SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission file number 0-27494
FIRST SOUTH AFRICA CORP., LTD.
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(Exact name of Registrant as specified in its charter)
BERMUDA N/A
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CLARENDON HOUSE, CHURCH STREET, HAMILTON HM CX, BERMUDA
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(Address of Principal Executive Offices with Zip Code)
Registrant's telephone number, including area code (441) 295-1422
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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("Common Stock")
CLASS A REDEEMABLE WARRANTS
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("Class A Warrants")
CLASS B REDEEMABLE WARRANTS
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("Class B Warrants")
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
The aggregate market value of the Registrants Common Stock held by
non-affiliates of the Registrant as of September 5, 1996, was $15, 376,410.
As of September 5,1996 there were 2,300,000 shares of the Registrant's Common
Stock outstanding and 1,842,500 shares of the Registrant's Class B Common Stock.
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
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"), six
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 Crowle Investments
(Pty) Limited,(trading as 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, a manufacturer and distributor of high quality meat pies.
FSAH acts as a vehicle for the management of 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
compliment 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 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 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
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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 brief 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 . On August 31, 1995, Starpak's backlog of firm orders
was approximately $1,000,000 .
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.
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
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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. During the last three fiscal
year no one customer accounted for more than 10% of L.S. Pressings' annual
sales.
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. During the last three fiscal years no one customer accounted for
more than 10% of Europair's annual sales.
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. 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 $93,562 as compared with
$56,557 on August 31, 1995.
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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
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 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. The
company 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. The company's sales are
conducted through its own employees, as well as through distributors/agents.
Approximately 71% of the company's 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 company's
sales, while the London Pie Company (a pie store franchise chain) contributed
10% of the company's sales. In the previous two fiscal years, no company
accounted for more than 10% of Piemans' sales.
Piemans 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 believes that it has only one significant competitor and that
its market share is currently around 20%. Piemans 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' business.
Piemans' principal suppliers for its pastry and filling ingredients
are both local and foreign companies. All suppliers except one have immediate
alternative sources. The company selects its suppliers on the basis of quality
and price and to date it has no difficulty in obtaining sufficient supplies.
REGULATION
The Company's South African business operation will be 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
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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 June 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
June 30, 1996, the Company's operating subsidiaries employed 780 people.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at Clarendon
House, Church Street, Hamilton, HM CX, Bermuda. The Company's U.S. subsidiary,
First South African Management Corp.,(FSAM), a Delaware corporation incorporated
in September 1995, has its principal executive offices at 2665 South Bayshore
Drive, Suite 702, Coconut Grove, Florida 33133. FSAM offices consist of
approximately 2,000 square feet of office space in an office section of Coconut
Grove, Florida which FSAM occupies on 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. The Company has granted Mr. Bruce Thomas (the Chief Executive Officer of
Europair) the option to acquire Europair's premises for $890,868 and to enter
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. The original purchase of such property was
financed by a loan from United Bank, secured by a bond and mortgage on the
property. The outstanding liability with respect to such loan, as of June 30,
1996, was $477,126. Europair's leased properties are located in Durban, Cape
Town and Port Elizabeth.
Piemans 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 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.
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ITEM 3. LEGAL PROCEEDINGS
Neither the Company and its subsidiaries, nor any of Starpak, L.S.
Pressings or Europair, are subject to any material legal proceedings.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 24, 1996 , the Company's Common stock and Units were
listed for quotation on the SmallCap Market on the Nasdaq System under the
symbols FSACF and FSAUF, respectively. The following table sets forth, for the
periods indicated the high and low bid prices for the Common Stock and Units as
reported by Nasdaq. Quotations reflect prices between dealers, without retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions.
High Bid
---- ---
Common Stock
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1996
3rd Quarter $4.75 $2.88
4th Quarter $6.00 $3.00
1997
1st Quarter
(through October 7, 1996) $6.00 $5.625
High Bid
---- ---
Units
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1996
3rd Quarter $6.50 $5.38
4th Quarter $10.00 $5.25
1997
1st Quarter
(through October 7, 1996) $11.00 $9.375
The Company has not declared or paid any dividends on the Common
Stock and does not intend to declare or pay any dividends on the Common Stock in
the foreseeable future. The Company currently intends to reinvest earnings in
the development and expansion of its business. The declaration of dividends in
the future will be at the election of the Board of Directors and will depend
upon earnings, capital requirements and the financial position of the Company,
general economic conditions and other relevant factors.
