplement or
filed as exhibits to the Registration Statement, and such
counsel does not know of any contracts or documents of a
character required to be summarized or described therein
or to be filed as exhibits thereto which are not so
summarized, described or filed;
(xi) no authorization, approval, consent, or license
of any governmental or regulatory authority or agency is
necessary in connection with the authorization, issuance,
transfer, sale or delivery of the Units by the Company, in
connection with the execution, delivery and performance of
this Agreement by the Company or in connection with the
taking of any action contemplated herein, or the issuance
of the Unit Purchase Option or
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the Securities underlying the Unit Purchase Option, other
than registrations or qualifications of the Units under
applicable state or foreign securities or Blue Sky laws
and registration under the Act;
(xii) the statements in the Registration Statement
under the captions "Business", "Use of Proceeds",
"Management", and "Description of Securities" have been
reviewed by such counsel and insofar as they refer to
descriptions of agreements, statements of law,
descriptions of statutes, licenses, rules or regulations
or legal conclusions, are correct in all material
respects;
(xiii) the Units, the Common Stock and the Warrants have
been duly authorized for quotation on the Nasdaq Small Cap
Market and the Nasdaq National Market; and
(xiv) to such counsel's knowledge, there are no
business relationships or related-party transactions of
the nature described in Item 404 of Regulation S-K
involving the Company, any Subsidiary and any person
described in such Item that are required to be disclosed
in the Prospectus and which have not been so disclosed.
(c) At the First Closing Date, you shall have received the
opinion in form and substance satisfactory to counsel to the
Underwriter of [China Kang-Da Law Office,] Chinese counsel to the
Company, addressed to the Underwriter and dated the First Closing
Date.
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York upon opinions of counsel
satisfactory to you, in which case the opinion shall state that they have no
reason to believe that you and they are not entitled to so rely.
(c) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus and other
related matters shall be satisfactory to or approved by Bachner, Tally, Polevoy
& Misher LLP, counsel to the Underwriter, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date, with respect to
the validity of the issuance of the Units, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall have furnished
to counsel for the Underwriter such documents as they may reasonably request for
the purpose of enabling them to render such opinion.
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(d) You shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from Ernst & Young LLP, independent public accountants for the
Company, substantially in the form approved by you, and including estimates
of the Company's revenues and results of operations for the period ending at
the end of the month immediately preceding the effective date and results of
the comparable period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change, or any development
involving a prospective material adverse change, in the business, properties,
condition (financial or otherwise), results of operations, capital stock,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not have
incurred any material liabilities or entered into any agreement not in
the ordinary course of business other than as referred to in the
Registration Statement and Prospectus; and (iv) except as set forth in
the Prospectus, no action, suit or proceeding at law or in equity shall
be pending or threatened against the Company or any Subsidiary which would be
required to be set forth in the Registration Statement, and no proceedings shall
be pending or threatened against the Company or the Subsidiary before or by any
commission, board or administrative agency in the People's Republic of China,
Hong Kong, the United States or elsewhere, wherein an unfavorable decision,
ruling or finding would materially and adversely affect the business, property,
condition (financial or otherwise), results of operations or general affairs of
the Company or the Subsidiaries, and (v) you shall have received, at the First
Closing Date, a certificate signed by each of the President and the principal
financial or accounting officer of the Company, dated as of the First Closing
Date, evidencing compliance with the provisions of this subsection (e).
(f) Upon exercise of the option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Units referred to therein will be subject (as of the date hereof
and as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, and no stop order
suspending the effectiveness
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thereof shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending,
or, to your knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for
additional information shall have been complied with to
the satisfaction of Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Parker Chapin
Flattau & Klimpl, LLP, counsel for the Company, and
[____________] Chinese counsel for the Company, dated as
of the Option Closing Date, in form and substance
satisfactory to Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter, which opinion shall be
substantially the same in scope and substance as the
opinion furnished to you at the First Closing Date
pursuant to Section 4(b) hereof, except that such opinion,
where appropriate, shall cover the Option Units.
(iii) At the Option Closing Date there shall have been
delivered to you a certificate of the President and the
principal financial or accounting officer of the Company,
dated the Option Closing Date, in form and substance
satisfactory to Bachner, Tally, Polevoy & Misher LLP,
counsel to the Underwriter, substantially the same in
scope and substance as the certificate furnished to you at
the First Closing Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance
satisfactory to you from Ernst & Young LLP, dated the
Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in
Section 4(d) hereof and stating that nothing has come to
their attention during the period from the ending date of
their review referred to in said letter to a date not more
than five business days prior to the Option Closing Date,
which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of
the Option Units shall be satisfactory in form and
substance to you, and you and Bachner, Tally, Polevoy &
Misher LLP, counsel to the Underwriter, shall have been
furnished with all such documents, certificates, and
opinions as you may request in connection with this
transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or
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statements of the Company or its compliance with any of
the covenants or conditions contained herein.
(g) No action shall have been taken by the Commission
or the NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it has no
knowledge that any such action is in fact contemplated by the Commission or the
NASD. The Company shall have advised the Underwriter of any NASD affiliation of
any of its officers, directors, stockholders or their affiliates.
(h) If any of the conditions herein provided for in
this Section shall not have been fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by the Underwriter.
Any such cancellation shall be without liability of the Underwriter to
the Company.
5. Conditions of the Obligations of the Company. The obligation
of the Company to sell and deliver the Units is subject to the condition that at
the Closing Dates, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued under the Act or any proceedings
therefor initiated or threatened by the Commission.
If the condition to the obligations of the Company provided for
in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Units on
exercise of the option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, and will reimburse, as incurred, the Underwriter and
such controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written
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information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Units under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be state any such amendment or
supplement thereto. This indemnity will be in addition to any liability
which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for director named in
the Prospectus, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees) to which the Company or any such
director, nominee, officer or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (i) in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof and (ii) relates to the transactions effected by the
Underwriter in connection with the offer and sale of the Units contemplated
hereby. This indemnity agreement will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying
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party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that if the indemnified party is the Underwriter or a person who controls the
Underwriter within the meaning of the Act, the fees and expenses of such counsel
shall be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action (including any impleaded parties)
include both the Underwriter or such controlling person and the indemnifying
party and in the judgment of the Underwriter, it is advisable for the
Underwriter or controlling persons to be represented by separate counsel (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the Underwriter and controlling persons, which
firm shall be designated in writing by you). No settlement of any action against
an indemnified party shall be made without the consent of the indemnifying
party, which shall not be unreasonably withheld in light of all factors of
importance to such indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the
Act in any case in which (i) the Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it 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 of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that
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(a) if such allocation is not permitted by applicable law then the relative
fault of the Company and the Underwriter and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company, or the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriter to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section 7. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then the Underwriter and
each person who controls the Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the full extent
permitted by law. The foregoing contribution agreement shall in no way affect
the contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or
the sale of the Units to the Underwriter is consummated, the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company (which fees shall not exceed $150,000) and of the Company's accountants;
the costs and expenses incident to the preparation, printing, filing and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus and the Prospectus, as amended or supplemented, the fee
of the NASD in connection with the filing required by the NASD relating to the
offering of the Units contemplated hereby; all expenses, including reasonable
fees and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Underwriter shall designate; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, Selling Agreement and the Blue Sky Memorandum,
any fees relating to the listing of the Units, Common Stock and Warrants on the
Nasdaq Small Cap Market and the Nasdaq National Market or any other securities
exchange, the cost of printing the certificates representing the securities
comprising the Units, the fees of the transfer
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agent and warrant agent and the cost of publication of at least two "tombstones"
of the offering (at least one of which shall be in national business newspaper
and one of which shall be in a major New York newspaper; provided that the
aggregate cost of all such tombstones shall not exceed $40,000) and the cost of
preparing at least four hard cover "bound volumes" relating to the offering, in
accordance with the Underwriter's request. The Company shall pay any and all
taxes (including any transfer, franchise, capital stock or other tax imposed by
any jurisdiction) on sales to the Underwriter hereunder. The Company will also
pay all costs and expenses incident to the furnishing of any amended Prospectus
or of any supplement to be attached to the Prospectus as called for in Section
3(a) of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company
shall at the First Closing Date pay to D.H. Blair Investment Banking Corp. a
non-accountable expense allowance of $_______ of which $_______ has been paid.
