Schedule 13E-4
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(Amendment No.1)
FIRST SOUTH AFRICA CORP., LTD.
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(Name of Issuer)
FIRST SOUTH AFRICA CORP., LTD.
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(Name of Person(s) Filing Statement)
(1) Redeemable Class A Warrants
(2) Redeemable Class B Warrants
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(Title of Class of Securities)
(1) G34874118
(2) G34874126
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(CUSIP Number of Class of Securities)
Henry I. Rothman, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
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Name, Address and Telephone Number
of Person Authorized to Receive
Notices and Communications on Behalf
of the Person(s) Filing Statement
October 10, 1997
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Date Tender Offer First Published,
Sent or Given to Security Holders
Calculation of Filing Fee
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Transaction Valuation* | Amount of Filing Fee
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|
$13,519,092.72 | $2,703.82
|
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*In accordance with Rule 0-11(a)(4) and Rule 0-11(b)(2), the transaction
valuation and filing fee was calculated based on the closing bid price of $3.563
and $1.50 for the Class A Warrants and Class B Warrants, respectively,
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each as reported on the Nasdaq SmallCap Market on October 7, 1997 multiplied by
2,735,940 and 2,513,959, the number of Class A Warrants and Class B Warrants,
respectively, outstanding on such date.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $
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Form or Registration No.:
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Filing Party:
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Date Filed:
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ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer and the address of its principal
executive office is:
First South Africa Corp., Ltd.
Claredon House
Church Street
Hamilton, HM CX, Bermuda
(b) The securities being sought are (i) all of the Class A
Redeemable Common Stock Purchase Warrants expiring January 24, 2001 (the "Class
A Warrants") and (ii) all of the Class B Redeemable Common Stock Purchase
Warrants expiring January 24, 2001 (the "Class B Warrants" and, together with
the Class A Warrants, the "Warrants") of First South Africa Corp., Ltd. (the
"Company"). As of October 7, 1997, 2,735,940 Class A Warrants and 2,513,959
Class B Warrants were outstanding.
Each Class A Warrant entitles the registered holder to purchase one
share of common stock of the Company, par value $.01 per share (the "Common
Stock"), and one Class B Warrant at an exercise price of $6.50, subject to
adjustment in certain circumstances, at any time commencing on January 24, 1996
until January 24, 2001, at which time the Class A Warrants will expire. Each
Class B Warrant entitles the registered holder to purchase one share of Common
Stock at an exercise price of $8.75, subject to adjustment in certain
circumstances, at any time commencing on January 24, 1996 until January 24,
2001, at which time the Class B Warrants will expire.
The Company is seeking to exchange an aggregate of 1,764,765 shares
of its Common Stock for (i) all of the 2,735,940 Class A Warrants that were
outstanding as of October 7, 1997, and (ii) all of the 2,513,959 Class B
Warrants that were outstanding as of October 7, 1997 (the "Exchange Offer").
Each holder of Warrants who elects to accept the Company's Exchange Offer may
receive either (i) two shares of Common Stock in exchange for three Class A
Warrants and three Class B Warrants, (ii) two shares of Common Stock in exchange
for five Class A Warrants and/or (iii) two shares of Common Stock in exchange
for ten Class B Warrants, in each case upon the terms and subject to the
conditions set forth in the offering circular dated October 10, 1997, (the
"Offering Circular"), a copy of which is attached hereto as Exhibit 9(a)(i), and
in the related Letters of Transmittal, copies of which are attached hereto as
Exhibit 9(a)(ii). The Company only will accept Warrants tendered for exchange in
blocks that may be exchanged for a whole number of shares of Common Stock. The
Company will not issue fractional shares of Common Stock or pay cash in lieu of
issuing fractional shares of Common Stock. None of the Warrants are to be
purchased from any officer, director or affiliate of the Company.
(c) The Class A Warrants and the Class B Warrants are traded
on the Nasdaq SmallCap Market under the symbols FSACW and FSACZ, respectively.
Information regarding the markets for the Warrants and the high and low bid
prices for the Warrants is set forth in the
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Offering Circular under the caption "Market for Registration Common Stock, Units
and Warrants," which section is specifically incorporated herein by reference.
(d) The Company is filing this statement.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The consideration offered by the Company to induce the
exchange of the Warrants consists solely of shares of Common Stock. If the
Exchange Offer is accepted by the holders of all of the Warrants, the Company
will issue 1,764,765 shares of Common Stock in exchange for all outstanding
Warrants (assuming the exchange of (i) 1,675,973 shares of Common Stock for
2,513,959 currently outstanding Class A Warrants and 2,513,959 currently
outstanding Class B Warrants pursuant to the Company offer to exchange three
Class A Warrants and three Class B Warrants for two shares of Common Stock and
(ii) 88,792 shares of Common Stock for the remaining 221,981 currently
outstanding Class A Warrants pursuant to the Company offer to exchange five
Class A Warrants for two shares of Common Stock). All Warrants exchanged will be
retired on the books of the Company. Other than the expenses of the Exchange
Offer, the Company will incur no monetary obligations in connection with the
Exchange Offer. Such expenses shall be paid by the Company from its working
capital.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE
ISSUER OR AFFILIATE.
The purpose of the Exchange offer is to extinguish the Warrants
through the issuance of Common Stock and reduce the potential future dilutive
impact on the Company's earnings per share of Common Stock that would be caused
by exercise of the Warrants. Warrants acquired by the Company pursuant to the
Exchange Offer will be cancelled.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
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(h) Each of the Class A Warrants and the Class B Warrants may
cease to be listed on the Nasdaq SmallCap Market depending upon the number of
Warrants remaining outstanding in each class upon termination of the Exchange
Offer.
(i) Each of the Class A Warrants and the Class B Warrants may
be eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934 depending upon the number of Warrants remaining
outstanding in each class upon termination of the Exchange Offer.
(j) Not applicable.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in the Offering Circular under the caption
"The Exchange Offer -- Broker Dealer" is specifically incorporated herein by
reference. In addition, the Company issued 10,000 9% Senior Subordinated
Debentures (the "Debentures") in a private placement that was consummated upon a
number of separate closings during the period commencing April 1997 and ending
August 1997. The Debentures may be converted into shares of Common Stock at the
option of the holder at any time period to maturity at a price of $6.00 per
share, subject to adjustment in certain circumstances. Both the Debentures and
the shares of Common Stock issuable upon conversion of the Debentures were
registered in a Registration Statement on Form S-1 (File No. 333-33561) filed
with the Securities and Exchange Commission on August 13, 1997.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS AND
RELATIONSHIPS WITH RESPECT TO THE ISSUER'S SECURITIES.
The information set forth in the Offering Circular under the caption
"Description of Securities" is specifically incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Offering Circular under the caption
"The Exchange Offer -- Exchange Agent and Information Agent" and "--
Solicitation of Warrant Holders" is specifically incorporated herein by
reference.
ITEM 7. FINANCIAL INFORMATION.
(a)(1) The information set forth in the Company's 1997 Annual Report
on Form 10-K (the "Form 10-K"), which is attached as Exhibit A to the Offering
Circular, is specifically incorporated herein by reference.
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(a)(2) Not applicable.
(a)(3) Not applicable.
(a)(4) The book value per share as of the fiscal year ended June 30,
1997 set forth in the Form 10-K, which is attached as Exhibit A to the Offering
Circular and is specifically incorporated herein be reference.
(b) The pro forma financial data required by item 7(b) as of the
fiscal year ended June 30, 1996 and 1997 is included in the Offering Circular
under the captions "Pro Forma Effect of Exchange Offer" and is specifically
incorporated herein be reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) There are no applicable regulatory requirements that must
be complied with or approvals which must be obtained in connection with the
Exchange Offer except that (i) approval to list additional shares of the
Company's common stock on the Nasdaq SmallCap Market must be obtained and (ii)
Blue Sky securities qualification for the Exchange Offer in various
jurisdictions must be obtained.
(c) The Warrants are marginable securities.
(d) There are no material pending legal proceedings relating
to the Exchange Offer.
(e) The Offering Circular should be read in its entirety and
is specifically incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(i) Offering Circular dated October 10, 1997.
(a)(ii)Letter of Transmittal to be used by warrantholders to tender
Warrants pursuant to the Exchange Offer.
(a)(iii)Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(iv) Form of Letter to Clients.
(a)(v) Guaranteed Delivery Form.
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(a)(vi)Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(vii) Letter from the Company to the Warrantholders.
(a)(viii) Form of Letter from Broker Dealer of Record.
(a)(ix) Press release, dated September 5, 1997.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
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SIGNATURE
After due inquiry and to the best of the undersigned's knowledge and
belief, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
FIRST SOUTH AFRICA CORP., LTD.
By: /s/ Clive Kabatznik
------------------------
Clive Kabatznik
President
Date: October 14, 1997
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EXHIBIT INDEX
Exhibit No. Description Page No.
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9(a)(i) Offering Circular dated October 10, 1997.
9(a)(ii) Letter of Transmittal.
9(a)(iii) Letter to Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees.
9(a)(iv) Form of Letter to Clients.
9(a)(v) Guaranteed Delivery Form.
9(a)(vi) Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
9(a)(vii) Letter from the Company to the Warrantholders.
9(a)(viii) Form of Letter from Broker Dealer of Record.
9(a)(ix) Press Release dated September 5, 1997.
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OFFERING CIRCULAR
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FIRST SOUTH AFRICA CORP., LTD.
OFFER TO EXCHANGE SHARES OF ITS COMMON STOCK FOR
ANY AND ALL OF ITS REDEEMABLE
CLASS A AND CLASS B WARRANTS
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THE EXCHANGE OFFER WILL EXPIRE AT 5 P.M., NEW YORK TIME, ON NOVEMBER 14,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). WARRANTS NOT PREVIOUSLY ACCEPTED
FOR EXCHANGE MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
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First South Africa Corp., Ltd. (the "Company") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus, an aggregate
of 1,764,765 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), in exchange for all of the issued and outstanding Redeemable Class A
Warrants (the "Class A Warrants") and Redeemable Class B Warrants (the "Class B
Warrants"; the Class A Warrants and the Class B Warrants are collectively
referred to herein as the "Warrants") to purchase Common Stock (the "Exchange
Offer"). Each holder of warrants may receive either (i) two shares of Common
Stock in exchange for three Class A Warrants and three Class B Warrants, (ii)
two shares of Common Stock in exchange for five Class A Warrants and/or (iii)
two shares of Common Stock in exchange for ten Class B Warrants, all when
tendered and accepted by the Company for exchange pursuant to the Exchange
Offer. As of October 7, 1997, there were 2,735,940 Class A Warrants outstanding
and 2,513,959 Class B Warrants outstanding.
