PROSPECTUS
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FIRST SOUTH AFRICA CORP., LTD.
650,000 SHARES OF COMMON STOCK AND
650,000 CLASS B WARRANTS UNDERLYING THE EXERCISE OF
CLASS A WARRANTS AND 650,000 SHARES OF
COMMON STOCK UNDERLYING THE EXERCISE OF CLASS B WARRANTS
This Prospectus relates to 650,000 shares of Common Stock, $.01 par
value ("Common Stock") underlying the exercise of Class A Warrants (the "Selling
Securityholder Warrants" or the "Class A Warrants") of First South Africa Corp.,
Ltd., a Bermuda corporation (the "Company"), held by 40 holders (the "Selling
Securityholders"), 650,000 Class B Warrants ("Class B Warrants") underlying the
exercise of the Selling Securityholder Warrants, and 650,000 shares of Common
Stock underlying the exercise of such Class B Warrants. The Selling
Securityholder Warrants and the Class B Warrants are referred to herein
collectively as the "Warrants" and the securities issuable upon exercise of the
Selling Securityholder Warrants, together with the Selling Securityholder
Warrants, are sometimes collectively referred to herein as the "Selling
Securityholder Securities." The Selling Securityholder Warrants were issued to
the Selling Securityholders in exchange for warrants they received in a private
placement by the Company in November 1995 (the "Bridge Financing"). See "Selling
Securityholders" and "Plan of Distribution." Each Selling Securityholder Warrant
entitles the holder to purchase, at an exercise price of $6.50, subject to
adjustment, one share of Common Stock and one Class B Warrant, and each Class B
Warrant entitles the holder to purchase, at an exercise price of $8.75, subject
to adjustment, one share of Common Stock. The Warrants are exercisable through
January 24, 2001 provided that the Selling Securityholders have agreed not to
exercise the Selling Securityholder Warrants until January 24, 1997. Beginning
January 24, 1997 the Warrants are subject to redemption by the Company for $.05
per Warrant, upon 30 days' written notice, if the average closing bid price of
the Common Stock exceeds $9.10 per share with respect to the Class A Warrants
and $12.25 per share with respect to the Class B Warrants (subject to adjustment
in each case) for 30 consecutive business days ending within 15 days of the date
of the notice of redemption. See "Description of Securities."
The Common Stock and the Company's Class B Common Stock, $.01 par
value (the "Class B Common Stock") of the Company are essentially identical,
except that the Class B Common Stock has five votes per share and the Common
Stock has one vote per share on all matters upon which stockholders may vote.
The Class B Common Stock is convertible into Common Stock automatically upon any
sale or transfer, except to certain permitted transferees. See "Principal
Stockholders" and "Description of Securities."
The securities offered by the Selling Securityholders by this
Prospectus may be sold from time to time by the Selling Securityholders or by
their transferees. The distribution of the Class A Warrants, Common Stock and
the Class B Warrants offered hereby by the Selling Securityholders may be
effected in one or more transactions that may take place on the over-the-counter
market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders.
The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Securityholders against certain liabilities, including liabilities under
the Securities Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. In the event the Class A Warrants and
Class B Warrants are exercised, the Company will receive gross proceeds of
$4,225,000 and $5,687,500, respectively. See "Selling Securityholders" and "Plan
of Distribution."
On the date of this Prospectus, a Post-Effective Amendment to the
Registration Statement under the Securities Act with respect to an offering by
the Company of 2,300,000 shares of Common Stock and 2,300,000 Class B Warrants
(underlying the exercise of outstanding Class A Warrants) and 4,600,000 shares
of Common Stock (underlying the exercise of Class B Warrants), was declared
effective by the Securities and Exchange Commission (the "Commission"). The
Company will receive approximately $14,147,500 in net proceeds from such
offering (assuming no exercise of the Class B Warrants) after payment of the
Warrant Solicitation Fee and estimated expenses of such offering.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
-----------------------------
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 OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
THE DATE OF THIS PROSPECTUS IS NOVEMBER 19, 1996
<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 Warrants, (ii) the Unit Purchase
Options issued in connection with the Offering, and (iii) options to purchase
shares of Common Stock reserved for issuance under the Company's Stock Option
Plan. See "Description of Securities." Unless otherwise indicated, references in
this Prospectus to "Rand" or "R" are to South African Rand. On November 8, 1996,
the market average exchange rate was approximately 4.70 Rand per U.S. dollar.
See "Risk Factors - Risks Relating to Operations in South Africa, Currency
Considerations." Unless otherwise indicated, U.S. dollar equivalent information
in South African Rand for a period is based on the average of the daily exchange
rates for the days in the period, and U.S. dollar information for South African
Rand as of a specified date is based on the exchange rate for that date unless
otherwise indicated. Certain numbers in this Prospectus have been rounded.
THE COMPANY
First South Africa Corp., Ltd., (the "Company") was organized to
acquire, own and operate seasoned, closely-held companies in South Africa with
annual sales in the range of approximately $5 to $50 million. Since its initial
public offering on January 24, 1996, the Company has acquired through its
wholly-owned subsidiary, First South African Holdings (Pty) Ltd.("FSAH"), seven
businesses based in South Africa ("the Acquisitions") that are as a group
engaged in the following industry segments:
1. High quality plastic packaging machinery.
2. Metal washers used in the fastener industry.
3. Air conditioning and refrigeration machinery components.
4. Processed foods.
Upon completion of its initial public offering the Company acquired
Starpak (Pty) Limited, which is engaged in the manufacture of high quality
plastic packaging machinery; L.S. Pressing (Pty) Limited, which is engaged in
the manufacture of washers for the use in the fastener industry; and Europair
Africa (Pty) Ltd., which is engaged in the manufacture and supply of air
conditioning products. In April 1996, L.S. Pressings acquired through Crowle
Investments (Pty) Limited, the assets and business of Paper & Metal Industries;
a small manufacturer of rough washers for use in the fastener industry. In April
1996, Europair acquired the assets and business of Universal Refrigeration, an
agent and supplier of refrigeration products. In June 1996, FSAH acquired
Piemans Pantry (Pty) Limited ("Piemans Pantry"), a manufacturer and distributor
of high quality meat pies. In October 1996, FSAH acquired Astoria Bakery CC
("Astoria Bakery") and Astoria Bakery Lesotho Proprietary Ltd., ("Astoria Bakery
Lesotho") manufacturers and distributors of speciality baked breads and
confectionary products (collectively referred to as "Astoria").
FSAH manages the Company's business interest in South Africa. FSAH
monitors the operational performance of its subsidiaries and seeks out
prospective acquisition candidates in businesses that complement or are
otherwise related to the Company's existing acquisitions, and in other
businesses that may be identified by the Company's management.
The Company was formed in September 1995. The Company's principal
executive offices are located at Clarendon House, Church Street, Hamilton HM II
Bermuda, and its telephone number at such location is: (441) 295-1422. Certain
management, shareholder relations and administrative services are provided to
the
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<PAGE>
Company by First South Africa Management Corp., a Delaware corporation that is a
wholly-owned subsidiary of the Company ("FSAM"). FSAM's principal executive
offices are located at 2665 South Bayshore, Suite 405, Coconut Grove, Florida
33133, and its telephone number at such location is (305) 857-5009.
3
<PAGE>
THE OFFERING
Securities Offered Concurrently by
Selling Securityholders...................650,000 shares of Common Stock
underlying 650,000 Selling
Securityholder Warrants, 650,000
Selling Securityholder Class B
Warrants issuable upon exercise of
the Selling Securityholder Warrants
and 650,000 shares of Common Stock
issuable upon exercise of these
Selling Securityholder Class B
Warrants. The Selling Securityholder
Warrants are identical to the Class
A Warrants, except that the holders
thereof have agreed to certain
restrictions on transferability and
exercisability. See "Concurrent
Offering."
Securities Offered by the Company...........2,300,000 shares of Common Stock
and 2,300,000 Class B Warrants
underlying the exercise of 2,300,000
Class A Warrants issued in the
initial public offering and
4,600,000 shares of Common Stock
underlying the exercise of Class B
Warrants. Each Class A Warrant
entitles the holder 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 January 24, 2001. Each
Class B Warrant entitles the holder
to purchase one share of Common
Stock at an exercise price of $8.75,
subject to adjustment, at any time
until January 24, 2001. The Warrants
are subject to redemption in certain
circumstances. See "Description of
Securities."
Number of Shares of Common Stock
Outstanding:
Before the offering (1).....................2,300,000 shares of Common Stock (2)
1,862,500 shares of Class B Common
Stock (3)(4)
After the offering (1)(5)...................4,600,000 shares of Common Stock (2)
1,842,500 shares of Class B Common
Stock (3)(4)
Nasdaq Symbols..............................Units - FSAUF
Common Stock - FSACF
Class A Warrants - FSAWF
Class B Warrants - FSAZF
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."
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(footnotes on next page)
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<PAGE>
(1) For a description of the voting and other rights of the Common Stock and
Class B Common Stock, see "Description of Securities."
(2) Excludes (i) an aggregate of 1,300,000 shares of Common Stock reserved for
issuance upon exercise of the Selling Securityholder Warrants, (ii)
7,200,000 shares issuable upon exercise of the Warrants included in the
Units offered in connection with the Offering; (iii) 800,000 shares
issuable upon exercise of the Unit Purchase Options and the Warrants
included in the Units underlying the Unit Purchase Options; (iv) 350,000
shares reserved for issuance under the Company's 1995 Stock Option Plan,
(v) 331,579 shares of Common Stock to be issued by the Company to the FSAH
Escrow Agent pursuant to the Pieman's FSAH Escrow Agreements, and (vi)
186,000 shares of Common Stock which the Company has agreed to issue to
the FSAH Escrow Agent in connection with the Company's acquisition of
Astoria. See "Management - Stock Option Plan," "Description of
Securities," "Concurrent Offering," "Certain Transactions - FSAH Escrow
Agreements" and "Warrant Solicitation Fee."
(3) Includes 729,979 shares of Class B Common Stock issued upon the
consummation of the Offering to the American Stock Transfer & Trust
Company (the "FSAH Escrow Agent") pursuant to an escrow agreement entered
into by and among certain holders of FSAH Class B Stock, the FSAH Escrow
Agent, FSAH and the Company prior to the closing of the Offering (the
"FSAH Escrow Agreement"), pursuant to which such FSAH shareholders may
tender their shares of FSAH Class B Stock to the FSAH Escrow Agent against
payment by the FSAH Escrow Agent of the purchase price therefor, which
payment may be made through the sale by the FSAH Escrow Agent of an equal
number of shares of Class B Common Stock (which shall be automatically
converted to shares of Common Stock upon such sale) and delivery of the
net proceeds thereof. See "Certain Transactions - FSAH Escrow Agreement"
and "Principal Shareholders."
(4) In addition to the restrictions set forth in the FSAH Escrow Agreement,
all of the holders of Class B Common Stock have agreed not to sell,
transfer or assign such shares without the prior written consent of D.H.
Blair for a period of 13 months from the closing of the Offering. See
"Shares Eligible for Future Sale."
(5) Assumes exercise of all the Class A Warrants and no exercise of Class B
Warrants. Inasmuch as the Company has received no firm commitments
therefore, there can be no assurances, however, as to the number of Class
A Warrants which will be exercised. See "Risk Factors."
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<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) THE COMPANY
----------------------- ----------------
MARCH 1, 1995 JULY 1, 1995
YEARS ENDED FEBRUARY 28, TO JUNE 30, 1995 TO JUNE 30, 1996
------------------------------------------------ --------------- ----------------
1992 1993 1994 1995
$ $ $ $ $ $
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales........................... 5,374,147 6,256,667 6,851,457 8,826,856 3,297,507 14,911,097
Total operating expenses............ 4,744,035 5,818,092 6,414,144 8,179,083 292,806 19,833,942 (3)
Operating income.................... 630,112 438,575 437,313 647,773 334,701 (4,922,845)
Interest paid....................... 219,424 223,314 180,960 152,163 18,801 865,733 (4)
Net income before tax............... 361,678 269,251 321,319 536,440 359,045 (5,248,942)
Net income after tax................ 271,036 138,839 207,916 313,882 213,829 (5,737,560)
PREDECESSOR COMPANY (1) THE COMPANY
FEBRUARY 28, JUNE 30,
------------ ---------
1992 1993 1994 1995 1996
$ $ $ $ $
---- ---- ---- ---- ----
BALANCE SHEET DATA
Total assets........................ 4,446,132 3,976,769 3,976,974 5,161,709 23,604,994
Long term liabilities............... 1,562,095 1,140,244 1,112,391 1,123,665 2,361,372
Net working capital................. 1,305,961 1,177,250 1,194,931 1,366,602 4,624,417
Stockholder's equity................ 2,280,434 1,527,356 1,580,826 1,828,656 12,792,376
</TABLE>
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(1) Represents the combined results for Starpak and L.S. Pressings, which are
deemed to be the predecessor of the Company due to the common ownership
and control of such entities. The Company's fiscal year end is June 30.
(2) No dividends were declared or paid during the periods presented.
(3) Includes a one time non-cash escrow shares charge of $6,314,000 related to
the release of 1.1 million shares under the terms of an Earnout Escrow
Agreement, as amended, between the Company, certain shareholders of the
Company and American Stock Transfer and Trust Company.
(4) Includes a non-cash charge of $396,500 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
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<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," such as those
concerning future revenues, certain statements contained under "Business," such
as statements concerning the effect of market conditions, and other statements
contained in this Prospectus regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the rules promulgated
pursuant to the Securities Act of 1933, as amended (the "Securities Act")).
Because such forward-looking statements include risks and uncertainties, actual
results may differ materially from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under "Risk
Factors." The Company undertakes no obligation to release publicly the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RISK FACTORS
An investment in the securities offered hereby is speculative in
nature and involves a high degree of risk. In addition to the other information
contained in this Prospectus, prospective investors should carefully consider
the following risk factors before purchasing the securities offered hereby.
RISKS RELATING TO OPERATIONS IN SOUTH AFRICA
The Company's operations are conducted through its direct and
indirect subsidiaries located in South Africa. For the foreseeable future, the
Company expects to continue to focus all of its efforts in South Africa. The
conduct of the Company's business in South Africa exposes the Company to certain
risks, including the following:
Political Risks. Historically, the social structure of South Africa
was governed according to the apartheid system. Racial tensions in South Africa
have from time to time resulted in social unrest, strikes, riots and other
sporadic localized violence. The apartheid system also resulted in the
imposition of international financial and trade sanctions against South Africa.
Although a new interim constitution was adopted providing for universal suffrage
and the first national election under the new constitution took place in April
1994, there can be no assurance that social unrest, which could range in
magnitude from civil disobedience to civil war, will not occur. The Company's
businesses in South Africa have experienced politically-related work stoppages
in the past, although since 1994 no such disturbance has been material. In
addition, certain other countries in the region are currently engaged in or have
had civil war with the corresponding severe adverse economic and social
conditions and effects. Moreover, there can be no assurance as to the economic
and tax policies which the South African government may pursue and whether those
policies may include nationalization, expropriation and confiscatory taxation.
Nationalization, expropriation or confiscatory taxation, as well as currency
blockage, political changes, government regulation, strikes, political or social
instability or diplomatic developments could adversely affect the economy of
South Africa and could have a material adverse effect on the Company.
Risks Related to Currency Exchange. All of the Company's operating
subsidiaries do business in South African Rand and the Company's revenues are
generally received in such currency. Historically, there has been significant
inflation in South Africa (averaging 10-15% per annum in recent years) and
significant fluctuations in the exchange rate of the South African Rand. Because
South Africa's inflation rate would impact its economy both domestically and
internationally, and higher levels of inflation have frequently
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<PAGE>
reduced the real return on capital and investment (thereby lowering the demand
for capital goods including the types that the Company produces), South Africa's
level of inflation may increase the Company's risk related to currency
fluctuation. The U.S. Dollar equivalent of the Company's net assets and results
of operations will be adversely affected by reductions in the value of the Rand
relative to the U.S. Dollar. Similarly, if the exchange rate declines between
the time the Company incurs expenses in other currencies and the time cash
expenses are paid, the amount of South African Rand required to be converted
into such other currencies in order to pay such expenses could be greater than
the equivalent amount of such expenses in South African Rand at the time they
were incurred. The exchange rate for South African Rand against the U.S. dollar
declined during fiscal year 1996 during which period the average rate of
exchange for the Rand against the dollar was $1.00 to Rand 3.85 as compared with
an average rate of $1.00 to Rand 3.53 for fiscal year 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Economic Risks. The economy of South Africa may differ unfavorably
from the U.S. economy in such respects as growth of gross domestic product or
gross national product, rate of inflation, taxation, capital reinvestment,
resource self-sufficiency and balance of payments position. South Africa may be
particularly susceptible to changes in the world price of gold and other primary
commodities as these represent a majority of South Africa's exports. Any such
unfavorable aspects of the South African economy may materially adversely affect
the financial condition of the Company.
Government Regulatory Considerations. Generally, the making of loans
by the Company to its subsidiaries, the ability of those subsidiaries to borrow
from South African sources and the repatriation of dividends, interest and
royalties by those subsidiaries is regulated by the Exchange Control Department
of the South African Reserve Bank (the "Reserve Bank"). South Africa formerly
operated a dual currency system comprising the commercial rand and the financial
rand, which was abolished in 1995. The financial rand was the investment
currency, which traded at a discount to the commercial rand. No guarantee can be
given that the financial rand will not be reintroduced in the future with
possible adverse consequences on the U.S. dollar value of the Company's
investments in South Africa. Current South African Exchange Control Regulations
provide that, subject to any exemption which may be granted by the South African
Treasury (the "Treasury"), no non-resident of South Africa and no "affected
person" (which includes any entity (i) that may distribute 25% or more of its
capital, assets or earnings to a non-resident of South Africa or (ii) 25% or
more of the voting power of which is controlled by a non-resident of South
Africa) may provide any "financial assistance" to any South African resident.
"Financial assistance" is broadly defined to include any loans, guarantees,
sale/leasebacks, etc. Because FSAH will be deemed to be an "affected person,"
the Company is generally required to obtain the permission of the Treasury prior
to loaning money to, providing guarantees on behalf of, or otherwise providing
"financial assistance" to FSAH. Notwithstanding the above, a South African
company such as FSAH is permitted a certain level of local borrowing without
reference to the exchange control regulations and without prior consent. The
amount which any affected person may borrow is calculated in accordance with the
following formula:
100%+ (percentage South African interest X 100%)
------------------------------------------
(percentage non-resident interest).
In addition, the terms of repayment of any such loan and the interest rate
(which is generally market related) will be regulated.
Under other regulations, no person may, without permission, acquire
any security from a non-resident or make any entry in a security register which
involves the transfer of a security into or out of the name of a
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<PAGE>
non-resident. The control is exercised by placing the endorsement "non-resident"
on all securities owned by non-residents or in which non-residents have an
interest. The non-resident endorsement is placed on the share certificates by a
bank and is in practice easy to obtain.
Certain other regulations impact the remittance of dividends and
interest from South Africa, including any potential dividends to the Company
from a South African subsidiary. In practice, the South African Reserve Bank
does not restrict the remittance of genuine dividends from income earned by
South African companies although approval must be obtained. As a result, there
can be no assurance that a South African subsidiary would be permitted to
declare and pay a dividend to the Company. See "South Africa - Foreign Direct
Investment."
RISKS RELATING TO THE COMPANY'S UNPROVEN STRATEGY
The Company's strategy, which depends in part upon a belief that
macroeconomic factors will result in the expansion of the South African economy,
is generally unproven and based upon rapidly changing and unpredictable events.
Although the Company perceives a growth potential in the South African economy,
there can be no assurance that such potential will be realized or, even assuming
such growth, that the Company will be able to benefit therefrom. A significant
element of the Company's growth strategy is to acquire additional companies in
South Africa. There can be no assurance that the Company will successfully
identify, complete or integrate additional acquisitions or that any successfully
completed acquisitions will perform as expected, will not result in significant
unexpected liabilities or will ever contribute significant revenues or profits
to the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
BROAD DISCRETIONARY USE OF PROCEEDS
The Company has broad discretion with respect to the specific
application of the net proceeds to be obtained by the Company upon the exercise
of the Warrants. Such amounts are intended to be applied toward consummating
acquisitions in accordance with the Company's strategy. In addition, the Company
may also determine to use all or a portion of its excess working capital, if
any, for acquisitions. Thus, purchasers of the Common Stock upon exercise of the
Warrants will be entrusting their funds to the Company's management, upon whose
judgment the investors must depend, with only limited information concerning
management's specific intentions. See "Use of Proceeds."
ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO ACQUISITIONS
Although management of the Company will endeavor to evaluate the
risks inherent in any particular acquisition, there can be no assurance that the
Company will properly ascertain all such risks. Management of the Company will
have virtually unrestricted flexibility in identifying and selecting prospective
acquisition candidates. The Company does not intend to seek stockholder approval
for any acquisitions unless required by applicable law or regulations and
stockholders will most likely not have an opportunity to review financial
information on an acquisition candidate prior to consummation of an acquisition.
See "Description of Securities - Differences in Corporate Law."
South African companies that may be acquired by the Company are
subject to South African GAAP which, in certain instances, may differ from U.S.
GAAP. Although the Company intends to prepare financial statements in accordance
with U.S. GAAP, the Company can provide no assurance that it will be able to do
so. Although the Company is unaware of any South African GAAP requirement that
would adversely affect it, there can be no assurance that the Company's
financial condition or the ability of the Company to
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<PAGE>
consummate future acquisitions will not be adversely affected by differences
between South African GAAP and U.S. GAAP.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS
There can be no assurance that the Company's operating subsidiaries
will continue to operate profitably, or that prior trends will be indicative of
future results of operations. Future results of operations may fluctuate
significantly based upon factors such as increases in competition, losses
incurred by new businesses that may be acquired in the future, currency
fluctuations, political changes, macroeconomic factors, the continued
availability of new materials and other circumstances that may not be reasonably
foreseeable at this time.
COMPETITION
The Company competes with a number of companies, from South Africa
and from other countries, offering similar products and services, some of whom
may have substantially greater financial, management, technical and other
resources than the Company. As a result of South Africa's recent political
transformation, some South African businesses may be adversely affected by
increased competition from foreign firms doing business in South Africa. In
addition, South Africa has historically imposed significant tariffs against a
number of industrial products. To the extent such tariffs are reduced or removed
to comply with international treaty requirements or otherwise, the Company would
face much greater pressure from globally competitive firms. There can be no
assurance that the Company will compete effectively with such other companies or
that other companies will not develop products which are superior to the
Company's or which achieve greater market penetration. In addition, the Company
may experience competition from other companies seeking to identify and
consummate acquisitions of South African companies. Such competition may result
in the loss of an acquisition candidate or an increase in the price the Company
would be required to pay for any such acquisition. See "Business - Competition."
LABOR RELATIONS
A significant number of South Africa's workers belong to either
registered or unregistered trade unions, and most of the major industries are
unionized. A number of the trade unions have close links to various political
parties. In the past, trade unions have had a significant influence in South
Africa as vehicles for social and political reform as well as the collective
bargaining process. It is uncertain whether labor disruptions will be used to
advocate political causes in the future. Significant labor disruptions could
have a material adverse effect on the financial condition of the Company.
South Africa has also recently enacted a new Labour Relations Act.
The Act entrenches the rights of employees to belong to trade unions and the
rights of trade unions to have access to the workplace. The right to strike is
guaranteed, as is the right to participate in secondary strikes, in certain
prescribed circumstances. The right to picket has also been entrenched. The Act
recognizes the rights of employers to belong to employers' associations.