In the event the overallotment option is exercised, the Company shall pay to
D.H. Blair Investment Banking Corp. at the Option Closing Date an additional
amount equal to 3% of the gross proceeds received upon exercise of the
overallotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained herein or because any other condition to the Underwriter's
obligations hereunder required to be fulfilled by the Company is not fulfilled)
the Company shall be liable for the accountable expenses of the Underwriter,
including legal fees up to a maximum of $30,000. In the event the transactions
contemplated hereby are not consummated by reason of any action of the Company
or because of a breach by the Company of any covenant, representation or
warranty herein, the Company shall be liable for the accountable expenses of the
Underwriter, including legal fees, up to a maximum of $140,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriter or from any other person for
services as a finder in connection with the proposed offering, and the Company
agrees to indemnify and hold harmless the Underwriter against any losses,
claims, damages or liabilities, joint or several (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Underwriter or person may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective date of the
Registration Statement as you in your discretion shall first commence the
initial public offering by the Underwriter of any of the Units. The time of the
initial public
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<PAGE>
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Units, or the time when the Units are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15 and
16 shall remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14,
15 and 16 hereof, may be terminated at any time prior to the First Closing Date,
and the option referred to in Section 2(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Units agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could materially adversely affect the Company; (vii)
except as contemplated by the Prospectus, the Company is merged or consolidated
into or acquired by another company or group or there exists a binding legal
commitment for the foregoing or any other material change of ownership or
control occurs; (viii) the passage by the Congress of the United States or by
any state legislative body or federal or state agency or other authority of any
act, rule or regulation, measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
the Underwriter to have a material impact on the business, financial condition
or financial statements of the Company or the market for the securities offered
pursuant to the Prospectus; (ix) any adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11 or in
Section 10, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
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<PAGE>
11. Unit Purchase Option.
At or before the First Closing Date, the Company will sell to
D.H. Blair Investment Banking Corp., or its designees for a consideration of
$.001, and upon the terms and conditions set forth in the form of Unit Purchase
Option annexed as an exhibit to the Registration Statement, a Unit Purchase
Option to purchase an aggregate of 100 Units. In the event of conflict in the
terms of this Agreement and the Unit Purchase Option, the language of the Unit
Purchase Option shall control.
12. Representations, Warranties and Agreements to Survive
Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company or its Principal Stockholders,
where appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
13. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be mailed, delivered and confirmed to
them at D.H. Blair Investment Banking Corp., New York, New York 10005, with a
copy sent to Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York,
New York 10017, Attention: Sheldon E. Misher, Esq., or if sent to the Company,
will be mailed, delivered and confirmed to it at U.S.-China Industrial Exchange,
Inc., 7201 Wisconsin Avenue, Bethesda, Maryland 20814, Attention: Roberta
Lipson, with a copy sent to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of
the Americas, New York, New York 10136, Attention: Gary J. Simon, Esq.
14. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Company and, to the extent expressed, the Principal
Stockholders, any person controlling the Company or the Underwriter, and
directors of the Company, nominees for director (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any Underwriter of the Units.
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15. Applicable Law.
This Agreement will be governed by, and construed in accordance
with, the laws of the State of New York applicable to agreements made and to be
entirely performed within New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
By: ____________________________________
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
D.H. BLAIR INVESTMENT BANKING CORP.
By: ____________________________________
Authorized Officer
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<PAGE>
We hereby agree to be bound by the provisions of Sections 3(l)
and (n) and 12 hereof.
- ------------------------------
Roberta Lipson
- ------------------------------
Elyse Beth Silverberg
- ------------------------------
Lawrence Pemble
- ------------------------------
Robert C. Goodwin, Jr.
- ------------------------------
Morris Lipson, on behalf of the
Jonathan Lipson Plafker Trust
- ------------------------------
Morris Lipson, on behalf of the
Daniel Lipson Plafker Trust
<PAGE>
<PAGE>
Option to Purchase
1,000 Units
U.S. - China Industrial Exchange, Inc.
Unit Purchase Option
Dated: ________, 1996
THIS CERTIFIES THAT_______ (herein sometimes called the
"Holder") is entitled to purchase from U.S. - China Industrial Exchange, Inc., a
New York corporation (hereinafter called the "Company"), at the prices and
during the periods as hereinafter specified, up to ONE THOUSAND (1,000) Units
("Units"), each Unit consisting of [ ] units (the "IPO Units"), each consisting
of one share of the Company's Common Stock, $.01 par value, as now constituted
("Common Stock"), one Class A warrant ("Class A Warrants") and one Class B
warrant ("Class B Warrants"). Each Class A Warrant is exercisable to purchase
one share of Common Stock and one Class B Warrant at an exercise price of $6.50
from _______, 1996 to _______ , 2001, and each Class B Warrant is exercisable to
purchase one share of Common Stock at an exercise price of $8.75 until _______,
2001. The Class A Warrants and Class B Warrants are herein collectively referred
to as the "Warrants."
The Units have been registered under a Registration Statement
on Form SB-2, (File No. 333-_______ ) declared effective by the Securities and
Exchange Commission on _______ (the "Registration Statement". This Option,
together with options of like tenor, constituting in the aggregate options (the
"Options") to purchase 1,000 Units, subject to adjustment in accordance with
Section 8 of this Option (the "Option Units"), was originally issued pursuant to
an underwriting agreement between the Company and D.H. Blair Investment Banking
Corp., as underwriter ("Blair" or the "Underwriter") in connection with a public
offering (the "Offering") of 10,000 Units (the "Public Units") through the
Underwriter, in consideration of $1.00 received for the Options.
Except as specifically otherwise provided herein, the Common
Stock and the Warrants issued pursuant to the option herein granted (the
"Option") shall bear the same terms and conditions as described under the
caption "Description of Securities" in the Registration Statement, and the
Warrants shall be governed by the terms of the Warrant Agreement dated as of
_______ __, 1996 executed in connection with such public offering (the "Warrant
Agreement"), and except that (i) the holder shall have registration rights under
the Securities Act of 1933, as amended (the "Act"), for the Option, the Common
Stock and the Warrants included in the Option Units, and the shares of Common
Stock underlying the Warrants, as more fully described in Section 6 of this
Option and (ii) the Warrants issuable upon exercise of the Option will be
subject to redemption by the Company pursuant to the Warrant Agreement at any
time after the Option has been exercised and the Warrants underlying the Option
Units are outstanding. Any such
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redemption shall be on the same terms and conditions as the Warrants included in
the Public Units (the "Public Warrants"). The Company will list the Common Stock
underlying this Option and, at the Holder's request the Warrants, on the Nasdaq
National Market, the Nasdaq Small Cap Market or such other exchange or market as
the Common Stock or Public Warrants may then be listed or quoted. In the event
of any extension of the expiration date or reduction of the exercise price of
the Public Warrants, the same changes to the Warrants included in the Option
Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at
the prices, subject to adjustment in accordance with Section 8 of this Option
("the "Exercise Price"), and during the periods as follows:
(a) During the period from ____________, 1996 to
_______, 1998, inclusive, the Holder shall have no right to
purchase any Option Units hereunder, except that in the
event of any merger, consolidation or sale of all or
substantially all the capital stock or assets of the Company
or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in
connection with a merger of another corporation into the
Company) subsequent to _______, 1996, the Holder shall have
the right to exercise this Option and the Warrants included
herein at such time and receive the kind and amount of
shares of stock and other securities and property (including
cash) which a holder of the number of shares of Common Stock
underlying this Option and the Warrants included in this
Option would have owned or been entitled to receive had this
Option been exercised immediately prior thereto.
(b) Between _______, 1998 and _______,2001 inclusive,
the Holder shall have the option to purchase Option Units
hereunder at a price of $[______] per Unit [120% of the
Public Unit price]. For purposes of the adjustments under
Section 8 hereof, the Per Share Exercise Price shall be
deemed to be [$_______,] subject to further adjustment as
provided in such Section 8.
(c) After _________, 2001 the Holder shall have no
right to purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised
at any time within the period above specified, in whole or in part, by (i) the
surrender of this Option (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or such other office
or agency of the Company as it may designate by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company); and (ii)
payment to the Company of the exercise price then in effect for the number of
Option Units specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if
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any. This Option shall be deemed to have been exercised, in whole or in part to
the extent specified, immediately prior to the close of business on the date
this Option is surrendered and payment is made in accordance with the foregoing
provisions of this Section 2, and the person or persons in whose name or names
the certificates for shares of Common Stock and Warrants shall be issuable upon
such exercise shall become the holder or holders of record of such Common Stock
and Warrants at that time and date. The certificates for the Common Stock and
Warrants so purchased shall be delivered to the Holder as soon as practicable
but not later than ten (10) days after the rights represented by this Option
shall have been so exercised.
(b) At any time during the period above specified, during
which this Option may be exercised, the Holder may, at its option, exchange this
Option, in whole or in part (an "Option Exchange"), into the number of Option
Units determined in accordance with this Section (b), by surrendering this
Option at the principal office of the Company or at the office of its stock
transfer agent, accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Option Units into which this Option is to be
exchanged and the date on which the Holder requests that such Option Exchange
occur (the "Notice of Exchange"). The Option Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares of Common Stock and Warrants issuable upon such Option Exchange and, if
applicable, a new Option of like tenor evidencing the balance of the Option
Units remaining subject to this Option, shall be issued as of the Exchange Date
and delivered to the Holder within seven (7) days following the Exchange Date.