As of August 7, 1996, there were approximately 1,429 shareholders,
both of record and beneficial, of the Company's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
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>
SELECTED FINANCIAL INFORMATION
PREDECESSOR COMPANY (1) THE COMPANY
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MARCH 1, 1995
TO JUNE 30, JULY 1, 1995
YEARS ENDED FEBRUARY 28, 1995 TO JUNE 30, 1996
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1992 1993 1994 1995
STATEMENT OF OPERATIONS DATA $ $ $ $ $ $
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
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 18,801 856,733(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)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) THE COMPANY
FEBRUARY 28, JUNE 30,
------------------------------------------- --------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA $ $ $ $ $
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<S> <C> <C> <C> <C> <C>
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
Stockholders' 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 between the Company, certain shareholders and the
Underwriter of the Company's Initial Public Offering.
(4) Includes a non-cash charge of $396,000 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
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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 and balance sheet 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.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(UNAUDITED)
PROFORMA (UNAUDITED)
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1996 1995
$ $
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Revenues 36,907,198 33,062,715
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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 --
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39,540,865 30,094,148
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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
=========== ===========
ITEM 7. MANAGEMENTS 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 six 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. 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)
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Limited from January 24, 1996 and the operation of Piemans Pantry (Pty) Limited
from June 3, 1996. Starpak and L.S. Pressings are deemed capital predecessors of
the Company, while the operations of Europair and Piemans Pantry have been
accounted for upon consumation of their acqusition.
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 non cash escrow
charge) .......................................... 10.0% 9.0%
Other income (net of other expenses) ................ 2.3% 1.4%
Income before income taxes( pre non
cash 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.
11
<PAGE>
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, 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. Management expects the release of such
1,100,000 shares from the earnout escrow during the second quarter of the
Company's current fiscal year.
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.)
12
<PAGE>
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%
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
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1. 1995 TO
AS PERCENTAGE OF SALES JUNE 30, 1995 1995 1994 1993
- ---------------------- ------------- ---- ---- ----
FISCAL YEAR ENDED FEBRUARY 28,
------------------------------
<S> <C> <C> <C> <C>
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 .............................. .05% 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 .................... 10.9% 6.1% 4.7% 4.3%
</TABLE>
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.
13
<PAGE>
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.
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
14
<PAGE>
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.
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 this 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 First South
Africa Holdings, of which approximately 55% was lent to Europair or 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, First South African
Holdings 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 companies' 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
15
<PAGE>
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.
The Company intends to continue to pursue an aggressive 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.
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.
"Safe Harbor" Statement under the private Securities Litigation
Reform Act of 1995: The statements above which are not historical facts are
forward-looking statements that involve risks and uncertainties, including, but
not limited to, demand for the Comapny's products and market acceptance risks,
the effect of economic conditions, the impact of competitive products and
pricing, product development, commercialization and technological difficulties,
capacity, and supply constraints or difficulties, the results of financing
efforts, and other risks detailed in the Comapny's Securities and Exchange
Commission filings.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
FIRST SOUTH AFRICA CORP., LTD.
Report of the independent auditors
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Income for the year ended June 30,
1996, 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
June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the year ended June 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 the period February 28, 1993 to June 30, 1996.
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
<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.
Price Waterhouse
Sandton, South Africa
September 27, 1996
18
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, JUNE 30,
1996 1995
$ $
----------- -----------
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
19
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT (CONTINUED)
<S> <C> <C>
STOCKHOLDERS' INVESTMENT
Capital stock:
First South Africa Corp., Ltd:
A class common stock, $0.01 par value-
authorised 23,000,000 shares; issued and
outstanding 2,200,000 22,000 --
B class common stock, $0.01 par value-
authorised 2,000,000 shares; issued
and outstanding 1,942,500 (see footnote 24) 19,701 --
Preferred stock, $0.01 par value -
authorised 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 - authorised, issued
and outstanding 3 million shares in 1995 -- 460,978
Starpak (Pty) Ltd
Common stock, R1 par value - authorised 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>
20
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
JULY 1, MARCH 1, YEAR ENDED YEAR ENDED
TO JUNE 30, TO JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 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
outstanding 1,893,463
</TABLE>
21
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
YEARS ENDED JUNE 30
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 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
The proforma information has been prepared assuming that the acquisitions 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 had occurred at the
beginning of the period nor is it indicative of future results.