The high bid price for the Common Stock, Class A Warrants and Class B
Warrants quoted on the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") SmallCap Market on September 4, 1997, the last
trading day prior to the Company's announcement of its intentions to make the
Exchange Offer, was $8.50, $3.625 and $1.625, respectively.
The high bid price for the Common Stock, Class A Warrants and Class B
Warrants reported on the Nasdaq SmallCap Market on October 3, 1997 was $8.50,
$3.563 and $1.508, respectively.
Unless otherwise determined by the Company's Board of Directors, the
Exchange Offer is conditioned upon the tender of at least 2,051,955 Class A
Warrants and 1,885,469 Class B Warrants. The Company is under no obligation to
acquire any Warrants if such number of Class A Warrants is not tendered. There
is no maximum number of Warrants subject to the Exchange Offer. The Company
intends to acquire all of the issued and outstanding Warrants in the Exchange
Offer; provided, however, that the Company will not accept for exchange any
Warrants that are not exchangeable for one whole share of Common Stock pursuant
to the Exchange Offer.
The Exchange Agent and the Information Agent for the Exchange Offer is
American Stock Transfer & Trust Company, New York, New York.
The Common Stock, Class A Warrants and Class B Warrants are traded on
the Nasdaq SmallCap Market under the Nasdaq symbols of FSACF, FSAWF and FSAZF,
respectively.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE EXCHANGE OFFER. HOWEVER,
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
HOLDERS OF WARRANTS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR
WARRANTS. EACH HOLDER OF WARRANTS MUST MAKE THE DECISION WHETHER TO TENDER
WARRANTS AND, IF SO, HOW MANY WARRANTS TO TENDER.
THE SECURITIES BEING OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS OFFERING CIRCULAR. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Offering Circular is October 10, 1997.
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act, of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following regional offices of the Commission: Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the public reference section of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The
Commission also maintains a site on the World Wide Web that contains reports and
proxy and other information regarding the Company. The address for such site is
http://www.sec.gov. Such information with respect to the Company may also be
inspected at the offices of the National Association of Securities Dealers,
Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed a Schedule 13E-4 (the "Schedule 13E-4") under the
Exchange Act with the Commission pursuant to the Exchange Offer. The Schedule
13E-4 including any amendments, schedules and exhibits filed or incorporated by
references as a part thereof, is available for inspection and copying as set
forth above. Statements contained in this Offering Circular or in any document
incorporated herein by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Schedule 13E-4 or such other document, and each statement
shall be deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1997 (the "Form 10-K") as filed with the Commission under the Exchange Act,
is incorporated into this Offering Circular by reference. The Form 10-K is
attached hereto as Exhibit A and made a part hereof.
Each document filed subsequent to the date of this Offering Circular
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act before the
termination of this offering shall be deemed to be incorporated by reference in
this Offering Circular and to be a part hereof from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Offering Circular to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such previous
statement. Any statement so modified or superseded shall not be deemed to be a
part hereof except as so modified or superseded.
<PAGE>
OFFERING SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Offering
Circular. Unless otherwise indicated, the information in this Offering Circular
does not give effect to (i) the Exchange Offer; (ii) the conversion of 10,000 9%
Senior Subordinated Debentures (the "Debentures") issued by the Company in a
private placement that was consummated upon a number of separate closings during
the period commencing April 1997 and ending August 1997 (the "Private
Placement"); (iii) the exercise of certain warrants issued or to be issued to
the placement agent with respect to the Private Placement entitling the holder
thereof to purchase 135,000 shares of Common Stock at an exercise price of $6.00
per share, subject to adjustment at any time during the ten year period ending
on July 31, 1997; (iv) the exercise of the Unit Purchase Options (the "Unit
Purchase Options") issued in connection with the Company's initial public
offering in January 1996 (the "IPO"); (v) the exercise of the options to
purchase shares of Common Stock reserved for issuance under the Company's Stock
Option Plan; and (vi) 500,000 shares of Common Stock reserved for issuance upon
exercise of certain additional stock options granted by the Board of Directors
of the Company. See "Description of Securities." Unless otherwise indicated,
references in this Offering Circular to "Rand" or "R" are to South African Rand.
On August 29, 1997, the market average exchange rate was approximately 4.69 Rand
per U.S. Dollar. See "Risk Factors -- Risks Relating to Operations in South
Africa, Currency Considerations." Unless otherwise indicated, U.S. Dollar
equivalent information in South African Rand for a period is based on the
average of the daily exchange rates for the days in the period, and U.S. Dollar
information for South African Rand as of a specified date is based on the
exchange rate for that date. Certain numbers in this Offering Circular have been
rounded.
THE COMPANY
First South Africa Corp., Ltd., (the "Company") was organized to
acquire, own and operate seasoned, closely-held companies in South Africa with
annual sales in the range of approximately $5 to $50 million. The Company has
acquired through its wholly-owned subsidiary, First South African Holdings (Pty)
Ltd. ("FSAH"), ten 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 in January 1996, the
Company acquired Starpak (Pty) Limited, which is engaged in the manufacture of
high quality plastic packaging machinery; L.S. Pressing (Pty) Limited ("L.S.
Pressings"), which is engaged in the manufacture of washers for use in the
fastener industry; and Europair Africa (Pty) Ltd. ("Europair"), which is engaged
in the manufacture and supply of air conditioning products. In April 1996, L.S.
Pressings acquired the assets and business of Paper & Metal Industries, a small
manufacturer of rough washers for use in the fastener industry. In April 1996,
Europair acquired the assets and business of Universal Refrigeration, an agent
and supplier of refrigeration products. In June 1996, FSAH acquired Piemans
Pantry (Pty) Limited ("Piemans Pantry"), a manufacturer and distributor of high
quality meat pies. In October 1996, FSAH acquired Astoria Bakery CC ("Astoria
Bakery") and Astoria Bakery Lesotho Proprietary Ltd., ("Astoria Bakery Lesotho")
manufacturers and distributors of speciality baked breads and confectionary
products (collectively referred to as "Astoria"). In November 1996, the Company
acquired the assets of Alfapak (Pty) Ltd., a manufacturer of plastic film and
printed plastic bags. In January 1997, FSAH acquired Seemann's Meat Products
(Pty) Ltd. ("Seemanns") a manufacturer and distributor of a wide range of
processed meat products. In April 1997, FSAH acquired the business and assets of
Gull Foods (Pty) Ltd. ("Gull Foods"), a manufacturer of value-added prepared
foods. In May 1997, the Company acquired Pakmatic Company (Pty), Ltd., a
distributor of automatic process and packaging machinery. In June 1997, FSAH
transferred all of the shares of Piemans Pantry, Astoria, Seemanns and Gull
Foods to First S.A. Food Holdings Ltd. ("FSA Food") and completed (i) the
initial public offering
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of 5,000,000 ordinary shares of common stock of FSA Food in South Africa, which
shares are listed on the Johannesburg Stock Exchange, (ii) an institutional
private placement in South Africa of 20,000,000 ordinary shares of common stock
of FSA Food, and (iii) a private placement of 12,500,000 ordinary shares of
common stock of FSA Food to management and staff. As of September 2, 1997, FSAH
owned 70% of the issued and outstanding shares of FSA Food.
FSAH manages the Company's business interests in South Africa. FSAH
monitors the operational performance of its subsidiaries and seeks out
prospective acquisition candidates in businesses that complement or are
otherwise related to the Company's existing businesses, and in other businesses
that may be identified by the Company's management.
The Company was formed in September 1995. The Company's principal
executive offices are located at Clarendon House, Church Street, Hamilton HM II
Bermuda, and its telephone number at such location is: (441) 295-1422. Certain
management, shareholder relations and administrative services are provided to
the Company by First South Africa Management Corp., a Delaware corporation that
is a wholly-owned subsidiary of the Company ("FSAM"). FSAM's principal executive
offices are located at 2665 South Bayshore, Suite 702, Coconut Grove, Florida
33133, and its telephone number at such location is (305) 857-5009.
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THE EXCHANGE OFFER
The Offer........................ The Company is offering to exchange (i) two
shares of its Common Stock for three Class A
Warrants and three Class B Warrants; (ii)
two shares of its Common Stock for five
Class A Warrants; and/or (iii) two shares of
Common Stock for ten Class B Warrants, all
when properly tendered and accepted by the
Company. Unless otherwise determined by the
Company's Board of Directors, the Company
will not exchange any Warrants if it does
not receive the tender of at least 2,051,955
Class A. Warrants and 1,885,469 Class B
Warrants. The Company will not accept for
exchange any Warrants not exchangeable for a
whole share of Common Stock.
Expiration Date.................. 5:00 p.m., New York City time, on November
14, 1997, unless extended. See "The Exchange
Offer - Expiration Date; Extension;
Termination; Amendment."
Purpose of Exchange Offer........ To extinguish the Warrants through the
issuance of Common Stock to reduce the
potential future dilutive impact on the
Company's earnings per share of Common Stock
that would be caused by exercise of the
Warrants.
Effects of the Exchange Offer
on the Company............... In the absence of the Exchange Offer,
7,985,839 shares of Common Stock could be
issued if all of the Warrants outstanding on
October 7, 1997 were exercised. Assuming
100% participation in the Exchange Offer,
1,764,765 shares of Common Stock would be
issued and all of such outstanding Warrants
would be extinguished (assuming the exchange
of (i) 2,513,959 Class A Warrants and
2,513,959 Class B Warrants pursuant to the
Company's offer to exchange two shares of
its Common Stock for three Class A Warrants
and three Class B Warrants, each as
outstanding on September 2, 1997; and (ii)
the remaining 221,981 Class A Warrants
pursuant to the Company's offer to exchange
two shares of its Common Stock for five
Class A Warrants). The Exchange Offer will
have no effect on the Company's total
shareholders' equity (other than transaction
costs). The Exchange Offer will have a
dilutive effect on the Company's earnings
per share of Common Stock. See "Purpose and
Effects of Exchange Offer" and "Pro Forma
Effect of the Exchange Offer."
Effects of the Exchange Offer on
Exchanging Holders of
Warrants..................... Holders of Warrants who participate in the
Exchange Offer will be able to: (i) receive
Common Stock for their Warrants immediately
without any cash payment; (ii) receive
Common Stock dividends, if any, when
declared by the Company; (iii) vote on all
matters that may come before the holders of
the Common Stock; and (iv) participate in
proceeds from liquidation of the Company
after creditors and preferred
securityholders, if any, are paid. The
Company currently does not intend to pay
dividends on its Common Stock. Exchanging
holders of Class A Warrants, however, will
lose the right to
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<PAGE>
purchase one share of Common Stock and one
Class B Warrant at an exercise price of
$6.50 and exchanging holders of Class B
Warrants will lost the right to purchase one
share of Common Stock at an exercise price
of $8.75. The Warrants currently expire on
January 24, 2001. See "Purpose and Effect of
the Exchange Offer" and "Dividend Policy."