Importantly, the Act increases the role of employees in the decision making of
companies by providing for the compulsory establishment of workplace forums to
represent the interests of employees where a company employs more than 100
employees. The range of issues on which the workplace forum must be consulted
include restructurings of the workplace, partial or total plant closures,
mergers and transfers of ownership insofar as these affect employees, and
retrenchments. The implementation of the Act's provisions may have a material
adverse effect on the Company's cost of labor and consequently on its financial
condition.
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DEPENDENCE ON KEY PERSONNEL
The Company's success depends upon the continued contributions of its
executive officers, most of whom are also principal stockholders of the Company,
and the continued contributions of the management of Starpak, L.S. Pressings,
Europair, Piemans Pantry and Astoria. The Company has obtained key man insurance
in the amounts of $2,000,000 on the lives of each of Michael Levy and Clive
Kabatznik. The business of the Company could be adversely affected by the loss
of services of, or a material reduction in the amount of time devoted to the
Company, by its executive officers. See "Management."
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING RIGHTS;
POSSIBLE DEPRESSIVE EFFECT ON THE PRICE OF THE COMPANY'S SECURITIES
The Company's founders and certain other shareholders own 1,842,500
shares of Class B Common Stock (excluding options), representing approximately
44% of the Company's outstanding capital stock and approximately 80% of the
total voting power and are 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 acquirers may 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 and will make it less likely that shareholders receive a
premium for their shares as a result of any such attempt. See "Principal
Shareholders," "Certain Transactions - FSAH Escrow Agreement" and "Description
of Securities."
DILUTION
There will be immediate substantial dilution to purchasers of the
shares offered hereby, since the net tangible book value of the Company's
securities after the offering will be substantially less than the public
offering price. See "Dilution."
DIVIDENDS UNLIKELY
The Company has not paid any cash dividends and does not anticipate
paying any such cash dividends in the foreseeable future. Earnings, if any, will
be retained to finance future growth. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to
Rule 144 under the Securities Act, pursuant to the Concurrent Offering or
otherwise, could have an adverse effect on the price of the Company's
securities. In connection with the Concurrent Offering, 650,000 Selling
Securityholder Warrants and the underlying securities were registered for resale
concurrently with the Offering. Holders of the outstanding shares of Class B
Common Stock have agreed not to sell any shares of Common Stock for a period of
13 months from the initial public offering without the prior written consent of
D.H. Blair. D.H. Blair has "demand" and "piggy-back" registration rights
covering the securities underlying the Unit Purchase Options. Future sales of
Common Stock, or the possibility of such sales in the public market, may
adversely affect the market price of the securities offered hereby. See
"Concurrent Offering," "Description of Securities" and "Shares Eligible for
Future Sale." None of the shares of Common Stock issuable upon conversion of the
Class B Common Shares that were issued prior to the Company's initial public
offering are eligible for sale under Rule 144 until September 1997.
11
<PAGE>
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Commencing on January 24, 1997, 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 30 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
Holders of Warrants will only be able to exercise the Warrants if (i)
a current prospectus under 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. 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 under applicable state securities laws. See "Description of
Securities - Warrants."
POSSIBLE DEPRESSIVE EFFECT OF FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS
Immediately following the effectiveness of this offering, there will
be an aggregate of 2,300,000 shares of Common Stock and 1,842,500 Class B Common
Stock outstanding. In addition, an aggregate of 1,300,000 shares of Common Stock
are issuable pursuant to the Selling Securityholder Warrants and Selling
Securityholder Class B Warrants. The 2,300,000 shares of Common Stock included
as part of the Units sold pursuant to the Offering were freely tradeable without
restriction under the Securities Act immediately following this offering. All
other shares of Common Stock and the shares of Class B Common Stock, are
"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. See
"Description of Securities - Class B Common Stock." Of the 1,842,500 shares of
Class B Common Stock issued and outstanding upon the closing of the Offering,
729,979 shares were issued to the FSAH Escrow Agent pursuant to the terms of the
FSAH Escrow Agreement. See "Certain Transactions." Such shares of Class B Common
Stock are "restricted securities" which in the future may be sold in compliance
with Rule 144 or pursuant to a registration statement filed under the Securities
Act. None of the shares of Class B Common Stock will be eligible for sale under
Rule 144 until September 1997. 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 not to exceed
the greater of (a) one percent (1%) of 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. The Company anticipates that an additional 331,539 shares of
Common Stock and 186,000 shares of Common Stock will be issued during the second
quarter of fiscal year 1997 to the FSAH Escrow Agent in connection with the
Company's acquisitions of Piemans Pantry and Astoria, respectively. See "Certain
Transactions - FSAH Escrow Agreements."
12
<PAGE>
Commencing on January 24, 1997, D.H. Blair and certain other holders
have the right to two demand registrations of the Units underlying the Unit
Purchase Options. The holders of the Unit Purchase Options also will have
certain piggyback registration rights. The exercise of registration rights 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 -
Shares Eligible for Future Sale."
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Memorandum of Association authorizes the issuance of
5,000,000 shares of 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."
LIMITED RIGHTS OF SHAREHOLDERS UNDER BERMUDA LAW
The Company's corporate affairs are governed by its Memorandum of
Association and bye-laws, as well as the common law of Bermuda relating to
companies and the Companies Act 1981. The laws of Bermuda relating to
shareholder rights, protection of minorities, fiduciary duties of directors and
officers, matters of corporate governance, corporate restructurings, mergers and
similar arrangements, takeovers, shareholder suits, indemnification of directors
and inspection of corporate records, may differ from those that would apply if
the Company were incorporated in a jurisdiction within the United States. The
rights of shareholders in a Bermuda company may not be as extensive as the
rights of a shareholder of a United States company and, accordingly, the holders
of the Company's shares of Common Stock may be more limited in their ability to
protect their interests in the Company. In addition, there is uncertainty
whether the courts of Bermuda would enforce judgements of the courts of the
United States and of other foreign jurisdictions. There is also uncertainty
whether the courts of Bermuda would enforce actions brought in Bermuda which are
predicated upon the securities laws of the United States. See "Enforceability of
Civil Liabilities," "Description of Securities - Differences in Corporate Law"
and "Certain Provisions of Bermuda Law."
UNITED STATES FEDERAL INCOME TAX RISKS
It is possible that based on stock ownership and/or types of income,
the Company may be classified as a passive foreign investment company, a
controlled foreign corporation, a foreign personal holding company or a personal
holding company for United States federal income tax purposes. Under the special
rules that apply to such companies, United States Investors (as defined in
"Certain Tax Considerations - United States Federal Income Tax Considerations")
may be required to include certain amounts in income before it is actually
distributed to them. Although the Company intends, to the extent consistent with
its other business goals, to operate in a manner that will minimize the adverse
effects of such provisions, if applicable, no assurance of such a result can be
given. See "Certain Tax Considerations - United States Federal Income Tax
Considerations."
13
<PAGE>
DIVIDEND POLICY
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
currently intends to retain earnings, if any, 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.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
at June 30, 1996; and (ii) as adjusted to give effect to the issuance and sale
of the shares of Common Stock underlying the exercise of the Class A Warrants
and Class B Warrants. See "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Long term debt........................................................ $2,361,372 $2,361,372
Stockholders' Equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding................... 0 0
Common Stock, $0.01 par value; 23,000,000 shares
authorized; 2,300,000 shares issued and outstanding
actual; 4,600,000 shares issued and outstanding
as adjusted (1)(2)............................................. 22,000 45,000
Class B Common Stock, $0.01 par value;
2,000,000 shares authorized; 1,942,500 shares
issued and outstanding; actual and as
adjusted(1)(2)(3).............................................. 19,701 19,701
Additional paid-in capital........................................ 18,518,986 32,643,486
Deficit........................................................... (3,887,407) (3,887,407)
Foreign currency translation adjustments.......................... (1,888,211) (1,888,211)
Income restricted as to distribution.............................. 7,307 7,307
Total Stockholders' Equity........................................ 12,792,376 26,939,876
---------- ----------
Total capitalization.................................................. 15,153,748 29,301,248
========== ==========
</TABLE>
- ------------------
(1) The Common Stock and Class B Common Stock are essentially identical except
that each share of Common Stock is entitled to one vote and each share of
Class B Common Stock is entitled to five votes. See "Description of
Securities".
(2) Excludes (i) an aggregate of 1,300,000 shares of Common Stock reserved for
issuance upon exercise of the Selling Securityholder Warrants, (ii)
7,200,000 shares issuable upon exercise of the Warrants included in the
Units offered in connection with the Offering; (iii) 800,000 shares
issuable upon exercise of the Unit Purchase Options and the Warrants
included in the Units underlying the Unit Purchase Options; (iv) 350,000
shares reserved for issuance under the Company's 1995 Stock Option Plan,
(v) 331,579 shares of Common Stock to be issued by the Company to the FSAH
Escrow Agent pursuant to the Pieman's FSAH Escrow Agreements, and (vi)
186,000 shares of Common Stock which the Company has agreed to issue to
the FSAH Escrow Agent in connection with the Company's acquisition of
Astoria. See "Management - Stock Option Plan," "Description of
Securities," "Concurrent Offering" and "Warrant Solicitation Fee."
(3) Includes 729,979 shares of Class B Common Stock issued upon the
consummation of the Offering to the American Stock Transfer & Trust
Company ("the FSAH Escrow Agent") pursuant to an escrow agreement entered
into by and among certain holders of FSAH Class B Stock, the FSAH Escrow
Agent, FSAH and the Company prior to the closing of the Offering ("the
FSAH Escrow Agreement"), pursuant to which such FSAH shareholders may
tender their shares of FSAH Class B Stock to the FSAH Escrow Agent against
payment by the FSAH Escrow Agent of the purchase price therefor, which
payment may be made through the sale by the FSAH Escrow Agent of an equal
number of shares of Class B Common Stock (which shall be automatically
converted to shares of Common Stock upon such sale) and delivery of the
net proceeds thereof. See "Certain Transactions - FSAH Escrow Agreements"
and "Principal Shareholders."
15
<PAGE>
(4) In addition to the restrictions set forth in the FSAH Escrow Agreement,
all of the holders of Class B Common Stock have agreed not to sell,
transfer or assign such shares without the prior written consent of D.H.
Blair for a period of 13 months from the closing of the Offering. See
"Shares Eligible for Future Sale".
(5) Assumes exercise of all the Class A Warrants and no exercise of Class B
Warrants. Inasmuch as the Company has received no firm commitments
therefor, there can be no assurances, however, as to the number of Class A
Warrants which will be exercised. See "Risk Factors".
BRIDGE FINANCING
In November 1995, the Company completed the Bridge Financing of
$1,300,000 principal amount of Notes and 650,000 Bridge Warrants in which it
received net proceeds of approximately $1,113,000 (after expenses of such
financing). The Notes were repaid, together with interest at the rate of 10% per
annum, upon the completion of the Offering. The Bridge Warrants were exchanged
automatically on the closing of the Offering for the Selling Securityholder
Warrants, each of which is identical to the Class A Warrants included in the
Units. The Selling Securityholder Securities have been registered for resale in
the Registration Statement of which this Prospectus forms a part, subject to the
contractual restriction that the Selling Securityholders not exercise the
Selling Securityholder Warrants prior to January 24, 1997. Purchasers of the
Selling Securityholder Warrants will not be subject to such restriction. See
"Concurrent Offering."
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 24, 1996 , the Company's Common Stock, Units, Class A
Warrants and Class B Warrants were listed for quotation on the SmallCap Market
on the Nasdaq System under the symbols FSAUF, FSACF, FSAWF and FSAZF,
respectively. The following table sets forth, for the periods indicated the high
and low bid prices for the Common Stock, Units, Class A Warrants and Class B
Warrants as reported by Nasdaq. Quotations reflect prices between dealers,
without retail mark-up, mark down or commissions and may not necessarily
represent actual transactions.
16
<PAGE>
High Bid Low Bid
-------- -------
Common Stock
- ------------
1996
3rd Quarter $ 4.75 $ 2.88
4th Quarter $ 6.00 $ 3.00
1997
1st Quarter $ 6.50 $ 4.50
2nd Quarter $ 5.75 $ 4.00
(through November 6, 1996)
Units
- -----
1996
3rd Quarter $ 6.50 $ 5.38
4th Quarter $10.00 $ 5.25
1997
1st Quarter $ 9.72 $ 6.75
2nd Quarter $11.00 $ 8.25
(through November 8, 1996)
Class A Warrants
- ----------------
1996
3rd Quarter $ 3.00 $ 1.50
4th Quarter $ 2.87 $ 1.58
1997
1st Quarter $ 3.00 $ 2.25
2nd Quarter $ 5.00 $ 2.75
(through November 6, 1996)
Class B Warrants
- ----------------
1996
3rd Quarter $ 1.62 $ .62
4th Quarter $ .88 $ .62
1997
1st Quarter $ 1.25 $ .25
2nd Quarter $ 1.50 $ .625
(through November 6, 1996)
As of November 1, 1996, there were approximately 1,450 shareholders
both of record and beneficial, of the Company's Common Stock.
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected financial data for Starpak and L.S. Pressings,
the Company's predecessor, as of and for the periods presented have been derived
from the combined audited financial statements of Starpak and L.S. Pressings.
The unaudited financial data, in the opinion of management, contain all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of such data. The result 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 information appearing
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1)
-----------------------
THE COMPANY
-----------
MARCH 1, 1995 JULY 1, 1995
YEARS ENDED FEBRUARY 28, TO JUNE 30, 1995 TO JUNE 30, 1996
-------------------------- ---------------- ----------------
1992 1993 1994 1995
$ $ $ $ $ $
---- ---- ---- ---- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales........................ 5,374,147 6,256,667 6,851,457 8,826,856 3,297,507 14,911,097
Total operating expenses......... 4,744,035 5,818,092 6,414,144 8,179,083 292,806 19,833,942 (3)
Operating income................. 630,112 438,575 437,313 647,773 334,701 (4,922,845)
Interest paid.................... 219,424 223,314 180,960 152,163 18,801 865,733 (4)
Net income before tax............ 361,678 269,251 321,319 536,440 359,045 (5,248,942)
Net income after tax............. 271,036 138,839 207,916 313,882 213,829 (5,737,560)
PREDECESSOR COMPANY (1) THE COMPANY
FEBRUARY 28, JUNE 30,
------------ ---------
1992 1993 1994 1995 1996
$ $ $ $ $
---- ---- ---- ---- ----
BALANCE SHEET DATA
Total assets..................... 4,446,132 3,976,769 3,976,974 5,161,709 23,604,994
Long term liabilities............ 1,562,095 1,140,244 1,112,391 1,123,665 2,361,372
Net working capital.............. 1,305,961 1,177,250 1,194,931 1,366,602 4,624,417
Stockholder's equity............. 2,280,434 1,527,356 1,580,826 1,828,656 12,792,376
</TABLE>
- ---------------
(1) Represents the combined results for Starpak and L.S. Pressings, which are
deemed to be the predecessor of the Company due to the common ownership
and control of such entities. The Company's fiscal year end is June 30.
(2) No dividends were declared or paid during the periods presented.
(3) Includes a one time non-cash escrow shares charge of $6,314,000 related to
the release of 1.1 million shares under the terms of an Earnout Escrow
Agreement between the Company, certain shareholders and D.H. Blair.
(4) Includes a non-cash charge of $396,500 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
PRO FORMA FINANCIAL INFORMATION
Pro forma adjustments have been made to the consolidated statements
of income for the year ended June 30, 1996 to reflect the acquisitions of the
combined Starpak and L.S. Pressings operations, Europair and of the Piemans
Pantry operations as if these acquisitions had occurred on July 1, 1994.
The Starpak and L.S Pressings transactions were accounted for as
predecessor to the Company, and the Europair transaction as a purchase for
financial reporting purposes.
The unaudited pro forma combined financial statements of the Company
have been derived from the historical financial statements of Starpak, L.S.
Pressings, Europair and Piemans Pantry. The pro forma combined statement of
operations data set forth below do not purport to be indicative of the combined
financial position or combined results of operations that would have occurred
had the transactions been completed on July 1, 1994 or which may be expected to
occur in the future.
18
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
1996 1995
$ $
----------- -----------
Revenues 36,907,198 33,062,715
----------- -----------
Operating expenses
Cost of sales 19,555,997 17,983,400
Selling, general and administrative costs 13,670,868 12,110,748
Non-cash escrow share charge 6,314,000 --
----------- -----------
39,540,865 30,094,148
----------- -----------
OPERATING (LOSS) /INCOME (2,633,667) 2,968,567
Other income 832,519 466,356
Interest expense (1,428,617) (768,413)
----------- -----------
(Loss) /income before income taxes (3,229,765) 2,666,510
Provision for taxes on income (1,293,084) (944,383)
----------- -----------
Net (loss) /income (4,522,849) 1,722,127
=========== ===========
Net (loss)/profit per share ($ 1.34) $ 0.51
Weighted average number of shares outstanding 3,374,079 3,374,079
The pro forma information has been prepared assuming that the
acquisitions consummated prior to June 30, 1996 had taken place and that
operations had commenced on July 1, 1994.
The proforma information does not purport to be indicative of the
results that would have actually been obtained if the acquisitions consummated
prior to June 30, 1996 had occurred at the beginning of the period nor is it
indicative of future results.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company was incorporated in September 1995 to acquire, own and
operate closely held companies in South Africa with annual sales in the range of
approximately $5 million to $50 million. In this regard, the Company, through
its South African subsidiary, FSAH, has acquired seven South African companies
(collectively, the "Acquisitions") engaged in the following industry segments
(i) the manufacture of high-quality plastic packaging machinery through Starpak,
(ii) the manufacture of washers for use in the fastener industry through L.S.
Pressings and its subsidiary Paper and Metal Industries, (iii) the manufacture
and supply of air conditioning and refrigeration products through Europair and
its subsidiary Europair Refrigeration, and (iv) the manufacture and distribution
of processed food products through Piemans Pantry and Astoria. See "Business"
and "Certain Transactions." The Company has funded itself since inception
primarily through stockholders' loans and capital contributions and the Bridge
Financing of Notes and Warrants and the proceeds of its initial public offering
completed in January 1996. The Company anticipates that it will derive revenues
primarily through income generated from the operations of acquired operating
companies in South Africa.
The annual rate of inflation in South Africa for the periods set
forth below was as follows:
FISCAL YEAR 1995 FISCAL YEAR 1996
10.0% 6.9%
The average rate for the South African Rand against the U.S. dollar
for the periods under discussion were as follows:
FISCAL YEAR 1995 FISCAL YEAR 1996
$1 = R3.53 $1 = R3.85
Depreciation of 9.06%
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this document. In this discussion, "Pro
Forma" includes all the combined results for the Company's acquisitions that
have been consummated since the Company's Initial Public Offering in January,
The "Pro Forma" results may not be representative of the actual results that
would have been achieved had such events actually occurred at the beginning of
the periods indicated.
The Company's Consolidated Balance Sheet and Statement of Income
reflect the twelve month period ending June 30, 1996. The Statement of Income
includes the operations of L.S. Pressings (Pty) Limited and Starpak (Pty)
Limited for the full twelve month period, the operations of Europair (Pty)
Limited from January 24, 1996 and the operation of Piemans Pantry (Pty) Limited
from June 3, 1996. Starpak and
20
<PAGE>
L.S. Pressings are deemed capital predecessors of the Company, while the
operations of Europair and Piemans Pantry have been accounted for upon
consummation of their acquisition.
Due to the lack of comparative prior financial periods, and in order
to provide a meaningful reference point in the Management's Discussion and
Analysis, comparative twelve month pro forma results have been added for the
twelve-month periods ended June 30, 1996 and 1995 respectively. These pro forma
results include the results for all of the Company's acquisitions, including
those made after January 24, 1996. Attention is drawn to the Management's
Discussion and Analysis for the Pro Forma periods mentioned above. This section
provides the most meaningful analysis of the Company's performance on a broader
time scale.
PROFORMA (UNAUDITED)
Year Ended Year ended
June 30, 1996 June 30, 1995
Costs of sales................................. 53.0% 53.4%
Gross profit................................... 47.0% 46.6%
Selling, general and administrative
expenses.................................... 37.0% 36.0%
Interest expense............................... 3.9% 2.3%
Operating income (pre-noncash escrow
charge)..................................... 10.0% 9.0%
Other income (net of other expenses)........... 2.3% 1.4%
Income before income taxes (pre-noncash
escrow charge).............................. 8.4% 8.1%
Income before income taxes..................... (8.7%) 8.1%
Pro Forma Twelve Months Ended June 30, 1996
Compared to Pro Forma Twelve Months Ended June 30, 1995
Proforma sales for the 12 months ended June 30, 1996 increased 11.6%
to $36,907,198 from $33,062,715 for the period ended June 30, 1995. The increase
included a 2.0% decrease in the combined sales of L.S. Pressings, and of
Starpak, a 3.9% increase in the sales of Europair Africa and a 26% increase in
the sales of Piemans Pantry. The decrease in sales of L.S. Pressings and Starpak
as well as the relatively slow growth of Europair Africa can be primarily
attributed to the above average macro-economic growth South Africa experienced
following the April 1994 elections. In the 12 months leading up to the first
South African national elections the country faced tremendous uncertainty.
Corporate capital expenditures were frozen pending the results of the election.
Upon the peaceful conclusion of the election, business confidence was boosted
and spending on capital goods resumed at an above average pace, resulting in
increased volume sales for all three companies. Capital spending rates have
decreased in fiscal 1996 as opposed to the above average rates following the
April 1994 elections. In contrast, Piemans Pantry's rapid growth continued to be
fueled by an overall increase in the South African meat pie market.
Proforma cost of goods sold were $19,555,997 and $17,983,400 for the
twelve months ended June 30, 1996 and 1995 respectively. This represented 53% of
sales for the twelve months ended June 30,
21
<PAGE>
1996 versus 54.4 % for the corresponding period in 1995. This decrease can be
primarily explained by improved productivity at Piemans Pantry due to increased
automation.
Proforma sales, general and administrative costs increased to
$13,670,868 from $12,110,748 for the twelve months ended June 30, 1996 and 1995,
respectively. This represented 37.0% of sales for the twelve months ended June
30, 1996 versus 36.6% for the corresponding period a year earlier. During the
period in fiscal 1996, the Company's net corporate expenses accounted for
approximately .6% of this increase.
Proforma interest expenses increased to $1,428,617 during the twelve
months ended June 30, 1996 from $768,413 for the twelve months ended June 30,
1995. Most of this increase can be attributed to a non-cash charge of $396,000
that the Company took in connection with its November 1995 private placement of
Bridge Notes. In addition, long-term debt increased as a result of debt utilized
as part of the Company's acquisition financing as well as increased investment
in fixed assets which was facilitated through the utilization of long-term debt
facilities.
Proforma other income was $832,519 and $466,356 for the twelve months
ended June 30, 1996 and 1995, respectively, primarily as a result of interest
earned on greater net positive cash balances for the year ended June 30, 1996,
as opposed to the corresponding period in 1995.
The Company recorded a non-cash escrow share charge of $6,314,000 for
the year ended June 30, 1996. This charge relates to the release of 1,100,000
shares pursuant to an Earnout Escrow Agreement that the Company entered into on
October 30, 1995, as amended. Under the terms of this agreement, 1,100,000
shares were deposited in escrow subject to the Company achieving certain pre-tax
Pro Forma earnings results as set forth in such agreement, as amended. It is
management's belief that the Pro Forma results for June 30, 1996 have met the
earnout requirements of this agreement, as amended, and as a result the Company
has taken this one time non-cash charge which is calculated by multiplying
1,100,000 shares by the current bid price of the Company's Common Stock. The
$6,314,000 charge has been reflected as additional Capital in Excess of Par in
the June 30, 1996 Balance Sheets. The release of such 1,100,000 shares from the
earnout escrow was effected in October 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - PREDECESSOR COMPANY.