22
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JULY 1, MARCH 1, YEAR ENDED YEAR ENDED
TO JUNE 30, TO JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 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 to net
cash provided by operating activities:
Non-cash compensation charge 6,314,000 -- -- --
Depreciation 345,884 50,678 92,746 82,988
Amortisation 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 on 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>
23
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
(PART 1 OF 2)
Capital
stock Capital Capital in
First South Stock Capital excess of
Africa Capital in LS Stock par
Corp., excess of Pressings Starpak Starpak
Ltd. par (Pty) Ltd (Pty) Ltd (Pty) Ltd
$ $ $ $ $
---------- ---------- --------- ---------- ----------
<S> <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 -- -- --
---------- ---------- --------- ---------- ----------
(PART 2 OF 2)
Income Foreign
restricted currency
Retained as 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 (3,887,407) 7,307 (1,888,211) 12,792,376
------------ ----------- ---------- -----------
</TABLE>
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
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
==========
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
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.
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
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 amortised 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 amortised on a straight line basis over a six year term of the agreements.
The company has adopted Statement
27
<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)
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.
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".
28
<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 amortised 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 realisable 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%
29
<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 recognised for financial reporting purposes and such
amounts recognised 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 recognises 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
========== ==========
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)
30
<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
6. GOODWILL
Goodwill consists of the following:
Accumulated Net book
Cost amortisation 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:
<TABLE>
<CAPTION>
Accumulated Net book
Cost amortisation value
June 30, June 30, June 30,
1996 1996 1996
$ $ $
--------- ------ ---------
<S> <C> <C> <C>
Recipes and other intellectual property 2,858,011 (9,479) 2,848,532
========= ====== =========
</TABLE>
8. OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
Accumulated Net book Net book
Cost amortisation value value
June 30, June 30, June 30, June 30,
1996 1996 1996 1995
$ $ $ $
------- ------ ------- ------
<S> <C> <C>
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
======= ====== ======= ======
</TABLE>
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.
31
<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 ANDTHE
YEARS ENDED FEBRUARY 28, 1995 AND 1994
9. LOAN TO RELATED COMPANY
June 30, June 30,
1996 1995
$ $
--------- ---------
Michael Levy Family Holdings (Proprietary) Limited -- 145,822
========= =========
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, June 30,
1996 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
========== ==========
32
<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, JUNE 30,
1996 1995
$ $
------- -------
Trumetric Washers (Proprietary) Limited -- 257,909
======= =======
This loan was repaid from cash generated by operations. This loan was unsecured
and interest free.
33
<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-cancellable 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:
Year ended Four months Year ended Year ended
June 30, June 30, February 28, February 28,
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.
34
<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 realisation of such benefit is more
likely than not.
The provision for income taxes charged to continuing operations was as follows:
Four months
Year ended ended Year ended Year ended
June 30, June 30, February 28, February 28,
1996 1995 1995 1994
$ $ $ $
------- ------- ------- -------
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
======= ======= ======= =======
Deferred tax asset at June 30, is comprised of the following:
June 30, June 30,
1996 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)
========== ==========
35
<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:
Four
Months Year Year
Year ended ended ended ended
June 30, June 30 February February
1996 1995 28, 1995 28, 1994
% % % %
------ ------ ------ ------
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
====== ====== ====== ======
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>
36
<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
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
====== ====== ====== ======
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:
YEAR ENDED FOUR MONTHS YEAR ENDED YEAR ENDED
JUNE 30, ENDED JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1995
$ $ $ $
--------- --------- --------- ---------
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:
YEAR ENDED FOUR MONTHS YEAR ENDED YEAR ENDED
JUNE 30, ENDED FEBRUARY 28, FEBRUARY
1996 JUNE 30, 1995 28,
1995 1995
$ $ $ $
------- ------- ------- -------
Medical aid costs 140,828 -- 294,307 86,031
======= ======= ======= =======
37
<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
realises 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 realises 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 realises 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
realises 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 realises 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 realises 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.
The 150,000 options granted will be accounted for as a future compensation
charge should the earnings targets be reached or at such time as the options
become exercisable, whichever condition is first satisfied.
38
<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:
NAME Options Per Share
Granted Exercise Price Expiration Date Exercisable
------- -------------- --------------- -----------
Stock options
issued during 1996 75,000 $ 5.00 January 24, 2001 Immediately
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 cancelled. 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.
39
<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
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 2,300,000 $6.50 January 24, 2001 One share of common
Warrants stock and one Class B
warrant
Class B Redeemable 2,300,000 $8.75 January 24, 2001 One share of common
Warrants stock
Selling Security 650,000 $6.50 January 24, 2001 One share of common
Holder Warrants stock 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 A 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.