In connection with any Option Exchange, this Option shall represent the right to
subscribe for and acquire the number of Option Units (rounded to the next
highest integer) equal to (x) the number of Option Units specified by the Holder
in its Notice of Exchange up to the maximum number of Option Units subject to
this option (the "Total Number") less (y) the number of Option Units equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the Fair Market Value. "Fair Market Value" shall
mean first, if there is a trading market as indicated in Subsection (i) below
for the Units, such Fair Market Value of the Units and if there is no such
trading market in the Units, then Fair Market Value shall have the meaning
indicated in Subsections (ii) through (v) below for the aggregate value of all
shares of Common Stock and Warrants which comprise a Unit:
(i) If the Units are listed on a national securities
exchange or listed or admitted to unlisted trading privileges
on such exchange or listed for trading on the Nasdaq National
Market or the Nasdaq Small Cap Market, the Fair Market Value
shall be the average of the last reported sale prices or the
average of the means of the last reported bid and asked
prices, respectively, of the Units on such exchange or market
for the twenty (20) business days ending on the last business
day prior to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a
national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading on the
Nasdaq National Market or the Nasdaq Small Cap Market, the
Fair
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Market Value shall be the average of the last reported sale
prices or the average of the means of the last reported bid
and asked prices, respectively, of Common Stock or Warrants,
respectively, on such exchange or market for the twenty (20)
business days ending on the last business day prior to the
Exchange Date; or
(iii) If the Common Stock or Warrants are not so
listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the means of the last
reported bid and asked prices of the Common Stock or Warrants,
respectively, for the twenty (20) business days ending on the
last business day prior to the Exchange Date; or
(iv) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the Fair Market Value shall be an amount, not
less than book value thereof as at the end of the most recent
fiscal year of the Company ending prior to the Exchange Date,
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company; or
(v) If the Warrants are not so listed or admitted to
unlisted trading privileges, and bid and asked prices are not
so reported for Warrants, then Fair Market Value for the
Warrants shall be an amount equal to the difference between
(i) the Fair Market Value of the shares of Common Stock and
Warrants which may be received upon the exercise of the
Warrants, as determined herein, and (ii) the Warrant Exercise
Price.
3. Neither this Option nor the underlying securities shall be
transferred, sold, assigned, or hypothecated for a period of two years
commencing ____________, 1996 except that they may be transferred to successors
of the Holder, and may be assigned in whole or in part to any person who is an
officer of the Holder, any member participating in the selling group relating to
the Offering, which may be D.H. Blair & Co., Inc. ("Blair & Co."), or any
officer of such selling group member. Any such assignment shall be effected by
the Holder (i) executing the form of assignment at the end hereof and (ii)
surrendering this Option for cancellation at the office or agency of the Company
referred to in Section 2 hereof, accompanied by a certificate (signed by an
officer of the Holder if the Holder is a corporation), stating that each
transferee is a permitted transferee under this Section 3 hereof; whereupon the
Company shall issue, in the name or names specified by the Holder (including the
Holder) a new Option or Options of like tenor and representing in the aggregate
rights to purchase the same number of Option Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common
Stock which may be issued as part of the Option Units purchased hereunder and
the Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable and no
personal liability will attach to the holder thereof. The
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Company further covenants and agrees that during the periods within which this
Option may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock to provide for the
exercise of this Option and that it will have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of the
Warrants included in the Option Units.
5. This Option shall not entitle the Holder to any voting
rights or any other rights, or subject to the Holder to any liabilities, as a
stockholder of the Company.
6. (a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds Option
Units or any of the securities underlying the Option Units, by written notice at
least four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the effective date of the Registration Statement, upon the request of the
Holder, include in any such post-effective amendment or registration statement,
such information as may be required to permit a public offering of the Option,
all or any of the Option Units, the Common Stock or Warrants included in the
Option Units or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities").
(b) If Blair or Blair & Co. shall give notice to the Company
at any time to the effect that such holder desires to register under the Act
this Option, the Option Units or any of the underlying securities contained in
the Option Units under such circumstances that a public distribution (within the
meaning of the Act) of any such securities will be involved then the Company
will promptly, but no later than two weeks after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement on Form S-1 or such other form as the holder requests
pursuant to the Act, to the end that the Option, the Option Units and/or any of
the securities underlying the Option Units may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
cause such registration to become and remain effective (including the taking of
such steps as are necessary to obtain the removal of any stop order); provided,
that such holder shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request in writing. Blair or
Blair & Co. may, at its option, request the filing of a post-effective amendment
to the current Registration Statement or a new registration statement under the
Act on one occasion during the four year period beginning one year from the
effective date of the Registration Statement. Blair or Blair & Co. may, at its
option request the registration of the Option and/or any of the securities
underlying the Option in a registration statement made by the Company as
contemplated by Section 6(a) or in connection with a request made pursuant to
this Section 6(b) prior to acquisition of the Option Units issuable upon
exercise of the Option and even though the Holder has not given notice of
exercise of the Option. Blair or Blair & Co. may, at its option, request such
post-effective amendment or new registration statement during the described
period with respect to the Option, the Option Units as a unit, or separately as
to the
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<PAGE>
Common Stock and/or Warrants included in the Option Units and/or the Common
Stock issuable upon the exercise of the Warrants, and such registration rights
may be exercised by the Blair or Blair & Co. prior to or subsequent to the
exercise of the Option.
Within ten days after receiving any such notice pursuant to
this Section 6(b), the Company shall give notice to the other holders of the
Options, advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include therein the
securities underlying the Options of the other holders, provided that they shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. In the event the registration statement is not
filed within the period specified herein and in the event the registration
statement is not declared effective under the Act prior to ________, 2001, then,
at the holders' request, the Company shall purchase the Options from the holder
for a per option price equal to the difference between (i) the Fair Market Value
of the Common Stock on the date of notice multiplied by the number of shares of
Common Stock issuable upon exercise of the Option and the underlying Warrants
and (ii) the average per share purchase price of the Option and each share of
Common Stock underlying the Option. All costs and expenses of the first such
post-effective amendment or new registration statement under this paragraph 6(b)
shall be borne by the Company, except that the holders shall bear the fees of
their own counsel and any underwriting discounts or commissions applicable to
any of the securities sold by them. If the Company determines to include
securities to be sold by it in any registration statement originally requested
pursuant to this Section 6(b), such registration shall instead be deemed to have
been a registration under Section 6(a) and not under this Section 6(b).
The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least six
months (and for up to an additional three months if requested by the Holder)
from the effective date thereof.
(c) Whenever pursuant to Section 6 a registration statement
relating to any Registrable Securities is filed under the Act, amended or
supplemented, the Company shall (i) supply prospectuses and such other documents
as the Holder may request in order to facilitate the public sale or other
disposition of the Registrable Securities, (ii) use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as such
Holder designates, (iii) furnish indemnification in the manner provided in
Section 7 hereof, (iv) notify each Holder of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and, at the request of any such Holder, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not included an
untrue statement of a material fact or omit to state material fact required to
be stated therein or necessary to make the statements
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<PAGE>
therein not misleading and (v) do any and all other acts and things which may be
necessary or desirable to enable such Holders to consummate the public sale or
other disposition of the Registrable Securities, The Holder shall furnish
appropriate information in connection therewith and indemnification as set forth
in Section 7.
(d) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 6(b) hereof without the prior
written consent of Blair or Blair & Co.
(e) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) if such registration
includes an underwritten public offering, a "cold comfort" letter dated the
effective date of such registration statement and dated the date of the closing
under the underwriting agreement signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(f) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonable
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to non-confidential books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
as any such Holder shall reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement
relating to the Registrable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each holder of the
Registrable Securities covered by such registration statement, amendment or
supplement (such holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses,
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<PAGE>
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such controlling
person and underwriter for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder specifically for use in the preparation thereof.
(b) If requested by the Company prior to the filing of any
registration statement covering the Registrable Securities, each Distributing
Holder will agree, severally but not jointly, to indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder specifically for use in the preparation
thereof; except that the maximum amount which may be recovered from the
Distributing Holder pursuant to this Section 7 or otherwise shall be limited to
the amount of net proceeds received by the Distributing Holder from the sale of
the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying
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<PAGE>
party similarly notified to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation.
(8) In addition to the provisions of Section 1(a) of this
Option, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of the Options shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend
or make a distribution on its outstanding shares of Common
Stock in shares of Common Stock, (ii) subdivide or reclassify
its outstanding shares of Common Stock into a greater number
of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for
such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after
giving effect to such action, and the numerator of which shall
be the number of shares of Common Stock outstanding
immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise
of each Option is adjusted pursuant to Subsection (a) above,
(i) the number of shares of Common Stock included in an Option
Unit shall simultaneously be adjusted by multiplying the
number of shares of Common Stock included in Option Unit
immediately prior to such adjustment by the Exercise Price in
effect immediately prior to such adjustment and dividing the
product so obtained by the Exercise Price, as adjusted and
(ii) the number of shares of Common Stock or other securities
issuable upon exercise of the Warrants included in the Option
Units and the exercise price of such Warrants shall be
adjusted in accordance with the applicable terms of the
Warrant Agreement.
(c) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price;
provided, however, that any adjustments which by reason of
this Subsection (c) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations
under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
Anything in this Section 8 to the
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contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise
Price, in addition to those required by this Section 8, as it
shall determine, in its sole discretion, to be advisable in
order that any dividend or distribution in shares of Common
Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result
in any Federal Income tax liability to the holders of Common
Stock or securities convertible into Common Stock (including
Warrants issuable upon exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly but no later than
10 days after any request for such an adjustment by the
Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon
exercise of each Option and, if requested, information
describing the transactions giving rise to such adjustments,
to be mailed to the Holders, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by
the Company) to make any computation required by this Section
8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(e) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder
of this Option thereafter shall become entitled to receive any
shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of
this Option shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Subsections (a) to (c), inclusive above.