The annual rate of inflation in South Africa for the period set forth below was
as follows:
1993 1994 1995
---- ---- ----
13.9% 9.7% 8.6% (est.)
The average rate for the South African Rand against the U.S. dollar for the
periods under discussion were as follows:
FISCAL YEAR 1993 FISCAL YEAR 1994 FISCAL YEAR 1995
$1 = R2.90 $1 = R3.32 $1 = R3.53
Depreciation of 14.48% 6.3%
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Based on these figures, in evaluating the comparable sales and
expense numbers for the companies in question for the period ended February 28,
1995 versus the period ended February 28, 1994, approximately 3.5% of the
increase in sales and expenses can be attributed to the net effect of the rate
of inflation of South Africa. The calendar year figures are provided with the
fiscal year figures as set forth above to provide an effective comparison of
inflation figures for the periods in question.
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this Prospectus. In this discussion,
"Historical" reflects the combined historical financial data of Starpak and L.S.
Pressings. Prior to the Company's initial public offering, such entities were
each principally owned by FSA Stock Trust, a principal stockholder of the
Company, and are therefore treated as the Company's predecessor. "Pro Forma"
assumes the consummation of this Offering and the acquisition of Europair.
COMBINED RESULTS FOR STARPAK AND L.S. PRESSINGS
PERIOD FROM
MARCH 1, 1995 TO FISCAL YEAR
AS PERCENTAGE OF SALES JUNE 30, 1995 ENDED FEBRUARY 28,
---------------------- ------------- -----------------------
1995 1994 1993
---- ---- ----
Costs of sales.............................. 57.0% 57.3% 65.9% 66.0%
Gross profit................................ 43.0% 42.7% 34.1% 34.0%
Selling, general and administrative
expenses.................................... 32.8% 35.4% 27.7% 27.0%
Interest expense............................ 20.5% 1.7% 2.6% 3.6%
Operating income............................ 10.1% 7.3% 6.4% 7.0%
Other income (net of other expenses)........ 1.3% 0.5% 0.9% 0.9%
Income before income taxes.................. 1.9% 6.1% 4.7% 4.3%
Twelve Months Ended February 28, 1995 Compared to Twelve Months Ended February
28, 1994
Historical sales for the twelve months ended February 28, 1995
increased 28.8% to $8,826,856 from $6,851,457 for the period ended February 28,
1994. As adjusted for inflation, historical sales volume increased approximately
25%. The increase included a 48% increase in sales of L.S. Pressings (or
approximately 45% volume increase) and a .05% decrease (a 3% volume increase
adjusting for inflation) in the sales of Starpak. The overall growth in the
volume of sales of the companies can be primarily attributable to the
improvement in macro-economic conditions in South Africa following the April
1994 elections, as described above.
The Historical cost of goods sold were $5,058,749 and $4,513,384 for
the twelve months ended February 28, 1995 and 1994, respectively. This
represented 57.3% of sales for the twelve months ended February 28, 1995 versus
65.9% for the corresponding period a year earlier. Decreases in cost of goods
sold were experienced in both Starpak and L.S. Pressings and can be attributed
primarily to more efficient production that resulted from the increase in
revenues, as both companies have relatively fixed manufacturing overhead costs.
In addition, labor costs as a percentage of sales were reduced, as there were a
number of work stoppages in support of political causes prior to the elections
which negatively impacted on the cost of sales for the year ended February 28,
1994.
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Historical sales, general and administrative costs increased 64% to
$3,120,334 from $1,900,760 for the twelve months ended February 28, 1995 and
1994, respectively. This represented 35.4% of sales for the twelve months ended
February 28, 1995 versus 27.7% for the corresponding period a year earlier.
These increases were experienced in both companies and can be attributed
primarily to increased expenditures in administrative personnel as well as an
increase of $213,280 in management profit sharing bonuses which resulted from an
increase in operating profits.
Historical interest expenses declined to $152,163 during the twelve
months ended February 28, 1995 from $180,960 for the twelve months ended
February 28, 1994. This decrease can be attributed primarily to a decline in the
average level of borrowings during the year. However, in order to support
expansion, the companies increased their investment in fixed assets during the
last quarter of the fiscal year. As a result, despite the lower average level of
borrowings during the year, the aggregate interest-bearing debt at February 28,
1995 was $1,180,000 while the corresponding balance at February 28, 1994 was
$1,070,000.
Historical other income was $40,830 and $64,966 for the twelve months
ended February 28, 1995 and 1994, respectively. The decrease can be attributed
primarily to a decline in other income earned by Starpak due to the release of
bad debt provisions in 1994, as well as a loss on the disposal of fixed assets.
During fiscal 1995 the South African tax authorities lowered
corporate income taxes from 40% to 35%. This has resulted in a 5% increase in
net income for the Company for the year ended February 28, 1995 as compared to
the corresponding period in 1994.
Twelve Months Ended February 28, 1994 compared to Twelve Months Ended February
28, 1993.
Historical sales for the twelve months ended February 28, 1994
increased 9.5% to $6,851,457 from $6,256,667 for the period ended February 28,
1994. The increase included a 3.7% increase in volume sales of L.S. Pressings,
and a 9.3% increase in the volume sales of Starpak.
Historical cost of goods sold were $4,513,384 and $4,128,047 for the
twelve months ended February 28, 1994 and 1993, respectively. This represented
65.9% of sales for the twelve months ended February 28, 1994 versus 66.0% for
the corresponding period in the prior year.
Historical sales, general and administrative costs increased to
$1,900,760 from $1,690,045 for the twelve months ended February 28, 1994 and
1993, respectively. This represented 27.7% of sales for the twelve months ended
February 28, 1994 versus 27.0% for the corresponding period in the prior year.
Historical interest expenses declined to $180,960 during the twelve
months ended February 28, 1994 from $223,314 for the twelve months ended
February 28, 1993. This decrease can be attributed primarily to a decline in the
level of borrowings. The reduction in interest expense for the fiscal year ended
February 28, 1994 relative to fiscal year ended February 28, 1993 was due
principally to a reduction in interest rates, as the prime borrowing rate was
reduced from 20.25% at February 28, 1993 to 15.25% at February 28, 1994.
Historical other income was $64,996 and $53,990 for the twelve months
ended February 28, 1994 and 1993, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company raised approximately $9 million in net
proceeds after all fees and expenses from its initial public offering. Proceeds
of that offering have been primarily utilized to fund the Company's acquisitions
as well as to provide a certain amount of working capital to its South African
subsidiaries. Approximately $1 million in cash was provided to FSAH, of which
approximately $550,000 was lent to Europair for working capital purposes in
fulfillment of the Company's commitment under its Share Purchase and Sale
Agreement with Bruce Thomas. An additional $3 million was utilized for the
Piemans Pantry acquisition. In addition, FSAH utilized a portion of a $1,100,000
new bank facility to fund this acquisition. Currently, the Company has a cash
commitment of approximately $1.3 million in connection with its agreement to
acquire Astoria Bakery. Such commitment will be funded from existing cash on
hand.
As of June 30, 1996, the Company had $4,682,035 in cash with working
capital of $4,624,417. As of June 30, 1996, the Company had a total of
$5,208,895 in bank debt, of which $2,847,523 was classified as current.
Cash flows provided by operating activities for the period ended June
30, 1996 totaled $876,607. Cash flows used in investing activities for the
period ended June 30, 1996 totaled $5,510,105 primarily attributable to the
purchase of assets and acquisition of subsidiaries. Net cash provided by
financing activities generated $9,020,069 during the period ended June 30, 1996.
The Company's operating subsidiaries generally collect their
receivables within 65 - 90 days and reserve approximately 19% for doubtful
accounts. Historically, the Company's operating and capital needs have been met
by internal cash flow and outside bank borrowing. It is management's belief that
capital expenditures for the foreseeable future can continue to be met by
internal cash flow and bank borrowing. The Company's operating subsidiaries
engage in certain hedging transactions with respect to certain overseas
purchases in order to lock in a specified exchange rate. In addition, in May
1996, the Company, through Swiss Bank Corporation, purchased a 12 month option
to acquire the equivalent of $5 million in South African Rand at the strike
price of Five Rand to the Dollar. This option has the effect of hedging $5
million of the Company's fiscal 1997 earnings, in the event the exchange rate of
the South African Rand falls below this strike price. The cost of such option
was approximately $150,000 and is being amortized over the length of the option.
On June 3, 1996, the Company, through FSAH, acquired all of the
outstanding stock and assets of Piemans Pantry Proprietary Ltd., and Surfs-Up
Proprietary Ltd. (collectively referred to as "Piemans Pantry") from John Welch,
Heinz Andreas and Michael Morgan. The consideration for all of the stock and
assets of Piemans Pantry was 40,000,000 South African Rand (approximately $9.2
million as of June 3, 1996) which consideration was comprised of both cash and
Class B Shares of FSAH, $3,400,000 of which remains to be paid subsequent to the
date of this Prospectus.
On October 24, 1996, the Company, through FSAH, acquired Astoria from
Wolfgang Burre. The consideration for all of the stock and assets of Astoria was
24,000,000 South African Rand (approximately $5,106,383.00 as of November 8,
1996) which consideration was comprised of both cash and Class B shares of FSAH,
of which approximately 50% remains to be paid subsequent to the date of this
Prospectus.
The Company intends to continue to pursue an acquisition strategy in
South Africa and anticipates utilizing a substantial portion of its cash
balances and operating earnings to fund this strategy to the extent that
suitable acquisition candidates can be identified.
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<PAGE>
The Company may be required to incur additional indebtedness or
equity financing in connection with future acquisitions. There is no assurance
that the Company will be able to incur additional indebtedness or raise
additional equity to finance future acquisitions on terms acceptable to
management, if at all.
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BUSINESS
GENERAL
The Company was organized to acquire, own and operate seasoned,
closely held companies in South Africa with annual sales in the range of
approximately $5 to $50 million. Since its initial public offering on January
24, 1996, the Company has acquired through FSAH, seven businesses based in South
Africa that are as a group engaged in the following industry segments:
1. High quality plastic packaging machinery.
2. Metal washers used in the fastener industry.
3. Air conditioning and refrigeration machinery components.
4. Processed foods.
Upon completion of its initial public offering the Company acquired
Starpak (Pty) Limited, which is engaged in the manufacture of high quality
plastic packaging machinery; L.S. Pressing (Pty) Limited, which is engaged in
the manufacture of washers for the use in the fastener industry; and Europair
Africa (Pty) Ltd., which is engaged in the manufacture and supply of air
conditioning products. In April 1996, L.S. Pressings acquired through Crowle
Investments (Pty) Limited, the assets and business of Paper & Metal Industries,
a small manufacturer of rough washers for use in the fastener industry. In April
1996, Europair acquired Universal Refrigeration, an agent and supplier of
refrigeration products. In June 1996, FSAH acquired Piemans Pantry, a
manufacturer and distributor of high quality meat pies. In October 1996, FSAH
acquired the stock and assets of Astoria, a manufacturer and distributor of
specialty baked breads and confectionary products.
FSAH manages the Company's business interest in South Africa. FSAH
monitors the operational performance of its subsidiaries and seeks out
prospective acquisition candidates in businesses that complement or are
otherwise related to the Company's existing acquisitions, and in other
businesses that may be identified by the Company's management.
HISTORY
The Company was founded in September 1995 in response to management's
perception of a growing global interest in South Africa as an emerging market.
The Company believes that the recent relaxation of trade and financial sanctions
and the reintegration of South Africa into the world economic community may
increase the opportunity for improved growth in the South African economy in
general and more particularly in the industry segments in which the Company is
engaged.
STRATEGY
The Company intends to continue to focus its efforts on businesses
related to infrastructure development and consumer goods that the Company
believes are well situated to benefit from South Africa's on-going
transformation into an active participant in the global market place. The
Company's strategy is to expand and improve its current operations in the
industry sectors in which its operating subsidiaries are currently engaged, and
in other related industry sectors, by acquiring mid-size, closely-held,
companies in South Africa that operate efficiently, profitably and have seasoned
management. The Company believes that it can acquire these types of companies at
lower multiples of earnings than comparable companies would command in the
United States. The Company seeks to benefit from the combination of business
factors that
27
<PAGE>
South Africa has to offer, which includes a skilled work force, effective and
expanding infrastructure and increasing access to foreign markets. The Company
may also consider investments in businesses that are located in other countries,
or are engaged in other industries, and in South African companies, the
securities of which are publicly traded, that meet the Company's price and
quality requirements. The Company has and will continue to identify potential
acquisition candidates through the industry contacts of management and the
managements of its subsidiaries, as well as through other general business
sources. To date, the Company has financed its acquisitions through a
combination of cash, issuance of shares of stock of FSAH or the Company and debt
financing. The Company anticipates that it will continue to follow similar
financing strategies in its future acquisitions.
THE ACQUISITIONS
The following is a description of the businesses in each of the
Company's industry segments:
PLASTIC PACKAGING MACHINERY
STARPAK
Starpak manufactures high quality plastic packaging machinery and
does business under the name of Levy and Smith. Starpak's operations are located
in Johannesburg with service offices in Durban and Cape Town. Machinery
manufactured by Starpak is generally used by manufacturers to provide low cost
and high quality packaging for a broad spectrum of consumer goods. Its machines
are used in industries such as food, baking, beverages, cosmetics,
pharmaceuticals, chemicals, motor oils, printing, hardware and general trade.
Starpak markets its products directly and through independent sales agents. Over
90% of Starpak's sales are generated through its in-house sales force. During
the last fiscal year no one customer accounted for more than 10% of Starpak's
annual sales. Prior to such time, Albany Bakeries, which developed a new bread
packaging product, and the Premier Group, which purchased a wide range of bakery
packaging equipment, accounted for more than 10% of Starpak's annual sales in
the previous two fiscal years.
Starpak competes on the basis of quality. Starpak faces competition
from major competitors whose machines are frequently less expensive, although
Starpak believes that they are of lower quality than machines produced by
Starpak. To the best of its knowledge, management estimates that the total
market for shrink packaging machinery in South Africa in 1995 was approximately
$10,000,000. Of this total market, Starpak has an estimated 48.3% share, with
the remainder of the market being serviced by a number of small packaging
machine manufacturing companies. In the past, Starpak has experienced a seasonal
down-turn in its business during the period commencing mid-December and ending
at the end of February. This down-turn appears to be due to the main summer
holidays in South Africa that occur during such period. The most active period
for receipt of orders has historically been from July to the beginning of
December. As of August 31, 1996, Starpak's backlog of firm orders was
approximately $1,225,000 compared to approximately $1,000,000 as of August 31,
1995.
Although Starpak's principal suppliers are foreign companies, each
principal supplier is represented locally in South Africa and to date, Starpak
has not experienced material difficulties or delays in obtaining products or
supplies. Almost all local suppliers are on thirty-day terms, while items
purchased directly from overseas suppliers require irrevocable letters of
credit. Motors, which comprise approximately 5% of the cost of the machines, are
imported directly from non-African sources. Other products obtained by Starpak
from its suppliers include electronic controllers, pneumatics, overloads,
contractors, switches and Teflon tape.
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FASTENER INDUSTRY
L.S. PRESSINGS
L.S. Pressings and its subsidiary, Paper & Metal Industries,
manufacture washers for supply to distributors of nuts and bolts who in turn
distribute L. S. Pressing products to end users in various industries and
markets. L.S. Pressings' operations are located in Johannesburg. L.S Pressings
manufactures a full range of washers to metric, capital imperial as well as U.S.
specifications. In addition, it manufactures special size washers to suit
customers specific requirements. Washers are manufactured from mild steel, black
(heat tempered) steel, copper, brass, fiber and various plastics. Washers are
used in numerous industries, including automotive, electrical, furniture and
construction industries. They are also used for sealing purposes, water piping
and as a non-conductive element. L.S. Pressings has no sales representatives
with orders being placed directly by customers. Substantially all of the
customers are distributors who resell the washers to end users.
L.S. Pressings believes that it is the single largest supplier of
washers in the South African market, although a number of competitors compete
with L.S. Pressings in particular niches. L.S. Pressings' strongest competition
is from importers of standard size washers manufactured in Taiwan. However,
importers of Taiwanese washers generally do not offer a "one-stop" source of
supply and L.S. Pressings believes it competes successfully with respect to
pricing. As a result, the importers have not had a substantial impact on L.S.
Pressings' sales although there can be no assurance that this will remain the
case. L.S. Pressings believes that no other South African manufacturer of
washers offers a comparable range of products. L.S. Pressings typically
manufactures to order and delivers within approximately 10 days of order.
Backlog numbers are therefore not significant for L.S. Pressings and tend to
vary widely. However, as of August 31, 1996, L.S. Pressings' firm order backlog
was $65,000 as compared with $90,000 on August 31, 1995.
All of L.S. Pressings' suppliers are local companies. In the last
year there has been a shortage of scrap metal in South Africa, although L.S.
Pressings has had no material problems obtaining scrap required for its
operations. Spring washers, which comprise approximately 10% of L.S. Pressings'
annual sales, are manufactured using a different process to that adopted by L.S.
Pressings. As a result, L.S. Pressings purchases spring washers from
locally-represented suppliers. Apart from the month of December when its
factories are closed, there is no particular seasonality to these businesses.
AIR CONDITIONING AND REFRIGERATION
EUROPAIR
Europair manufactures and supplies products, parts and accessories to
the heating, ventilation and air conditioning industry ("HVAC") in South Africa.
Europair's operations are located in Johannesburg with branch offices in Durban,
Cape Town, Port Elizabeth, East London, Nelspruit and Pietersburg. Europair
seeks to provide a single source of components and accessories for original
equipment manufacturers, contractors and duct shops in South Africa and
neighboring countries. Its products include grilles, flexible ducting, flanging,
insulation, humidifiers, fire dampers and other accessory products for the air
conditioning industry. Europair markets its products primarily through its sales
personnel directly to air conditioning and building contractors as well as to
other agents.
Europair believes it is unique in South Africa in its increasing
capacity as a full-range supplier to the HVAC industry and believes it does not
currently compete directly with any supplier that offers as comprehensive a
range of products. Europair does, however, have a number of competitors in each
of its product groups. Increasingly, the threat of competition is presented by
less expensive imports, although such imports are sometimes lower quality and
the importers are generally unable to stock a broad range of products.
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As Europair is in the air conditioning and refrigeration business it experiences
a seasonality that corresponds with the summer months in the Southern
hemisphere. Typically, sales are higher in the months of October through
February. As of August 31, 1996 Europair's firm order backlog was $93,500 as
compared with $56,500 on August 31, 1995.
Europair relies on local suppliers to provide it with aluminum
extrusions, aluminum foil, fiberglass and other insulation material, fire
dampers, steel and wire in the manufacturing of Europair's products and for
inclusion in other products sold by Europair. The principal foreign suppliers of
Europair provide it with humidifiers, glue, air valves, vinyl, polyester, access
doors and fans. Ordinarily, Europair does not experience material difficulty in
procuring the raw materials required for its production processes. Aluminum
prices are, however, commodity driven and change frequently. The Durban factory
experienced a substantial inventory shortage with respect to its aluminum
requirements in October and November 1994 due to a countrywide shortage of
aluminum. In response to such shortage Europair has accumulated and maintains a
substantial stockpile of aluminum.
Universal Refrigeration has been renamed Europair Refrigeration, it
is a wholly-owned subsidiary of Europair engaged as an agent in the distribution
and supply of various refrigeration related products. Its sales are generated
through Europair's existing national sales network.
PROCESSED FOODS
PIEMANS PANTRY
Piemans Pantry was acquired by the Company in June 1996. Piemans
Pantry manufactures, sells and distributes quality meat, vegetarian and fruit
pies, both in the baked and frozen, unbaked form. The business manufactures,
markets and distributes from its headquarters in Krugerdorp, Gauteng and has a
regional sales office in KwaZulu-Natal. Piemans Pantry strives to emphasize the
highest standards of quality control and consistency of product. It's major
customers are independent retail baker shops, pie shop franchises, in-store
bakeries, national bread bakery groups, institutional cafeterias and convenience
stores. Piemans Pantry's sales are conducted through its own employees, as well
as through distributors/agents. Approximately 71% of Piemans' sales are
internally generated with the remainder through agents. During the last fiscal
year the Spar Group (a cooperative of independent supermarkets) accounted for
17% of the Piemans Pantry's sales, while the London Pie Company (a pie store
franchise chain) contributed 10% of Piemans Pantry's sales. In the previous two
fiscal years, no company accounted for more than 10% of Piemans Pantry's sales.
Piemans Pantry competes on the basis of quality. It faces competition
from a number of manufacturers, primarily those supplying to the lower end of
the market. Piemans Pantry believes that it has only one significant competitor
and that its market share is currently around 20%. Piemans Pantry's business is
slightly stronger in the months of July through October as well as in December.
However, these increases are not significant to make this a seasonal business.
Piemans Pantry manufactures to order on a daily basis. Backlog is therefore not
counted, nor is it relevant in the analysis of Piemans Pantry's business.
Piemans Pantry's principal suppliers for its pastry and filling
ingredients are both local and foreign companies. All suppliers except one have
immediate alternative sources. Piemans Pantry selects its suppliers on the basis
of quality and price and to date it has no difficulty in obtaining sufficient
supplies.
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ASTORIA BAKERY
Astoria Bakery manufacturers, sells and distributes high margin
specialty breads such as special rye breads, pumpernickel etc., in the
Johannesburg area. In addition, Astoria Bakery Lesotho manufactures, sells and
distributes staple bread to the Lesotho market. The Johannesburg operation
manufactures, markets and distributes from its headquarters in Randburg. The
Lesotho operation manufactures, makes and distributes products from a bakery in
Maseru, the capital of Lesotho. Astoria strives to emphasize the highest
standards of quality as well as uniqueness of product in its specialty lines. In
Johannesburg its major customers are its own retail outlet accounting for
approximately 13% of sales, national supermarket chains and retail bakery and
convenience stores. Astoria's sales both in Johannesburg and Lesotho are
conducted through its own employees. During the last fiscal year, Woolworths (a
large South African department store chain) accounted for approximately 60% of
Astoria Johannesburg's sales (approximately 30% of total sales). In the previous
two fiscal years Woolworths accounted for approximately 20% of Astoria's sales.
Astoria competes on the basis of quality and uniqueness of product.
In Johannesburg it faces competition from a number of manufacturers, however,
Astoria believes that it dominates the market for specialty breads in
Johannesburg. In Lesotho, Astoria has one major competitor and has approximately
50% of the Lesotho bread market with the remainder controlled by this
competitor. Astoria sees an increase in business during the December period,
however, this increase is not significant enough to make this a seasonable
business. As its baked goods are a perishable item, Astoria manufacturers to
order on a daily basis and backlog is not relevant in an analysis of its
business.
Astoria's principal suppliers for raw materials are mostly local. All
suppliers have immediate alternative sources. Astoria selects its suppliers on
the basis of quality and price and to date has had no difficulty obtaining
adequate supplies.
REGULATION
The Company's South African business operation is subject to a number
of laws and regulations governing the use and disposition of hazardous
substances, air and water pollution and other activities that effect the
environment. The Company's management believes that each of its subsidiaries is
in substantial compliance with applicable South African law and the regulations
promulgated under such law and that no violation of any such law or regulation
by any such company has occurred which would have a material adverse effect on
the financial condition of the Company.
EMPLOYEES
As of September 30, 1996, in addition to its President who devotes
substantially all of his business time to the Company, the Company had only one
full-time salaried employee. "See Management - Employment Agreements". As of
such date, FSAH had no full-time salaried employees. The Company intends to add
employees as necessary to meet management and other requirements from time to
time. On July 1, 1996, FSAH entered into an employment agreement with Cornelius
J. Roodt to act as its Managing Director. -"See Employment Contracts". As of
September 30, 1996, the Company's operating subsidiaries employed approximately
1,087 people.