40
<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.
41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. 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 Vice Chairman of the Board of
Directors, Chief Executive
Officer, President, Chief
Financial Officer, Controller
and Director
Tucker Hall 39 Secretary
Charles S. Goodwin 56 Director
John Mackey 54 Director
Laurence M. Nestadt 45 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. (Arpac is a
U.S. competitor of Starpak.)
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.
42
<PAGE>
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.
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.
LAURENCE NESTADT is the Chairman of the Board and the Chief Executive
officer of Global Capital Limited which is a South African investment firm that
was incorporated in February 1995. Global is a shareholder of the Company. See
"Certain Transactions." Since 1993, Mr. Nestadt has been the Chairman of the
Board and a member of the controlling shareholder group of Saflife Limited, a
South African life insurance company, the Chairman of the Board of Hosken
Consolidated Investments Limited, a South African company engaged in various
investment activities, and the Chairman of the Board of Crendell Investment
Corporation Limited, a South African company that is also engaged in various
investment activities. Since 1984, Mr. Nestadt has been the Chairman of the
Image Group Limited, a South African company engaged in motor franchising,
retail clothing and sporting goods. Mr. Nestadt was engaged as a consultant by
Investec Bank Limited ("Investec") the sixth largest bank in South Africa, from
1991 to 1993. Mr. Nestadt was a co-founder of Investec in 1976 and an Executive
Director of such bank from 1976 to 1984. Investec owns 15% of the voting
securities of Global. Mr. Nestadt 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 First South African Holdings (Pty) Ltd., 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.
43
<PAGE>
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.
Each of the above key employees, other than Bruce Thomas and
Cornelius J. Roodt, 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. FSAH entered into an employment agreement with Mr.
Roodt commencing July 1, 1996.
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. Mr. Welch entered into a two
year employment agreement with the Company, commencing March 1, 1996. Mr. Welch
was a shareholder of Piemans Pantry prior to its sale to the Company.
Michael Morgan,49. Mr. Morgan is Director of Human Resources at
Piemans Pantry, a position he has held since joining the company in 1989 and is
responsible for all aspects of labor relations and employee benefits. Mr. Morgan
entered into a two year employment agreement with the Company, commencing March
1, 1996. Mr. Morgan was a shareholder of Piemans Pantry prior to its sale to the
Company.
Helen Britz, 41. Ms. Britz is National Sales Manager for Piemans
Pantry and has held that position since 1992 when she joined the company. Prior
to that Ms. Britz was the National Sales Manager for a rival pie manufacturer.
Ms. Britz oversees the company's 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 that 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 the Company. He is responsible for
all aspects of plant production at Piemans.
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
44
<PAGE>
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 Investment Banking Corp. (the "Underwriter") and executed with
respect to certain provisions thereof by Messrs Clive Kabatznik and Michael
Levy, the Company is required to nominate a designee of the Underwriter 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. The Underwriter 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 certain options under
the Company's stock option plan. Mr. Levy 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
------------------- ------------
NAME AND PRINCIPAL POSITION YEAR SALARY STOCK OPTIONS
- --------------------------- ---- ------ -------------
Clive Kabatznik, President
and Chief Executive Officer 1996 $135,000 205,000
EMPLOYMENT AGREEMENTS
First South Africa Management ("FSAM"), the Company's management
subsidiary, 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
45
<PAGE>
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 (as defined in Principal Shareholders - Earnout Escrow Shares
below) above $4,000,000, as shall be reported in the Company's audited financial
statements for each 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 Mr. 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.
First South African Holdings, ("FSAH"), the Company's South African
holding subsidiary, has entered into an Employment Agreement with Cornelius
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 Rand13.05 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
46
<PAGE>
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 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 ANNUAL
PERCENT OF TOTAL RATE OF STOCK PRICE
OPTIONS GRANTED TO PER SHARE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION TERM
NAME GRANTED FISCAL YEAR (1) PRICE DATE 5% 10% ---- 10%
- ---- -------- --------------- ----- ---- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael Levy.................... 5,000 2.22% 5.00 (2) 6,900 15, 275
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.