See "risk Factors -- Potential Adverse
Effects on Warrants not Exchanged" and "--
Possible Termination of Registration of the
Warrants Under the Exchange Act."
Effects of the Exchange Offer on
Non-Exchanging Holders of
Warrants..................... Holders of Warrants who do not participate
in the Exchange Offer will retain the right
to purchase one share of Common Stock and
one Class B Warrant at an exercise price of
$6.50 per Class A Warrant and one share of
Common Stock at an exercise price of $8.75
per Class B Warrant, until the Warrants
expire on January 24, 2001. Depending upon
the extent to which holders of Warrants
participate in the Exchange Offer, the
trading market for, and the liquidity of,
the Warrants remaining outstanding will be
reduced. In addition, such Warrants may no
longer be listed on the Nasdaq or traded on
the over- the-counter market and may no
longer be registered securities pursuant to
the Securities Exchange Act of 1934, as
amended. There will be no anti-dilution
adjustment to the exercise price of Warrants
which are not exchanged by holders thereof.
See "Risk Factors -- Poetential Adverse
Effects on Warrants not Exchanged" and "--
Possible Termination of Registration of the
Warrants Under the Exchange Act."
The Common Stock................. There are 23,000,000, authorized shares of
Common Stock, 2,000,000 authorized shares of
the Company's Class B Common Stock, par
value $.01 per share (the "Class B Common
Stock"), and 5,000,000 authorized shares of
the Company's Preferred Stock, par value
$.01 per share (the "Preferred Stock"). As
of October 7, 1997, there were 5,548,498,
1,822,500 and 0 shares of Common Stock,
Class B Common Stock and Preferred Stock
outstanding, respectively. Application has
been made to list the shares of Common Stock
to be issued pursuant to the Exchange Offer
on the Nasdaq SmallCap Market. See
"Description of Securities -- Common Stock,"
"-- Class B Common Stock" and "-- Preferred
Stock."
The Warrants..................... There were 2,735,940 Class A Warrants and
2,513,959 Class B Warrants outstanding on
October 7, 1997. Each Class A Warrant
currently entitles the holder thereof to
purchase one share of Common Stock and one
Class B Warrant at an exercise price of
$6.50, and each Class B Warrant currently
entitles the holder thereof to purchase one
share of Common Stock at an exercise price
of $8.75, each subject to adjustment in
certain events. Warrants may be exercised at
any time until January 24, 2001.
Withdrawal of Tenders............ Tenders of Warrants may be withdrawn at any
time prior to 5 p.m., New York City time, on
the Expiration Date or, unless previously
accepted for exchange, after November 14,
1997. See "The Exchange Offer -- Withdrawal
Rights."
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<PAGE>
Acceptance of Warrants and
Delivery of Common Stock..... Subject to the terms and conditions of the
Exchange Offer, the Company will accept,
promptly after the Expiration Date, all
Warrants properly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will
deliver shares of Common Stock pursuant to
the Exchange Offer promptly following the
Expiration Date; provided, however, that the
Company will not accept for exchange any
Warrants that are not exchangeable for one
whole share of Common Stock pursuant to the
Exchange Offer. See "The Exchange Offer -
Acceptance of Warrants for Exchange," "-
Delivery of Common Stock."
Conditions of the Exchange
Offer........................ The Exchange Offer is subject only to
certain customary conditions, any or all of
which may be waived by the Company. See "The
Exchange Offer - Conditions of the Exchange
Offer."
Procedures for Tendering
Warrants..................... Each holder of Warrants who wishes to tender
such Warrants must deliver the following
documents prior to 5:00 p.m., New York City
time on the Expiration Date to the Exchange
Agent at the address set forth herein: (i)
certificates representing Warrants together
with a Letter of Transmittal properly
completed and duly executed by the holder of
such Warrants and all other documents
required by the Letter of Transmittal, or
(ii) if such holder wishes to tender by
guaranteed delivery, a properly completed
and duly executed Guaranteed Delivery Form.
Any holder of Warrants whose Warrants are
registered in the name of brokers, dealers,
commercial banks, trust companies or
nominees are urged to contact such
registered holders promptly if such holder
wishes to accept the Exchange Offer.
Warrants should not be sent to the Company.
See "The Exchange Offer -- Procedure for
Tendering" and "- Guaranteed Delivery
Procedure."
Certain Federal Income Tax
Considerations............... The exchange of the Warrants for Common
Stock will likely be treated as a taxable
transaction for Federal income tax purposes.
For a discussion of certain of the Federal
income tax considerations of the exchange of
the Warrants, see "Certain Tax
Considerations -- Effect of the Exchange
Offer Under U.S. Law."
Exchange Agent and Information
Agent........................ American Stock Transfer & Trust Company, 40
Wall Street, 46th Floor, New York, New York
10005, telephone number (718) 921-8200.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Offering Circular regarding matters
that are not historical facts are forward-looking statements (as such term is
defined in the rules promulgated pursuant to the Securities Act of 1933, as
amended (the "Securities Act")). Because such forward-looking statements include
risks and uncertainties, actual results may differ materially from those
expressed in or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed herein under "Risk Factors" (effect of the Exchange Offer on the
Company's book value per share, potential adverse effects on Warrants not
exchanged, possible termination of registration of Warrants under the Exchange
Act, political risks, risks related to currency exchange, economic risks,
government regulatory considerations, absence of substantive disclosure relating
to acquisitions, risks related to operations of FSA Foods, possible fluctuations
in operating results, competition, labor relations, dependence on key personnel,
control by insiders, dividends unlikely, shares eligible for future sales,
potential anti-takeover effects of preferred stock and limited rights of
shareholders under Bermuda law). The Company undertakes no obligation to release
publicly the result of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
RISK FACTORS
An investment in the securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this Offering Circular, prospective investors should carefully
consider the following risk factors before purchasing the securities offered
hereby.
RISKS RELATING TO THE EXCHANGE OFFER
Effect of the Exchange Offer on the Company's Book Value Per Share.
There were 5,548,498 shares of Common Stock, 1,822,500 shares of Class B Common
Stock, 2,735,940 Class A Warrants and 2,513,959 Class B Warrants outstanding on
October 7, 1997. If all of the Warrants are exchanged pursuant to the Exchange
Offer, there will be an additional 1,764,765 shares of Common Stock outstanding
(assuming 2,513,959 Class A Warrants and 2,513,959 Class B Warrants, are
exchanged pursuant to the Company's offer to exchange two shares of Common Stock
for three Class A Warrants and three Class B Warrants and the remaining 221,981
Class A Warrants are exchanged pursuant to the Company's offer to exchange two
shares of Common Stock for five such Class A Warrants). As a result, the
Company's book value per share would decrease from $3.09 and $4.33 on June 30,
1996 and 1997, respectively, to $2.17 and $3.26. Although there would be an
additional 7,985,839 shares of Common Stock outstanding upon exercise of all
outstanding Warrants (including the Class B Warrants issued upon exercise of the
Class A Warrants), the Company would also receive $63,720,226 in cash upon such
exercise. See "Pro Forma Effect of the Exchange Offer."
Potential Adverse Effects on Warrants Not Exchanged. The Company will
retire and not reissue Warrants exchanged for shares of Common Stock in the
Exchange Offer. The exchange of Warrants in the Exchange Offer will reduce the
number of Warrants that trade publicly and could adversely affect the liquidity
and market value of the remaining outstanding Warrants. The extent of trading of
the Warrants on the Nasdaq SmallCap Market will depend upon the number of
outstanding Warrants, the market value of the remaining publicly-held Warrants,
the interest of securities firms in maintaining a market in the Warrants, any
termination of registration of the Warrants under the Exchange Act as described
below and other factors. The Company cannot predict if the reduction in the
number of Warrants that might otherwise trade publicly will have an adverse or
beneficial effect on the market price or marketability of the Warrants.
Possible Termination of Registration of the Warrants Under the Exchange
Act. The Warrants are currently registered under the Exchange Act. Registration
of the Warrants under the Exchange Act may be terminated upon
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<PAGE>
application of the Company to the Commission if the Warrants are not held of
record by 300 or more persons. Termination of registration of the Warrants would
make certain provisions of the Exchange Act, such as the registration
requirements of Rule 13e-3 thereunder with respect to "going private"
transactions, no longer available in respect to the Warrants. See "Purpose and
Effects of the Exchange Offer."
RISKS RELATING TO OPERATIONS IN SOUTH AFRICA
The Company's operations are conducted through its direct and indirect
subsidiaries located in South Africa. For the foreseeable future, the Company
expects to continue to focus all of its efforts in South Africa. The conduct of
the Company's business in South Africa exposes the Company to certain risks,
including the following:
Political Risks. Historically, the social structure of South Africa was
governed according to the apartheid system. Racial tensions in South Africa have
from time to time resulted in social unrest, strikes, riots and other sporadic
localized violence. The apartheid system also resulted in the imposition of
international financial and trade sanctions against South Africa. Although a new
interim constitution was adopted providing for universal suffrage and the first
national election under the new constitution took place in April 1994, there can
be no assurance that social unrest, which could range in magnitude from civil
disobedience to civil war, will not occur. The Company's businesses in South
Africa have experienced politically-related work stoppages in the past, although
since 1994 no such disturbance has been material. In addition, certain other
countries in the region are currently engaged in or have had civil war with
corresponding severe adverse economic and social conditions and effects.
Moreover, there can be no assurance as to the economic and tax policies which
the South African government may pursue and whether those policies may include
nationalization, expropriation and confiscatory taxation. Nationalization,
expropriation or confiscatory taxation, as well as currency blockage, political
changes, government regulation, strikes, political or social instability or
diplomatic developments could adversely affect the economy of South Africa and
could have a material adverse effect on the Company.
Risks Related to Currency Exchange. All of the Company's operating
subsidiaries do business in the South African Rand and the Company's revenues
are generally received in such currency. Historically, there has been
significant inflation in South Africa (averaging 10-15% per annum in recent
years) and significant fluctuations in the exchange rate of the South African
Rand. Because South Africa's inflation rate would impact its economy both
domestically and internationally, and higher levels of inflation have frequently
reduced the real return on capital and investment (thereby lowering the demand
for capital goods including the types that the Company produces), South Africa's
level of inflation may increase the Company's risk related to currency
fluctuation. The U.S. Dollar equivalent of the Company's net assets and results
of operations will be adversely affected by reductions in the value of the Rand
relative to the U.S. Dollar. Similarly, if the exchange rate declines between
the time the Company incurs expenses in other currencies and the time cash
expenses are paid, the amount of South African Rand required to be converted
into such other currencies in order to pay such expenses could be greater than
the equivalent amount of such expenses in South African Rand at the time they
were incurred. The exchange rate for South African Rand against the U.S. Dollar
declined during fiscal year 1997 during which period the average rate of
exchange for the Rand against the Dollar was $1.00 to Rand 4.53 as compared with
an average rate of $1.00 to Rand 3.85 for fiscal year 1996. As of August 29,
1997 the Rand was trading at 4.69 Rand to the Dollar. See "Certain Tax
Considerations -- South African Taxation."