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PROPERTIES
The Company's principal executive offices are located at Clarendon
House, Church Street, Hamilton, HM 11, Bermuda. The Company's U.S. subsidiary,
First South African Management Corp. (FSAM) has its principal executive offices
at 2665 South Bayshore Drive, Suite 702, Coconut Grove, Florida 33133. FSAM's
offices consist of approximately 2,000 square feet of office space in an office
section of Coconut Grove, Florida, which FSAM occupies pursuant to a three-year
lease agreement with a monthly rental of $2,400. FSAH's principal executive
offices are located in the facilities of Europair in South Africa.
Starpak and L.S. Pressings operate out of a facility made up of
adjacent buildings owned by Levy & Smith Properties (Proprietary) Limited, a
wholly-owned subsidiary of Starpak. The facility has a total lot size of
approximately 30,000 square feet. The facility has three floors at 85% coverage
equal to a total of 76,500 square feet. The Company anticipates that it will
require additional space and is considering the rental of additional space at a
nearby location. Starpak also has branches in Durban and Cape Town, South
Africa.
Europair operates from premises and facilities that it owns in
Gauteng and from leased premises in KwaZulu-Natal, Western Cape and the Eastern
Cape. Pursuant to an option granted by the Company, Mr. Bruce Thomas (the Chief
Executive Officer of Europair) has acquired Europair's premises for $890,868 and
entered into a ten year lease with Europair with respect to such premises for an
initial rental rate of $110,111 per annum. Europair believes this property is
well suited to Europair's operations and can accommodate relatively large
increases in manufacturing and storage. Europair's other leased properties are
located in Durban, Cape Town and Port Elizabeth.
Piemans Pantry operates from premises and facilities that it owns in
Krugersdorp. The facility has two floors with a total size of 38,000 square
feet. In addition, Piemans Pantry rents a retail facility in Krugersdorp, as
well as an office space in KwaZulu-Natal.
Paper & Metal Industries rents two adjacent industrial properties in
Germiston, Gauteng. The total size of the facility is 8,975 square feet. Paper &
Metal have a two year lease at approximately $34,744 per annum.
Astoria leases approximately 20,000 square feet of space in Randberg
for which it pays an annual rental amount of approximately $100,000. Astoria
also leases approximately 6,000 square feet in Lesotho for which it pays an
annual rental amount of approximately $7,000
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries are subject to any
material legal proceedings.
SOUTH AFRICA
Except where otherwise indicated, sources of the statistical
information contained in this section include data compiled and made public by
the following South African governmental agencies: the Department of Manpower
(with respect to labor and employment statistics), the Department of Customs and
Excise (with respect to trade statistics), the Central Statistical Service (with
respect to data on the economy) and SATOUR (South African Tourist Board with
respect to data on tourism). The source for statistical information relating to
investment, spending, consumption and exchange rates is information compiled and
made publicly available by the South African Reserve Bank.
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BACKGROUND
The Republic of South Africa ("South Africa") is located on the
southernmost portion of the African continent and has a land area of
approximately 471,000 square miles, which is approximately one eighth the size
of the United States and five times the size of the United Kingdom. The country
is bounded by the Atlantic and Indian Oceans on the east, west and south, and by
Zimbabwe, Mozambique, Namibia, Botswana and Swaziland to the north. In addition,
the independent Kingdom of Lesotho is situated within South Africa's borders.
South Africa is currently divided into nine provinces: Eastern Cape, Mpumalanga,
Kwazulu/Natal, Northern Province, Northwest, Free State, Gauteng, Northern Cape
and Western Cape. South Africa is a signatory to the GATT agreement and is a
member of the Organization of African Unity and the Southern African Customs
Union which includes Botswana, Swaziland, Lesotho and Namibia.
According to Government estimates, the population of South Africa was
approximately 40.4 million at June 30, 1994. Government statistics and estimates
generally are believed to be inaccurate due to significant undercounting of the
black population. The last official Government census was conducted in 1991.
DOMESTIC ECONOMY
South Africa has a highly developed free market economy. The base of
the economy has evolved from agriculture to mining and, more recently, to
manufacturing, which accounted for approximately 24% (as of the third quarter of
1993) of the gross domestic product. The historic strength of the South African
economy has been its extensive mineral deposits. Diamonds, gold and other metals
account for a majority of South Africa's annual exports. Government incentives
have been introduced in recent years to encourage greater processing and
finishing by the country's industrial sector of South Africa's wealth of natural
resources to add value to the economy and increase foreign export earnings.
Although the country represents only 4% of the land area of the continent of
Africa and accounts for just over 6% of its total population, South Africa
accounted for approximately 33% of the continent's gross domestic product
("GDP") in 1992. Apart from manufacturing and mining, agriculture, finance,
communications, transport and energy also play an important part in the South
African economy. Alongside South Africa's developed economy there also exists a
large informal economy which was effectively imposed by apartheid. Due to the
political changes currently taking place, it is anticipated that the formal and
informal economies will eventually merge.
LABOR AND SOCIAL LEGISLATION
The economically active population in 1994 (wage and salary earners,
self-employed individuals and unemployed individuals) was estimated by means of
mid-year estimates at 12,564,000 individuals. The total employment in the formal
non-agricultural sectors was (as of April 1993) 5,169,635 of which approximately
27% was employed in manufacturing, 12% in mining, 37% in service industries, 14%
in the trade sector, comprised of wholesale, retail and motor trade, and 7% in
the construction sector. Data for the agricultural sector is not published; only
estimates are available. Total estimated employment in the formal agricultural
sector in 1991 was 1,224,000.
Approximately 56% of South Africa's wage and salary earners in the
formal non-agricultural sector were unionized as of year-end 1992. As of
December 31, 1992, 2,906,100 employees (24% of the economically active
population), belonged to registered trade unions. The remaining union employees
were members of unregistered trade unions. Unions must be registered with the
Department of Manpower in order to operate within the framework of the Labor
Relations Act, which provides procedures for arbitration and court action in
industrial disputes.
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Most of the major industries in South Africa are unionized. There are
well developed collective bargaining structures and many of the unions have
affiliated themselves to trade union federations such as the non-racial Congress
of South African Trade Unions and the National Congress of Trade Unions. A
number of the trade unions and their leaderships have close links to various
political parties. Similarly, many employers have become affiliated with
employer organizations and federations of these organizations, such as the Steel
Engineering Industries Federation of South Africa, for purposes of collective
bargaining with trade unions. In some industries there are industrial councils
which provide a forum for collective bargaining and which administer the
collective bargaining agreements arrived at. Existing legislation requires
parties to industrial disputes to endeavor, in most cases, to settle their
disputes through conciliation prior to embarking on industrial action or having
the dispute resolved through adjudication by the industrial court. The
industrial court has a wide unfair labor practice jurisdiction intended to
further the aim of maintaining industrial peace through adjudicating upon and,
where possible, preventing harm arising from disputes of right such as unfair
dismissals. Both the industrial court and the Supreme Court are empowered to
make orders preventing the occurrence or continuation of illegal strikes or
lock-outs.
FOREIGN DIRECT INVESTMENT
South Africa imposes restrictions on the debt-equity ratio of a
foreign-owned Company, which restrictions are imposed and administered by the
South African Reserve Bank. Also, if 25% or more of the shares of a South
African company are held by a foreigner, the ability of the local company to
borrow from local sources is restricted. The restriction is calculated by
reference to the company's so-called "effective capital" which is comprised of,
among other things, share capital and share premium, foreign and local
shareholders loans (local shareholders loans are only included to the extent
that they are pro-rata to foreign shareholders loans) and retained earnings. The
local borrowing restrictions are often waived for listed companies with
dispersed shareholders. Although the current debt-equity restrictions are
imposed and administered by the South African Reserve Bank, amendments to the
Income Tax Act passed in July 1995 impose similar statutory thin-capitalization
rules which provide that excessive interest will be treated as a dividend,
disallowed for tax purposes, and subjected to secondary tax on companies at the
rate of 12.5% of the disallowed interest. It is likely that a safe harbor
debt-equity ratio of 3:1 will be permissible. Debt-equity ratios in excess of
this will require approval from the taxation authorities. The Company intends to
utilize a substantial portion of the use of proceeds from this Offering to
acquire additional companies in South Africa. The Company anticipates that these
acquisitions will be funded with sufficient equity infusions into FSAH so that
the safe harbor debt equity ratio should be easily maintained. The Company and
its auditors intend to monitor the Company's compliance with these debt/equity
restrictions on an ongoing basis. The Company does not anticipate these
restrictions will significantly impact the Company's acquisition strategies or
its ongoing operations.
RECONSTRUCTION AND DEVELOPMENT PROGRAMME
The Government of National Unity has adopted a Reconstruction and
Development Programme (the "RDP") to address the inequalities arising from
apartheid. The RDP is intended to provide a framework for social and economic
policy. The Government of National Unity wishes to implement the RDP within a
framework of fiscal discipline and it is expected that much of the finance for
the RDP will be made available from the reallocation of existing financial
resources.
The RDP aims to achieve numerous objectives. These include meeting
the basic needs of the population (such as for housing and water), the
development of human resources, building the economy, democratizing the South
African state and society at large and the reform of government structures.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of the Company, their ages and present
positions held with the Company are as follows:
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Michael Levy 50 Chairman of the Board of Directors
Clive Kabatznik 40 Chief Executive Officer, President, Chief Financial
Officer, Controller and Director
Tucker Hall 39 Secretary
Charles S. Goodwin 56 Director
John Mackey 54 Director
The following is a brief summary of the background of each director
and executive officer of the Company:
MICHAEL LEVY is a co-founder of the Company and has served as
Chairman of the Board of Directors since the Company's inception. Since 1987,
Mr. Levy has been the Chief Executive Officer and Chairman of the Board of Arpac
L.P., a Chicago-based manufacturer of plastic packaging machinery.
CLIVE KABATZNIK is a co-founder of the Company and has served as a
director and its President since its inception and as its Vice Chairman, Chief
Executive Officer and Chief Financial Officer since October 1995. Since June
1992, Mr. Kabatznik has served as President of Colonial Capital, Inc. a
Miami-based investment banking Company that specializes in advising middle
market companies in areas concerning mergers, acquisitions, private and public
agency funding and debt placements. From 1989 to 1992, Mr. Kabatznik was the
President of Biltmore Capital Group, a financial holding Company that he
co-founded that controlled a registered NASD broker-dealer. From 1981 to 1986,
Mr. Kabatznik was the Chief Financial Officer of the Learning Annex, Inc., which
he co-founded. Mr. Kabatznik was born in South Africa.
TUCKER HALL has been the Secretary of the Company since its inception
and is an employee of Codan Services Limited, an affiliated company of Conyers,
Dill & Pearman, Bermuda counsel to the Company, and has been employed by such
Company as a manager since 1989.
CHARLES S. GOODWIN has been a director for the Company since its
inception and has been Managing Director and Chief Executive Officer of
Tessellar Investment, Ltd., a money management firm operating from Cape Cod,
Massachusetts since 1985. Mr. Goodwin was Senior Vice President and Director of
International Research of Arnhold & S. Bleichnoder, Inc., an institutional
brokerage firm from 1983 to 1984. During the period 1971 to 1983, Mr. Goodwin
was a Director and Vice President of Warburg Pincus Capital Corp., EMW Ventures;
a Director, Senior Vice President and Director of Research for Warburg Pincus
Counsellors, and a Partner and Managing Director of E.M. Warburg Pincus & Co.,
an investment counseling and venture capital firm. Mr. Goodwin is the author of
"The Third World Century" and "A Resurrection of the Republican Ideal" published
by University Press of America, Lanham, Md. in 1994 and 1995 respectively. Mr.
Goodwin received his Bachelor of Arts in Russian History from Harvard College in
1961 and his Master of Business Administration - International Finance from the
Columbia University Graduate School of Business in 1965.
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JOHN MACKEY is the Chairman of the Board of QTI, Inc., a
privately-held global trading firm doing business in Africa, Asia and in the
United States since 1992. Mr. Mackey has also been a member of the Board of
Advisors of the Leukemia Society of America since 1987, and a member of the
Board of Advisors of the Syracuse University Business School since 1990. Mr.
Mackey played football for 10 seasons in the National Football League and was
elected to the Pro Football Hall of Fame in 1992. Mr. Mackey has been a director
of the Company since January 24, 1996.
OTHER KEY EMPLOYEES
Cornelius J. Roodt, 37. Mr. Roodt was appointed Managing Director and
Chief Financial Officer of FSAH, on July 1, 1996. Mr. Roodt is responsible for
overseeing all the activities of FSAH's operations in South Africa. From 1994 to
1996 Mr. Roodt was a senior partner at Price Waterhouse Corporate Finance, South
Africa. From 1991 to 1994 he was an audit partner at Price Waterhouse, South
Africa. Prior to that he was a partner at the accounting firm of Wiehahn
Meyernel in South Africa.
Samuel S. Smith, 41. Mr. Smith is a joint Managing Director of
Starpak. Mr. Smith has been employed by Starpak and its predecessor since 1976.
Mr. Smith is responsible for the technical operations of Starpak which include
conceptual design of machinery, management of the factory and production
processes, commissioning and installation of machinery at customers' premises.
Alan R. Grant, 45. Mr. Grant is the financial director of Starpak and
L.S. Pressings and is responsible for all of Starpak's accounting,
administrative and financial management functions as well as its industrial
relations and statutory personnel functions. Mr. Grant has been employed by
Starpak since 1981.
Rhona L. Kabatznik, 61. Ms. Kabatznik is a General Manager and
Director of L.S. Pressings. Ms. Kabatznik's responsibilities include production
and sales administration. Ms. Kabatznik is the mother of Clive Kabatznik, the
Vice Chairman, President and Chief Executive Officer of the Company, and a first
cousin of Michael Levy, the Chairman of the Company's Board of Directors.
Raymond Shaftoe, 45. Mr. Shaftoe has been a joint Managing Director
of Starpak since 1986 and has been employed by Starpak since 1980. Mr. Shaftoe
has also served on the Board of Directors of Starpak since 1986. His current
responsibilities include supervision of the sales and marketing of Starpak's
products, administration and product development.
Bruce Thomas, 44. Mr. Thomas is the Chief Executive Officer of
Europair. He has held this position since 1991 and was the principal shareholder
of Europair until its sale to the Company. Prior to that he was the Chief
Financial Officer for Europair and held that position from 1976. His
responsibilities include the management of Europair, product development, sales
and financial oversight.
John Welch, 48. Mr. Welch is the founder and Managing Director of
Piemans Pantry, a company he established in 1982. His responsibilities include
overall supervision of all aspects of the business.
Michael Morgan, 49. Mr. Morgan is Director of Human Resources at
Piemans Pantry, a position he has held since joining Piemans Pantry in 1989 and
is responsible for all aspects of labor relations and employee benefits.
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Helen Britz, 41. Ms. Britz is National Sales Manager for Piemans
Pantry and has held that position since 1992 when she joined Piemans Pantry.
Prior to such time, Ms. Britz was the National Sales Manager for a rival pie
manufacturer. Ms. Britz oversees Piemans Pantry national sales staff.
Malcolm Moore, 38. Mr. Moore is the Financial Manager of Piemans
Pantry, a position he has held for the last three years. Prior to such time, Mr.
Moore was Financial Manager of Burhose, a leading South African hosiery
manufacturer.
Trevor Knight, 36. Mr. Knight is the Factory Manager for Piemans
Pantry, a position he has held for the last five years. Mr. Knight was an
independent food consultant prior to joining Piemans Pantry. He is responsible
for all aspects of plant production at Piemans Pantry.
Wolfgang Burre, 55. Mr. Burre is the founder of Astoria. He is a
fifth generation master baker and is responsible for overall corporate strategy,
product development and quality control. Mr. Burre traditionally has devote 50%
of his time to Astoria and will continue to do so.
Mrs. H. Hoffman, 60. Mrs. Hoffman is the General Manager of Astoria
Bakery. Mrs. Hoffman is in charge of all financial and operational issues at
Astoria Bakery. She has been employed in this position since 1975.
Wilfred Wesslau, 48. Mr. Wesslau is the joint General Manager of
Astoria Bakery Lesotho. Mr. Wesslau focuses on technical production issues, as
well as all aspects of distribution, including motor vehicle repair and
maintenance. He has held this position since 1981.
Ms. Dagmar Blanker, 54. Ms. Blanker is the General Manager of Astoria
Bakery Lesotho. Ms. Blanker is in charge of all financial matters as well as
sales. She has held this position since 1981.
Each of the above key employees, other than Bruce Thomas, Cornelius
J. Roodt, John Welch, Michael Morgan, Wolfgang Burre, H. Hoffman, Wilfred
Wesslau and Dagmar Blanker has entered into a three-year service contract with
their respective companies, commencing March 1, 1995. Bruce Thomas and Europair
have executed a Management Agreement which shall be in effect for a three year
period commencing January 24, 1996. Cornelius Roodt and FSAH entered into an
employment agreement commencing July 1, 1996. John Welch and Michael Morgan have
each entered into a two year employment agreement with Piemans Pantry commencing
March 1, 1996. Wolfgang Burre, H. Hoffman, Wilfred Wesslau and Dagmar Blanker
have each agreed to enter into three year employment agreements to be effective
as of July 1, 1996.
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 committee. Pursuant to the Underwriting
Agreement, dated January 24, 1996 by and among the Company, FSA Stock Trust and
D.H. Blair and executed with respect to certain provisions thereof by Messrs
Clive Kabatznik and Michael Levy, the Company is required to nominate a designee
of D.H. Blair of its initial public offering to the Board of Directors for a
period of five years from the date of the completion of the Offering. D.H. Blair
has not yet selected such a designee.
Except for Mr. Levy, directors of the Company do not receive fixed
compensation for their services as directors other than options to purchase
5,000 shares under the Company's stock option plan. Mr. Levy
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<PAGE>
receives an annual service fee of $30,000 and options to purchase 5,000 shares
of the Company's Common Stock for every year of service as a director of the
Company. However, directors will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with their duties to the Company.
COMMITTEES OF THE BOARD
The Board has an Audit Committee (the "Audit Committee") and a
Compensation Committee (the "Compensation Committee"). The Audit Committee is
composed of Clive Kabatznik, Charles Goodwin and John Mackey. The Audit
Committee is responsible for recommending annually to the Board of Directors the
independent auditors to be retained by the Company, reviewing with the
independent auditors the scope and results of the audit engagement and
establishing and monitoring the Company's financial policies and control
procedures. The Compensation Committee is composed of Charles Goodwin and John
Mackey. These persons are intended to be Non-Employee Directors within the
meaning of Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of
1934 (the Securities Exchange Act). The responsibilities of the Compensation
Committee are described below under the heading Stock Option Plan.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to its Chief Executive Officer
during the Period from September 6, 1995 through June 30, 1996. Apart from Mr.
Kabatznik, whose annual salary is $180,000, no executive officer of the Company
received compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
YEAR SALARY STOCK OPTIONS
---- ------ -------------
Clive Kabatznik, President
and Chief Executive Officer 1996 $135,000 205,000
EMPLOYMENT AGREEMENTS
FSAM has entered into an Employment Agreement with Clive Kabatznik,
the Vice Chairman President and Chief Executive Officer of the Company and of
FSAM. Under the terms of such agreement, Mr. Kabatznik shall devote
substantially all of his business time, energies and abilities to the Company
and its subsidiaries and shall receive an annual salary of $180,000 and options
to purchase 55,000 shares of Common Stock at an exercise price of $5.00 per
share. Mr. Kabatznik's salary under his Employment Agreement shall not increase
until February 24, 1997. In addition, Mr. Kabatznik has been granted additional
options to purchase 150,000 shares of Common Stock of the Company at the
exercise price of $5.00 per share, exercisable after the seventh anniversary
following the grant date, provided that vesting of such options will be
accelerated as follows: (i) 50,000 options will be exercisable on such earlier
date that the Company realizes earnings per share of $.75 or more on a fiscal
year basis, (ii) an additional 50,000 options will be exercisable on such
earlier date that the Company realizes earnings per share of $1.00 or more on a
fiscal year basis, and (iii) an additional 50,000 options will be exercisable on
such earlier date that the Company realizes earnings per share of $1.50 or more
on a fiscal year basis. The Company intends, during the term of Mr. Kabatznik's
employment agreement, to pay Mr. Kabatznik an annual incentive bonus of five
percent of the Minimum Pretax Income above $4,000,000, as shall be reported in
the Company's audited financial statements for each
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<PAGE>
fiscal year in which Mr. Kabatznik is employed, exclusive of any extraordinary
earnings or charges which would result from the release of the Earnout Escrow
Shares.
FSAM has entered into a consulting agreement with Michael Levy,
pursuant to which he shall serve as a consultant to FSAM and shall receive
compensation of $30,000 per annum. The term of the agreement is for a period of
three years.
FSAH has entered into an Employment Agreement with Cornelius J.
Roodt, the Managing Director and Chairman of the Board of FSAH. Under the terms
of such agreement, Mr. Roodt shall devote substantially all of his business
time, energies and abilities to the Company and its subsidiaries and shall
receive an annual salary of $150,000 and options to purchase 150,000 shares of
FSAH Class B Stock at an exercise price of Rand 13.05 per share. Mr. Roodt's
salary under his Employment Agreement shall be reviewed on an annual basis. In
addition, the 150,000 shares of FSAH Class B Stock are exercisable after the
fifth anniversary following the grant date, provided that vesting of such
options will be accelerated as follows: (i) 50,000 options will be exercisable
on such earlier date that the Company realizes earnings per share of $.75 or
more on a fiscal year basis, (ii) an additional 50,000 options will be
exercisable on such earlier date that the Company realizes earnings per share of
$1.00 or more on a fiscal year basis, and (iii) an additional 50,000 options
will be exercisable on such earlier date that the Company realizes earnings per
share of $1.50 or more on a fiscal year basis. The Company intends, during the
term of Mr. Roodt's employment agreement, to pay Mr. Roodt an annual incentive
bonus of four percent of the Minimum Pretax Income above $5,000,000, as shall be
reported in the Company's audited financial statements for each fiscal year in
which Mr. Roodt is employed, exclusive of any extraordinary earnings or charges
which would result from the release of the Earnout Escrow Shares.
STOCK OPTION PLAN
The Board of Directors of the Company has adopted and the
shareholders (prior to the Company's initial public offering) approved the
Company's 1995 Stock Option Plan (the "Stock Option Plan"). The Stock Option
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
422 of the Code to key employees and (ii) options not intended to so qualify
(Nonqualified Stock Options) to key employees (including directors and officers
who are employees of the Company), and to directors and consultants who are not
employees. The total number of shares of Common Stock for which options may be
granted under the Stock Option Plan is 350,000 shares.
The Stock Option Plan is to be administered by the Compensation
Committee of the Board of Directors. The Committee shall determine the terms of
options exercised, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted under the
Stock Option 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 or his legal representatives.
The exercise price of Incentive Stock Options granted under the Stock
Option Plan must be at least equal to the fair market value of such shares on
the date of grant (110% of fair market value in the case of an optionee who owns
or is deemed to own stock possessing more than 10% of the voting rights of the
outstanding capital stock of the Company (or any of its subsidiaries). The term
of each option granted pursuant to the Stock Option Plan shall be established by
the Committee, in its sole discretion; provided, however, that the maximum term
for each Incentive Stock Option granted pursuant to the Stock Option Plan is ten
years (five years in the case of an optionee who owns or is deemed to own stock
possessing more than 10% of the total combined voting power of the outstanding
capital stock of the Company (or any of its subsidiaries). Options shall become
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exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option. The maximum number of shares for
which options may be granted to any individual in any fiscal year is 210,000.