47
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 PERCENTAGE OF PERCENTAGE OF
BENEFICIAL SHAREHOLDER COMMON OWNERSHIP VOTING POWER
- ---------------------- COMMON STOCK STOCK (2)(3) (3)(4) (4)
------------ ------------ ------ ------------
<S> <C> <C> <C> <C>
FSA Stock Trust 0 953,660(5)(6) 23.0% 40.0%
9511 West River Street
Shiller Park, IL 60176
Clive Kabatznik 55,000(7) 210,000 6.4% 9.3%
2665 S. Bayshore
Suite 405
Coconut Grove, FL 37137
Michael Levy 5,000(8) 1,300,116(6)(9) 31.4% 54.6%
9511 West River Street
Shiller Park, IL 60176
Laurence M. Nestadt 5,000(8) 50,000(10) 1.3% 2.1%
c/o Global Capital Limited
162 Anderson Street
Johannesburg 2001
South Africa
Charles S. Goodwin 5,000(8) 0 * *
801 Old Post Road
Cotuit, MA 02635
John Mackey 5,000(8) 0 * *
1198 Pacific Coast Highway
Seal Beach, CA 90470
All executive officers and directors as a
group (5 persons) 75,000(11) 1,560,116 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) Includes 1,100,000 Earnout Escrow Shares that may be voted but not
disposed of by the registered holders during the term of the Earnout Escrow
Agreement. See Principal Shareholders - Earnout Escrow Shares.
(4) 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.
(5) 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 to be issued to the
FSAH Escrow Agent pursuant to the terms of the FSAH Escrow Agreement. See
Certain Transactions - FSAH Escrow Agreement.
48
<PAGE>
(6) 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.
(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 5,000 shares of Common Stock issuable upon exercise of
options that are immediately exercisable.
(9) 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 to be 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
to be 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 will be 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.
(10) Represents 50,000 shares of FSAH Class B Stock owned by Global, which
shares are held pursuant to the terms of the FSAH Escrow Agreement. See Certain
Transactions - FSAH Escrow Agreement. Mr. Nestadt is the Chief Executive Officer
of Global.
(11) 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.
EARNOUT ESCROW SHARES
The Earnout Escrow Shares are held in escrow and are not assignable
nor transferable (but may be voted) until such time as the Earnout Escrow Shares
are released from escrow in accordance with the terms of the Earnout Escrow
Agreement, as amended. The following contributions of Earnout Escrow Shares were
made by the following stockholders subject to the terms of the Earnout Escrow
Agreement: (i) Clive Kabatznik contributed 206,320 shares; (ii) the American
Stock Transfer & Trust Company contributed 346,285 shares; (iii) the FSA Stock
Trust contributed 349,958 shares; (iv) the Stopia Trust contributed 61,440
shares; (v) the 2RAS Trust contributed 61,440 shares; (vi) the Presspack Trust
contributed 58,973 shares; and (viii) the Two Year Trust contributed 15,584
shares. All Earnout Escrow Shares remaining in escrow on September 30, 2000 will
be forfeited and canceled and contributed to the Company's capital. The
arrangement relating to the Earnout Escrow Shares was required by the
Underwriter as a condition to the Company's initial public offering.
An initial 430,000 Earnout Escrow Shares will be released in the
event that: (A) the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings or charges which would result from the
release of Earnout Escrow Shares and certain other one-time charges as described
in the Earnout Escrow Agreement, as amended, (all as audited by the Company's
independent public accountants) (the Minimum Pretax Income) equals or exceeds
$1,800,000 for the fiscal year ending June 30, 1996; or (B) the Minimum Pretax
Income equals or exceeds $2,200,000 for the fiscal year ending June 30, 1997; or
(C) the Minimum Pretax Income equals or exceeds $3,000,000 for the fiscal year
ending June 30, 1998; (D) the Minimum Pretax Income equals or exceeds $4,300,000
for the fiscal year ending June 30, 1999; or (E) the Minimum Pretax Income
equals or exceeds $5,700,000 for the fiscal year ending June 30, 2000; or (F)
the Closing Price (as defined below) of the Company's Common Stock shall average
in excess of $10.00 per share for any 30 consecutive business days during the
period commencing on the effective date of the Offering (the Effective Date and
ending 18 months from the Effective Date); or (G) the Closing Price Stock shall
average in excess of $13.00 per share for any 30 consecutive business days
during the period commencing 18 months after the Effective Date and ending 36
months from the Effective Date.