(f) In case any event shall occur as to which the
other provisions of this Section 8 or Section 1(a) hereof are
not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights
represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the
Holders of Options representing the right to purchase a
majority of the Option Units may appoint a firm of independent
public accountants reasonably acceptable to the Company, which
shall give their opinion as to the adjustment, if any, on a
basis consistent with the essential intent and principles
established herein, necessary to preserve the purchase rights
represented by the Options. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of
this Option and shall make the adjustments described therein.
The fees and expenses of such independent public accountants
shall be borne by the Company.
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9. This Agreement shall be governed by and in accordance with
the laws of the State of New York, without giving effect to the principles of
conflicts of law thereof.
IN WITNESS WHEREOF, ____________ has caused this Option to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated ________, 1996.
U.S. - CHINA INDUSTRIAL EXCHANGE, INC.
By: ____________________________
Roberta Lipson, President
(Corporate Seal)
Attest:
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of U.S. - China Industrial Exchange,
Inc., each Unit consisting of _________ IPO Units, which consists of one (1)
share of $ .01 Par Value Common Stock, one (1) Class A Warrant to purchase one
(1) share of Common Stock and one (1) Class B Warrant, and one (1) Class B
Warrant and herewith makes payment of $_________ thereof
Dated: _________ Instructions for Registration of Stock and Warrants
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Signature
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<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing
Option, hereby elects to exchange its Option for _________ Units of U.S. - China
Industrial Exchange, Inc., each Unit consisting of ________ IPO Units, which
consist of one (1) share of $.01 Par Value Common Stock, one (1) Class A Warrant
to purchase one (1) share of Common Stock and one (1) Class B Warrant, pursuant
to the Option Exchange provisions of the Option.
Dated: _____________
------------------------------------------
Print Name
------------------------------------------
Address
------------------------------------------
Signature
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<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _______________________ the right to purchase Units represented
by the foregoing Option to the extent of ____ Units , and appoints _____________
attorney to transfer such rights on the books of U.S. - China Industrial
Exchange, Inc., with full power of substitution in the premises.
Dated: _______________
D.H. BLAIR INVESTMENT BANKING CORP.
By: _____________________________________
----------------------------------------
Address
In the presence of:
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<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______, 1996, by and among
U.S.-China Industrial Exchange, Inc., a New York corporation ("Company"),
American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent"),
and D.H. BLAIR INVESTMENT BANKING CORP., a New York corporation ("Blair" or the
"Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering of up to 11,500 units
("Units"), each unit consisting of _____ units (the "IPO Units"), consisting of
one (1) share of the Company's Common Stock, $.01 par value ("Common Stock"),
one (1) redeemable Class A Warrant ("Class A Warrants") and one (1) redeemable
Class B Warrant ("Class B Warrants") pursuant to an underwriting agreement (the
"Underwriting Agreement") dated _________, 1996 between the Company and Blair
and the issuance to Blair or its designees of a Unit Purchase Option to purchase
1,000 additional Units to be dated as of ________, 1996 (the "Unit Purchase
Options"), the Company may issue up to [________] Class A Warrants and
[________] Class B Warrants (the Class A Warrants and Class B Warrants may be
collectively referred to as "Warrants"); and
WHEREAS, each Class A Warrant initially entitles the Registered Holder
thereof to purchase one (1) share of Common Stock and one (1) Class B Warrant,
and accordingly, the Company may issue up to an additional [________] Class B
Warrants; and
WHEREAS, each Class B Warrant initially entitles the Registered Holder
thereof to purchase one (1) share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
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<PAGE>
(a) "Aggregate Per Share Price" shall mean the Purchase Price per share
multiplied by the number of shares of Common Stock purchasable upon the exercise
of a Warrant.
"Class A Aggregate Per Share Price" shall mean $6.50.
"Class B Aggregate Per Share Price" shall mean $8.75.
(b) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of [18,000,000] shares of Common
Stock, $.01 par value and 2,000,000 shares of Class B Common Stock, $.01 par
value.
(c) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, NY 10005.
(d) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(e) "Initial Warrant Exercise Date" shall mean as to each Class A
Warrant and Class B Warrant ________, 1996.
(f) "Purchase Price" shall mean the purchase price to be paid upon
exercise of each Class A Warrant or Class B Warrant in accordance with the terms
hereof, which price shall be $6.50 as to the Class A Warrants and $8.75 as to
the Class B Warrants, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all warrantholders.
(g) "Redemption Price" shall mean the price at which the Company may,
at its option in accordance with the terms hereof, redeem the Class A Warrants
and/or Class B Warrants, which price shall be $0.05 per Warrant.
(h) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(i) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
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(j) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
__________, 2001, or, with respect to Warrants which are outstanding as of the
applicable Redemption Date (as defined in Section 8) and specifically excluding
Warrants issuable upon exercise of Unit Purchase Options if the Unit Purchase
Options have not been exercised, the Redemption Date, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or a day
on which banks are authorized or required to close, then 5:00 P.M. (New York
time) on the next following day which in the State of New York is not a holiday
or a day on which banks are authorized or required to close. Upon notice to all
Registered Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Class A Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock and one Class B Warrant upon the exercise thereof, in accordance
with the terms hereof, subject to modification and adjustment as provided in
Section 9.
(b) A Class B Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(c) The Class A Warrants and Class B Warrants included in the offering
of Units will be detachable and separately transferable immediately from the
shares of Common Stock constituting part of such Units. The Class B Warrants
will also be detachable and separately transferable immediately from the shares
of Common Stock issued upon exercise of the Class A Warrants.
(d) Upon execution of this Agreement, Warrant Certificates representing
the number of Class A Warrants and Class B Warrants sold pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary, the
Warrant Certificates shall be countersigned, issued and delivered by the Warrant
Agent as part of the Units.
(e) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of [_______] shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(f) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued
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<PAGE>
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date,
upon the exercise of fewer than all Warrants represented by any Warrant
Certificate, to evidence any unexercised Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant
to Section 6; (iv) those issued in replacement of lost, stolen, destroyed
or mutilated Warrant Certificates pursuant to Section 7; (v) those issued
pursuant to the Unit Purchase Option; (vi) at the option of the Company,
in such form as may be approved by the its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common Stock
purchasable upon exercise of the Warrants or the Target Price(s) therefor made
pursuant to Section 8 hereof; and (vii) those Class B Warrants issued upon
exercise of Class A Warrants.
(g) Pursuant to the terms of the Unit Purchase Option, the Underwriter
may purchase up to an aggregate of 1,000 Units, which include up to [______]
Class A Warrants and [______] Class B Warrants. Notwithstanding anything to the
contrary contained herein, the Warrants underlying the Unit Purchase Option
shall not be subject to redemption by the Company except under the terms and
conditions set forth in the Unit Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A as to the Class A Warrants and Exhibit B as to the Class B
Warrants (the provisions of which are hereby incorporated herein) and may have
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Class A Warrants or Class B Warrants may be listed, or to
conform to usage or to the requirements of Section 2(d). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letters AW on Class A Warrants of all
denominations and the letters BW on Class B Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or any Vice President and by its Secretary
or an Assistant Secretary, by manual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company or to hold the particular office
referenced in the Warrant Certificate before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates may nevertheless be countersigned by
the Warrant Agent, issued and delivered with the same force and effect as though
the person who signed such Warrant Certificates had not ceased to be an officer
of the
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Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4(a) hereof.
SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the Exercise Date
and the person entitled to receive the securities deliverable upon such exercise
shall be treated for all purposes as the holder of those securities upon the
exercise of the Warrant as of the close of business on the Exercise Date. As
soon as practicable on or after the Exercise Date the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant and shall notify
the Company in writing of the exercise of the Warrants. Promptly following, and
in any event within five days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise, (plus a Warrant Certificate for any remaining unexercised Warrants of
the Registered Holder) unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Notwithstanding the foregoing, in the
case of payment made in the form of a check drawn on an account of the
Underwriter or such other investment banks and brokerage houses as the Company
shall approve in writing to the Warrant Agent, certificates shall immediately be
issued without prior notice to the Company or any delay. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant Proceeds") to
the Company or as the Company may direct in writing, subject to the provisions
of Sections 4(b) and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any Warrant
after _____________, 1997, (i) the market price of the Company's Common Stock is
greater than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") as designated in writing on the Warrant Certificate
Subscription Form, (iii) the Warrant was not held in a discretionary account,
(iv) disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 (as such rule or any
successor rule may be in effect as of such time of exercise) promulgated under
the Securities Exchange Act of 1934, then the Warrant Agent, simultaneously with
the distribution of the Warrant Proceeds to the Company shall, on behalf of the
Company, pay from the Warrant Proceeds, a fee of 5% (the "Blair Fee") of the
Purchase Price to Blair for Warrant exercises solicited by its representatives
(of which a portion may be reallowed by Blair to the dealer who solicited the
exercise, which may also be Blair or D.H. Blair & Co., Inc.). In the event the
Blair Fee is not received within five days of the date on
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which the Company receives Warrant Proceeds, then the Blair Fee shall begin
accruing interest at an annual rate of prime plus four (4)%, payable by the
Company to Blair at the time Blair receives the Blair Fee. Within five days
after exercise the Warrant Agent shall send Blair a copy of the reverse side of
each Warrant exercised. Blair shall reimburse the Warrant Agent, upon request,
for its reasonable expenses relating to compliance with this section 4(b). In
addition, Blair and the Company may at any time during business hours, examine
the records of the Warrant Agent, including its ledger of original Warrant
Certificates returned to the Warrant Agent upon exercise of Warrants. The
provisions of this paragraph may not be modified, amended or deleted without the
prior written consent of Blair.