Economic Risks. The economy of South Africa may differ unfavorably from
the U.S. economy in such respects as growth of gross domestic product or gross
national product, rate of inflation, taxation, capital reinvestment, resource
self-sufficiency and balance of payments position. South Africa may be
particularly susceptible to changes in the world price of gold and other primary
commodities as these represent a majority of South Africa's exports. Any such
unfavorable aspects of the South African economy may materially adversely affect
the financial condition of the Company.
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<PAGE>
Government Regulatory Considerations. Generally, the making of loans by
the Company to its subsidiaries, the ability of those subsidiaries to borrow
from South African sources and the repatriation of dividends, interest and
royalties by those subsidiaries is regulated by the Exchange Control Department
of the South African Reserve Bank (the "Reserve Bank"). South Africa formerly
operated a dual currency system comprising the commercial rand and the financial
rand, which was abolished in 1995. The financial rand was the investment
currency, which traded at a discount to the commercial rand. No guarantee can be
given that the financial rand will not be reintroduced in the future with
possible adverse consequences on the U.S. Dollar value of the Company's
investments in South Africa. Current South African Exchange Control Regulations
provide that, subject to any exemption which may be granted by the South African
Treasury (the "Treasury"), no non-resident of South Africa and no "affected
person" (which includes any entity (i) that may distribute 50% or more of its
capital, assets or earnings to a non-resident of South Africa or (ii) 50% or
more of the voting power of which is controlled by a non-resident of South
Africa) may provide any "financial assistance" to any South African resident.
"Financial assistance" is broadly defined to include any loans, guarantees,
sale/leasebacks, etc. Because FSAH will be deemed to be an "affected person,"
the Company is generally required to obtain the permission of the Treasury prior
to loaning money to, providing guarantees on behalf of, or otherwise providing
"financial assistance" to FSAH. Notwithstanding the above, a South African
company such as FSAH is permitted a certain level of local borrowing without
reference to the exchange control authorities and without prior consent. The
amount which any affected person may borrow is calculated in accordance with the
following formula:
100% + (PERCENTAGE SOUTH AFRICAN INTEREST X 100%)
------------------------------------------
(percentage non-resident interest).
In addition, the terms of repayment of any such loan and the interest rate
(which is generally market-related) will be regulated.
Under other regulations, no person may, without permission, acquire any
security from a non-resident or make any entry in a security register which
involves the transfer of a security into or out of the name of a non-resident.
The control is exercised by placing the endorsement "non-resident" on all
securities owned by non-residents or in which non-residents have an interest.
The non-resident endorsement is placed on the share certificates by a bank and
is in practice easy to obtain.
Certain other regulations impact the remittance of dividends and
interest from South Africa, including any potential dividends to the Company
from a South African subsidiary. In practice, the South African Reserve Bank
does not restrict the remittance of genuine dividends from income earned by
South African companies although approval must be obtained. As a result, there
can be no assurance that a South African subsidiary would be permitted to
declare and pay a dividend to the Company.
ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO ACQUISITIONS
Although management of the Company will endeavor to evaluate the risks
inherent in any particular acquisition, there can be no assurance that the
Company will properly ascertain all such risks. Management of the Company will
have virtually unrestricted flexibility in identifying and selecting prospective
acquisition candidates. The Company does not intend to seek stockholder approval
for any acquisitions unless required by applicable law or regulations and
stockholders will most likely not have an opportunity to review financial
information on an acquisition candidate prior to consummation of an acquisition.
See "Description of Securities - Differences in Corporate Law."
South African companies that may be acquired by the Company are subject
to South African GAAP which, in certain instances, may differ from U.S. GAAP.
Although the Company intends to prepare financial statements in accordance with
U.S. GAAP, the Company can provide no assurance that it will be able to do so.
Although the Company
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<PAGE>
is unaware of any South African GAAP requirement that would adversely affect it,
there can be no assurance that the Company's financial condition or the ability
of the Company to consummate future acquisitions will not be adversely affected
by differences between South African GAAP and U.S. GAAP.
RISKS RELATED TO OPERATIONS OF FSA FOODS
Two of the operating subsidiaries of FSA Foods each rely on a single
major customer for a substantial portion of their respective revenues. The loss
of any such major customer may have a material adverse effect on the financial
condition of the Company. There can be no assurance that such major customers
will continue to purchase the products of such FSA Foods subsidiaries.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS
There can be no assurance that the Company's operating subsidiaries will
continue to operate profitably or that prior trends will be indicative of future
results of operations. Future results of operations may fluctuate significantly
based upon factors such as increases in competition, losses incurred by new
businesses that may be acquired in the future, currency fluctuations, political
changes, macroeconomic factors, the continued availability of new materials and
other circumstances that may not be reasonably foreseeable at this time.
COMPETITION
The Company competes with a number of companies, from South Africa and
from other countries, offering similar products and services, some of whom may
have substantially greater financial, management, technical and other resources
than the Company. As a result of South Africa's recent political transformation,
some South African businesses may be adversely affected by increased competition
from foreign firms doing business in South Africa. In addition, South Africa has
historically imposed significant tariffs against a number of industrial
products. To the extent such tariffs are reduced or removed to comply with
international treaty requirements or otherwise, the Company would face much
greater pressure from globally competitive firms. There can be no assurance that
the Company will compete effectively with such other companies or that other
companies will not develop products which are superior to the Company's or which
achieve greater market penetration. In addition, the Company may experience
competition from other companies seeking to identify and consummate acquisitions
of South African companies. Such competition may result in the loss of an
acquisition candidate or an increase in the price the Company would be required
to pay for any such acquisition.
LABOR RELATIONS
A significant number of South Africa's workers belong to either
registered or unregistered trade unions, and most of the major industries are
unionized. A number of the trade unions have close links to various political
parties. In the past, trade unions have had a significant influence in South
Africa as vehicles for social and political reform, as well as the collective
bargaining process. It is uncertain whether labor disruptions will be used to
advocate political causes in the future. Significant labor disruptions could
have a material adverse effect on the financial condition of the Company.
South Africa has also recently enacted a new Labor Relations Act. The
Act entrenches the rights of employees to belong to trade unions and the rights
of representative trade unions to have access to the workplace. The right to
strike is guaranteed, as is the right to participate in secondary strikes, in
certain prescribed circumstances. The right to picket has also been entrenched.
The Act recognizes the rights of employers to belong to employers' associations.
Importantly, the Act envisages an increased role for employees in the decision
making of companies by providing, where a majority trade union so requests, for
the compulsory establishment of workplace forums to represent the interests of
employees where a company employs more than 100 employees. The range of issues
on which the workplace forum must be
11
<PAGE>
consulted include restructurings of the workplace, partial or total plant
closures, mergers and transfers of ownership insofar as these affect employees,
and retrenchments. The implementation of the Labor Relations Act's provisions
may have a material adverse effect on the Company's cost of labor and
consequently on its financial condition. New legislation is currently being
proposed regarding minimum conditions of labor. Such legislation, if enacted, is
expected to increase South African labor costs.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends upon the continued contributions of its
executive officers, most of whom are also principal stockholders of the Company,
and the continued contributions of the management of Starpak, L.S. Pressings,
Europair, FSA Foods and the FSA Foods Subsidiaries. The Company has obtained key
man insurance in the amounts of $2,000,000 on the lives of each of Michael Levy
and Clive Kabatznik. The business of the Company could be adversely affected by
the loss of services of, or a material reduction in the amount of time devoted
to the Company by, its executive officers.
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING RIGHTS;
POSSIBLE DEPRESSIVE EFFECT ON THE PRICE OF THE COMPANY'S SECURITIES
The Company's founders and certain other shareholders own 1,822,500
shares of Class B Common Stock (excluding certain shares of Common Stock and
options), representing approximately 33.5% of the Company's outstanding capital
stock and approximately 71% of the total voting power (assuming no conversion of
the Debentures and no exercise of the Placement Warrants and Purchase Options)
and are able to elect all of the Company's directors and otherwise control the
Company's operations. See "Principal Shareholders." Furthermore, the
disproportionate vote afforded the Class B Common Stock could also serve to
impede or prevent a change of control of the Company. As a result, potential
acquirors may be discouraged from seeking to acquire control of the Company
through the purchase of Common Stock, which could have a depressive effect on
the price of the Company's securities and will make it less likely that
shareholders receive a premium for their shares as a result of any such attempt.
DIVIDENDS UNLIKELY
The Company has not paid any cash dividends and does not anticipate
paying any such cash dividends in the foreseeable future. Earnings, if any, will
be retained to finance future growth. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALES; POSSIBLE DEPRESSIVE EFFECT OF FUTURE SALES OF
COMMON STOCK; REGISTRATION RIGHTS
Future sales of Common Stock by existing stockholders pursuant to Rule
144 under the Securities Act, or otherwise, including with respect to
outstanding Class A Warrants and Class B Warrants, or the possibility of such
sales in the public market, could have a material adverse affect on the market
price of the securities offered hereby. Immediately following this offering,
there will be an aggregate of 7,313,263 shares of Common Stock (assuming the
exchange of (i) 2,513,959 Class A Warrants and 2,513,959 Class B Warrants
pursuant to the Company's offer to exchange two shares of Common Stock for three
Class A Warrants and three Class B Warrants and (ii) the remaining 221,981 Class
A Warrants pursuant to the Company's offer to exchange two shares of Common
Stock for five Class A Warrants, all such Warrants as outstanding on October 7,
1997) and 1,822,500 shares of Class B Common Stock outstanding (assuming no
conversion of the Debentures and no exercise of the Placement Warrants and
Purchase Options). In addition, an aggregate of 100,000 shares of Common Stock
are issuable upon exercise of certain additional warrants issued by the Company.
All other shares of Common Stock and the shares of Class B Common Stock, are
"restricted securities" as that term is defined under the Securities Act, and in
the future may be sold in compliance with Rule 144 under the Securities Act or
pursuant to a Registration Statement filed under the Securities Act. See
"Description of Securities -- Class B
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<PAGE>
Common Stock." Of the 5,548,498 shares of Common Stock issued and outstanding as
of the date of this Offering Circular, 1,191,837 shares were issued to the FSAH
Escrow Agent pursuant to the terms of the FSAC Escrow Agreements. Of the
1,822,500 shares of Class B Common Stock issued and outstanding upon the date of
this Prospectus, 729,979 shares were issued to the FSAH Escrow Agent pursuant to
the terms of the FSAH Escrow Agreement. Such shares of Common Stock and Class B
Common Stock (issued with respect to the FSAC Escrow Agreements and the FSAH
Escrow Agreement) are "restricted securities" which in the future may be sold in
compliance with Rule 144 or pursuant to a registration statement filed under the
Securities Act. All the shares of Common Stock issued pursuant to the FSAC
Escrow Agreements will be eligible for sale under Rule 144 in July 1998. All of
the shares of Class B Common Stock are currently eligible for sale under Rule
144. Rule 144 generally provides that a person holding restricted securities for
a period of one year may sell every three months in brokerage transactions
and/or market-maker transactions an amount not to exceed the greater of (a) one
percent (1%) of the Company's issued and outstanding Common Stock, or (b) the
average weekly trading volume of the Common Stock during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of shares without any quantity limitation by a person who is not an affiliate of
the Company and who has satisfied a two-year holding period.