49
<PAGE>
The remaining 670,000 of the Earnout Escrow Shares will be released
in the event that: (A) the Minimum Pretax Income equals or exceeds $3,000,000
for the fiscal year ending June 30, 1996; or (B) the Minimum Pretax Income
equals or exceeds $4,000,000 for the fiscal year ending June 30, 1997; or (C)
the Minimum Pretax Income equals or exceeds $5,600,000 for the fiscal year
ending June 30, 1998; or (D) the Minimum Pretax Income equals or exceeds
$8,000,000 for the fiscal year ending June 30, 1999; or (E) the Minimum Pretax
Income equals or exceeds $11,000,000 for the fiscal year ending June 30, 2000;
or (F) the Closing Price of the Company's Common Stock shall average in excess
of $12.50 per share for any 30 consecutive business days during the period
commencing on the Effective Date and ending 18 months from the Effective Date;
or (G) the Closing Price of the Company's Common Stock shall average in excess
of $16.50 per share for any 30 consecutive business days during the period
commencing 18 months after the Effective Date and ending 36 months from the
Effective Date.
The term Closing Price shall be subject to adjustments in the event
of any stock dividend, stock distribution, stock split or other similar event
and shall mean: (1) if the principal market for the Common Stock is a national
securities exchange or the Nasdaq National Market, the closing sales price of
the Common Stock as reported by such exchange or market, or on a consolidated
tape reflecting transactions on such exchange or market; or (2) if the principal
market for the Common Stock is not a national securities exchange or the Nasdaq
National Market and the Common Stock is quoted on the Nasdaq SmallCap Market,
the closing bid price of the Common Stock as quoted on the Nasdaq SmallCap
Market; or (3) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the Common stock is not
quoted on the Nasdaq SmallCap Market, the closing bid for the Common Stock as
reported by the National Quotation Bureau, Inc. (NQB) or at least two market
makers in the Common Stock if quotations are not available from NQB but are
available from market makers.
For purposes of calculating Minimum Pretax Income, if after the
initial public offering additional shares of Common Stock are issued, then, with
certain limitations, the foregoing Minimum Pretax Income levels for any year
would increase proportionately. In addition, Minimum Pretax Income shall
include, in the event of an acquisition during any fiscal year, pro forma pretax
income giving full effect to such acquisition (including all transaction and
operating expenses) as if the acquisition had been consummated at the beginning
of such fiscal year.
Any money, securities, rights or property distributed in respect of
the Earnout Escrow Shares, including any property distributed as dividends or
pursuant to any stock split, merger, recapitalization, dissolution, or total or
partial liquidation of the Company, shall be held in escrow until release of the
Earnout Escrow Shares. If none of the applicable Minimum Pretax Income or Bid
Price levels set forth above have been met by September 30, 2000 the Earnout
Escrow Shares, as well as any dividends or other distributions made with respect
thereto, will be canceled and contributed to the capital of the Company. The
Company expects that the release of the Earnout Escrow Shares to officers,
directors, employees and consultants of the Company will be deemed compensatory
and, accordingly, will result in a substantial charge to reportable earnings,
which would equal the fair market value of such shares on the date of release.
Such charge could substantially increase the loss or reduce or eliminate the
Company's net income for financial reporting purposes for the period(s) during
which such shares are, or become probable of being, released from escrow.
Although the amount of compensation expense recognized by the Company will not
affect the Company's total stockholders equity, it may have a negative effect on
the market price of the Company's securities.
The earnings levels and the share prices set forth above were
determined by negotiation between the Company and the Underwriter and should not
be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities. It is managements's belief that
the Pro Forma results for June 30, 1996, have met the earnout requirements of
the Earnout Escrow Agreement, as amended. Management expects the release of such
1,100,000 shares from escrow during the second quarter of the Company's current
fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ARPAC, L.P. AGREEMENT
In June 1995, Starpak entered into a verbal agreement with Arpac,
L.P. a Company controlled by Michael Levy, pursuant to which Arpac distributes
Starpak products in Chile and Mexico at Starpak's customary prices and Arpac
sells certain products to Starpak at Arpac's customary prices.
50
<PAGE>
PACKTECH (PROPRIETARY) LIMITED
Michael Levy Family Holdings (Pty) Limited and Mr. Shaftoe own 60%
and 40%, respectively, of Packtech. Packtech imports packaging machinery such as
fillers, labelers, cappers and other similar items which are complementary to
Starpak's products and tamper evident films and high shrink plastic from DuPont.
Starpak's sales representatives promote but do not sell Packtech's products. Mr.
Shaftoe conducts the majority of the Packtech activity from Starpak's premises
without consideration to Starpak. Packtech pays all of its own operating
expenses.