(c) In order to enforce the provisions of Section 4(b) above, in the
event there is any dispute or question as to the amount or payment of the Blair
Fee, the Warrant Agent is hereby expressly authorized to withhold payment to the
Company of the Warrant Proceeds unless and until the Company establishes an
escrow account for the purpose of depositing the entire amount of the Blair Fee,
which amount will be deducted from the net Warrant Proceeds to be paid to the
Company. The funds placed in the escrow account may not be released to the
Company without a written agreement from Blair that the required Blair Fee has
been received by Blair.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such Shares shall be listed on each national
securities exchange on which the other shares of outstanding Common Stock of the
Company are then listed or shall be eligible for inclusion in the Nasdaq
National Market or the Nasdaq SmallCap Market if the other shares of outstanding
Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities, however, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the
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issuance or delivery of any shares or Class B Warrants upon exercise of the
Class A Warrants, or the issuance or delivery of any shares upon exercise of the
Class B Warrants; provided, however, that if the shares of Common Stock or Class
B Warrants, as the case may be, are to be delivered in a name other than the
name of the Registered Holder of the Warrant Certificate representing any
Warrant being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of transfer taxes
or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration
or transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
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(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Underwriter, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Common Stock and transferable separately
therefrom.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall ( in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Class A Warrants or Class B Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(g) hereof, on not less
than thirty (30) days notice given at any time after __________, 1997 (the
"Redemption Notice"), to Registered Holders of the Warrants being redeemed at
any time after ___________, 1997, the Warrants may be redeemed, at the option of
the Company, at a redemption price of $0.05 per Warrant, provided the Market
Price of the Common Stock receivable upon exercise of such Warrants shall exceed
$9.10 with respect to the Class A Warrants and $12.25 with respect to the Class
B Warrants (the "Target Prices"), subject to adjustment as set forth in Section
8(f), below. Market Price shall mean (i) the average closing bid price of the
Common Stock, for [twenty (20)] consecutive business days, ending on the
Calculation Date as reported by Nasdaq, if the Common Stock is traded on the
Nasdaq SmallCap Market, or (ii) the average last reported sale price of the
Common Stock, for [twenty (20)] consecutive business days ending on the
Calculation Date, as reported by the primary exchange on which the Common Stock
is traded, if the Common Stock is traded on a national securities exchange, or
by Nasdaq, if the Common Stock is traded on the Nasdaq National Market. All
Warrants of a class must be redeemed if any of that class are redeemed, provided
that the Warrants underlying the Unit Purchase Option may only be redeemed in
compliance with and subject to the terms and conditions of the Unit Purchase
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Option. For purposes of this Section 8, the Calculation Date shall mean a date
within 15 days of the mailing of the Redemption Notice. The date fixed for
redemption of the Warrants is referred to herein as the "Redemption Date." The
Class B Redemption Date may not be earlier than thirty-one (31) days after the
Class A Redemption Date.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
Blair to mail a Redemption Notice to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Section 6(b). Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption price, (ii)
the Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the redemption price paid, (iv) that Blair will assist each
Registered Holder of a Warrant in connection with the exercise thereof and (v)
that the right to exercise the Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of Blair or the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the Redemption Date and
upon the deposit or setting aside by the Company of a sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
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SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in the
event the Company shall, at any time or from time to time after the date hereof,
sell any shares of Common Stock for a consideration per share less than the
Market Price of the Common Stock (as defined in Section 8 except that for
purposes of Section 9, the Calculation Date shall mean the date of the sale or
other transaction referred to in this Section 9) on the date of the sale or
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(F) below) for the issuance of such additional shares would purchase at the
Market Price and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock and Class B Warrants
purchasable upon the exercise of each Class A Warrant or the total number of
shares of Common Stock purchasable upon exercise of each Class B Warrant, as
applicable, shall (subject to the provisions contained in Section 9(b) hereof)
be such number of shares (and Class B Warrants, if applicable) (calculated to
the nearest one hundredth provided, however, that in no event shall the Class A
Aggregate Per Share Price or the Class B Aggregate Per Share Price applicable
increase as a result of such rounding calculation) purchasable at the Purchase
Price in effect immediately prior to such adjustment multiplied by a fraction,
the numerator of which shall be the Purchase Price in effect immediately prior
to such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class A Warrants or Class B Warrants
outstanding, in lieu of the adjustment in the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Class A Warrant outstanding after such adjustment shall represent the right
to purchase one share of Common Stock and one Class B Warrant, and each Class B
Warrant outstanding after such adjustment shall represent the right to purchase
one share of Common Stock. Each Warrant held of record prior to such adjustment
of the number of Warrants shall become that number of Warrants (calculated to
the nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which
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shall be the Purchase Price in effect immediately after such adjustment. Upon
each adjustment of the number of Warrants pursuant to this Section 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10 hereof, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase and the other
obligations of the Company under this Agreement. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant to
Section 2(f) hereof, continue to express the Purchase Price per share, the
number of shares purchasable thereunder and the Redemption Price therefor as the
Purchase Price per share, and the number of shares purchasable and the
Redemption Price therefor were expressed in the Warrant Certificates when the
same were originally issued.
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(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the Registered Holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a
statement showing in detail the method of calculation and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any securities
issues or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Purchase Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 9) on account thereof. The Company will promptly file
such certificate with the Warrant Agent and furnish a copy thereof to be sent by
ordinary first class mail to the Underwriter and to each Registered Holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The Company will, upon written request at any time of the
Underwriter, furnish to the Underwriter a report by Ernst & Young LLP, or other
independent public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation and setting forth such adjustment or readjustment and showing in
detail the method of calculation and the facts upon which such adjustment or
readjustment is based. The Company will also keep copies of all such
certificates and reports at its principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (A) to (G) shall also be applicable:
(A) The number of shares of Common Stock
outstanding at any given time shall include shares of Common
Stock owned or held by or for the account of the Company and
the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall
be made unless such adjustment would require an increase or
decrease of at least $.10 in the Purchase Price; provided that
any adjustments which by reason of this clause (B) are not
required to be made shall be carried forward and shall be made
at the time of and together with the next subsequent
adjustment which, together with any adjustment(s) so carried
forward, shall require an increase or decrease of at least
$.10 in the Purchase Price then in effect hereunder.
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(C) In case of (1) the sale by the Company for
cash (or as a component of a unit being sold for cash) of any
rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or any securities
convertible into or exchangeable for Common Stock without the
payment of any further consideration other than cash, if any
(such securities convertible, exercisable or exchangeable into
Common Stock being herein called "Convertible Securities"), or
(2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, in each
case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options
shall consist of cash, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (determined by
dividing (x) the minimum aggregate consideration payable to
the Company upon the exercise of such rights, warrants or
options, plus the consideration, if any, received by the
Company for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities, the
minimum aggregate amount of additional consideration other
than such Convertible Securities, payable upon the conversion
or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the Market Price of
the Common Stock on the date of the issuance or sale of such
rights, warrants or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (as of the date of the issuance
or sale of such rights, warrants or options) shall be deemed
to be outstanding shares of Common Stock for purposes of
Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(D) In case of the sale by the Company for
cash of any Convertible Securities, whether or not the right
of conversion or exchange thereunder is immediately
exercisable, and the price per share for which Common Stock is
issuable upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof,
by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible
Securities) is less than the Market Price of the Common Stock
on the date of the sale of such Convertible Securities, then
the total maximum
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number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of
the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections
9(a) and 9(b) hereof and shall be deemed to have been sold for
cash in an amount equal to such price per share.
(E) In case the Company shall modify the
rights of conversion, exchange or exercise of any of the
securities referred to in (C) above or any other securities of
the Company convertible, exchangeable or exercisable for
shares of Common Stock, for any reason other than an event
that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such
modification is less than the Market Price on the date prior
to such modification, the Purchase Price to be in effect after
such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a
fraction, of which the numerator shall be the number of shares
of Common Stock outstanding multiplied by the Market Price on
the date prior to the modification plus the number of shares
of Common Stock which the aggregate consideration receivable
by the Company for the securities affected by the modification
would purchase at the Market Price and of which the
denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common
Stock to be issued upon conversion, exchange or exercise of
the modified securities at the modified rate. Such adjustment
shall become effective as of the date upon which such
modification shall take effect. On the expiration of any such
right, warrant or option or the termination of any such right
to convert or exchange any such Convertible Securities
referred to in Paragraph (C) or (D) above, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such
Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants,
options or Convertible Securities been made upon the basis of
the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on
the basis of the Purchase Price as adjusted under clause (a)
for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares
of Common Stock, any Convertible Securities, any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefore shall be
deemed to be the gross sales price therefor without deducting
therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith.