As of January 24, 1997, D.H. Blair Investment Banking Corp., the
Company's Underwriter in connection with its initial public offering ("D.H.
Blair") and certain other holders have the right to two demand registrations of
the Units underlying the Unit Purchase Options. The holders of the Unit Purchase
Options also will have certain piggyback registration rights. The exercise of
registration rights may involve substantial expense to the Company and have a
depressive effect on the market price of the Company's securities. See "Shares
Eligible for Future Sale."
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Memorandum of Association authorizes the issuance of
5,000,000 shares of preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval
(but subject to applicable government regulatory restrictions), to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. See "Description of
Securities."
LIMITED RIGHTS OF SHAREHOLDERS UNDER BERMUDA LAW
The Company's corporate affairs are governed by its Memorandum of
Association and bye-laws, as well as the common law of Bermuda relating to
companies and the Companies Act 1981. The laws of Bermuda relating to
shareholder rights, protection of minorities, fiduciary duties of directors and
officers, matters of corporate governance, corporate restructurings, mergers and
similar arrangements, takeovers, shareholder suits, indemnification of directors
and inspection of corporate records, may differ from those that would apply if
the Company were incorporated in a jurisdiction within the United States. The
rights of shareholders in a Bermuda company may not be as extensive as the
rights of a shareholder of a United States company and, accordingly, the holders
of the Company's shares of Common Stock may be more limited in their ability to
protect their interests in the Company. In addition, there is uncertainty
whether the courts of Bermuda would enforce judgements of the courts of the
United States and of other foreign jurisdictions. There is also uncertainty
whether the courts of Bermuda would enforce actions brought in Bermuda which are
predicated upon the securities laws of the United States. See "Enforceability of
Civil Liabilities," "Description of Securities - Differences in Corporate Law"
and "-- Certain Provisions of Bermuda Law."
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<PAGE>
BACKGROUND AND PURPOSE OF THIS EXCHANGE OFFER; CERTAIN EFFECTS
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The Exchange Offer is intended to extinguish the Warrants through the
issuance of Common Stock to reduce the future potential dilutive impact on the
Company's earnings per share of Common Stock that would be caused by exercise of
the Warrants. In the absence of the Exchange Offer, 7,985,839 shares of Common
Stock could be issued if all of the currently outstanding Warrants were
exercised. Assuming 100% participation in the Exchange Offer, 1,750,000 shares
of Common Stock are the most that could be issued pursuant to the Exchange Offer
(assuming the exchange of (i) 2,513,959 Class A Warrants and 2,513,959 Class B
Warrants pursuant to the Company's offer to exchange two shares of Common Stock
for three Class A Warrants and three Class B Warrants and (ii) the remaining
221,981 Class A Warrants pursuant to the Company's offer to exchange two shares
of Common Stock for five Class A Warrants, all such Warrants as outstanding on
September 2, 1997) and all of the Warrants would be extinguished, except for the
Warrants that may be issued upon exercise of rights to acquire 200,000 Class A
and 200,000 Class B Warrants currently held by D.H. Blair and its affiliates as
part of the Unit Purchase Options. The Exchange Offer will have no effect on the
Company's total shareholders' equity (other than transaction costs). The
Exchange Offer will have a dilutive effect on the Company's earnings per share
of Common Stock. See "Pro Forma Effect of the Exchange Offer." For discussion of
the rights to acquire Class A and Class B Warrants held by D.H. Blair and
certain agreements between D.H. Blair and the Company concerning the Units
Purchase Options held by D.H. Blair, see "Description of Securities -- Unit
Purchase Options."
Holders of Warrants who participate in the Exchange Offer will be able
to: (i) receive Common Stock or Warrants immediately without any cash payment;
(ii) receive proceeds, if any, payable to holders of Common Stock in the event
of a liquidation of the Company; (iii) receive Common Stock dividends, if any,
when declared by the Company, and (iv) vote on all matters that may come before
the holders of the Common Stock. However, the exchange of each Class A Warrant
will deny the holder thereof the right to purchase one share of Common Stock and
one Class B Warrant at an exercise price of $6.50, and the exchange of each
Class B Warrant will deny the holder thereof the right to purchase one share of
Common Stock at an exercise price of $8.75. Holders of Warrants who do not
participate in the Exchange Offer will retain the right to purchase on share of
Common Stock (and one Class B Warrant, in the case of holders of Class A
Warrants who do not participate in the Exchange Offer) for the exercise price
indicated in the preceding sentence. To the extent holders of Warrants
participate in the Exchange Offer, the trading market for, and liquidity of, the
Warrants remaining outstanding, if any, could be reduced. In addition, such
Warrants may no longer be listed on the Nasdaq SmallCap Market or traded on the
over-the-counter market and may no longer be registered securities pursuant to
the Exchange Act. Registration of the Warrants under the Exchange Act may be
terminated upon application of the Company to the Commission if the Warrants are
not held of record by 300 or more persons. Termination of registration of the
Warrants would make certain provisions of the Exchange Act, such as the
requirements of Rule 13e-3 thereunder with respect to "going private"
transactions, no longer applicable with respect to the Warrants.
CERTAIN EFFECTS ON NON-TENDERING HOLDERS
The Exchange Offer is intended to extinguish the Class A Warrants and
Class B Warrants through the issuance of Common Stock to reduce the future
potential dilutive impact on the Company's earnings per share of Common Stock
that would be caused by exercise of the Class A Warrants and Class B Warrants.
In the absence of the Exchange Offer, 7,985,839 shares of Common Stock could be
issued if all of the Class A Warrants and Class B Warrants outstanding on
October 7, 1997 were exercised. It is expected that the Class A Warrants and
Class B Warrants will be delisted from the Nasdaq SmallCap Market following the
consummation of the Exchange Offer and that the remaining holders of Warrants
will find it increasingly difficult to dispose of such securities.
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<PAGE>
NO RECOMMENDATION BY BOARD OF DIRECTORS
The Board of Directors of the Company has approved the Exchange Offer.
However, neither the Company nor its Board of Directors makes any recommendation
to holders of Warrants as to whether to tender or refrain from tendering their
Warrants. Each holder of Warrants must make the decision whether to tender
Warrants and, if so, how many Warrants to tender.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the growth of the
Company. The Board of Directors of the Company will review its dividend policy
from time to time to determine the feasibility and desirability of paying
dividends, after giving consideration to the Company's earnings, financial
condition, capital requirements and such other factors as the Board of Directors
deems relevant.
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MARKET FOR REGISTRANT'S COMMON STOCK, UNITS AND WARRANTS
On January 24, 1996 , the Company's Common Stock, Units, Class A
Warrants and Class B Warrants were listed for quotation on the Nasdaq SmallCap
Market under the symbols FSAUF, FSACF, FSAWF and FSAZF, respectively. The
following table sets forth, for the periods indicated the high and low bid
prices for the Common Stock, Units, Class A Warrants and Class B Warrants as
reported by Nasdaq. Quotations reflect prices between dealers, without retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions.
HIGH BID LOW BID
COMMON STOCK
1996
3rd Quarter $ 4.75 $ 2.88
4th Quarter $ 6.00 $ 3.00
1997
1st Quarter $ 6.50 $ 4.50
2nd Quarter $ 5.75 $ 4.00
3rd Quarter $ 7.38 $ 3.50
4th Quarter $ 8.75 $ 4.63
1998
1st Quarter (through October 3, 1997) $ 8.69 $ 7.13
UNITS
1996
3rd Quarter $ 6.50 $ 5.38
4th Quarter $10.00 $ 5.25
1997
1st Quarter $ 9.72 $ 6.75
2nd Quarter $11.00 $ 8.25
3rd Quarter $ 9.75 $ 6.75
4th Quarter $14.13 $ 6.38
1998
1st Quarter (through October 3, 1997) $13.75 $10.00
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HIGH BID LOW BID
CLASS A WARRANTS
1996
3rd Quarter $ 3.00 $ 1.50
4th Quarter $ 2.87 $ 1.58
1997
1st Quarter $ 3.00 $ 2.25
2nd Quarter $ 5.00 $ 2.75
3rd Quarter $ 2.38 $ 1.25
4th Quarter $ 3.88 $ 1.06
1998
1st Quarter (through October 3, 1997) $ 3.88 $ 2.00
CLASS B WARRANTS
1996
3rd Quarter $ 1.62 $ .62
4th Quarter $ .88 $ .62
1997
1st Quarter $ 1.25 $ .25
2nd Quarter $ 1.50 $ .63
3rd Quarter $ 1.50 $ .59
4th Quarter $ 1.94 $ .39
1998
1st Quarter (through October 3, 1997) $ 1.87 $ 1.00
As of October 3, 1997, there were approximately 1,328 shareholders both
of record and beneficial, of the Company's Common Stock.
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PRO FORMA EFFECT OF THE EXCHANGE OFFER
The following table presents (i) the Company's historical earnings per
share of Common Stock for the years ended June 30, 1996 and 1997, (ii) the
historical book value per share of Common Stock as of June 30, 1996 and 1997,
and (iii) the pro forma effect thereon of the issuance of shares of Common Stock
pursuant to the Exchange Offer, assuming 75% of both the Class A Warrants and
Class B Warrants are exchanged pursuant to the Company's offer to exchange two
shares of Common Stock for three currently outstanding Class A Warrants and
three currently outstanding Class B Warrants and 100% of both the Class A
Warrants and Class B Warrants are exchanged pursuant to the Company's offer to
exchange two shares of Common Stock for three currently outstanding Class A
Warrants and three currently outstanding Class B Warrants (in each case with the
remaining currently outstanding Class A Warrants exchanged pursuant to the
Company's offer to exchange five currently outstanding Class A Warrants for two
shares of Common Stock).