FSAM MANAGEMENT AGREEMENT
The Company and FSAM have entered into a Management Agreement
pursuant to which FSAM will provide certain management and administrative
services to the Company for an annual fee of $48,000, and reimbursement of
FSAM's costs, other than out-of-pocket expenses, at an amount equal to cost plus
10% (including the costs of employees) incurred in providing such management and
administrative services to the Company. The costs of such services that may be
requested from time to time by the Company pursuant to the Management Agreement
are at a rate that could reasonably be expected to be charged by an unaffiliated
third party. The services to be provided by FSAM to the Company under the FSAM
Management Agreement include general business management and administrative
services, shareholder relation services, financial services and accounting
services. The Management Agreement will expire on December 31, 2005, unless
sooner terminated on 90 days advance notice by either party.
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 this Offering, the terms of the loan will be amended as follows: the
loan will bear interest at 1% below the prime bank overdraft rate (currently
19.25% per annum) and will be repayable over a period of 30 months. The first
twenty four installments will be $5,563, inclusive of principal and interest,
commencing in November 1995. The balance outstanding after twenty four months
will then be repayable in six equal monthly installments.
MICHAEL LEVY LOAN AND MANAGEMENT FEES
During the period commencing March 1, 1995 and ending September 30,
1995, 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. In the years ended February 28, 1995, 1994 and 1993,
Starpak and L.S. Pressings paid Mr. Levy management fees of $83,570, $93,670 and
$107,250, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following financial statements of the Company are included as
required to be filed by Item 8:
FIRST SOUTH AFRICA CORP., LTD.
Report of the independent auditors Consolidated Balance Sheet at June
30, 1996
Consolidated Statement of Income for the period January 24, 1996
(Date of initial public offering) to June 30, 1996 and pro forma
Consolidated Statements of Income for the years ended June 30, 1996
and 1995
Consolidated Statement of Cash Flow for the period January 24, 1996
(Date of initial public offering) to June 30, 1996
51
<PAGE>
Statement of Changes in Stockholders' Investment for the period
January 24, 1996 (Date of initial public offering) to June 30, 1996
Notes to the Consolidated Financial Statements for the period January
24, 1996 (Date of initial public offering) to June 30, 1996
STARPAK (PROPRIETARY) LIMITED AND ITS SUBSIDIARY COMPANIES AND L.S.
PRESSINGS (PROPRIETARY) LIMITED
Report of the independent auditors
Combined Balance Sheets at February 28, 1995 and 1994
Combined Statements of Income for the period March 1, 1995 to January
24, 1996 and the years ended February 28, 1995 and 1994
Combined Statements of Cash Flows for the period March 1, 1995 to
January 24, 1996 and the years ended February 28, 1995 and 1994
Combined Statements of Changes in Stockholders' Investment for the
period March 1, 1995 to January 24, 1996 and the years ended February
28, 1995 and 1994
Notes to the Combined Financial Statements
EUROPAIR AFRICA (PROPRIETARY) LIMITED
Report of the independent auditors
Balance Sheets at June 30, 1995 and 1994
Statement of Income for the period July 1, 1995 to January 24, 1996
and the years ended June 30, 1995 and 1994
Statement of Cash Flows for the period July 1, 1995 to January 24,
1996 and the years ended June 30, 1995 and 1994
Statement of Changes in Stockholders' Investment for the period June
1, 1995 to January 24, 1996 and the years ended June 30, 1995 and
1994
Notes to the Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted since the required information is
included in the consolidated financial statements or notes thereto.
3. EXHIBITS:
Exhibit Number
- --------------
3.1* Memorandum of Association of the Registrant
3.2* By-Laws of the Registrant
4.1* Form of Bridge Note
4.2* Form of Warrant Agreement
4.3* Form of Unit Purchase Option
10.1* Starpak Acquisition Agreements
10.2* Starpak Escrow Agreement
10.3* L.S. Pressings Acquisition Agreements
10.4* L.S. Pressings Escrow Agreements
10.5* Europair Acquisition Agreements
10.6* Europair Escrow Agreement
10.7* Form of Escrow Agreement regarding the Earnout Escrow Shares
10.8* Form of FSAH Escrow Agreement
10.9* Form of Employment Agreement to Clive Kabatznik
10.10* Form of FSM Management Agreement
10.11* Form of Consulting Agreement with Michael Levy
10.12* Form of Consulting Agreement with Global Capital Limited
10.13* 1995 Stock Option Plan
10.14* Form of Addendum to Starpak Acquisition Agreement
52
<PAGE>
10.15* Form of Addendum to Europair Acquisition Agreement
10.17** Form of Piemans Pantry Acquisition Agreement
21.1* Subsidiaries of the Registrant
23.1*** Consent of Price Waterhouse
27.1*** Financial Data Schedule
- -------------------------------
* Incorporated by reference to Registration Statement on Form S-1 filed on
November 9, 1995 (File No. 33- 99180) as amended.