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(G) In case any event shall occur as to which
the provisions of Section 9 are not strictly applicable but
the failure to make any adjustment would not fairly protect
the purchase rights represented by the Warrants in accordance
with the essential intent and principles of Section 9, then,
in each such case, the Board of Directors of the Company shall
in good faith by resolution provide for the adjustment, if
any, on a basis consistent with the essential intent and
principles established in Section 9, necessary to preserve,
without dilution, the purchase rights represented by the
Warrants. The Company will promptly make the adjustments
described therein.
(g) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the exercise of any of the options
presently outstanding under the Company's 1994 Stock Option
Plan (the "Plan") for officers, directors and certain other
key personnel of the Company; or
(ii) upon the issuance or exercise of any other
securities which may hereafter be granted or exercised under
the Plan or under any other employee benefit plan of the
Company approved by the Company's stockholders; or
(iii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of
the Warrants comprising the Unit Purchase Option or upon the
sale or exercise of the Unit Purchase Option; or
(iv) upon the sale of any shares of Common Stock
or Convertible Securities in a firm commitment underwritten
public offering, including, without limitation, shares sold
upon the exercise of any overallotment option granted to the
underwriters in connection with such offering; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or
warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether
or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were
thereafter issued or sold; or
(vi) upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities,
whether or not any adjustment in the Purchase Price was made
or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of the original sale
of the
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Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon the exercise of any Warrant, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
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(1) If the Common Stock is listed on a
national securities exchange or admitted to unlisted trading
privileges on such exchange or is traded on the Nasdaq
National Market, the current market value shall be the last
reported sale price of the Common Stock on such exchange or
market on the last business day prior to the date of exercise
of this Warrant or if no such sale is made on such day, the
average of the closing bid and asked prices for such day on
such exchange or market; or
(2) If the Common Stock is not listed or
admitted to unlisted trading privileges on a national
securities exchange or is not traded on the Nasdaq National
Market, the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq SmallCap
Market or, if not traded thereon, by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked
prices are not so reported, the current market value shall be
an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder
of Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
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(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and cancelled by it and retired. The Warrant
Agent shall also cancel the Warrant Certificate or Warrant Certificates
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent
acts hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action
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<PAGE>
<PAGE>
taken, suffered or omitted by it in good faith in accordance with the opinion or
advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
30 days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust
-19-
<PAGE>
<PAGE>
business of the Warrant Agent shall be a successor warrant agent under this
Agreement without any further act, provided that such corporation is eligible
for appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the
provisions of Section 4(b), the parties hereto and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; (ii) to reflect an increase in the number of Class A or Class B
Warrants which are to be governed by this Agreement resulting from a subsequent
public offering of Company securities which includes Class A or Class B Warrants
or subsequent private placement of Company securities which includes Class A or
Class B Warrants having the same terms and conditions of the Class A or Class B
Warrants provided that and effective only at such time as the resale of such
Warrants as well as the securities underlying such Warrants is covered by an
effective registration statement under the Act having the same terms and
conditions as the Class A or Class B Warrants, respectively, originally covered
by or subsequently added to this Agreement under this Section 16; or (iii) that
they may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than 50% of the Warrants then outstanding;
and provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 7201 Wisconsin Avenue, Bethesda, Maryland 20814,
attention: Roberta Lipson, President, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office; if to Blair, at D.H. Blair Investment Banking
Corp., 44 Wall Street, New York, New York 10005.
-20-
<PAGE>
<PAGE>
SECTION 18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the
close of business on the earlier of the Warrant Expiration Date or the date upon
which all Warrants (including the warrants issuable upon exercise of the Unit
Purchase Option) have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
U.S.-China Industrial Exchange, Inc.
By: ___________________________________________
American Stock Transfer & Trust Company
By: ___________________________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING
CORP.
By: ___________________________________________
Authorized Officer
-21-
<PAGE>
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
No. AW ____________ Class A Warrants
VOID AFTER _________, 2001
CLASS A WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK AND REDEEMABLE CLASS B WARRANTS
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
This certifies that FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner
of the number of Class A Warrants ("Class A Warrants") specified above. Each
Class A Warrant represented hereby initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Warrant
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and nonassessable share of Common Stock, $.01 value ("Common Stock"), of
U.S.-China Industrial Exchange, Inc., a New York corporation (the "Company"),
and one Class B Warrant of the Company at any time between _________, 1996, and
the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of American Stock Transfer & Trust
Company as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by
payment of $6.50 (the "Purchase Price") in lawful money of the United States of
America in cash or by official bank or certified check made payable to the
Company.
This Warrant Certificate and each Class A Warrant represented
hereby are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_________, 1996, by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
and Class B Warrants subject to purchase upon the exercise of each Class A
Warrant represented hereby are subject to modification or adjustment.
Each Class A Warrant represented hereby is exercisable at the
option of the Registered Holder, but no fractional shares of Common Stock will
be issued. In the case of the exercise of less than all the Class A Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant
<PAGE>
<PAGE>
Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on August 17, 1999, or such earlier date as the Class A Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Class A Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement and will use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Class A Warrants are outstanding. The Class A Warrants
represented hereby shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Class A Warrants, each of such new Warrant
Certificates to represent such number of Class A Warrants as shall be designated
by such Registered Holder at the time of such surrender. Upon due presentment
with any applicable transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Class A Warrant Certificate at such office, a new Warrant
Certificate or Warrant Certificates representing an equal aggregate number of
Class A Warrants will be issued to the transferee in exchange therefor, subject
to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Class A Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
The Class A Warrants represented hereby may be redeemed at the
option of the Company, at a redemption price of $.05 per Class A Warrant at any
time after _________, 1997, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $9.10 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Class A Warrants represented hereby except to receive the $.05 per Class A
Warrant upon surrender of this Warrant Certificate.
A-2
<PAGE>
<PAGE>
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Class A Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of the Class A Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
U.S.-CHINA INDUSTRIAL EXCHANGE,
INC.
Dated: _________________ By _____________________________________
By _____________________________________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By _____________________________________
Authorized Officer
A-3
<PAGE>
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ______ Class A Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class A Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
__________________________
__________________________
__________________________
[please print or type name and address]
and be delivered to
__________________________
__________________________
__________________________
[please print or type name and address]
and if such number of Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Class A Warrant Certificate
for the balance of such Class A Warrants be registered in the name of, and
delivered to, the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class A
Warrants evidenced hereby was solicited by a member of the National Association
of Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise
A-4
<PAGE>
<PAGE>
indicated by listing the name of another NASD member firm, it will be assumed
that the exercise was solicited by D.H. Blair Investment Banking Corp. or D.H.
Blair & Co., Inc.
_____________________________
(Name of NASD Member)
Dated: _____________________ X _______________
_____________________________
_____________________________
_____________________________
Address
_____________________________
Taxpayer Identification Number
_____________________________
Signature Guaranteed
_____________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
(INSERT THE FOLLOWING ON BOTH CERTIFICATES) ONLY IF FCC OR OTHER
REGULATIONS LIMIT OWNERSHIP BY NON-U.S. PERSONS ("ALIENS")
RESTRICTION ON EXERCISE: The Corporation's Certificate of
Incorporation provides that, except as otherwise provided by law, no shares of
capital stock, shall be transferred to or for the account of an "alien" if such
transfer would increase the aggregate number of shares of capital stock voted or
owned of record by or for the account of "aliens" to more than twenty-five
percent (25%) of the aggregate number of outstanding shares of capital stock. As
used herein, "alien" means aliens and their representatives, foreign governments
and their representatives and corporations or other entities organized under the
laws of foreign countries. Pursuant to a resolution adopted by the Board of
Directors, the transfer agent has been
A-5
<PAGE>
<PAGE>
authorized not to permit any transfer of the Company's outstanding capital stock
if such transfer would result in "aliens" owing or having the right to vote more
than 20% thereof. Exercise of this Warrant is subject to compliance with all
applicable restrictions of the Federal Communications Commission, including but
not limited to its alien ownership restrictions and, accordingly, no exercise of
this Warrant shall be permitted if such exercise would result in "aliens" owning
or having the right to vote more than 20% of the Company's common stock.
THE FOLLOWING MUST BE EXECUTED UPON EXERCISE OF THIS CERTIFICATE BEFORE SHARES
OF COMMON STOCK MAY BE ISSUED BY THE CORPORATION:
The undersigned hereby certifies that the holder of this Warrant
Certificate is
- a citizen of the United States
- an alien
and that, if the holder is a corporation or other entity, the percentage of such
corporation or other entity owned by aliens is _____; and that, if any other
person can vote or control the right to vote the shares of Common Stock issuable
upon exercise of the Warrants represented by this Certificate, such other person
is
- a citizen of the United States
- an alien
and that, if such other person is a corporation or other entity, the percentage
of such corporation or other entity owned by aliens is _____________.
A-6
<PAGE>
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
___________________________
___________________________
___________________________
___________________________
[please print or type name and address]
______________________ of the Class A Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints __________________
____________________________ Attorney to transfer this Warrant Certificate on
the books of the Company, with full power of substitution in the premises.