EARNINGS PER SHARE
JUNE 30,
---------------------
1996 1997
------ ------
Historical - Primary.................................... $(3.03) $ 1.30
Pro Forma
assuming 75% of Warrants are exchanged for 1,323,573
shares of Common Stock................................. (1.78) $ 1.03
assuming 100% of Warrants are exchanged for 1,764,765
shares of Common Stock................................. (1.57) .97
BOOK VALUE PER SHARE
JUNE 30,
---------------------
1996 1997
------ ------
Historical.............................................. $ 3.09 $ 4.33
Pro Forma
assuming 75% of Warrants are exchanged for 1,323,573
shares of Common Stock.......................... 2.34 3.47
assuming 100% of Warrants are exchanged for 1,764,765
shares of Common Stock.......................... 2.17 3.26
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Offering Circular and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange (i) two shares of Common
Stock for three Class A Warrants and three Class B Warrants; (ii) two shares of
Common Stock for five Class A Warrants; (iii) two shares of Common Stock for ten
Class B Warrants. Unless otherwise determined by the Company's Board of
Directors, the Company will not exchange any Warrants if it does not receive the
tender of at least 2,051,955 Class A Warrants and 1,885,469 Class B Warrants.
The Company will not accept for exchange Warrants that are not
exchangeable for one whole share of Common Stock.
If the Company should change the consideration offered in exchange for
the Warrants in the Exchange Offer, such changed consideration would be paid
with regard to all Warrants accepted in the Exchange Offer. If the consideration
is so changed, the Exchange Offer will remain open at least 10 business days
from the date the Company first gives notice, by public announcement or
otherwise, of such increase.
As of October 7, 1997, 2,735,940 Class A Warrants and 2,513,959 Class B
Warrants were outstanding. This Offering Circular and the Letter of Transmittal
are being sent to all registered holders of the outstanding Warrants.
Although the Company has no plan or intention to do so, it reserves the
right in its sole discretion to purchase or make offers for any Warrants that
remain outstanding subsequent to the Expiration Date. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
Tendering holders of Warrants will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Warrants pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes, in connection with the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 14, 1997, subject to extension by the Company by notice to American
Stock Transfer & Trust Company (the "Exchange Agent") as herein provided. The
Company reserves the right to extend the Exchange Offer at its discretion, in
which event the term "Expiration Date" shall mean the time and date on which the
Exchange Offer as so extended shall expire. The Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right (i) to delay accepting any Warrants for
exchange or to extend or terminate the Exchange Offer and not accept for
exchange any Warrants if any of the events set forth below under the caption
"Conditions of the Exchange Offer" shall have occurred and shall not have been
waived by the Company by giving oral or written notice of such delay or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance for exchange, extension or
amendment will be followed as promptly as practicable by public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holder of Warrants of
such amendment, and the Company will extend the Exchange Offer for a period of
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<PAGE>
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to the holders of the Warrants, if the Exchange Offer
would otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "Conditions of the Exchange Offer."
PROCEDURES FOR TENDERING
The acceptance of the Exchange Offer by holders of the Warrants pursuant
to the procedure set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
To be tendered effectively, the Warrants, together with the properly
completed Letter of Transmittal (or facsimile thereof), executed by the
registered holder thereof, and any other documents required by the Letter of
Transmittal, must be received by the Exchange Agent at the address set forth
below prior to 5:00 p.m. New York City time, on the Expiration Date, except as
otherwise provided below under the caption "Guaranteed Delivery Procedure."
LETTERS OF TRANSMITTAL AND WARRANTS SHOULD NOT BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Warrants tendered pursuant thereto
are tendered (i) by a registered holder of Warrants who has not completed the
box entitled "Special Issuance and Delivery Instructions" on the Letter of
Transmittal or (ii) for the account an Eligible Institution (as defined below).
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a financial institution (a commercial bank, savings and loan
association, credit union or brokerage house) that is a participant in the
Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(an "Eligible Institution").
The method of delivery of Warrants and other documents to the Exchange
Agent is at the election and risk of the holder, but if such delivery is by mail
it is suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent before the Expiration
Date.
If the Letter of Transmittal is signed by a person other than a
registered holder of any certificates representing Warrants listed thereon, such
Warrants must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name or names of the registered holder or holders
appear on such Warrants.
If the Letter of Transmittal or the Guaranteed Delivery Form or any
certificates representing Warrants or stock powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
so submitted.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Warrants will be resolved by the
Company, whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Warrants. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as the
Company shall determine. Neither the Company nor the Exchange Agent shall be
under any duty to give notification of defects in such tenders or shall incur
liabilities for failure to give such notification. Tenders of Warrants will not
be deemed to have been made until such irregularities have been
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<PAGE>
cured or waived. Any Warrants recieved by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURE
If a holder of Warrants desires to tender his Warrants and
certificate(s) representing such Warrants are not immediately available, or time
will not permit such holder's certificate(s) or any other required documents to
reach the Exchange Agent before 5:00 p.m., New York City time, on the Expiration
Date, a tender may be effected if:
(a) The tender is made by or though an Eligible Institution;
(b) Prior to 5:00 p.m., New York City time, on the
Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Guaranteed Delivery
Form (by facsimile transmission, mail or hand delivery), setting forth
the name and address of such holder and the number of Warrants tendered,
stating that the tender is being made thereby and guaranteeing that,
within five Nasdaq trading days after the Expiration Date, the
certificate(s) representing such Warrants, accompanied by a properly
completed and duly executed Letter of Transmittal and all other
documents required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) The certificate(s) for all tendered Warrants, as well as
a properly completed and duly executed Letter of Transmittal and all
other documents required by the Letter of Transmittal, are received by
the Exchange Agent within five Nasdaq trading days after the Expiration
Date.
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer,
the Company will not be required to accept for exchange any Warrants tendered
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Warrants, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency or regulatory
authority with respect to the Exchange Offer that, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company, or
(b) there shall have been proposed, adopted or enacted any
law, statute, rule or regulation that in the sole judgment of the
Company, might materially impair the ability of the Company to proceed
with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company; or
(c) there shall have occurred (i) the suspension of trading
in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market, (ii)
the imposition of material governmental restrictions on trading in
securities generally; (iii) the declaration of a banking moratorium by
federal or New York state authorities; (iv) an outbreak of international
hostilities or other national or international calamity or crisis or
change in economic or political conditions; (v) the passage by the
Congress of the United States or by any state legislative body or
federal or state agency or other authority of any act, rule or
regulation, measure, or the adoption of any orders, rules or regulations
by any governmental body or any authoritative accounting institute or
board, or any governmental executive, which is reasonably likely to have
21
<PAGE>
a material impact on the business, financial condition or financial
statements of the Company or the market for the securities offered
pursuant to the Offering Circular; (vi) the occurrence of any adverse
change in the financial or securities markets beyond normal market
fluctuations; or (vii) in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer a material
acceleration or worsening thereof; or
(d) any change (or any development involving a prospective
change) shall have occurred or be threatened in the business,
properties, assets, liabilities, financial condition, operations,
results of operation, prospects, plans, strategies, development projects
or existing or contemplated financial arrangements that, in the
reasonable judgement of the Company, is or may be adverse to the
Company, or the Company shall have become aware of facts that, in the
sole judgment of the Company, have or may have adverse significance with
respect to the value of the Warrants or the Common Stock; or
(e) the shares of Common Stock issuable in exchange for the
Warrants shall not have been listed, other than subject to official
notice of issuance on Nasdaq.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to such
conditions or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. If the Company waives or amends the
foregoing conditions, the Company will, if required by applicable law, extend
the Exchange Offer for a minimum of five business days from the date that the
Company first gives notice, by public announcement or otherwise, of such waiver
or amendment, if the Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
ACCEPTANCE OF WARRANTS FOR EXCHANGE DELIVERY OF COMMON STOCK
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept all Warrants properly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the Expiration Date. The Company will deliver
shares of Common Stock issued pursuant to the Exchange Offer promptly after the
Expiration Date.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Warrants when, as and if the Company has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders of Warrants for the purpose of receiving the
Common Stock pursuant to the Exchange Offer from the Company. Under no
circumstances will interest be paid by the Company by reason of any delay in
delivering such Common Stock.
If any tendered Warrants are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Warrants will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Any holder of Warrants who has tendered Warrants may withdraw the tender
at any time prior to 5:00 p.m., New York City time, on the Expiration Date or,
unless such tender has been previously accepted for exchange, at any time after
30 days after the Expiration Date, by delivery of a written notice of withdrawal
to the Exchange Agent.
To be effective, a written notice of withdrawal (sent by hand, telegraph
or facsimile transmission) must (a) be timely received by the Exchange Agent at
the address set forth herein, (b) specify the name of the person having tendered
the Warrants to be withdrawn, (c) indicate the certificate number or numbers of
the Warrants to which the withdrawal
22
<PAGE>
relates, (d) specify the number of Warrants so withdrawn, and (e) be (i) signed
by the holder in the same manner as the original signature on the Letter of
Transmittal (including a guarantee of signature, if required) or (ii)
accompanied by evidence satisfactory to the Company that the holder withdrawing
such tender has succeeded to beneficial ownership of such Warrants. Withdrawals
of tenders of Warrants may not be rescinded, and any Warrants withdrawn will
thereafter be deemed not validly tendered for purposes of the Exchange Offer,
provided, however, that withdrawn Warrants may be retendered by again following
one of the procedures described herein at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
All questions as to the validity (including time of receipt) of notices
of withdrawal will be determined by the Company, whose determination will be
final and binding. Neither the Company, the Exchange Agent, nor any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification.
EXCHANGE AGENT AND INFORMATION AGENT
American Stock Transfer & Trust Company, has been appointed as Exchange
Agent and Information Agent for the Exchange Offer. All correspondence and other
inquiries in connection with the Exchange Offer and the Letter of Transmittal
should be addressed as follows:
American Stock Transfer
& Trust Company
40 Wall Street
46th Floor
New York, New York 10005
Facsimile: (718) 234-5001
Telephone: (718) 921-8200
Requests for additional copies of this Offering Circular or the Letter
of Transmittal should also be directed to the Exchange Agent.
SOLICITATION OF WARRANT HOLDERS
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company will also pay brokers, dealers and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Offering Circular and related documents to the
beneficial owners of the Warrants, and in handling or forwarding tenders for
their customers.
The cash expenses to be incurred by the Company in connection with
Exchange Offer are estimated to be approximately $75,000, which include
registration fees, listing fees, fees to the Warrant Agent accounting, legal and
printing fees, and associated expenses.
23
<PAGE>
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
exchange of Warrants pursuant to the Exchange Offer. If, however, tendered Class
A or Class B Warrants are registered in the name of any person other than the
person signing the Letter of Transmittal or if a transfer tax is imposed for any
reason other than the exchange of Class A or Class B Warrants pursuant to the
Exchange Offer, the amount of any such transfer tax (whether imposed on the
registered Warrantholder or any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such transfer tax or exemption
therefrom is not submitted, the amount of such transfer tax will be billed
directly to such tendering holder.