** Incorporated by reference to Form 8-K filed by the Company on June 11,
1996.
*** Filed herewith
(B) REPORTS ON FORM 8-K
The Registrant filed a Current Report on Form 8-K with the Commission on June
11, 1996.
The following item was reported by the Company on the Form 8-K:
On June 3, 1996, the Company through its wholly owned subsidiary corporation,
First South African Holdings (Pty) Ltd., acquired all of the outstanding stock
and assets of Piemans Pantry Proprietary Ltd., and Surfs-Up Proprietary Ltd.
The following financial statements of the Company were included as required to
be filed on Form 8-K:
FIRST SOUTH AFRICA CORP., LTD.
Pro forma Consolidated Balance Sheet (unaudited)
Pro forma Consolidated Statements of Income (unaudited)
Notes to Pro forma Consolidated Balance Sheet and Statements of Income
(unaudited)
PIEMANS PANTRY AND SURFS UP INVESTMENTS (PROPRIETARY) LIMITED
Unaudited Combined Balance sheets at May 31, 1996
Unaudited Combined Statement of Income for the Quarter Ended May 31, 1996
and 1995
Notes to the Unaudited Combined Financial Statements for the Quarter Ended
May 31, 1996
Unaudited Combined Statements of Cash Flows for the Quarter Ended May 31,
1996 and 1995
Audited Combined Balance Sheets at February 29, 1996 and February 28, 1995
Audited Combined Statements of Income for the Years Ended February 29,
1996, February 28, 1995 and 1994
Audited Combined Statements of Cash Flows for the Years Ended February 29,
1996, February 28, 1995 and 1994
Audited Combined Statements of Changes in Stockholders Investments for the
Years Ended February 29, 1996, February 28, 1995 and 1994
Notes to the Combined Annual Financial Statements for the Years Ended
February 29, 1996, February 28, 1995 and 1994
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Coconut
Grove, State of Florida, on the 7th day of October, 1996.
FIRST SOUTH AFRICA CORP., LTD.
BY: /S/ CLIVE KABATZNIK
---------------------------
Clive Kabatznik
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ MICHAEL LEVY Chairman of the Board of October 7, 1996
- --------------------------- Directors
Michael Levy
/S/ CLIVE KABATZNIK President, Vice Chairman, October 7, 1996
- --------------------------- Chief Executive Officer,
Clive Kabatznik Chief Financial Officer,
Director and Controller
Director October , 1996
- ---------------------------
Charles S. Goodwin
/S/ JOHN MACKEY Director October 7, 1996
- ---------------------------
John Mackey
/S/ LAURENCE M. NESTADT Director October 7, 1996
- -----------------------
Laurence M. Nestadt
54
CONSENT OF THE INDEPENDENT ACCOUNTANTS
As independent accountants, we hereby consent to the incorporation of
our report, included in the Annual Report on Form 10-K of First South Africa
Corp., Ltd. ("the Company'), into the Company's previously filed Registration
Statement on Form S-1 (No. 33-99180).
/s/ PRICE WATERHOUSE
PRICE WATERHOUSE
Sandton, South Africa
October 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001003390
<NAME> FIRST SOUTH AFRICA CORP., LTD.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,682,035
<SECURITIES> 0
<RECEIVABLES> 5,833,542
<ALLOWANCES> 402,333
<INVENTORY> 2,510,868
<CURRENT-ASSETS> 13,075,663
<PP&E> 9,000,334
<DEPRECIATION> 2,119,912
<TOTAL-ASSETS> 23,604,994
<CURRENT-LIABILITIES> 8,451,246
<BONDS> 0
0
0
<COMMON> 18,560,687
<OTHER-SE> (5,768,311)
<TOTAL-LIABILITY-AND-EQUITY> 23,604,994
<SALES> 14,911,097
<TOTAL-REVENUES> 14,911,097
<CGS> 8,385,511
<TOTAL-COSTS> 19,833,942
<OTHER-EXPENSES> (539,636)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 865,733
<INCOME-PRETAX> (5,248,942)
<INCOME-TAX> 488,618
<INCOME-CONTINUING> (5,737,560)
<DISCONTINUED> 0
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<NET-INCOME> (5,737,560)
<EPS-PRIMARY> (3.03)
<EPS-DILUTED> (1.28)
</TABLE>