The Stock Option Plan also contains an automatic option grant program
for the non-employee directors. Each non-employee director of the Company is
automatically granted an option for 5,000 shares of Common Stock. Thereafter,
each person who is a non-employee director of the Company following an annual
meeting of shareholders will be automatically granted an option for an
additional 5,000 shares of Common Stock. Each grant will have an exercise price
per share equal to the fair market value of the Common Stock on the grant date
and will have a term of five years measured from the grant date, subject to
earlier termination if an optionee's service as a Board member is terminated for
cause.
The Company has granted options to purchase 225,000 shares of Common
Stock under the Plan as described in the table set forth below:
OPTIONS GRANTED
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL
OPTIONS GRANTED TO PER SHARE RATE OF STOCK PRICE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION APPRECIATION FOR OPTION
GRANTED FISCAL YEAR (1) PRICE DATE TERM
------- --------------- ----- ---- ----
5% 10%
------- -------
<S> <C> <C> <C> <C> <C> <C>
Michael Levy............ 5,000 2.22% 5.00 (2) 6,900 15,273
Clive Kabatznik......... 205,000 91.12% 5.00 (3) 1,547,571 1,363,332
Laurence M. Nestadt..... 5,000 2.22% 5.00 (2) 6,900 15,275
Charles S. Goodwin...... 5,000 2.22% 5.00 (2) 6,900 15,275
John Mackey............. 5,000 2.22% 5.00 (2) 6,900 15,275
</TABLE>
- ---------------
(1) The numbers have been rounded for the purpose of this table.
(2) Options granted will expire five years from the date granted and are
immediately exercisable.
(3) 55,000 options granted will expire five years from the date granted;
150,000 additional options will be exercisable following the seventh
anniversary of the grant date and until the tenth anniversary of such
date, subject to accelerated vesting upon the Company's realization of
certain earnings per share targets.
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CERTAIN TRANSACTIONS
In connection with the Company's organization in September 1995, the
Company sold 1,212,521 shares of Class B Common Stock to Clive Kabatznik, the
President and Chief Executive Officer of the Company for a purchase price of
$.01 per share, which amount was paid by Mr. Kabatznik in the form of advances
made by him to pay for certain expenditures of the Company. In October 1995, Mr.
Kabatznik transferred 1,002,521 of such shares, which included 670,137 shares to
Mrs. Stephanie Levy as Trustee of the FSA Stock Trust, 97,210 shares to the
Stopia Trust, 97,210 shares to the 2 RAS Trust, 93,307 to the Presspack Trust,
24,657 shares to the Two Year Trust and 20,000 shares to Henry Rothman. The
transferees have paid Mr. Kabatznik $.01 per share for each of such shares.
STARPAK ACQUISITION
In January 1996, pursuant to the terms of an agreement executed by
the FSA Stock Trust, Raymond Shaftoe, Steven Smith and FSAH, as amended (the
"Starpak Agreement"), the previous shareholders of Starpak sold 100% of the
equity shares of Starpak (the "Starpak Stock") to FSAH in exchange for 167,709
shares of FSAH Class B Stock.
The 167,709 shares of FSAH Class B Stock delivered to the previous
Starpak shareholders may be tendered to the FSAH Escrow Agent against payment
therefor by the FSAH Escrow Agent, which payment may be made through the sale by
the FSAH Escrow Agent of an equal number of shares of Class B Common Stock of
the Company (which shares will automatically convert to Common Stock upon such
sale) and delivery of the net proceeds thereof pursuant to the terms of the FSAH
Escrow Agreement. See "Certain Transactions - FSAH Escrow Agreement."
L.S. PRESSINGS ACQUISITION
In January 1996, pursuant to the terms of an agreement executed by
the FSA Stock Trust, Rhona Kabatznik, Raymond Shaftoe, Samuel Smith and FSAH, as
amended, (the "L.S. Pressings Agreement"), the previous shareholders of L.S.
Pressings sold 100% of the equity shares of such company (the "L.S. Pressings
Stock") to FSAH in exchange for 380,181 shares of FSAH Class B Stock.
The 380,181 shares of FSAH Class B Stock delivered to the previous
L.S. Pressings' shareholders may be tendered to the FSAH Escrow Agent against
payment therefor by the FSAH Escrow Agent, which payment may be made through
sale by the FSAH Escrow Agent of an equal number of shares of Class B Common
Stock of the Company (which shares will be automatically converted to Common
Stock upon such sale) and delivery of the net proceeds thereof pursuant to the
terms of the FSAH Escrow Agreement.
In September 1995, prior to the execution of the Starpak Agreement
and the L.S. Pressings Agreement, Michael Levy transferred all of his shares in
Starpak and L.S. Pressings to the FSA Stock Trust, which shares constitute all
of the shares of Starpak and L.S. Pressings sold to the Company by the FSA Stock
Trust.
EUROPAIR ACQUISITION
In January 1996, pursuant to the terms of an Acquisition & Regulatory
Agreement executed by Bruce Thomas, FSAH, the Company and Europair, as amended
(the "Europair Agreement"), and certain other agreements described below, Bruce
Thomas, acting on his own behalf and on behalf of Dennis Gee, who
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<PAGE>
together comprised all the previous shareholders of Europair, sold 100% of the
equity shares of Europair (the "Europair Stock") to FSAH in consideration of an
aggregate of $1,386,300 with payment by FSAH as follows: (i) $630,135 (the
"Aggregate Cash Payment"), of which $534,243 (the "Closing Payment Amount") was
paid by FSAH on the closing of the Europair acquisition, and of which the
remaining $95,892 (the "Earn-Out Amount") was paid after such closing upon the
achievement of certain profit projections, (ii) 80,000 shares of FSAH Class B
Stock (valued at $400,000), which shares may be tendered to the FSAH Escrow
Agent against payment therefor by the FSAH Escrow Agent, which payment may be
made through sale by the FSAH Escrow Agent of an equal number of shares of Class
B Common Stock of the Company (which shares will automatically convert into
Common Stock upon such sale) and delivery of the net proceeds thereof pursuant
to the terms of the FSAH Escrow Agreement, (iii) $82,191 that was paid to Mr.
Thomas in consideration for Mr. Thomas' agreement not to compete with Europair
until three years following the termination of his employment with Europair and
the termination of the Management Agreement described below and (iv) $273,973
that was received by Mr. Thomas from the proceeds of the sale of certain real
property. The Europair Agreement also provides that in the event Mr. Thomas
shall sell his shares of FSAH Class B Stock (pursuant to the FSAH Escrow
Agreement) within two years of the closing of the Offering, or within three
months of his becoming entitled to sell such shares, whichever is later, and the
price the FSAH Escrow Agent pays Mr. Thomas for such shares of FSAH Class B
Stock is less than the prevailing Rand equivalent of $5.00 per share of FSAH
Class B Stock, then the Company would pay Mr. Thomas the difference. FSAH also
paid to Mr. Thomas upon the closing of the acquisition $54,794, representing a
portion of a loan in the aggregate amount of $219,178 previously advanced by Mr.
Thomas to Europair, and agreed to pay an additional $2,740 per month during the
term of his continuing employment with Europair until the remaining portion of
such loan has been repaid; provided, that any outstanding balance of the loan
will be forfeited upon the termination of Mr. Thomas' employment with Europair.
In addition, the Company loaned Europair $547,945 in subordinated debt to be
used for working capital purposes.
The cash portion paid upon the closing of the Europair acquisition
was funded in part by a sale of 52,089 shares of FSAH Class B Stock for a total
consideration of $260,445. Of such 52,089 shares, Michael Levy subscribed for
36,452 shares, Samuel Smith for 5,099 shares, Ray Shaftoe for 5,099 shares and
Rhona Kabatznik for 5,439 shares. These shares may be tendered to the FSAH
Escrow Agent pursuant to the terms of the FSAH Escrow Agreement. An additional
$287,250 of the purchase price was funded from the current cash reserves of L.S.
Pressings.
Mr. Thomas entered into a Management Agreement with Europair dated
October 27, 1995, pursuant to which he is paid (i) $4,110 per month payable on
the first day of each month with annual cost of living adjustments of at least
12% and (ii) a bonus equal to the monthly remuneration then payable under (i)
above, plus $6,027. Under the Management Agreement, Mr. Thomas may designate a
company under his or his family's control to fulfill the management obligations
under such agreement. The term of the Management Agreement is for a period of
three years commencing upon the closing of the Offering, after which period such
agreement will be terminable by either Mr. Thomas or Europair upon not less than
6 months written notice. The Management Agreement also provides for the
establishment of a share participation plan pursuant to which certain executives
of the Company will be entitled to receive certain shares of FSAH Class B Stock
based upon the achievement of certain milestones described in the Management
Agreement.
FSAH ESCROW AGREEMENTS
The FSAH Escrow Agreement, executed in January 1996, provided for the
concurrent issuance and delivery by the Company of 729,979 shares of Class B
Common Stock to the FSAH Escrow Agent. The FSAH Escrow Agreement is intended to
provide security for certain holders of FSAH Class B Stock, who are
42
<PAGE>
residents of South Africa and are prohibited by South African law from holding
shares in a foreign company. The FSAH Escrow Agreement provides that the parties
to such Agreement that are holders of FSAH Class B Stock will not sell such
shares of stock except as provided in such Agreement. Specifically, the FSAH
Escrow Agreement provides that the FSAH Class B Stock may be tendered to the
FSAH Escrow Agent against payment therefor by the FSAH Escrow Agent, which
payment may consist of the proceeds obtained from the sale by the FSAH Escrow
Agent of an equal number of shares of Class B Common Stock of the Company,
provided that the proceeds of such sale shall be delivered to the holder in
exchange for his or her shares of FSAH Class B Stock. Upon the sale by the FSAH
Escrow Agent of any shares of Class B Common Stock of the Company pursuant to
the FSAH Escrow Agreement, the FSAH Escrow Agent will deliver to the Company the
equivalent number of shares of FSAH Class B Stock tendered in connection
therewith. Such shares of FSAH Class B Stock will then automatically convert
into shares of FSAH Class A Stock and will be held by the Company together with
the other shares of FSAH Class A Stock owned by the Company. The Company has
granted certain piggyback registration rights to the FSAH Escrow Agent on behalf
of the holders of the shares of FSAH Class B Stock held pursuant to the FSAH
Escrow Agreement. Such shares of Class B Common Stock will be automatically
converted to Common Stock of the Company upon the sale of such shares by the
FSAH Escrow Agent pursuant to the terms of the FSAH Escrow Agreement. Such
shares of Class B Common Stock will be controlled by the terms of the FSAH
Escrow Agreement. Michael Levy has paid the purchase price of $.01 per share for
each of the shares of Class B Common Stock held pursuant to the FSAH Escrow
Agreement and the FSAH Escrow Agent has granted to Michael Levy an irrevocable
proxy to vote each of such shares of Class B Common Stock prior to the sale or
forfeiture of such shares, as the case may be. The Company owns 25,000,000
shares of FSAH Class A Stock, or approximately 97% of the total outstanding
shares of FSAH, and the remaining shares are held by the following persons in
the amounts set forth below:
FSAH CLASS B STOCK
FSA Stock Trust................... 383,523 shares
Global Capital.................... 50,000 shares
Bruce Thomas...................... 80,000 shares
Samuel Smith...................... 58,766 shares
Raymond Shaftoe................... 58,766 shares
Rhona Kabatznik................... 62,472 shares
Michael Levy...................... 36,452 shares
--------------
Total...................... 729,979 shares
==============
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE PIEMAN'S PANTRY ACQUISITION(1)
Heinz Andreas...................... 149,210 shares
John Welch ........................ 149,210 shares
Michael Morgan..................... 33,159 shares
--------------
Total ........... 331,579 shares(2)
==============
- ------------------
(1) The Company intends to issue, during the second quarter of the current
fiscal year, an additional 331,579 shares of Common Stock to the FSAH
Escrow Agent pursuant to the terms of certain escrow agreements by and
among the Company, the FSAH Escrow Agent, and each of Mr. Andreas, Mr.
Morgan and Mr. Welch (the "Piemans FSAH Escrow Agreements") the terms of
which are similar to the FSAH Escrow Agreement.
(2) Shares of FSAH Class B Stock.
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<PAGE>
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE ASTORIA ACQUISITION(3)
Wolfgang Burre............................186,000 shares(4)
The rights and preferences accruing to holders of FSAH Class A Stock
and holders of FSAH Class B Stock are substantially identical except that (i)
FSAH is required to pay dividends to holders of FSAH Class B Stock equivalent,
on a pro rata basis, to the dividends paid by the Company to holders of its
Common Stock, (ii) payment of the above dividends on FSAH Class B Stock must be
made no later than three business days subsequent to payment of dividends by the
Company on its Common Stock, (iii) accrued dividends on FSAH Class B Stock must
be paid prior to payment of any declared dividends on FSAH Class A Stock and
(iv) any shares of FSAH Class B Stock acquired by the Company will be
automatically converted to shares of FSAH Class A Stock upon such acquisition.
J. LEVY LOAN
In 1986, Mr. J. Levy, Michael Levy's father, extended to Starpak a
loan in the principal amount of R600,000 (which equaled approximately $300,000
at the prevailing exchange rate at the time of the loan), which loan bears
interest at 1% per annum below the prime bank overdraft rate and is secured by a
second mortgage on certain property owned by Starpak having a book value of
$767,180. The original loan contained no fixed terms of repayment. Upon the
closing of the Offering, the terms of the loan were amended as follows: the loan
bears interest at 1% below the prime bank overdraft rate (currently 19.25% per
annum) and is repayable over a period of 30 months. The first twenty four
monthly installments are $5,563 each, inclusive of principal and interest, the
first of which was paid on October 30, 1995. The balance outstanding after
twenty four months will be repayable in six equal monthly installments.
MICHAEL LEVY LOAN AND MANAGEMENT FEES
During the period commencing March 1, 1995 and ending January 15,
1996, Michael Levy received certain non-interest bearing loans from Starpak and
L.S. Pressings in the aggregate amount of $47,000. Mr. Levy shall repay such
amount by June 30, 1997. Mr. Levy has received no non-interest bearing loans
from the Company (or any of its subsidiaries since January 15, 1996). In the
years ended February 28, 1995 and 1994, Starpak and L.S. Pressings paid Mr. Levy
management fees of $83,570 and $93,670, respectively.
- -----------------------
(3) The Company intends to issue, during the second quarter of the current
fiscal year, an additional 186,000 shares of Common Stock to the FSAH
Escrow Agent in connection with the Astoria Acquisition.
(4) Shares of FSAH Class B Stock
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the stock
ownership of (i) each person known by the Company to be the beneficial owner of
more than five percent of the Company's Common Stock or Class B Common Stock,
(ii) each director of the Company, (iii) each named executive officer and (iv)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership(1)
Name and Address of Class B Common Percentage Of Percentage of Voting
-------------- ------------- --------------------
Beneficial Shareholder Common Stock Stock (2)(3) Ownership(3) Power(3)
- ---------------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Michael Levy.................... 5,000(4) 1,300,116(5)(6) 31.4% 54.6%
9511 West River Street
Shiller Park, IL 60176
Clive Kabatznik................. 55,000(7) 210,000 6.4% 9.3%
2665 S. Bayshore
Suite 702
Coconut Grove, FL 37137
FSA Stock Trust................. 0 953,660(5)(8) 23.0% 40.0%
9511 West River Street
Shiller Park, IL 60176
Charles S. Goodwin.............. 5,000(4) 0 * *
801 Old Post Road
Cotuit, MA 02635
John Mackey..................... 5,000(4) 0 * *
1198 Pacific Coast
Highway
Seal Beach, CA 90470
All executive officers and
directors as a group (4
persons) 70,000(9) 1,510,116 39.5% 66.1%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is calculated in accordance with Rule 13d-3 under the
1934 Act.
(2) Except as otherwise indicated, each of the parties listed has sole voting
and investment power with respect to all shares of Class B Common Stock
indicated below.
(3) For the purposes of this calculation, the Common Stock and the Class B
Common Stock are treated as a single class of Common Stock. The Class B
Common Stock is entitled to five votes per share, whereas the Common Stock
is entitled to one vote per share.
(4) Includes 5,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
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<PAGE>
(5) For purposes of Rule 13d-3 under the Exchange Act, such individual or
entity is deemed to be the beneficial owner of the shares held pursuant to
the terms of the FSAH Escrow Agreement, although such individual or entity
disclaims ownership of such shares under South African law.
(6) Includes (i) 570,137 shares of Class B Common Stock owned by the FSA Stock
Trust, (ii) 383,523 shares of Class B Common Stock issued to the FSAH
Escrow Agent pursuant to the terms of the FSAH Escrow Agreement, for which
the FSA Stock Trust may be deemed the beneficial owner and for which Mr.
Levy has been granted a voting proxy and (iii) 36,452 shares of Class B
Common Stock issued to the FSAH Escrow Agent pursuant to the terms of the
FSAH Escrow Agreement, which shares correspond to a like number of shares
of FSAH Class B Stock which was purchased by Mr. Levy upon the closing of
the Europair acquisition. Also includes 310,004 additional shares of Class
B Common Stock issued to the FSAH Escrow Agent, for which Mr. Levy has
been granted a voting proxy. Mr. Levy's wife is the trustee, and his wife
and their children are the beneficiaries, of the FSA Stock Trust. Mr. Levy
disclaims ownership of all shares held by the FSA Stock Trust, as well as
the additional shares held by the FSAH Escrow Agent for which he has been
given a voting proxy. See "Certain Transactions." Excludes (i) 331,579
shares of Common Stock that the Company intends to issue to the FSAH
Escrow Agent in connection with the Piemans Pantry acquisition and (ii)
186,000 shares of Common Stock that the Company intends to issue the FSAH
Escrow Agent in connection with the Astoria acquisition, with respect to
which the Company expects the FSAH Escrow Agent to grant an irrevocable
proxy to Mr. Levy.
(7) Includes 55,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable. Does not include 150,000 shares issuable
upon exercise of options not exercisable within 60 days.
(8) Includes (i) 570,137 shares of Class B Common Stock owned by the FSA Stock
Trust and (ii) 383,523 shares of Class B Common Stock issued to the FSAH
Escrow Agent pursuant to the terms of the FSAH Escrow Agreement. See
Certain Transactions - FSAH Escrow Agreement.
(9) Represents shares issuable upon exercise of options that are immediately
exercisable. Does not include 150,000 shares issuable upon exercise of
options not exercisable within 60 days.
SELLING SECURITYHOLDERS
An aggregate of up to 650,000 Shares of Common Stock underlying the
exercise of 650,000 Class A Warrants, 650,000 Class B Warrants underlying the
exercise of such Class A Warrants and 650,000 shares of Common Stock underlying
the exercise of such Class B Warrants may be offered for resale by investors who
received their Class A Warrants in exchange for warrants received in the Bridge
Financing.
The following table sets forth certain information with respect to
each Selling Securityholder for whom the Company is registering the Selling
Securityholder Securities for exercise and/or resale to the public. The Company
will not receive any of the proceeds from the sale of such securities. To the
Company's knowledge, there are no material relationships between any of the
Selling Securityholders and the Company, nor have any such material
relationships existed within the past three years.
46
<PAGE>
<TABLE>
<CAPTION>
Number of Class A Number of Class A
Warrants Beneficially Warrants Beneficially
Owned and Maximum Owned and Maximum
Number to be Sold Number to be Sold
Selling Securityholders and/or Exercised (1) Selling Securityholders and/or Exercised (1)
- ----------------------- -------------------- ----------------------- --------------------
<S> <C> <C>
Eric C. Appolonia 12,500 Charles McManus 12,500
Howard Berg 12,500 Grace and Ruby O'Steen 12,500
Robert Burke 12,500 Orion Research 6,250
C.A. Simmons Assoc. 6,250 Anthony Pace 12,500
Nathan and Rose Eisen 25,000 Poseidon Capital Pension 12,500
Arnold D. Flam DDS and 12,500 and Profit Sharing Plan
Harvey Glicker DDS Profit Pierre and Claire Pype 6,250
Sharing Plan Marc Roberts and 50,000
Goldstein Family Loving 25,000 Ron Cantor
Trust
Morton Goulder 25,000 Jesse Roggen 12,500
Harold Greenberg 12,500 Jack and Fred Rosen 12,500
Stuart Gruber 12,500 The Rubin Family 12,500
Jerome Grushkin, P.C. 25,000 Foundation, Inc.
Defined Benefit Plan Alan Rubin 25,000
Gulfstream Asset 12,500 August Saccoccio 12,500
Management
Corp. Retirement Trust Abraham Schreiber 12,500
Robert and Carole Juranek 12,500 Richard Schreiber 6,250
Maureen Kassel 25,000 E. Donald Shapiro 25,000
Regina Lehrer 12,500 Harold Singer 12,500
George Lionikis, Sr. 12,500 Leonard Solomon 6,250
Ronald Manzo 6,250 Carl and Beverly Weinman 12,500
William and Rose 25,000 Joel Wolff 50,000
Marginson
Marque of Distinction, Inc. 12,500 Herman L. Zeller Living 12,500
Trust
Retirement Trust Seymour Zisook 25,000
---------
Total: 650,000
=========
</TABLE>
- ----------------------------
(1) Does not include shares of Common Stock issuable upon exercise of the
Class A Warrants and issuable upon exercise of the Class B Warrants
issuable upon exercise of the Class A Warrants. The Selling
Securityholders have agreed not to exercise the Class A Warrants being
offered hereby for a period of one year from the date hereof. None of the
Selling Securityholders beneficially own in excess of 1% of the
outstanding shares of Common Stock after the Offering.
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<PAGE>
PLAN OF DISTRIBUTION
The sale of the securities by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the amount of the Selling Securityholders) in the over-the-counter
market or in negotiated transactions, through the writing of options on the
securities, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as agents
for the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Each Selling Securityholder has agreed not to exercise the Selling
Securityholder Warrants for a period of one year ending January 24, 1997.
Purchasers of the Selling Securityholder Warrants will not be subject to such
restrictions.
Under applicable rules and regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), any person engaged in the distribution of the
Selling Securityholder Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company for a period of at
least two (and possibly nine) business days prior to the commencement of such
distribution. Accordingly, in the event that D.H. Blair, the underwriter of the
Company's initial public offering, or D.H. Blair & Co., Inc., a selling group
member which distributed substantially all of the Units offered in connection
with the Company's initial public offering ("Blair"), is engaged in a
distribution of the Selling Securityholder Warrants, neither of such firms will
be able to make a market in the Company's securities during the applicable
restrictive period. However, neither D.H. Blair nor Blair have agreed to nor are
either of them obliged to act as broker/dealer in the sale of the Selling
Securityholder Warrants and the Selling Securityholders may be required, and in
the event Blair is a market maker, will likely be required, to sell such
securities through another broker/dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
48
<PAGE>
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a Post-Effective Amendment to the
Registration Statement under the Securities Act with respect to an offering by
the Company of 2,300,000 shares of Common Stock and 2,300,000 Class B Warrants
(underlying the exercise of outstanding Class A Warrants) and 4,600,000 shares
of Common Stock (underlying the exercise of Class B Warrants), was declared
effective by the Commission. The Company will receive approximately $14,147,500
in net proceeds from such offering (assuming no exercise of the Class B
Warrants) after payment of the Warrant Solicitation Fee and estimated expenses
of such offering.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate
of 23,000,000 shares of Common Stock, par value $.01 per share, 2,000,000 shares
of Class B Common Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share. As of the date hereof, 1,842,500
shares of Class B Common Stock are outstanding. The following statements are
summaries of certain provisions of the Company's Memorandum of Association,
bye-laws and The Companies Act 1981 of Bermuda. These summaries do not purport
to be complete and are qualified in their entirety by reference to the full
Memorandum of Association and bye-laws which have been filed as exhibits to the
Company's Registration Statement of which this Prospectus is a part.