Dated: ___________________________ X ______________
Signature Guaranteed
___________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
A-7
<PAGE>
<PAGE>
EXHIBIT B
[FORM OF FACE OF CLASS B WARRANT CERTIFICATE]
No. BW ________ Class B Warrants
VOID AFTER _________, 2001
CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
This certifies that FOR VALUE RECEIVED ______________________
_________________ or registered assigns (the "Registered Holder") is the owner
of the number of Class B Warrants ("Class B Warrants") specified above. Each
Class B Warrant represented hereby initially entitles the Registered Holder to
purchase, subject to the terms and conditions set forth in this Warrant
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and nonassessable share of Common Stock, $.01 par value ("Common Stock"), of
U.S.-China Industrial Exchange, Inc., a New York corporation (the "Company"), at
any time between _____________, 1996 and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer & Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $8.75 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the Company.
This Warrant Certificate and each Class B Warrant represented
hereby are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
_________, 1996 by and among the Company, the Warrant Agent and D.H. Blair
Investment Banking Corp.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Class B Warrant represented hereby
are subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the
option of the Registered Holder, but no fractional shares of Common Stock will
be issued. In the case of the exercise of less than all the Class B Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class B Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on August 17, 1999, or such earlier date as the Class B Warrants shall be
redeemed. If such date shall in the
<PAGE>
<PAGE>
State of New York be a holiday or a day on which banks are authorized to close,
then the Expiration Date shall mean 5:00 P.M. (New York time) the next following
day which in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Class B Warrants represented hereby unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file a registration statement and will use its best efforts to
cause the same to become effective and to keep such registration statement
current while any of the Class B Warrants are outstanding. The Class B Warrants
represented hereby shall not be exercisable by a Registered Holder in any state
where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Class B Warrants, each of such new Warrant
Certificates to represent such number of Class B Warrants as shall be designated
by such Registered Holder at the time of such surrender. Upon due presentment
with any applicable transfer fee in addition to any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Class B Warrants will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Class B Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
The Class B Warrants represented hereby may be redeemed at the
option of the Company, at a redemption price of $.05 per Class B Warrant at any
time after August 17, 1995, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $12.25 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Class B Warrants represented hereby except to receive the $.05 per Class B
Warrant upon surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Class B Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of the Class B Warrants represented hereby.
B-2
<PAGE>
<PAGE>
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
U.S.-CHINA INDUSTRIAL EXCHANGE, INC.
Dated: ___________________ By: __________________________________
By: __________________________________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent
By: ______________________________
Authorized Officer
B-3
<PAGE>
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ______ Class B Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class B Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
The undersigned represents that the exercise of the Class B
Warrants evidenced hereby was solicited by a member of the National Association
of Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise
B-4
<PAGE>
<PAGE>
indicated by listing the name of another NASD member firm, it will be assumed
that the exercise was solicited by D.H. Blair Investment Banking Corp.
______________________________
(Name of NASD Member)
Dated: _________________ X ___________
______________________________
______________________________
Address
______________________________
Taxpayer Identification Number
______________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-5
<PAGE>
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
________________________
________________________
________________________
________________________
[please print or type name and address]
________________ of the Class B Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints __________________
_________________________________ Attorney to transfer this Warrant Certificate
on the books of the Company, with full power of substitution in the premises.
Dated:___________________ X ______________
Signature Guaranteed
_____________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
B-6
<PAGE>
<PAGE>
[LOGO] FIRST NATIONAL BANK OF MARYLAND
FIRST INVESTMENT LOAN MANAGER
DEMAND PROMISSORY NOTE
* ONE MILLION THREE HUNDRED THOUSAND AND XX/100 DOLLARS
** $1,300,000.00
BALTIMORE, MARYLAND
AUGUST 19, 1996
FOR VALUE RECEIVED, the undersigned Chindex, Inc., a New York Corporation
(hereafter, the 'BORROWER'), promises to pay to the order of THE FIRST NATIONAL
BANK OF MARYLAND, and national banking association (hereafter, the 'BANK'), ON
DEMAND, at the BANK'S offices at 25 South Charles Street, Baltimore, Maryland
21201 or at such other place as the holder of this Promissory Note may from time
to time designate, the principal sum of * Dollars ($**),
or such other amount as may from time to time be advanced and
outstanding hereunder, together with interest at the rate hereafter specified.
The following terms shall apply to this Promissory Note:
Exhibit A attached hereto contains provisions essential to this Promissory
Note and such Exhibit A, and all terms, conditions and provisions thereof, are
incorporated herein and made a part hereof as if fully set forth. All terms used
in Exhibit A shall have the same meaning when used herein as given when used in
said Exhibit A. Periodic changes may be requested to the terms of Exhibit A by
either party. If changes to the terms of Exhibit A are agreed to by both parties
then a new Exhibit A will be executed by the BORROWER and the BANK and attached
to this Promissory Note by the BANK at which time such new Exhibit A will
replace the existing Exhibit A and be made a part of this Promissory Note.
1. Demand Nature. ALL SUMS DUE UNDER THIS PROMISSORY NOTE ARE IMMEDIATELY
DUE IN FULL UPON THE DEMAND OF THE HOLDER OF THIS PROMISSORY NOTE AT ANY TIME
AND FOR ANY REASON, IN THE SOLE AND ABSOLUTE DISCRETION OF THE HOLDER OF THIS
PROMISSORY NOTE.
2. Advances. This Promissory Note shall be used to evidence all advances
and payments of principal made hereunder and all interest due hereunder until it
is surrendered to the BORROWER, and it shall continue to be so used even though
there may be periods prior to such surrender when no amount of principal or
interest is owing hereunder. Until all sums due under this Promissory Note are
repaid in full and the credit accommodation evidenced by this Promissory Note is
terminated the BORROWER irrevocably authorizes the BANK to make advances and
receive payments under this Promissory Note in the following manner:
a. Form Of Advances. All advances made hereunder shall be made in the form
of a transfer of funds into the commercial checking account established by the
BORROWER at the BANK with the account number set forth on Exhibit A (hereafter
the "ACCOUNT"). The ACCOUNT is subject to restrictions of withdrawals imposed by
the BANK, from time to time, in its sole discretion.
b. Amount Of Advances. On each banking day after posting all credits
(subject to funds availability) to the ACCOUNT and repaying any principal sums
outstanding under this Promissory Note pursuant to subparagraph (c) below
(hereafter, the collected balance in the ACCOUNT after taking such actions shall
be referred to as the "INITIAL BALANCE"), the BANK shall calculate the aggregate
amount of properly payable debits to the ACCOUNT which have been presented for
payment (hereafter, "PRESENTED ITEMS"). In the event the INITIAL BALANCE is
greater than the aggregate amount of the PRESENTED ITEMS by an amount at least
equal to the Target Balance, the BANK shall post and pay all of the PRESENTED
ITEMS. In the event the INITIAL BALANCE is greater than the aggregate amount of
the PRESENTED ITEMS by an amount which is less than the Target Balance or in the
event the INITIAL BALANCE is less than the aggregate amount of the PRESENTED
ITEMS, the BANK shall make an advance under this Promissory Note by transferring
funds into the ACCOUNT in an amount equal to the greater of (i) the Minimum Loan
Sweep Amount or (ii) the amount which when aggregated with the INITIAL BALANCE
would be greater than the aggregate amount of the PRESENTED ITEMS by the amount
of the Target Balance. The contrary notwithstanding, the aggregate amount of
advances outstanding hereunder shall never exceed the Maximum Loan Amount.
Furthermore, if at any time the BORROWER does not have availability for
additional advances hereunder in an amount which when aggregated with the
INITIAL BALANCE would be in excess of the PRESENTED ITEMS by an amount at least
equal to the Target Balance, the Bank shall determine, in its sole discretion,
which PRESENTED ITEMS can be posted and paid based on the INITIAL BALANCE and
the availability for advances hereunder, and then (i) make an advance hereunder
in an amount which when aggregated with the INITIAL BALANCE is equal to those
PRESENTED ITEMS which the BANK has determined can be posted and paid without
giving effect to the Target Balance, and (ii) to the extent there is
availability for additional advances hereunder, make an advance hereunder in an
amount up to the Target Balance.
c. Repayments Of Advances. On each banking day after posting all credits to
the ACCOUNT but prior to posting any debits to the ACCOUNT, the BANK is hereby
irrevocably authorized to debit the ACCOUNT in an amount equal to the principal
amount outstanding under this Promissory Note.
3. Interest Rate. Until all sums due hereunder have been paid in full,
interest shall accrue on the disbursed and unpaid principal balance hereunder at
the annual rate of interest set forth on Exhibit A attached hereto. In the event
the rate of interest set forth on Exhibit A is based on the BANK's "Prime Rate",
the term "Prime Rate" shall mean that rate of interest equal to the higher of:
(a) the interest rate which the BANK from time to time announces and declares to
be its prime rate of interest (such rate being a guideline for, and a standard
in determining, actual interest rates, and not the lowest rate which the BANK
will make a loan to any particular class of borrowers); or (b) the average rate,
rounded to the nearest one-tenth of one percent (.1%), for ninety (90) day
maturity dealer placed Commercial Paper for the week most recently reported in
the Federal Reserve Statistical Release No. H-15(519), entitled "Selected
interest Rates") (or any succeeding publication). If the applicable interest
rate on this Promissory Note is based on the BANK's Prime Rate then changes in
such applicable interest rate shall be made as of, and immediately upon, the
occurrence of changes in the Prime Rate. Interest shall be calculated on the
basis of a three-hundred sixty (360) days per year factor applied to the actual
days on which there exists an unpaid disbursed principal balance.