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<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate of
23,000,000 shares of Common Stock, par value $.01 per share, 2,000,000 shares of
Class B Common Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share. As of the date hereof, 1,822,500
shares of Class B Common Stock are outstanding. The following statements are
summaries of certain provisions of the Company's Memorandum of Association,
by-laws and The Companies Act 1981 of Bermuda. These summaries do not purport to
be complete and are qualified in their entirety by reference to the full
Memorandum of Association and by-laws.
COMMON STOCK
Holders of Common Stock have one vote per share on each matter submitted
to a vote of the shareholders and a ratable right to the net assets of the
Company upon liquidation. Holders of the Common Stock do not have preemptive
rights to purchase additional shares of Common Stock or other subscription
rights. The Common Stock carries no conversion rights and is not subject to
redemption or to any sinking fund provisions. All shares of Common Stock are
entitled to share equally in dividends from legally available sources as
determined by the Board of Directors, subject to any preferential dividend
rights of the Preferred Stock (described below). Upon dissolution or liquidation
of the Company, whether voluntary or involuntary, holders of the Common Stock
are entitled to receive assets of the Company available for distribution to the
shareholders, subject to the preferential rights of the Preferred Stock. All of
the shares of Common Stock offered hereby are validly authorized and will be,
when issued, fully paid and non-assessable.
CLASS B COMMON STOCK
The Class B Common Stock and the Common Stock are substantially
identical on a share-for-share basis, except that the holders of Class B Common
Stock have five votes per share on each matter considered by shareholders and
the holders of the Common Stock have one vote per share on each matter
considered by shareholders, and except that the holders of each class will vote
as a separate class with respect to any matter requiring class voting by The
Companies Act 1981 of Bermuda.
Each share of Class B Common Stock is automatically converted into one
share of Common Stock upon (i) the death of the original holder thereof, or, if
such shares are subject to a shareholders agreement or voting trust granting the
power to vote such shares to another original holder of Class B Common Stock,
then upon the death of such other original holder, or (ii) the sale or transfer
to any person other than the following transferees: (a) the spouse of a holder
of Class B Common Stock; (b) any lineal descendants of a holder of Class B
Common Stock, including adopted children (said descendants, together with the
holder of Class B Common Stock and his or her spouse are hereinafter referred to
as "Family Members"); (c) a trust for the sole benefit of a Class B Common
shareholder's Family Members; (d) a partnership made up exclusively of Class B
Common shareholders and their Family Members or a corporation wholly-owned by a
holder of Class B Common Stock and their Family Members, and (e) any other
holder of Class B Common Stock thereof. Presently, there are 1,822,500 shares of
Class B Common Stock issued and outstanding. The difference in voting rights
increases the voting power of the holders of Class B Common Stock and
accordingly has an anti-takeover effect. The existence of the Class B Common
Stock may make the Company a less attractive target for a hostile takeover bid
or render more difficult or discourage a merger proposal, an unfriendly tender
offer, a proxy contest, or the removal of incumbent management, even if such
transactions were favored by the shareholders of the Company other than the
holders of Class B Common Stock. Thus, the shareholders may be deprived of an
opportunity to sell their shares at a premium over prevailing market prices in
the event of a hostile takeover bid. Those seeking to acquire the Company
through a business combination will be compelled to consult first with the
holders of Class B Common Stock in order to negotiate the terms of such
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<PAGE>
business combination. Any such proposed business combination will have to be
approved by the Board of Directors, which may be under the control of the
holders of Class B Common Stock, and if shareholder approval were required, the
approval of the holders of Class B Common Stock will be necessary before any
such business combination can be consummated.
REDEEMABLE WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered holder to
purchase one share of Common Stock and one Class B Warrant, at an exercise price
of $6.50, until January 24, 2001. The Class A Warrants are redeemable by the
Company on 30 days' prior written notice at a redemption price of $.05 per Class
A Warrant, if the "closing price" of the Company's Common Stock for any 30
consecutive trading days ending within 15 days of the notice of redemption
averages in excess of $9.10 per share (subject to adjustment by the Company, as
described below, in the event of any reverse stock split or similar events).
"Closing price" shall mean the closing bid price, if listed in the
over-the-counter market on Nasdaq, or the closing sale price if listed on the
Nasdaq National Market or a national securities exchange. The notice of
redemption will be sent to the registered address of the registered holder of
the Class A Warrant. All Class A Warrants must be redeemed if any are redeemed;
provided, however, that the Class A Warrants underlying the Unit Purchase
Options may only be redeemed under limited circumstances. See "Description of
Securities - Unit Purchase Options."
Class B Warrants. Each Class B Warrant entitles the registered holder to
purchase one share of Common Stock at an exercise price of $8.75 per share at
any time after issuance until January 24, 2001. The Class B Warrants are
redeemable by the Company on 30 days' prior written notice at a redemption price
of $.05 per Class B Warrant, if the closing price of the Company's Common Stock
for any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $12.25 per share (subject to adjustment by the
Company, as described below, in the event of any reverse, stock split or similar
events). The notice of redemption will be sent to the registered address of the
registered holder of the Class B Warrant. All Class B Warrants must be redeemed
if any are redeemed; provided, however, that the Class B Warrants subject to the
Unit Purchase Options may only be redeemed under limited circumstances. See
"Description of Securities - Unit Purchase Options."
General. The Class A Warrants and Class B Warrants (collectively, the
"Warrants") were issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, D.H. Blair and American Stock Transfer & Trust
Company as warrant agent (the "Warrant Agent"), and are evidenced by warrant
certificates in registered form. The exercise price of the Warrants and the
number and kind of shares of Common Stock or other securities and property to be
obtained upon exercise of the Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or the
issuance of shares of Common Stock at less than the market price of the Common
Stock. Additionally, an adjustment would be made upon the sale of all or
substantially all of the assets of the Company for less than the market value, a
merger or other unusual events (other than share issuances pursuant to employee
benefit and stock incentive plans for directors, officers and employees of the
Company) so as to enable holders of Warrants, to purchase the kind and number of
shares or other securities or property (including cash) receivable in such event
by a holder of the kind and number of shares of Common Stock that might
otherwise have been purchased upon exercise of such Warrants. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of the
Warrants.
The exercise prices of the Warrants were determined by negotiation
between the Company and D.H. Blair and should not be construed to be predictive
of, or to imply that, any price increases will occur in the Company's
securities.
The Warrants may be exercised upon surrender of the Warrant certificate
on or prior to the expiration date (or earlier redemption date) of such Warrants
at the offices of the Warrant Agent with the form of "Election of
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<PAGE>
Purchase" on the reverse side of the Warrant certificate completed and executed
as indicated, accompanied by payment of the full exercise price (by certified or
bank check payable to the order of the Company) for the number of Warrants being
exercised. Shares of Common Stock issuable upon exercise of Warrants and payment
in accordance with the terms of the Warrants will be fully paid and
non-assessable.
The Warrants do not confer upon the holders of Warrants any voting or
other rights of the Shareholders of the Company. Upon notice to the holders of
Warrants, the Company has the right in its sole discretion to reduce the
exercise price or extend the expiration date of the Warrants. Although this
right is intended to benefit the holders of Warrants, to the extent the Company
exercises this right when the Warrants would otherwise be exercisable at a price
higher than the prevailing market price of the Common Stock, the likelihood of
exercise, and resultant increase in the number of shares outstanding, may result
in making more costly, or impeding, a change in control in the Company.
The description above is subject to the provisions of the Warrant
Agreement, which has been filed as an exhibit to the Registration Statement, a
copy of which this Prospectus forms a part, and reference is made to such
exhibit for a detailed description thereof summarized here.
UNIT PURCHASE OPTIONS
The Company granted to D.H. Blair the Unit Purchase Options to purchase
up to 200,000 Units. The Units issuable upon exercise of the Unit Purchase
Options will, when so issued, be identical to the Units offered in connection
with the Offering, except that the warrants contained therein are subject to
redemption by the Company, in accordance with the terms of the Warrant
Agreement, at any time after the Unit Purchase Option has been exercised and the
underlying warrants are outstanding. The Unit Purchase Options cannot be
transferred, sold, assigned or hypothecated for three years, except to any
officer of D.H. Blair or members of the selling group (in connection with the
Offering) or their officers. The Unit Purchase Options are exercisable during
the two year period commencing January 24, 1999 at an exercise price of $6.00
per Unit (120% of the initial public offering price) subject to adjustments in
certain events. The holders of the Unit Purchase Options have certain demand and
piggyback registration rights.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue this Preferred Stock in
one or more series and to fix the number of shares and the relative rights,
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences, without further vote or action by the
stockholders. If shares of Preferred Stock with voting rights are issued, such
issuance could affect the voting rights of the holders of the Company's Common
Stock by increasing the number of outstanding shares having voting rights, and
by the creation of class or series voting rights. If the Board of Directors
authorizes the issuance of shares of Preferred Stock with conversion rights, the
number of shares of Common Stock outstanding could potentially be increased by
up to the authorized amount. Issuance of Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, Preferred Stock could have preferences over the Common Stock (and other
series of preferred stock) with respect to dividend and liquidation rights. The
Company currently has no plans to issue any Preferred Stock.
DEBENTURES
The Debentures were issued by the Company under an indenture (the
"Indenture"), dated April 25, 1997 between the Company, as issuer, and American
Stock Transfer & Trust Company, as Trustee ("the Trustee"). The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their
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entirety by reference to, all of the provisions of the Indenture, including the
definitions therein of certain terms. Wherever particular defined terms of the
Indenture are referred to, such defined terms are incorporated herein by
reference.
General. The Debentures are unsecured senior subordinated obligations of
the Company, limited to $10,000,000 aggregate principal amount and maturing June
15, 2004. The Debentures bear interest at the rate of nine percent (9%) per
annum, payable quarterly commencing June 15, 1997 to the persons in whose names
such Debentures are registered at the close of business on the first day of the
month in which the interest is to be paid (the "Interest Payment Date").
Interest is computed on the basis of a 360-day year of twelve 30-day months.
Principal and interest are payable, and the Debentures may be presented for
conversion, redemption, exchange or transfer, at the office of the Company or
its agent maintained by the Company for such purpose. In addition, payment of
interest will be made by check mailed to the address of the person entitled
thereto as it appears in the register of the holders ("Holders") of the
Debentures on the record date for each interest payment. The Debentures were
issued in fully registered form without coupons, in authorized denominations of
$1,000 and any whole multiple thereof. A Holder may transfer or exchange
Debentures in accordance with the Indenture. The company may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law. The Company need not transfer or
exchange any Debentures if such Debentures have been selected for redemption.
Conversion Rights. The Debentures are convertible into shares of the
Company's Common Stock at the option of the holder at any time period to
maturity at a price of $6.00 per share (the "Conversion Price"). The conversion
Price is subject to adjustment under certain conditions. A Holder may convert
his Debentures by surrendering them to the Company in accordance with the terms
of the Indenture, at any time after forty (40) days after the last closing of
the Debentures.