UNITS
Each Unit consists of one share of Common Stock, one Class A Warrant
and one Class B Warrant. Each Class A Warrant entitles the holder to purchase
one share of Common Stock and one 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 Units were immediately separately
transferable upon issuance.
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 of
the shares of Common Stock offered hereby are validly authorized and will be,
when 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 five 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
49
<PAGE>
shareholders, and except that the holders of each class will vote as a separate
class with respect to any matter requiring class voting by The Companies Act
1981 of Bermuda.
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 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. Presently, there are 1,842,500 shares of
Class B Common Stock issued and outstanding. 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, which 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.
REDEEMABLE 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 January 24, 2001. Beginning January 24, 1997 (or earlier
at the discretion of the Company with the consent of D.H. Blair), 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, if the "closing price" of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $9.10 per share (subject to
adjustment by the Company, as described below, in the event of any reverse stock
split or similar events). "Closing price" shall mean the closing bid price, if
listed in the over-the-counter market on Nasdaq, or the closing sale price if
listed on the Nasdaq National Market or a national securities exchange. 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 "Warrant
Solicitation Fee."
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 after issuance until January 24, 2001. Beginning January 24, 1997 (or
earlier at the discretion of the Company with the consent of D.H. Blair), 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, if the closing price of the
Company's Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $12.25 per share (subject to
50
<PAGE>
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 "Description of Securities - Unit Purchase Options."
General. The Class A Warrants and Class B Warrants (collectively, the
"Warrants") were issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, D.H. Blair and American Stock Transfer & Trust
Company as warrant agent (the "Warrant Agent"), and are evidenced by warrant
certificates in registered form. 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, officers and employees of the
Company) so as to enable holders of Warrants, 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 Warrants. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of the
Warrants.
The exercise prices of the Warrants were determined by negotiation
between the Company and D.H. Blair and should not be construed to be predictive
of, or to imply that, any price increases will occur in the Company's
securities.
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 in its sole discretion 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, which has been filed as an exhibit to the Registration Statement, a
copy of which this Prospectus forms a part, and reference is made to such
exhibit for a detailed description thereof summarized here.
UNIT PURCHASE OPTIONS
The Company granted to D.H. Blair the Unit Purchase Options to
purchase up to 200,000 Units. The Units issuable upon exercise of the Unit
Purchase Options will, when so issued, be identical to the Units
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<PAGE>
offered in connection with the Offering, except that the warrants contained
therein are subject to redemption by the Company, in accordance with the terms
of the Warrant Agreement, at any time after the Unit Purchase Option has been
exercised and the underlying warrants are outstanding. The Unit Purchase Options
cannot be transferred, sold, assigned or hypothecated for three years, except to
any officer of D.H. Blair or members of the selling group (in connection with
the Offering) or their officers. The Unit Purchase Options are exercisable
during the two year period commencing January 24, 1999 at an exercise price of
$6.00 per Unit (120% of the initial public offering price) subject to
adjustments in certain events. The holders of the Unit Purchase Options have
certain demand and piggyback registration rights.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue this
Preferred Stock in one or more series and to fix the number of shares and the
relative rights, conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences, without further
vote or action by the stockholders. If shares of Preferred Stock with voting
rights are issued, such issuance could affect the voting rights of the holders
of the Company's Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights. If
the Board of Directors authorizes the issuance of shares of Preferred Stock with
conversion rights, the number of shares of Common Stock outstanding could
potentially be increased by up to the authorized amount. Issuance of Preferred
Stock could, under certain circumstances, have the effect of delaying or
preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock. Also, Preferred Stock could have preferences
over the Common Stock (and other series of preferred stock) with respect to
dividend and liquidation rights. The Company currently has no plans to issue any
Preferred Stock.
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Common Stock and Class B Common Stock
and the broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more shareholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions of the bye-laws
summarized in the succeeding paragraph, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in such shareholder's best interest, including
attempts that might result in a premium over the market price for the Common
Stock held by shareholders.
The bye-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors at annual general meetings of shareholders.
In general, notice of intent to nominate a director at such meeting must be
received by the Company not less than 90 days prior to the meeting and must
contain certain specified information concerning the person to be nominated or
the matter to be brought before the meeting and concerning the shareholder
submitting the proposal.
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DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda differs in certain material
respects from laws generally applicable to United States corporations and their
shareholders. Set forth below is a summary of certain significant provisions of
The Companies Act (including any modifications adopted pursuant to the Company's
bye-laws) applicable to the Company, which differ in certain respects from
provisions of Delaware corporate law. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be relevant
to the Company and its shareholders.
Interested Directors. The bye-laws provide that any transaction
entered into by the Company in which a director has an interest is not voidable
by the Company nor can such director be liable to the Company for any profit
realized pursuant to such transaction provided the nature of the interest is
disclosed at the first opportunity at a meeting of directors, or in writing to
the directors. Under Delaware law no such transaction would be voidable if (i)
the material facts as to such interested directors' relationship or interests
are disclosed or are known to the board of directors and the board in good faith
authorizes the transaction by the affirmative vote of a majority of the
disinterested directors, (ii) such material facts are disclosed or are known to
the stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be held
liable for any transaction for which such director derived an improper personal
benefit.
Merger and Similar Arrangements. The Company may acquire the business
of another Bermuda exempted company or a company incorporated outside Bermuda
and carry on such business when it is within the objects of the Company's
Memorandum of Association. See "Description of Securities - Certain Provisions
of Bermuda Law." A shareholder may apply to a Bermuda court for a proper
valuation of such shareholder's shares if such shareholder is not satisfied that
fair value has been paid for such shares. The court ordinarily would not
disapprove the transaction on that ground absent evidence of fraud or bad faith.
Under Delaware law, with certain exceptions, any merger, consolidation or sale
of all or substantially all the assets of a corporation must be approved by the
board of directors and a majority of the outstanding shares entitled to vote.
Under Delaware law, a stockholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of the shares held by such stockholder (as
determined by a court or by agreement of the corporation and the stockholder) in
lieu of the consideration such stockholder would otherwise receive in the
transaction. Delaware law does not provide stockholders of a corporation with
voting or appraisal rights when the corporation acquires another business
through the issuance of its stock or other consideration (i) in exchange for the
assets of the business to be acquired, (ii) in exchange for the outstanding
stock of the corporation to be acquired or (iii) in a merger of the corporation
to be acquired with a subsidiary of the acquiring corporation. Under Bermuda
law, the Company's shareholders have the right to vote on (i) any compromise or
arrangement between the Company and its shareholders, (ii) a take-over scheme
for 100% of the Company's shares enabling the compulsory acquisition of a 10%
minority interest (iii) an amalgamation (merger) of the Company and (iv) the
discontinuance of the Company from Bermuda.
Takeover. Bermuda law provides that where an offer is made for shares
of another Company and, within four months of the offer the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares on
the terms of the offer. Dissenting shareholders may apply to the court within
one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion to
enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith
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or collusion as between the offeror and the holders of the shares who have
accepted the offer as a means of unfairly forcing out minority shareholders.
Delaware law provides that a parent corporation, by resolution of its board of
directors and without any shareholder vote, may merge with any 90% or more owned
subsidiary. Upon any such merger, dissenting stockholders of the subsidiary
would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are
not as extensive as the right of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association and
bye-laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys fees incurred in connection with such
action. Class actions and derivative actions generally are available to
stockholders under Delaware law for, among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In such actions, the court has discretion to permit the winning party to recover
attorney fees incurred in connection with such action.
Indemnification of Directors. The Company may indemnify its directors
or officers in their capacity as such in respect of any loss arising or
liability attaching to them by virtue of any rule of law in respect of any
negligence, default, breach of duty or breach of trust of which a director or
officer may be guilty in relation to the Company other than in respect of his
own wilful default, wilful neglect, fraud or dishonesty. Under Delaware law, a
corporation may adopt a provision eliminating or limiting the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for breaches of the director's
duty of loyalty, for acts or omission not in good faith or which involve
intentional misconduct or knowing violations of law, for improper payment of
dividends or for any transaction from which the director derived an improper
personal benefit. Delaware law has provisions and limitations similar to Bermuda
regarding indemnification by a corporation of its directors or officers, except
that under Delaware law the statutory rights to indemnification may not be as
limited.
Inspection of Corporate Records. Members of the general public have
the right to inspect the public documents of the Company available at the office
of the Registrar of Companies in Bermuda which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to an increase, reduction or
other alteration of the Company's share capital. The shareholders have the
additional right to inspect the bye-laws, minutes of general meetings and
audited financial statements of the Company, which must be presented to the
annual general meeting of shareholders. The register of shareholders of the
Company is also open to inspection by shareholders without charge, and to
members of the public for a fee. The Company is required to maintain its share
register in Bermuda but may establish a branch register outside Bermuda. The
Company is required to keep at its registered office a register of its directors
and officers which is open for inspection by members of the public without
charge. Bermuda law does not, however, provide a general right for shareholders
to inspect or obtain copies of any other corporate records. Delaware law permits
any shareholder to inspect or obtain copies of a corporation's shareholder list
and its other books and records for any purpose reasonably related to such
person's interest as a shareholder.
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CERTAIN PROVISIONS OF BERMUDA LAW
In a September 1, 1995 letter to the Company's Bermuda counsel, the
Bermuda Monetary Authority approved the Company's application for "non-resident"
status in Bermuda for exchange control purposes. The Bermuda Monetary Authority
has granted permission for the issuance of the Units, Warrants and shares of
Common Stock of the Company. Prior to the Offering, this Prospectus will be
filed with the Registrar of Companies in Bermuda in accordance with Bermuda law.
In granting such permission and in accepting this Prospectus for
filing, neither the Bermuda Monetary Authority, nor the Registrar of Companies
in Bermuda accepts any responsibility for the financial soundness of the Company
or of the correctness of any of the statements made or opinions expressed in
this Prospectus.
The transfer of securities between persons regarded as resident
outside Bermuda for exchange control purposes and the issue of securities after
the completion of the Offering to such persons may be effected without specific
consent under the Exchange Control Act 1972 and regulations thereunder. Issues
and transfers of securities involving any person regarded as resident in Bermuda
for exchange control purposes require specific prior approval under the Exchange
Control Act 1972.
Owners of the Company's shares of Common Stock who are non-residents
of Bermuda for Bermuda exchange control purposes are not restricted in the
exercise of the rights to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of the Company's Common
Stock, other than in respect of local Bermuda currency.
In accordance with Bermuda law, securities certificates are only
issued in the names of corporations, partnership or individuals. In the case of
an applicant acting in a special capacity (for example as a trustee),
certificates may, at the request of the applicant, record the capacity, in which
the applicant is acting. Notwithstanding the recording of any such special
capacity the Company is not bound to investigate or incur any responsibility in
respect of the proper administration of any such trust.
The Company will take no notice of any trust applicable to any of its
securities whether or not it had notice of such trust. Specifically, the Company
has no obligation under Bermuda law to ensure that a Trustee who is holding
shares of the Company subject to a trust is properly carrying out the terms of
such trust.
As an "exempted Company", the Company is exempt from Bermuda laws
which restrict the percentage of share capital that may be held by
non-Bermudians, but as an exempted Company the Company may not participate in
certain business transactions including: (1) the acquisition or holding of land
in Bermuda (except that required for its business and held by way of lease or
tenancy for terms of not more than 21 years); (2) the taking of mortgages on
land in Bermuda to secure an amount in excess of $50,000 without the consent of
the Minister of Finance of Bermuda; (3) the acquisition of securities created or
issued by, or any interest in, any local Company or business, other than certain
types of Bermuda governmental securities of another "exempted" Company,
partnership or other corporation resident in Bermuda but incorporated abroad; or
(4) the carrying on of business of any kind in Bermuda, except in furtherance of
the business of the Company carried on outside Bermuda or under a license
granted by the Minister of Finance of Bermuda.
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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.
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated tax
consequences of the operations of the Company and of an investment in the Units,
the Warrants and Common Stock under Bermuda tax laws and South African tax laws
and United States federal income tax laws. The discussion does not deal with all
possible tax consequences relating to the Company's operations or to an
investment in the Units, Warrants and Common Stock. In particular, the
discussion does not address the tax consequences under state, local and other
(e.g., non-United States federal, non-Bermuda) tax laws. Accordingly, each
prospective investor should consult his or her tax advisor regarding the tax
consequences of an investment in the [Units], Warrants and Common Stock. The
discussion is based upon laws and relevant interpretation thereof in effect as
of the date of this Prospectus, all of which are subject to change.
BERMUDA TAXATION
The following discussion describes correctly certain tax consequences
to the Company with respect to the Offering and with respect to ownership of
shares of Units, Warrants and Common Stock under Bermuda law. The Company will
not obtain an opinion of tax counsel with respect to tax consequences under
Bermuda law.
At the date hereof, there is no Bermuda income, corporation or
profits tax, withholding tax, capital gains tax, capital transfer tax, estate
duty or inheritance tax payable by the Company or its stockholders other than
stockholders ordinarily resident in Bermuda. The Company is not subject to stamp
or other similar duty on the issue, transfer or redemption of any of the Units,
Warrants and Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares, debentures or
other obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or any real property or leasehold
interests in Bermuda owned by the Company. No reciprocal tax treaty affecting
the Company exists between Bermuda and the United States.
As an exempted Company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
SOUTH AFRICA - TAXATION
The following discussion describes correctly certain tax consequences
to the Company with respect to the Offering and with respect to ownership of
Units, Warrants and Common Stock under South African law.
Taxation of the Company. Dividends received by the Company will not be
subject to South African withholding tax. Interest received by the Company will
not be subject to South African tax provided the
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Company is not managed and controlled in South Africa. It is intended that the
Company will not be managed and controlled in South Africa. Royalties received
by the Company from South Africa will be subject to a flat rate of taxation
equivalent to 12% of the gross value of such royalties.
Taxation of FSAH
Income Tax. Income tax is levied in South Africa on income which is
classified as being of a "revenue" nature. Income of a capital nature is not
currently subject to tax. The current corporate income tax rate is 35%.
Dividends to be received by FSAH from its subsidiaries will be exempt from
income tax. Interest received by FSAH will be subject to income tax. No
assurance can be given that proceeds derived by FSAH from the sale of its
investments in underlying companies will not be subject to South African
corporate income tax at a rate of 35%. Although an exemption from tax is
available under the South African Income Tax Act, an application by the Company
to take advantage of such exemption was not granted. Based on this denial, the
Company's income may be subject to South African income tax at a rate of 35%.
However, the denial of the application is not dispositive of the ultimate tax
treatment of the Company's realization gains, and although no assurance can be
given as to the tax treatment of such gains, the Company believes that based on
its investment policy of acquiring, owning and operating closely-held South
African companies, its realization gains will be held to be of a capital nature.
South Africa does not currently impose any tax on capital gains. However, no
assurance can be given that a capital gains tax will not be introduced in the
future.
Secondary Tax on Companies. A Company declaring a dividend becomes
liable to an additional tax known as secondary tax on companies ("STC"). STC is
levied at the rate of 12.5% on the difference between dividends declared by a
Company and dividends received by that Company in any given "dividend cycle." An
exemption from STC is available in respect of dividends declared by one South
African Company which is a wholly owned subsidiary of another South African
Company, where the subsidiary derives at least 90% of its profits from its
sources within South Africa and has notified the Commissioner for Inland Revenue
that it is availing itself of the exemption. The exemption will be available in
respect of dividends declared by wholly-owned subsidiaries of FSAH to FSAH.
Dividends declared by FSAH to the Company will be subject to STC.
Marketable Securities Tax and Stamp Duty. Any listed securities
purchased by FSAH through a stockbroker will be subject to marketable securities
tax. The current rate of marketable securities tax is 0.5% of the acquisition
price. Unlisted securities are subject to the payment of stamp duty at the rate
of 0.5% of the greater of the acquisition price or market value.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal
income tax consequences to a United States citizen or resident individual, a
United States corporation, a United States partnership, a trust in which one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust and a United States court is able to exercise primary
supervision over the administration of the trust, or an estate subject to United
States tax on all of its income regardless of source, who purchases Warrants
subsequent to the Registration hereunder (each a "United States Investor") and
holds such Warrants and the underlying Common Stock and Warrants as a capital
asset. This summary is provided for general information only and does not
purport to address all the United States tax consequences that may be relevant
to a United States Investor, including without limitation the treatment of
certain types of United States Investors (e.g., persons who own, directly or
constructively, at least 10% of the voting power or value of the Company's
outstanding stock, qualified plans, financial institutions, insurance companies,
tax-exempt organizations or
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other persons subject to special treatment under United States federal income
tax laws) or persons other than United States Investors, all of whom may be
subject to tax rules that differ significantly from those summarized below. In
addition, it does not discuss any state, local, foreign or minimum income or
other tax considerations. The discussion is based upon the provisions of the
United States federal income tax law as of the date hereof, which is subject to
change retroactively as well as prospectively.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES AND THE EFFECT OF ANY UNITED
STATES FEDERAL, STATE, LOCAL OR FOREIGN TAXES TO WHICH THEY MAY BE SUBJECT.
Taxation of the Company and its Subsidiaries
In general, the Company and its foreign subsidiaries will be subject
to United States federal corporate income tax only to the extent they have
income which has its source in the United States or is effectively connected
with a United States trade or business. It is not anticipated that either the
Company or any of its foreign subsidiaries will be engaged in a trade or
business in the United States.
The United States subsidiary of the Company will be subject to United
States federal income taxation on its worldwide income, if any (subject to
reduction by allowable foreign tax credits), and distributions by such United
States subsidiary to the Company generally will be subject to United States
withholding taxes.
There is no income tax treaty between the United States and Bermuda.
Taxation of Purchasers of Warrants
Warrants. Upon a sale or exchange of a Warrant, a holder will
recognize capital gain or loss equal to the difference between the amount
realized upon the sale or exchange and the amount paid by the holder for such
Warrant. Such gain or loss will be long-term if, at the time of the sale or
exchange, the Warrant was held for more than one year. Long-term capital gains
of non-corporate taxpayers are generally taxed at more favorable rates than
ordinary income or short-term capital gains. Adjustments to the exercise price
or conversion ratio, or the failure to make adjustments, may result in the
receipt of a constructive dividend by the holder.
Upon the exercise of a Warrant, a holder's tax basis in the interest
acquired will be equal to his tax basis in the Warrant plus the exercise price
of the Warrant. In the case of the exercise of a Class A Warrant, such basis
must be allocated between the Common Stock and the Class B Warrant received in
proportion to their relative fair market values. His holding period with respect
to such interest will commence on the day after the date of exercise. If a
Warrant expires without being exercised, the holder will have a capital loss
equal to his tax basis in the Warrant as if the Warrant had been sold on such
date for no consideration.
Common Stock. A United States Investor receiving a distribution on
the Common Stock generally will be required to include such distribution in
gross income as a taxable dividend to the extent such distribution is paid from
the current or accumulated earnings and profits of the Company (determined under
United States federal income tax principles). Subject to the discussion below
under "Certain Special Rules," distributions in excess of the earnings and
profits of the Company generally will first be treated as a nontaxable return of
capital to the extent of the United States Investor's tax basis in the Common
Stock and any excess as capital gain. Dividends received on the Common Stock by
United States corporate shareholders will not be eligible for the corporate
dividends received deduction.
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With certain exceptions and subject to the discussion below under
"Certain Special Rules," gain or loss on the sale or exchange of the Common
Stock will be treated as capital gain or loss. Such capital gain or loss will be
long-term capital gain or loss if the United States Investor has held the Common
Stock for more than one year at the time of the sale or exchange.
Certain Special Rules
Special rules, if applicable, may require United States Investors to
include certain amounts in income before it is actually received. The rules are
coordinated so that the same amount will not be taxed more than once. The
Company intends to manage its affairs or the affairs of its subsidiaries so as
to attempt to avoid or minimize any adverse impact of these rules, to the extent
consistent with its other business goals.
Passive Foreign Investment Companies ("PFICs"). If the Company is a
PFIC, each United States Investor would, upon receipt of certain distributions
from the Company or a disposition of his shares of Common Stock received upon
exercise of the Warrants at a gain, be liable for income tax computed at the
highest applicable rate as if such distribution or gain had been recognized
ratably over the United States Investor's holding period for the Common Stock,
plus interest on the tax allocable to prior years included within such holding
period. Such tax and interest charge will be payable by the United States
Investors for the years in which the distribution or gain is actually realized
regardless of whether losses, credits or other tax benefits would have been
available to the United States Investor to offset such income if it had actually
been realized in such prior taxable years. Under Proposed Regulations which
would be effective retroactively, a Warrant would be treated in the same manner
as stock, and for this purpose the holding period of stock acquired through the
exercise of an option includes the period during which the option was held.
The Company will be treated as a PFIC if in the tax year or any prior
tax year either (a) 75% or more of the gross income of the Company is passive
income, or (b) at least 50% of the average percentage of assets of the Company
(by value, or in the case the Company is a "controlled foreign corporation" or
makes an election, based on the adjusted basis (for purposes of computing
earnings and profits under U.S. tax law) of the Company's assets) produce or are
held for the production of passive income ("passive assets"). Under special
"look through" rules, the Company is considered to own its pro rata share of the
gross income and assets of any corporation in which the Company owns (or is
considered to own) 25% or more of the stock (by value). Passive income for
purposes of the PFIC rules generally includes dividends, interest and other
types of investment income. Under the "start-up exception," a corporation which
would otherwise be a PFIC for its initial year will not be treated as a PFIC for
such tax year if it does not meet the income or asset test for each of the next
two years. The Company believes that it was not a PFIC during its initial tax
year ended June 30, 1996. However, even in the event the Company were a PFIC,
the Company believes that it will qualify for the "start-up exception", and
therefore will not be considered a PFIC during its initial year. Although the
Company intends to manage its affairs to avoid the application of the PFIC rules
to the extent possible, no assurance can be given since the determination
depends on future events.
Under certain circumstances, if the Company were to become a PFIC,
distributions and dispositions in respect of shares in a direct or indirect
foreign corporate subsidiary of the Company may be attributed in whole or in
part to a United States Investor, and such United States Investor may be taxed
under the PFIC rules with respect to such distributions or dispositions. The
Company does not anticipate, however, that any of its foreign corporate
subsidiaries will be treated as PFICs based on the active nature of their
operations, and the Company intends to manage its affairs to avoid the
application of this rule, if possible.
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Because there is a risk that the Company may be treated as a PFIC,
each United States Investor should consider whether to elect to treat the
Company as a "qualified electing fund" ("QEF"). If such election is made, the
tax treatment described above will not apply; instead, the electing shareholder
will be required to include currently in taxable income his pro rata share of
the Company's ordinary earnings (as ordinary income) and a pro rata portion of
the Company's net capital gains (as long-term capital gain), whether or not
distributions with respect to such earnings or gains are actually made to such
shareholder. If the United States Investor makes the QEF election for the first
tax year in which the Company is a PFIC, the investor will be required to
include its share of such income only for tax years in which the Company meets
either the income test or the asset test and not in other tax years. Once made,
the QEF election will be effective for the tax year and all subsequent tax
years, and may be revoked only with the consent of the United States Internal
Revenue Service. If the QEF election (or certain other available elections) are
not made but the Company had been a PFIC for any prior year, any distributions
and gains on disposition of the Common Stock realized by a United States
Investor at any time will be treated as though such amounts had been received
while the Company was a PFIC and will be subject to taxation and interest
charges on the tax allocable to prior years as described above, even though the
Company does not meet the income or asset tests to be characterized as a PFIC in
such year.