<PAGE>
4. Interest Payments. Accrued interest at the above-described rate shall be
paid by the BORROWER to the BANK monthly, on a current basis, as billed by the
holder of this Promissory Note, until all sums due hereunder are paid in full
and the credit accommodation evidenced by this Promissory Note is terminated.
5. Application Of Payments. All payments made hereunder shall be applied
first to late penalties or other sums owing to the holder under this Promissory
Note, next to accrued interest, and then to principal or in such other order of
application as the holder hereof may elect from time to time.
6. Late Payment Penalty. Should any payment due hereunder be received by
the holder of this Promissory Note more than fifteen (15) days after its due
date, the BORROWER shall pay a late payment penalty equal to five percent (5%)
of the amount then due for each month or portion of a month until paid.
7. Confession Of Judgment. Upon a failure to make any payment when and as
due under this Promissory Note, the BORROWER authorizes any attorney admitted to
practice before any court of record in the United States to appear on behalf of
the BORROWER to confess judgment against the BORROWER in the full amount due on
this Promissory Note plus legal fees of fifteen percent (15%) of the amount due.
The BORROWER agrees that venue shall in such an action be proper in the Circuit
Court of any County of the State of Maryland or in the Circuit Court of
Baltimore City or in the United States District Court For The District Of
Maryland. The BORROWER waives the benefit of any and every statute, ordinance,
or rule of court which may be lawfully waived conferring upon the BORROWER any
right or privilege of exemption, stay of execution, or supplementary
proceedings, or other relief from the enforcement or immediate enforcement of a
judgement or related proceedings on a judgment. The authority and power to
appear for and enter judgment against the BORROWER shall not be exhausted by one
or more exercises thereof, or by any imperfect exercise thereof, and shall not
be extinguished by any judgment entered pursuant thereto; such authority and
power may be exercised on one or more occasions from time to time, in the same
or different jurisdictions, as often as the holder shall deem necessary or
advisable.
8. Default Interest Rate. Upon a failure to make any payment when and as
due under this Promissory Note, the holder may, without notice or demand, raise
the rate of interest accruing on the unpaid principal balance by two (2)
percentage points above the rate of interest otherwise applicable,
independent of whether the holder of this Promissory Note elects to demand the
unpaid principal balance of this Promissory Note as a result of such default.
ADDITIONAL IMPORTANT TERMS OF THIS AGREEMENT ARE ON THE REVERSE SIDE.
<PAGE>
<PAGE>
CONTINUED FROM FRONT SIDE
9. Interest Rate After Judgment. If judgment is entered against the
BORROWER on this Promissory Note, the amount of the judgment entered (which may
include principal, interest, default interest late charges, fees, and costs)
shall bear interest at the highest rate authorized under this Promissory Note as
of the date of the judgment.
10. Expenses Of Collection. If this Promissory Note is referred to an
attorney for collection, whether or not judgment has been confessed or suit has
been filed, the BORROWER shall pay all of the holder's reasonable costs, fees
(including, but not limited to, reasonable legal fees) and expenses resulting
from such referral.
11. Subsequent Holders. In the event that any holder of this Promissory
Note transfers this Promissory Note for value, the BORROWER agrees that no
subsequent holder of this Promissory Note shall be subject to any claims or
defenses which the BORROWER may have against a prior holder, all of which are
waived as to the subsequent holder, and that all subsequent holders shall have
all of the rights of a holder in due course with respect to the BORROWER even
though the subsequent holder may not qualify, under applicable law, absent this
paragraph, as a holder in due course.
12. Waiver Of Protest. The BORROWER, and all parties to this Promissory
Note, whether maker, indorser, or guarantor, waive presentment notice of
dishonor and protest.
13. Extensions Of Maturity. All parties to this Promissory Note, whether
maker, indorser, or guarantor, agree that the maturity of this Promissory Note,
or any payment due hereunder, may be extended at any time or from time to time
without releasing, discharging, or affecting the liability of such party.
14. Commercial Loan. The BORROWER warrants that this Promissory Note is the
result of a commercial loan transaction within the meaning of Sections 12-101(c)
and 12-103(e), Commercial Law Article, Annotated Code of Maryland.
15. Binding Nature. This Promissory Note shall inure to the benefit of and
be enforceable by the BANK and the BANK'S successors and assigns and any other
person to whom the BANK may grant an interest in the BORROWER'S obligations to
the BANK, and shall be binding and enforceable against the BORROWER and the
BORROWER'S personal representative, successors and assigns.
16. Invalidity Of Any Part. If any provision or part of any provision of
this Promissory Note shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Promissory Note and this
Promissory Note shall be construed as if such invalid, illegal or unenforceable
provision or part thereof had never been contained herein, but only to the
extent of its invalidity, illegality or unenforceability.
17. Choice of Law. This Promissory Note shall be governed, construed,
interpreted, enforced and its validity and enforceability determined in
accordance with the laws of the State of Maryland. The BORROWER consents to the
jurisdiction and venue of the courts of the State of Maryland and, if diversity
of citizenship exists between the BORROWER and the holder and a sufficient
amount is in controversy or if some other basis exists for the jurisdiction of
the federal courts, to the jurisdiction and venue of the United States District
Court for the District of Maryland.
18. Actions Against Bank. Any action brought by the BORROWER against the
BANK which is based, directly or indirectly or in whole or in part on this
Promissory Note or any matter in or related to this Promissory Note, including
but not limited to the making of the loan or the administration or collection
thereof shall be brought only in the courts of the State of Maryland. The
BORROWER may not file a counterclaim against the BANK in a suit brought by the
BANK against the BORROWER in a state other than the State of Maryland unless
under the rules of procedure of the court in which the BANK brought the action
the counterclaim is mandatory and will be considered waived unless filed as a
counterclaim in the action instituted by the BANK.
19. Waiver Of Jury Trial. The BORROWER agrees that any suit, action, or
proceeding, whether claim or counterclaim, brought or instituted by the
BORROWER or any successor or assign of the BORROWER on or with respect to this
Promissory Note or which in any way relates, directly or indirectly, to the
obligations of the BORROWER to the BANK under this Promissory Note or any other
LOAN DOCUMENT, or the dealings of the parties with respect thereto, shall be
tried only by a court and not by a jury. The BORROWER hereby expressly waives
any right to a trial by jury in any such suit, action, or proceeding.
The BORROWER acknowledges and agrees that this provision is a specific and
material aspect of the agreement between the parties and that the BANK would
not enter into the transaction with the BORROWER if this provision were
not part of their agreement.
IN WITNESS WHEREOF, the BORROWER has executed this Promissory Note
specifically intending this Promissory Note to constitute an instrument under
seal.
Dated as of August 19, 1996
<TABLE>
<CAPTION>
WITNESS/ATTEST: BORROWER (If a corporation or partnership):
<S> <C>
Chindex, Inc.
/s/ By: /s/ ROBERT C. GOODWIN, JR. (SEAL)
--------------------------------------- --------------------------------------------------------
Name: Robert C. Goodwin, Jr.
Title: Vice President & Asst. Sec.
/s/ By: /s/ RONALD ZILKOWSKI (SEAL)
--------------------------------------- --------------------------------------------------------
Name: Ronald Zilkowski, Controller
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
[logo] First National Bank of Maryland Exhibit 'A' to Film Promissory Note
Commercial Checking Account Number
------------------------------------
Target Balance $ .0
(The minimum collected balance that must be kept in the ------------------------------------
cheking account).
Minimum Loan Sweep Amount $ .01
(The mimimum amount that may be advanced at any one time ------------------------------------
under the Promissory Note).
Maximum Loan Amount $1,300,000.00
(The maximum aggregate amount which may be advanced and ------------------------------------
remain outstanding at any one time under the Promissory
Note).
Moving average COF plus 1% adjusted
Interest Rate monthly
WITNESS: BORROWER (If a corporation or partnership):
Chindex, Inc. ,
/s/ BY: /s/ ROBERT C. GOODWIN, JR.
- -------------------------- ------------------------------ (SEAL)
Name: Robert C. Goodwin, Jr.
Title: Vice President & Asset. Sec.
/s/ BY: /s/ RONALD ZILKOWSKI
- -------------------------- ------------------------------ (SEAL)
Name: Ronald Zilkowski, Controller
Date: 8/26, 1996
The BANK is executing this Exhibit A solely to evidence its consent to the terms of this Exhibit A.
THE FIRST NATIONAL BANK OF MARYLAND,
A National Banking Association
BY:
------------------------------- (SEAL)
- -------------------------- Name: William N. Chalfant, Jr.
Title: Vice President
</TABLE>
<PAGE>