The Company intends to notify United States Investors in the event
that it concludes that it will be treated as a PFIC for any taxable year to
enable United States Investors to consider whether to elect to treat the Company
as a QEF, although the Company has no duty to make such determination. In
addition, if a United States Investor elects to have the Company treated as a
QEF, the Company will use its reasonable efforts to comply with the applicable
information reporting requirements necessary for the United States Investor to
comply with the QEF rules.
Foreign Personal Holding Companies ("FPHCs"). If the Company is
classified as an FPHC, each United States Investor who owns (or is deemed to
own) Common Stock on the last day of the Company's tax year would be treated as
if his pro rata share of the Company's undistributed FPHC income (generally,
taxable income computed as if it were a domestic corporation with certain
adjustments), including its share of any undistributed FPHC income of any
subsidiary which is owned through a chain of FPHCs as a distribution on the last
day of its taxable year. Similar rules apply to tax United States Investors
directly on the undistributed income of an indirect foreign subsidiary which is
owned by a foreign corporation which is not an FPHC. United States Investors who
dispose of their Common Stock prior to such date generally would not be subject
to tax under these rules. Certain tax reporting requirements apply to United
States Investors who own 5% or more of the value of the outstanding stock of an
FPHC.
A foreign corporation will be classified as an FPHC if (a) five or
fewer individuals, who are United States citizens or residents would, directly
or indirectly, own more than 50% of the corporation's stock (measured by voting
power or value) and (b) the corporation receives at least 60% of its gross
income (regardless of source), as specifically adjusted, from certain passive
sources. After a corporation becomes an FPHC, the income test percentage for
each subsequent taxable year is reduced to 50%.
Although the Company will likely meet the shareholder tests, the
Company does not believe that it, or any of its foreign operating subsidiaries,
will satisfy the income test, and accordingly they should not be classified as
FPHCs. No assurances, however, can be given since the determination is based on
future events.
If the Company is treated both as an FPHC and a PFIC, and a United
States Investor has made a QEF election, the income of the Company will only be
taxed to such United States Investor under the FPHC rules
60
<PAGE>
and not under the QEF rules applicable to the Company as a PFIC. Income which
has been taxed to a United States Investor under the FPHC rules is not
thereafter subject to tax under the PFIC rules.
Backup Withholding and Other Rules
To prevent United States federal backup withholding equal to 31% of
any dividend with respect to the Common Stock and any proceeds from the sale,
exchange or redemption of the Common Stock or Warrants which are paid through a
United States broker or agent, each United States Investor must either (a)
qualify as an exempt payee (e.g., a corporation) and demonstrate this fact when
required, or (b) notify the United States payor of such stockholder's United
States taxpayer identification number (or certify that it has applied for a
taxpayer identification number), certify that it is not subject to backup
withholding and otherwise comply with the backup withholding rules. Backup
withholding is not an additional tax; rather, the stockholder is entitled to a
credit against his United States federal income tax for the amount of any backup
withholding. In addition, a United States Investor who fails to furnish its
taxpayer identification number may be subject to a penalty.
A United States Investor who owns or acquires 5% or more in value of
the Company's stock may be required to file certain additional reports with
respect to the Company with the United States Internal Revenue Service.
THE FOREGOING DISCUSSION OF CERTAIN UNITED STATES FEDERAL TAX
CONSEQUENCES IS NOT TAX ADVICE. EACH PERSON CONSIDERING THE PURCHASE OF WARRANTS
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE WARRANTS, AND
THE UNDERLYING COMMON STOCK AND WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND OF CHANGES IN APPLICABLE TAX
LAWS.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this Prospectus, the Company has outstanding an
aggregate of 2,300,000 shares of Common Stock and 1,842,500 shares of Class B
Common Stock, which shares of Class B Common Stock are held by 8 holders. In
addition, an aggregate of 6,000,000 shares of Common Stock are issuable upon
exercise of the Class A and Class B Warrants included in the Units and 1,300,000
shares of Common Stock are issuable upon the exercise of the Selling
Securityholder Securities. The 2,300,000 shares included in the Units sold in
connection with the Offering are 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. All of the 1,842,500 shares of Class B Common Stock outstanding prior to
this Offering are "restricted securities" as that term is defined under Rule 144
and may not be sold publicly unless they are registered under the Securities Act
or are sold pursuant to Rule 144 or another exemption from registration. See
"Certain Transactions." The Company anticipates that an additional 331,539
shares of Common Stock and 186,000 shares of Common Stock will be issued during
the second quarter of fiscal year 1997 to the FSAH Escrow Agent in connection
with the Company's acquisitions of Pieman's Pantry and Astoria, respectively.
See "Certain Transactions -FSAH Escrow Agreements." None of the shares of Class
B Common Stock issued prior to the Company's initial public offering will be
eligible for sale under Rule 144 until September 1997.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) may sell within any three-month period a
number of restricted shares beneficially owned for at least two years
61
<PAGE>
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 beneficially owned for at least three
years by a person who is not an affiliate of the Company 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 holders of all of the outstanding shares of Class B Common Stock
have agreed not to sell, assign or transfer any of their shares of Common Stock,
options or warrants until after February 28, 1997 without the prior consent of
D.H. Blair.
Pursuant to registration rights granted in connection with the Bridge
Financing, the Company, concurrently with the offering, is registering for
resale on behalf of the Selling Stockholders, the Selling Stockholder Securities
subject to the contractual restriction that the Selling Securityholders agreed
not to exercise the Selling Securityholder Warrants until after January 24,
1997. See "Concurrent Offering."
D.H. Blair also has demand and piggyback registration rights with
respect to the securities underlying the Unit Purchase Options.
No predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock or other securities of the Company
in the public market could adversely affect prevailing market prices.
62
<PAGE>
LEGAL MATTERS
The validity of the Securities offered hereby has been passed upon
for the Company by Conyers, Dill & Pearman, Bermuda counsel for the Company.
Certain legal matters have been passed upon for the Company by Parker Chapin
Flattau & Klimpl, LLP, New York, New York, United States counsel for the
Company. A partner of Parker Chapin Flattau & Klimpl, LLP owns shares of the
Company's Class B Common Stock. Certain other legal matters have been passed on
by Webber Wentzel Bowens, Johannesburg, South Africa, South African counsel for
the Company.
EXPERTS
The Consolidated Balance Sheets of the Company at June 30, 1996 and
1995, the Consolidated Statements of Income and Cash Flows for the year ended
June 30, 1996, four months ended June 30, 1995 and the years ended February 28,
1995 and 1994, and the Consolidated Statements of Changes in Stockholders'
Investment for the period February 28, 1993 to June 30, 1996, appearing in this
Prospectus and Registration Statement have been audited by Price Waterhouse,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is organized under the laws of Bermuda. Certain of the
directors and officers of the Company, and the South African experts named
herein, are or may be residents of Bermuda or South Africa and all or a
substantial portion of the assets of the Company and 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 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 Bermuda or South
Africa 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 upon the civil liability provisions of the
United States federal securities laws, would be enforceable in Bermuda or South
Africa against the Company or certain of the Company's officers and directors,
and (ii) whether an action could be brought in Bermuda or South Africa 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.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a
Registration Statement on Form S-1 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, and exhibits and
schedules thereto 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, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained upon written request from the Public
Reference Branch of the Commission, 450 Fifth Street, Room 1024, N.W,
Washington, D.C. 20549, at prescribed rates. Reference
63
<PAGE>
is made to the copies of any contracts or other documents filed as exhibits to
the Registration Statement. 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.).
64
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
FIRST SOUTH AFRICA CORP., LTD.
Report of the independent auditors F-2
Consolidated Balance Sheets at June 30, 1996 and 1995 F-3
Consolidated Statements of Income for the year ended June 30, 1996, F-5
four months ended June 30, 1995 and the years ended
February 28, 1995 and 1994
Pro forma Consolidated Statements of Income for the years ended F-6
June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the year ended June F-7
30, 1996, four months ended June 30, 1995 and the years
ended February 28, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Investment for F-8
the period February 28, 1993 to June 30, 1996
Notes to the Consolidated Financial Statements for the year F-9
ended June 30, 1996, four months ended June 30, 1995
and the years ended February 28, 1995 and 1994
F-1
<PAGE>
FIRST SOUTH AFRICAN CORP., LTD.
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors
of First South Africa Corp., Ltd.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes in
stockholders' investment present fairly, in all material respects, the financial
position of First South Africa Corp., Ltd. and its subsidiaries at June 30, 1996
and 1995, and the results of their operations and their cash flows for the year
ended June 30, 1996, four months ended June 30, 1995 and the years ended
February 28, 1995 and 1994 in conformity with generally accepted accounting
principles in the United States. 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 of these statements in accordance with generally accepted auditing
standards in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
Price Waterhouse
Sandton, South Africa
September 27, 1996
F-2
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------- -------------
$ $
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash on hand 4,682,035 744,251
Trade accounts receivable 5,833,542 2,287,572
Less: Allowances for bad debts (402,333) (232,442)
----------- -----------
5,431,209 2,055,130
Inventories (net) 2,510,868 1,232,728
Prepaid expenses and other current assets 451,551 188,937
----------- -----------
TOTAL CURRENT ASSETS 13,075,663 4,221,046
Property, plant and equipment 9,000,334 1,854,831
Less: Accumulated depreciation (2,119,912) (320,529)
----------- -----------
6,880,422 1,534,302
Goodwill 408,541 --
Recipes and other intellectual property 2,848,532 --
Other assets 318,286 16,224
Deferred income taxes 73,550 10,145
Loan to related company -- 145,823
----------- -----------
23,604,994 5,927,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Bank overdraft payable 745,724 270,822
Current portion of long term debt 2,101,799 147,126
Trade accounts payable 2,162,257 479,179
Other provisions and accruals 1,923,371 1,369,663
Income taxes payable 1,518,095 430,127
----------- -----------
TOTAL CURRENT LIABILITIES 8,451,246 2,696,917
Long term debt 2,361,372 954,717
Loan from related company -- 257,909
----------- -----------
TOTAL LIABILITIES 10,812,618 3,909,543
</TABLE>
F-3
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS'S INVESTMENT (CONTINUED)
<TABLE>
<CAPTION>
STOCKHOLDERS' INVESTMENT
<S> <C> <C>
Capital Stock:
First South Africa Corp., Ltd:
A Class Common Stock, $0.01 par value -
authorized 23,000,000 shares; issued and
outstanding 2,200,000 22,000 --
B Class Common Stock, $0.01 par value-
authorized 2,000,000 shares; issued and
outstanding 1,942,500 (see footnote 24) 19,701 --
Preferred Stock, $0.01 par value-
authorized 5,000,000 shares; issued and
outstanding nil shares -- --
Capital in excess of par 18,518,986 --
LS Pressings (Pty) Ltd.
Common Stock, R1 par value - authorized, issued
and outstanding 3 million shares in 1995 -- 460,978
Starpak (Pty) Ltd.
Common Stock, R1 par value - authorized 4,000
shares; issued and outstanding 1,250 shares in
1995 -- 1,010
Capital in excess of par -- 746,790
Retained earnings (3,887,407) 1,850,153
Foreign currency translation adjustments (1,888,211) (1,040,934)
Income restricted as to distribution 7,307 --
----------- -----------
23,604,994 5,927,540
=========== ===========
</TABLE>
F-4
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
July 1, 1995 to March 1, to Year Ended Year Ended
June 30, 1996 June 30, 1995 February 28, 1995 February 28, 1994
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 14,911,097 3,297,507 8,826,856 6,851,457
----------- ----------- ----------- -----------
Operating expenses
Cost of sales 8,385,511 1,881,686 5,058,749 4,513,384
Selling, general and administrative
costs 5,134,431 1,081,120 3,120,334 1,900,760
Non cash compensation charge 6,314,000 -- -- --
----------- ----------- ----------- -----------
19,833,942 2,962,806 8,179,083 6,414,144
----------- ----------- ----------- -----------
Operating (loss)/income (4,922,845) 334,701 647,773 437,313
Other income 539,636 43,145 40,830 64,966
Interest expense (865,733) (18,801) (152,163) (180,960)
----------- ----------- ----------- -----------
(Loss)/income before income taxes (5,248,942) 359,045 536,440 321,319
Provision for taxes on income (488,618) (145,216) (222,558) (113,403)
----------- ----------- ----------- -----------
Net (loss)/income (5,737,560) 213,829 313,882 207,916
----------- ----------- ----------- -----------
Net loss per share ($ 3.03)
Weighted average number of shares 1,893,463
outstanding
</TABLE>
F-5
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
1996 1995
$ $
----------- -----------
<S> <C> <C>
Revenues 36,907,198 33,062,715
----------- -----------
Operating expenses
Cost of sales 19,555,997 17,983,400
Selling, general and administrative costs 13,670,868 12,110,748
Non cash compensation charge 6,314,000 --
----------- -----------
39,540,865 30,094,148
----------- -----------
Operating (loss)/income (2,633,667) 2,968,567
Other income 832,519 466,356
Interest expense (1,428,617) (768,413)
----------- -----------
(Loss)/income before income taxes (3,229,765) 2,666,510
Provision for taxes on income (1,293,084) (944,383)
----------- -----------
Net (loss)/income (4,522,849) 1,722,127
=========== ===========
Net (loss)\profit per share ($ 1.34) $ 0.51
Weighted average number of shares
outstanding 3,374,079 3,374,079
</TABLE>
The pro forma information has been prepared assuming that the
acquisitions prior to June 30, 1996, had taken place and that operations had
commenced on July 1, 1994.
The proforma information does not purport to be indicative of the
results that would have actually been obtained if the acquisitions prior to June
30, 1996, had occurred at the beginning of the period nor is it indicative of
future results.
F-6
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 1, to March 1, to Year Ended Year Ended
June 30, 1996 June 30, 1995 February 28, 1995 February 28, 1994
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/income (5,737,560) 213,829 313,882 207,916
Adjustments to reconcile net (loss)/income to net
cash provided by operating activities
Non-cash compensation charge 6,314,000 -- -- --
Depreciation 345,884 50,678 92,746 82,988
Amortization of other assets 49,873 -- -- --
Deferred income taxes (90,559) -- (69,295) 5,363
Net (gain)/loss on sale of assets (22,523) 1,320 19,636 3,526
Effect of changes in assets and liabilities 10,185 (94,090) (23,012) (65,840)
Assets acquired at a discount 7,307 -- -- --
---------- ---------- ---------- ----------
Net cash provided by operating activities 876,607 171,737 333,957 233,953
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net additions to property, plant and equipment (453,768) (166,124) (327,039) (255,454)
Other assets (acquired)/disposed (704,117) (16,502) 22,053 (5,188)
Decrease/(increase) in loans to related companies 145,823 (280) 45,241 94,418
Acquisition of subsidiaries (net of cash of $4,746) (4,498,043) -- -- --
---------- ---------- ---------- ----------
Net cash used in investing activities (5,510,105) (182,906) (259,745) (166,224)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Net borrowings/(repayments) in bank overdraft 135,941 119,473 (26,269) (24,815)
Net (repayments)/borrowings of long term debt (1,525,613) 93,202 93,618 68,616
Net (repayments)/borrowings in loans from related
parties (880,034) -- 30,473 (66,408)
Net repayments of loans from stockholders 137,656 -- -- --
Net borrowings/(repayments) in short term debt 1,954,673 -- 81,972 (11,835)
Net proceeds on stock issues 9,197,446 -- -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities 9,020,069 212,675 179,794 (34,442)
---------- ---------- ---------- ----------
Effect of exchange rate changes as cash (448,787) (9,783) (16,573) (31,301)
---------- ---------- ---------- ----------
Net increase in cash on hand 3,937,784 191,723 237,433 1,986
Cash on hand at beginning of period 744,251 552,528 315,095 313,109
---------- ---------- ---------- ----------
Cash on hand at end of period 4,682,035 744,251 552,528 315,095
========== ========== ========== ==========
</TABLE>
F-7
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
[PART 1 OF 2]
<TABLE>
<CAPTION>
Capital stock Capital Capital Capital in
First South Stock LS Stock excess of par
Africa Corp., Capital in Pressings Starpak (Pty) Starpak (Pty)
Ltd. excess of par (Pty) Ltd. Ltd. Ltd.
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1993 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1994 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1995 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 -- -- 460,978 1,010 746,790
Issuance of stock to acquire predecessor,
Starpak and LS Pressings 150 1,208,628 (460,978) (1,010) (746,790)
Issuance of stock to acquire subsidiary
companies 98 1,840,365 -- -- --
Other stock issues 28 260,024 -- -- --
Proceeds on First South Africa Corp.,
Ltd. stock issues 41,425 9,896,646 -- -- --
Share issue expenses written off -- (1,000,677) -- -- --
Escrow stock released -- 6,314,000 -- -- --
Subsidiary assets acquired at a discount -- -- -- -- --
Net loss -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 41,701 18,518,986 -- -- --
=========== =========== =========== =========== ===========
</TABLE>
[PART 2 OF 2]
<TABLE>
<CAPTION>
Income Foreign
restricted as currency
Retained to translation
earnings distribution adjustments Total
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at February 28, 1993 1,114,526 -- (795,948) 1,527,356
Net income 207,916 -- -- 207,916
Translation adjustment -- -- (154,446) (154,446)
----------- ----------- ----------- -----------
Balance at February 28, 1994 1,322,442 -- (950,394) 1,580,826
Net income 313,882 -- -- 313,882
Translation adjustment -- -- (66,052) (66,052)
----------- ----------- ----------- -----------
Balance at February 28, 1995 1,636,324 -- (1,016,446) 1,828,656
Net income 213,829 -- -- 213,829
Translation adjustment -- -- (24,488) (24,488)
----------- ----------- ----------- -----------
Balance at June 30, 1995 1,850,153 -- (1,040,934) 2,017,997
Issuance of stock to acquire predecessor,
Starpak and LS Pressings -- -- -- --
Issuance of stock to acquire subsidiary
companies -- -- -- 1,840,463
Other stock issues -- -- -- 260,052
Proceeds on First South Africa Corp.,
Ltd. stock issues -- -- -- 9,938,071
Share issue expenses written off -- -- -- (1,000,677)
Escrow stock released -- -- -- 6,314,000
Subsidiary assets acquired at a discount -- 7,307 -- 7,307
Net loss (5,737,560) -- (5,737,560)
Translation adjustment -- -- (847,277) (847,277)
----------- ----------- ----------- -----------
Balance at June 30, 1996 (3,887,401) 7,307 (1,888,211) 12,792,376
=========== =========== =========== ===========
</TABLE>
F-8
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
1. ORGANIZATION
First South Africa Corp., Ltd. (the "Company") was founded on September 6, 1995.
The purpose of the Company is to make investments in South African companies.
The predecessor to the Company was the combined entity under common control,
Starpak (Proprietary) Limited and its subsidiary companies and LS Pressings
(Proprietary) Limited.
On January 24, 1996, subsequent to an initial public offering and in terms of an
agreement reached before the initial public offering, the Company acquired 100%
of the common stock of the business combination of Starpak (Proprietary) Limited
and its subsidiary companies and LS Pressings (Proprietary) Limited. The
acquisition was accounted for using the purchase method of accounting at net
book value at date of acquisition.
On January 24, 1996, also subsequent to the initial public offering and also in
terms of an agreement reached before the initial public offering, the Company
acquired 100% of the common stock of Europair Africa (Proprietary) Limited for
an aggregate net purchase price of $1,029,206. The acquisition was accounted for
using the purchase method of accounting. The assets and liabilities were taken
over at fair market value as determined by management.
EUROPAIR AFRICA (PTY) LTD.
$
--------------------------
Acquisition costs
Stock issued in lieu of cash 399,638
Cash consideration 629,568
---------
Purchase price to be allocated 1,029,206
=========
Summary allocation of purchase price
Current assets 1,582,299
Property, plant and equipment 1,598,128
Deferred income taxes 21,398
Goodwill 91,150
---------
Total assets acquired 3,292,975
---------
Current liabilities 923,688
Long term debt 1,196,636
Loans from related parties 143,445
---------
Total liabilities assumed 2,263,769
---------
Excess of assets over liabilities assumed 1,029,206
=========
F-9
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
1. ORGANIZATION (CONTINUED)
On June 3, 1996 the Company acquired 100% of the common stock of the business
combination of Piemans Pantry (Proprietary) Limited and Surfs-Up Investments
Limited for an aggregate net purchase price of $5,314,045.
The acquisition was accounted for using the purchase method of accounting. The
assets and liabilities were taken over at fair market value as determined by
management.
PIEMANS PANTRY (PTY) LTD.
AND SURFS-UP INVESTMENTS (PTY) LTD.
$
-----------------------------------
Acquisition costs
Stock issued in lieu of cash 1,440,825
Cash consideration 3,630,796
Other direct expenses 242,424
---------
Purchase price to be allocated 5,314,045
=========
Summary allocation of purchase price
Current assets 2,594,124
Property, plant and equipment 3,988,033
Stockholders loans 137,656
Recipes and other intellectual property 2,829,299
Goodwill 12,483
---------
Total assets acquired 9,561,595
---------
Current liabilities 1,984,686
Loans to related companies 478,680
Long term debt 1,735,632
Deferred income taxes 48,552
---------
Total liabilities assumed 4,247,550
---------
Excess of assets over liabilities assumed 5,314,045
=========
2. PRINCIPLE ACTIVITIES OF THE GROUP
The principle activities of the group include the business of manufacturing,
servicing and selling packaging machines, receiving rental income, manufacture
of washers for use in the fastener industry, manufacture and supply of
air-conditioning products and the manufacture, sale and distribution of both
ready to eat and ready for bake off pastry related food products.
F-10
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES
The consolidated and combined financial statements have been prepared in
accordance with US generally accepted accounting principles and incorporate the
following significant accounting policies.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company, First
South Africa Corp., Ltd. and its subsidiaries. All subsidiaries are wholly owned
and no minority interests exist. Material intercompany transactions have been
eliminated on consolidation.
The combined financial statements include the financial statements of Starpak
(Proprietary) Limited, its wholly owned subsidiaries, Levy & Smith Properties
(Proprietary) Limited and Michael Levy Family Holdings (Proprietary) Limited and
LS Pressings (Proprietary) Limited, as they are entities under common control.
All significant intercompany balances and transactions have been eliminated.
ACCOUNTING ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the date of the
financial statements, disclosure of contingent liabilities at the financial
statement date and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share for the Company on common shares is based on net income and
reflects dilutive effects of any stock options which exists at year end.
INTANGIBLE ASSETS
Goodwill resulting from acquisitions, and recipes and other intellectual
property is being amortized on a straight line basis over a period of twenty to
twenty five years. If facts and circumstances were to indicate that the carrying
amount of goodwill, recipes and other intellectual property is impaired the
carrying amount would be reduced to an amount representing the discounted future
cash flows to be generated by the operation. Also included in intangible assets
are non-competition agreements relating to the Europair acquisition which are
being amortized on a straight line basis over a six year term of the agreements.
The company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121") Accounting for the impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". No impairments in long-lived assets has
taken place.
F-11
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of the underlying companies is that of South African
Rands. Accordingly, the following rates of exchange have been used for
translation purposes:
(a) Assets and liabilities are translated into United States Dollars
using the exchange rates at the balance sheet date.
(b) Common stock and capital in excess of par are translated into United
States Dollars using historical rates at date of issuance.
(c) Revenue, expenses, gains and losses are translated into United States
Dollars using the weighted average exchange rates for each year.
The resultant translation adjustments are reported in the component of
shareholders' investment designated as "Foreign currency translation
adjustment".
F-12
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
fluctuations in foreign exchange rates by creating offsetting positions through
the use of derivative financial instruments. The market risk related to the
foreign exchange option is offset by changes in the valuation of the underlying
profits being hedged.
The option premium is accounted for on the accrual basis, and is amortized over
the option term. The notional amount of the option is the amount bought or sold
at maturity. Notional amounts are indicative of the extent of the Company's
involvement in the use of derivative financial instruments and are not a measure
of the company's exposure to credit or market risks through its use of
derivatives.
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of inventory purchases from
foreign countries and intercompany funding transactions between the subsidiaries
and First South Africa Corp., Ltd. Transactions in foreign currencies are
accounted for at the rates ruling on transaction dates. Exchange gains and
losses are charged to the income statement during the period in which they are
incurred. Foreign assets and liabilities of the group which are not denominated
in United States Dollars are converted into United States Dollars at the
exchange rates ruling at the financial year end or at the rates of forward cover
purchased. Forward cover is purchased to hedge the currency exposure on foreign
liabilities.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value, using both
the first-in, first-out and the weighted average methods. The value of
work-in-progress and finished goods includes an appropriate portion of
manufacturing overheads.
PROPERTY, PLANT AND EQUIPMENT
Land is stated at cost and is not depreciated. Buildings are depreciated on the
straight line basis over estimated useful lives of 50 years.
Buildings, plant and equipment, and motor vehicles are written off over their
estimated useful lives to each asset's residual value.
The following rates are considered appropriate:
Percentage
----------
Buildings 2%
Plant and equipment 10-33%
Motor vehicles 20%
F-13
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes represent the impact of temporary differences between the amounts
of assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. Deferred taxes are measured by applying
currently enacted tax laws.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As at June 30 1996, the carrying value of accounts receivable, accounts payable
and investments approximate their fair value.
REVENUES
Revenues comprise net invoiced sales of washers, manufactured packaging
machines, spares and service charges, food products, air conditioning systems,
fans and related accessories, and rental income. Combined revenues exclude sales
to group companies. The Company recognizes revenues on an accrual basis.
4. INVENTORIES
Inventories consists of the following:
June 30, June 30
1996 1995
$ $
---------- ----------
Finished goods 2,077,679 1,481,124
Work-in-progress 272,377 185,140
Raw materials 501,562 390,852
Supplies 93,055 --
---------- ----------
Inventories (gross) 2,944,673 2,057,116
Less: Valuation allowances (433,805) (824,388)
---------- ----------
Inventories (net) 2,510,868 1,232,728
========== ==========
F-14
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Accumulated Net book Net book
Cost depreciation value value
June 30, June 30, June 30, June 30,
1996 1996 1996 1995
$ $ $ $
---------- ---------- ---------- ----------
Land and buildings 2,713,473 (17,147) 2,696,326 845,479
Plant and equipment 3,463,121 (1,415,524) 2,047,597 372,244
Vehicles 1,789,905 (687,241) 1,102,664 316,579
Capital work in progress 1,033,835 -- 1,033,835 --
---------- ---------- ---------- ----------
9,000,334 (2,119,912) 6,880,422 1,534,302
========== ========== ========== ==========
Depreciation 345,884 50,678
========== ==========
Certain assets of the company are encumbered as security for the liabilities of
the group (Refer note 11)
6. GOODWILL
Goodwill consists of the following:
Accumulated Net book
Cost amortization value
June 30, June 30, June 30,
1996 1996 1996
$ $ $
--------- --------- ---------
Goodwill arising on acquisitions 414,610 (6,069) 408,541
======= ======= =======
7. RECIPES AND OTHER INTELLECTUAL PROPERTY
Recipes and other intellectual property consists of the following:
Accumulated Net book
Cost amortization value
June 30, June 30, June 30,
1996 1996 1996
$ $ $
--------- --------- ---------
Recipes and other intellectual property 2,858,011 (9,479) 2,848,532
========= ======= =========
F-15
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
8. OTHER ASSETS
Other assets consists of the following:
Accumulated Net book Net book
Cost amortization value value
June 30, June 30, June 30, June 30,
1996 1996 1996 1995
$ $ $ $
-------- -------- -------- --------
Loans to shareholder 84,768 -- 84,768 --
Non competition agreements 115,842 (8,992) 106,850 --
Derivative financial instruments 152,000 (25,332) 126,668 --
Other -- -- -- 16,224
-------- -------- -------- --------
352,610 34,324 318,286 16,224
======== ======== ======== ========
Derivative financial instruments consist of a purchased foreign currency option
with a notional amount of South African Rands (ZAR) 25,000,000 with a strike
price of ZAR5 to $1. The option term is twelve months and expires on May 2,
1997.
F-16
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
9. LOAN TO RELATED COMPANY
June 30, 1996 June 30, 1995
$ $
----------- -----------
Michael Levy Family Holdings (Proprietary) Limited -- 145,823
========= =========
The terms of this loan have changed with the closing of the initial public
offering. The loan has been revalued and disclosed as loans to shareholders, and
is unsecured, interest free and repayable on February 28, 1998.
10. BANK OVERDRAFT FACILITIES
The Company has general short term unsecured banking facilities, which are
renewable annually, of $2,460,437 available. These facilities bear interest at
prime lending rates, which is currently 19.5%, and are repayable on demand.
11. SHORT AND LONG TERM DEBT
June 30, 1996 June 30, 1995
$ $
---------- ----------
LONG TERM DEBT
Secured debt
Mortgage loans 1,508,870 561,301
Equipment notes 1,904,980 540,542
Unsecured debt
Unsecured notes 125,214 --
---------- ----------
3,539,064 1,101,843
Less: Current portion (1,177,692) (147,126)
---------- ----------
Total long term debt 2,361,372 954,717
========== ==========
SHORT TERM DEBT
Current portion of long term debt 1,177,692 147,126
Trade finance loan 924,107 --
---------- ----------
2,101,799 147,126
========== ==========
F-17
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
11. SHORT AND LONG TERM DEBT (CONTINUED)
MORTGAGE LOANS
Mortgage loans are secured by first and second mortgage bonds over property.
These loans are generally repayable in equal instalments of $27,568 over periods
ranging from five to twenty years and bear interest at rates ranging from 12% to
18.5%. Generally these interest rates are linked to the prime lending rate which
is currently at 19.5%.
EQUIPMENT NOTES
Equipment notes are secured over movable assets. These loans are generally
repayable in equal monthly instalments over a maximum period of five years.
These loans bear interest at rates ranging from 16.9% to 2% above the prime
lending rate, which is currently 19.5%.
UNSECURED NOTES
Unsecured notes bear interest at the prime lending rate, which is currently
19.5%, and have no fixed repayment terms. These notes have been included in the
current portion of long term liabilities.
TRADE FINANCE LOAN
The trade finance loan is denominated in United States Dollars and is repayable
within 90 days. This loan is covered forward by a forward exchange contract and
bears interest at 6.5625%. This facility is made available to the group by the
companies bankers as a significant part of the general short term banking
facilities. (see note 10)
The following is a schedule of repayments of long term liabilities by year of
repayment
YEAR ENDED JUNE 30, 1996 $
------------------------ -----------
1997 543,812
1998 537,723
1999 476,208
2000 274,749
Thereafter 528,880
---------
2,361,372
12. LOAN FROM RELATED COMPANY
June 30, 1996 June 30, 1995
$ $
------------- -------------
Trumetric Washers (Proprietary) Limited -- 257,909
============= =============
This loan was repaid from cash generated by operations. This loan was unsecured
and interest free.
F-18
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
13. INCOME RESTRICTED AS TO DISTRIBUTION
This represents the excess of assets acquired over liabilities assumed in the
purchase of the assets and liabilities of operating entities. This amount is not
distributable until such time as the assets so acquired are disposed. There are
no restrictions on the future income of the Company.
14. OPERATING LEASES
The group has several operating leases over land and buildings. These leases
generally expire within the next five years. These leases generally contain
renewal options at the fair market value at the date of renewal.
In most cases, management expects that in the normal course of business, leases
will be renewed or replaced by other leases.
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of June 30, 1996:
YEAR ENDED JUNE 30, 1996 $
- ------------------------ -----------
1997 337,690
1998 553,677
1999 431,237
2000 35,047
Thereafter 2,233
-----------
1,359,884
===========
The following schedule shows the composition of total rental expense for all
operating leases except those with terms of a month or less:
Four Months Year Ended Year Ended
Year Ended June 30, February 28, February 28,
June 30, 1996 1995 1995 1994
$ $ $ $
------------ ----------- ------------ ------------
Minimum rentals 415,815 25,562 78,730 98,135
======= ======= ======= =======
15. OTHER INCOME
Other income includes interest received, proceeds from insurance claims, bad
debts recovered, commissions received and profits on sale of assets.
F-19
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
16. INCOME TAXES
Income taxes are accounted for under Statement of Financial Standards No. 109
"Accounting for Income Tax" ("SFAS 109"), an asset and liability method. SFAS
109 requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax bases
and financial reporting bases of the Company's assets and liabilities. In
addition, SFAS 109 requires the recognition of future tax benefits such as net
operating loss carryforwards, to the extent realization of such benefit is more
likely than not.
The provision for income taxes charged to continuing operations was as follows:
<TABLE>
<CAPTION>
Four Months
Year ended ended Year Ended Year Ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current
South African normal 848,006 145,216 291,853 108,040
-------- -------- -------- --------
Total current taxes 848,006 145,216 291,853 108,040
-------- -------- -------- --------
Deferred
South African normal (359,388) -- (69,295) 5,363
-------- -------- -------- --------
Total deferred taxes (359,388) -- (69,295) 5,363
-------- -------- -------- --------
Provision for taxes on income 488,618 145,216 222,558 113,403
======== ======== ======== ========
</TABLE>
Deferred tax asset at June 30, is comprised of the following:
June 30, 1996 June 30, 1995
$ $
-------- --------
Fixed assets 346,961 58,956
Prepaid expenditure 12,245 --
-------- --------
Gross deferred tax liabilities 359,206 58,956
-------- --------
Accruals (372,447) (69,101)
Deposits received on equipment sales (60,309) --
-------- --------
Gross deferred tax assets (432,756) (69,101)
-------- --------
Net deferred tax asset (73,550) (10,145)
======== ========
F-20
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
16. INCOME TAXES (CONTINUED)
The provision for taxes on income differs from the amount of income tax
determined by applying the applicable South African statutory income tax rate to
pre-tax income from continuing operations as a result of the following
differences:
The Company reflects a net loss position of $5,248,942 before taxation. However,
there is a recorded tax charge as $6,743,000 of the loss before taxation
consists of expenditure not allowable for tax purposes, including a charge of
$6,314,000 for the non cash compensation charge. The balance of the expenditure
not allowable for tax purposes is incurred mainly in Bermuda, where no taxation
laws are in existence. After eliminating non allowable expenditure, the tax rate
reconciliation is as follows:
<TABLE>
<CAPTION>
Four Months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
% % % %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
South African Statutory tax rate 35 35 35 40
Capital allowances (2) -- -- --
Disallowable expenditure 1 5 1 2
Transitional levy -- -- 6 --
Tax rate adjustment -- -- (2) (3)
Non taxable income (1) -- -- --
Other -- -- 1 (4)
--- --- --- ---
Effective tax rate 33 40 41 35
=== === === ===
</TABLE>
F-21
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
17. CASH FLOWS
The changes in assets and liabilities consist of the following:
<TABLE>
<CAPTION>
Four Months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Increase)/decrease in trade accounts
receivable (756,684) 36,382 (989,374) (22,786)
Decrease/(increase) in inventories 146,179 (357,614) 13,759 (189,278)
(Increase)/decrease in prepaid
expenses and other current assets (134,650) (146,445) 15,906 5,453
Increase in trade accounts payable 360,265 91,094 97,479 49,638
(Decrease)/increase in other provisions
and accruals (38,785) 127,573 659,078 178,901
Decrease in dividends payable -- -- -- (90,242)
Increase in income taxes payable 433,860 154,920 180,140 2,474
-------- -------- -------- --------
10,185 (94,090) (23,012) (65,840)
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid 865,733 18,801 152,163 180,960
======== ======== ======== ========
</TABLE>
18. EMPLOYMENT BENEFITS
The Company participates in various retirement benefit funding plans and medical
aid plans for the benefit of its employees.
All of the retirement benefit funds are defined contribution plans and by nature
of the funds there can be no unfunded obligations or responsibility on the
employer. The only obligation of the Company is the contribution to these
schemes which generally ranges from 6% to 9% of the employees annual earnings.
Amounts charged to pension costs and contributed by the Company to the funds
were as follows:
Four Months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
----------- ----------- ----------- -----------
Pension costs 99,028 37,440 84,438 77,508
========== ========== ========== ==========
F-22
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
18. EMPLOYMENT BENEFITS (CONTINUED)
The group and employees participate in various medical aid schemes which provide
medical cover for employees on an annual basis. Neither the medical aid nor the
group are liable for post retirement medical costs. The contributions to the
medical aid are borne equally by the employee and the group except for a few
salaried employees where the company is responsible for 100% of the
contribution. The Company has no liability for employees medical costs in excess
of the contributions to the medical fund.
Amounts charged to medical aid costs and contributed by the Company were as
follows:
Four Months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
----------- ----------- ----------- -----------
Medical aid costs 242,186 42,366 123,233 156,981
========== ========== ========== ==========
19. PROFIT SHARE
Management receive an annual bonus, determined at the discretion of the board of
directors. The amounts paid to management were as follows:
Four Months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
----------- ----------- ----------- -----------
Medical aid costs 140,828 -- 294,307 86,031
========== ========== ========== ==========
F-23
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
20. EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with, the president and
chief executive officer of the Company. In terms of the agreement he receives an
annual salary of $180,000 and options to purchase 55,000 shares of common stock
at an exercise price of $5 per share. In addition he has been granted additional
options to purchase 150,000 shares of common stock of the Company at an exercise
price of $5 per share exercisable after the seventh anniversary of the grant
date, providing that the vesting of such options will be accelerated as follows:
i) 50,000 options will be exercisable on such earlier date that the Company
realizes earnings per share of $0.75 or more on a fiscal year basis, ii) an
additional 50,000 options will be exercisable on such earlier date that the
Company realizes earnings per share of $1.00 or more on a fiscal year basis and
iii) an additional 50,000 options will be exercisable on such earlier date that
the Company realizes earnings per share of $1.50 or more on a fiscal year basis.
The Company intends to pay an annual incentive bonus of five percent of the
Minimum pre-tax income above $4,000,000, as shall be reported in the Company's
audited financial statements for each fiscal year in which the president is
employed, exclusive of any extraordinary earnings or charges which would result
from the release of the earnout escrow shares.
The Company has entered into an employment agreement with the managing director
of the company. In terms of the agreement he receives an annual salary of
$150,000. He has been granted options to purchase 150,000 shares of First South
African Holdings (Proprietary) Limited class B common stock at an exercise price
of R13.05 per share exercisable after the fifth anniversary of the grant date,
providing that the vesting of such options will be accelerated as follows: i)
30,000 options will be exercisable on such earlier date that the Company
realizes earnings per share of $0.75 or more on a fiscal year basis, ii) an
additional 50,000 options will be exercisable on such earlier date that the
Company realizes earnings per share of $1.00 or more on a fiscal year basis and
iii) an additional 70,000 options will be exercisable on such earlier date that
the Company realizes earnings per share of $1.50 or more on a fiscal year basis.
The Company intends to pay an annual incentive bonus of four percent of the
Minimum pre-tax income above $5,000,000, as shall be reported in the Company's
audited financial statements for each fiscal year in which the managing director
is employed, exclusive of any extraordinary earnings or charges which would
result from the release of the earnout escrow shares.
F-24
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
21. STOCK OPTION PLAN
The board of directors have adopted the Company's 1995 Stock Option Plan. The
stock option 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 422 of the code to key employees and ii) options not so intended to
qualify ("Nonqualified Stock Options") to key employees (including directors and
officers who are employees of the Company, and to directors and consultants who
are not employees ). The total number of shares of common stock for which
options may be granted under the stock option plan is 350,000 shares.
The Stock Option Plan is to be administered by the Compensation Committee of the
Board of Directors. The committee shall determine the terms of the options
exercised, including the exercise price, the number of shares subject to the
option and the terms and conditions of exercise. No options granted under the
Stock Option Plan are transferable by the optionee other than by the will or the
laws of descent and distribution and each option is exercisable during the
lifetime of the optionee only by such optionee or his legal representatives.
The exercise price of Incentive Stock Options granted under the plan must be at
least equal to the fair market value of such shares on the date of the grant
(110% of fair market value in the case of an optionee who owns or is deemed to
own more than 10% of the voting rights of the outstanding capital stock of the
company or any of its subsidiaries). The maximum term for each Incentive Stock
Option granted is ten years (five years in the case of an optionee who owns or
is deemed to own more than 10% of the voting rights of the outstanding capital
stock of the company or any of its subsidiaries). Options shall be exercisable
at such times and in such instalments as the committee shall provide in the
terms of each individual option. The maximum number of shares for which options
may be granted to any individual in any fiscal year is 210,000.
The Stock Option Plan also contains an automatic option grant program for the
non-employee directors. Each non-employee director of the Company on January 24,
1996 (other than Graham B.R. Collis and Anthony D. Whaley) was granted an option
of 5,000 shares of common stock. Thereafter, each person who is a non-employee
director of the Company following an annual meeting of shareholders will
automatically be granted an option for an additional 5,000 shares of common
stock. Each grant will have an exercise price per share equal to the fair market
value of the common stock on the grant date and will have a term of five years
measured from the grant date, subject to earlier termination if an optionee's
service as a board member is terminated for cause.
The Company has granted options to purchase 75,000 shares of common stock under
the Plan as described below:
<TABLE>
<CAPTION>
Options Per Share
Name Granted Exercise Price Expiration Date Exercisable
- ---- ------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Stock options issued during 1996 75,000 $5.00 January 24, 2001 Immediately
</TABLE>
F-25
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
22. EARNOUT ESCROW SHARES
In terms of the underwriting agreement, the Company arranged with the president
and chief executive officer to contribute a total of 1,100,000 shares into
escrow in terms of the earnout escrow agreement. These shares were to be
released based on the attainment of a pre-set Net income before income taxes
target. If the targets were not attained the earnout escrow shares would have
been canceled. This target was attained based on the unaudited proforma profit
and loss resulting in the release of these shares from escrow and resulted in a
non-cash compensation charge to the profit and loss account for the period ended
June 30, 1996 of $6,314,000. This was a fourth quarter event after the
acquisition of the business combination of Piemans Pantry (Pty) Ltd and Surfs-Up
Investments (Pty) Ltd.
23. WARRANTS OUTSTANDING
In terms of the initial public offering, each unit issued consisted of one share
of common stock, one redeemable Class A warrant and one redeemable Class B
warrant. In addition, an additional 100,000 warrants were issued to the
underwriter in terms of the underwriting agreement. Concurrently with the
initial public offering the selling security holder offered 650,000 selling
security holder warrants, 650,000 selling security holder Class B warrants
issuable upon exercise of the selling security holder warrants and 1,300,000
shares of common stock issuable upon exercise of these selling security holder
warrants and selling security holder Class B warrants. These selling security
holder warrants are identical to the Class A warrants, except that there are
certain restrictions imposed upon the transferability of these warrants.
Warrants outstanding at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Number of
Warrant Warrants Exercise Price Expiry Date Entitlement
------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Redeemable One share of common stock
Warrants 2,300,000 $6.50 January 24, 2001 and one Class B warrant
Class B Redeemable
Warrants 2,300,000 $8.75 January 24, 2001 One share of common stock
One share of common stock
Selling Security Holder 650,000 $6.50 January 24, 2001 and one Class B warrant
</TABLE>
The Class A warrants are redeemable beginning January 24, 1997, or earlier at
the option of the Company with the underwriter's consent, at a redemption price
of $0.05 per Class A Warrant, if the "closing price" of the Company's common
stock trades at an average price in excess of $9.10 per share for any
consecutive 30 trading day period, ending within 15 days of the notice of
redemption. All class A warrants are to be redeemed if any are to be redeemed.
The Class B warrants are redeemable beginning January 24, 1997, or earlier at
the option of the Company with the underwriters consent, at a redemption price
of $0.05 per Class B Warrant, if the "closing price" of the Company's common
stock trades at an average price in excess of $12.25 per share for any
consecutive 30 trading day period, ending within 15 days of the notice of
redemption. All Class B warrants are to be redeemed if any are to be redeemed.
F-26
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
24. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT
The First South African Holdings (FSAH) escrow agreement was executed prior to
the closing of the offering and provided for the concurrent issuance and
delivery of 729,979 shares of Class B common stock to the FSAH escrow agent. The
FSAH escrow agreement is intended to provide security for the holders of First
South African Holdings (Pty) Ltd Class B common stock, who are residents in
South Africa and are prohibited in terms of South African law from holding
shares in a foreign company. The FSAH escrow agreement provides that the parties
to this agreement that are holders of FSAH Class B common stock will not sell
such shares of stock, but may tender the shares to the FSAH escrow agent against
payment therefore by the escrow agent, which payment may consist of the proceeds
obtained from the sale of an equal number of Class B common stock of the
Company, provided that the proceeds of the sale will be delivered to the holder
of the Class B common stock in exchange for the shares in First South African
Holdings (Pty) Ltd. These shares will be tendered to the Company and they will
be immediately converted to FSAH Class A common stock.
Included in the First South Africa Corp., Ltd. Class B issued common stock is
1,061,558 First South Africa Holdings (Proprietary) Limited Class B common
stock, in terms of this escrow arrangement.
25. CONTINGENT LIABILITIES
South African Secondary Tax on Companies at 12.5 percent is payable on all
future dividends declared out of distributable reserves.
A contingent purchase consideration for the acquisition of Europair existed at
year end. This contingency was met and resulted in an additional payment to the
previous shareholders of approximately $80,861 which occurred subsequent to year
end.
A contingent purchase consideration for the acquisition of the Business
Combination of Piemans Pantry (Proprietary) Limited and Surf-Up Investments
(Proprietary) Limited, is payable based on the pre-tax profit of the Business
Combination as follows:
FIRST INSTALMENT
Four times pre-tax profit for the year ending February 28, 1997
multiplied by twenty percent, which is then increased by 18.75%, to
take into account the interest cost of the delayed payment.
SECOND INSTALMENT
Four times pre-tax profit for the year ending February 28, 1998
multiplied by twenty percent, which is then increased by 18.75%, to
take into account the interest cost of the delayed payment.
These instalments will be settled in part by the issue of First South African
Holdings (Proprietary) Limited Class B common stock and in part by a cash
consideration.
F-27
<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 FIRST SOUTH AFRICA CORP., LTD.
OFFER TO BUY, ANY SECURITIES OFFERED ------------------------------
HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH 650,000 SHARES OF COMMON STOCK AND
OFFER, OR SOLICITATION. 650,000 CLASS B WARRANTS ISSUABLE UPON
THE EXERCISE OF
CLASS A WARRANTS AND 650,000 SHARES OF
COMMON STOCK UNDERLYING THE EXERCISE OF
----------------- CLASS B WARRANTS
TABLE OF CONTENTS
PAGE
Prospectus Summary..................2
Summary Financial Information.......6
Risk Factors........................7
Dividend Policy....................14
Capitalization.....................15
Market for Registrant's Common -----------
Equity and Related Stockholders PROSPECTUS
matters...........................16 -----------
Selected Historical and Pro Forma
Condensed Combined Financial
Data..............................18
ProForma Financial Information.....18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.........20
Business...........................27
South Africa.......................32
Management.........................35
Certain Transactions...............41
Principal Shareholders.............45
Selling Securityholders............46
Plan of Distribution...............48
Concurrent Public Offering.........49
Description of Securities..........49
Certain Tax Considerations.........56
Shares Eligible for Future Sale....61
Legal Matters......................63
Experts............................63
Enforceability of Civil
Liabilities.......................63
Additional Information.............63
Index to Consolidated Financial
Statements.......................F-1
-----------------
November 19, 1996
====================================== ======================================