The Conversion Price will be subject to adjustment upon the occurrence
of certain events, including, (i) the issuance of stock of the Company as a
divided or distribution on any shares of Common Stock, (ii) subdivisions,
combinations and certain reclassifications of Common Stock, (iii) the issuance
to all holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase shares of common Stock at less than the then current
market price per share (as determined in the manner set forth in the Indenture),
and (iv) the distribution to all holders of Common Stock of any shares of
capital stock of the Company (other than Common Stock), evidences of
indebtedness of the Company or other assets (including securities, but excluding
any rights or warrants referred to above, excluding any dividend or distribution
paid in cash out of the earned surplus of the Company). In addition the
Conversion Price will be adjusted upon the issuance of Common Stock or of rights
or warrants entitling holders thereof to subscribe for or purchase shares of
Common Stock, or the issuance of securities convertible into or exchangeable for
shares of Common Stock, at less than the then current market price of the Common
Stock to equal the price offered by the Company to such holders if such
subscription or purchase price is less than the then Conversion Price.
No adjustment in the Conversion Price will be required unless such
adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect; provided, however, that any adjustment that
would otherwise be required to be made will be carried forward and taken into
account in any subsequent adjustment.
If the Company consolidates or merges into or sells, leases, conveys or
otherwise disposes of all or substantially all of its assets to any person, and
the Debentures are assumed by the successor, the Debentures will become
convertible into the kind and amount of securities, cash or other assets which
the Holders of the Debentures would have owned immediately after the transaction
if the Holders and converted the Debentures immediately before the effective
date of the transaction at the Conversion Price in effect immediately prior to
such effective date.
Redemption. The Debentures may be redeemed by the Company at any time or
from time to time commencing June 15, 1999, at the Company's option, in whole or
in part, upon not less than 30 nor more than 60 days' notice, mailed
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to the registered Holders thereof at their last registered addresses, at the
redemption prices (expressed as percentages of the principal amount) set forth
below, plus accrued and unpaid interest to the Redemption Date (and subject to
the right of any record holder to receive the interest payable on the applicable
Interest Payment Date that is on or prior to the Redemption Date). If redeemed
during the periods indicated below, the applicable redemption percentage would
be:
FROM THROUGH PERCENTAGE
---- ------- ----------
June 15, 1999 June 14, 2000 109.0%
June 15, 2000 June 14, 2001 107.0%
June 15, 2001 June 14, 2002 105.0%
June 15, 2002 June 14, 2003 102.5%
June 15, 2003 June 15, 2004 100.0%
Debentures in denominations larger than $1,000 may be redeemed in part
in whole multiples of $1,000. If fewer than all the Debentures are redeemed, the
Trustee will select the particular Debentures to be redeemed by such methods as
the Trustee shall deem fair and appropriate and as are in accordance with the
rules and regulations of the applicable self-regulatory organizations. The
Company may not redeem the Debentures prior to June 15, 1998. The Company may
redeem the Debentures after June 15, 1998 but prior to June 15, 1999 if the
market price of the Common Stock on any 20 trading days during a period of 30
consecutive trading days shall be equaled or exceeded 150% of the then
Conversion Price of the Debentures. The applicable redemption percentage would
be 109%. On and after the Redemption Date, unless the company defaults on the
payment of the redemption price or on interest accrued and unpaid to the
Redemption Date, interest will cease to accrue on Debentures called for
redemption and all rights of Holders of the Debentures will cease except the
right to receive the applicable redemption price, plus interest accrued and
unpaid to the Redemption Date.
Sinking Fund. The Debentures are redeemable, subject to the terms of the
Indenture, through the operation of a mandatory sinking fund in two equal
installments totaling 67% of the issue on June 15, 2002 and June 15, 2003, with
the balance of the issue being retired at maturity on June 15, 2004.
SUBORDINATION OF DEBENTURES
The payment of principal of, premium, if any, and interest on the
Debentures are, to the extent set forth in the Indenture, subordinated and
subject to right of payment to the prior payment in full of all Senior
Indebtedness (as defined below) of the Company, whether outstanding at the date
of the Indenture or later incurred. In the event and during the continuation of
any default in the payment of the principal of, or interest on, any Senior
Indebtedness of the Company or any event of default under any Senior
Indebtedness of the Company, no payment with the respect to the principal or
interest on the Debentures will be made by the Company unless and until such
default has been cured or waived. Upon any payment or distribution of the
Company's assets to creditors upon any dissolution, winding up, liquidation,
reorganization, bankruptcy, insolvency, receivership or other proceedings
relating to the Company, whether voluntary or involuntary, the holders of all
Senior Indebtedness of the Company will first be entitled to receive payment in
full prior to any payment upon the principal of, premium, if any, or interest on
the Debentures.
"Senior Indebtedness" means Indebtedness of the Company outstanding at
any time for money borrowed from a bank, financial company or other lending
institution and Indebtedness which is at least 50% secured by assets of the
Company or any subsidiary. "Indebtedness" means any debt of the Company for
borrowed money, capitalized leases and
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purchase money obligations or evidenced by a note, debenture, letter of credit
or similar instrument given in connection with the acquisition, other than in
the ordinary course of business, of any property or assets; any debt of any
subsidiary of the Company described in the preceding definition which the
Company has guaranteed or for which it is otherwise liable; and any amendment,
renewal, extension or refunding of any such debt.
By reason of such subordination, in the event of the insolvency of the
Company, Holders of the Debentures may recover less, ratably, then holders of
Senior Indebtedness of the Company.
At June 30, 1997, the principal amount of senior subordinated debt of
the Company on a consolidated basis was approximately $15,000,000 consisting
primarily of bank and other long term debt.
Events of Default, Notice of Waiver. The Indenture provides that, if an
Event of Default specified therein shall have happened and be continuing, either
the Trustee or the Holders of 25% in principal amount of the Debentures then
outstanding may declare the principal of all such Debentures to be due and
payable; provided, however, that if any and all defaults (other than the
non-payment of principal and interest on Debentures then outstanding) shall have
been remedied, the Holders of a majority in aggregate principal amount of
Debentures then outstanding may waive such defaults and rescind and annul such
declaration and its consequences.
"Events of Default" are defined in the Indenture as being (i) a default
for ten (10) days in payment of any interest installment; (ii) a default for ten
(10) days in payment of principal and premium, if any, when due and payable;
(iii) a default for ten (10) days in the deposit of any sinking fund payment
when and as due; (iv) a default for thirty (30) days after written notice to the
company by the Trustee or to the Company and the Trustee by the Holders of 25%
in principal amount of the outstanding Debentures, in the performance of any
other covenant or agreement in the Indenture; (v) a default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Company or under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company, which default shall constitute a failure to pay any
portion of interest or principal when due after any applicable grace period or
shall have resulted in such indebtedness becoming or being declared due and
payable without such indebtedness having been discharged or such acceleration
having been rescinded or annulled; (vi) certain events of bankruptcy, insolvency
and reorganization; and (vii) in the event that the Company's reporting
obligations pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 are suspended or terminated.
The Indenture provides that the Trustee shall, within thirty (30) days
after learning of the occurrence of a default give to the Holders of the
Debentures notice of all uncured defaults known to it; provided that except in
the case of default in the payment of principal and premium, if any, or interest
on any of the Debentures, or failure to make a required sinking fund deposit or
redemption payment, the Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interest of the Holders. The term "default" for the purposes of this provision
only shall mean the happening of any of the Events of Default specified above,
not including any grace period or any requirement for the giving of written
notice.
Merger and Consolidation. The Indenture provides that the Company may
not be consolidated with or merged into another entity, or have transferred all
or substantially all of its assets in one or more related transactions, unless
(i) the Company shall be the surviving entity, or the successor shall expressly
assume by supplemental indenture all of the obligations of the Company under the
Debentures and the Indenture, (ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing, (iii)
the assuming corporation has a net worth not less than the consolidated net
worth of the Company, and (iv) certain other conditions are met.
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Covenants.
(i) Dividend and Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company may not, and may not permit any of its
subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction, unless such
encumbrance or restriction relates to presently existing Senior Indebtedness, on
the ability of any subsidiary to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation in, or
measured by, its profits, owned by the Company or any of its subsidiaries or pay
any Indebtedness owed to the Company or any of its subsidiaries, (ii) make loans
or advances to the Company or any of its subsidiaries, or (iii) transfer any of
its properties or assets to the Company or any of its subsidiaries, except for
such encumbrances or restrictions in existence on the date of the Indenture and
encumbrances or restrictions existing under or by reason of (A) the Indenture
and the Debentures, (B) applicable law, (C) any instrument governing
Indebtedness or capital stock of a person acquired by the Company, or any of its
subsidiaries, in existence at the time of such acquisition (but not in
connection with such acquisition), including any renewals, refundings thereof,
provided that the restrictions contained in such renewals, refundings or
refinancings are no more restrictive than those contained in such instrument at
the time of such acquisition, which encumbrance or restriction is not applicable
to any person, or to the properties or assets of any person, other than the
person, or the property or assets of the person, so acquired or its
subsidiaries, (D) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices or (E) with respect to clause (iii) above, purchase money obligations
for property acquired in the ordinary course of business. For purposes of the
covenants, a "subsidiary" shall mean any corporation in which the Company,
directly or indirectly, owns more than 50% of the outstanding voting stock.
(ii) Restriction of Payment of Dividends and Stock Repurchases. The
Company may not (i) declare or pay any dividend or make any distribution on its
capital stock of any class or its shareholders (other than dividends or
distributions payable in shares of capital stock of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Company, any subsidiary or other affiliate (other than any Equity Interests
owned by the Company or any subsidiary and other than in connection with an
acquisition of any business entity where payment includes a stock in lieu of
cash component); or (iii) permit any subsidiary to declare or pay any dividend
on, or make any distribution to the holders (as such), of, any shares of its
capital stock except to the Company or a subsidiary (other than dividends or
distributions payable in Equity Interests of it or the Company); or (iv) permit
any subsidiary to purchase, redeem or otherwise acquire or retire for value any
Equity Interests of such subsidiary, the Company or any affiliate of either of
them (other than any such Equity Interests owned by the Company or any
subsidiary), if at the time of such action a Event of Default (see above) shall
have occurred and be continuing, or shall occur as a consequence thereof, or if
upon giving effect to such payment the aggregate amount expended in favor of all
such payments (the amount expended for such purposes, if other than cash, to be
conclusively determined by the Board of Directors as evidenced by a Board
resolution) subsequent to the date of execution of the Indenture shall exceed
the sum of (1) 30% of the aggregate Consolidated Net Income of the Company
accrued during fiscal quarters ending subsequent to December 31, 1996; (2) the
aggregate net proceeds, including cash and the fair market value of property
other than cash, received by the Company from the issue or sale after the date
of execution of the Indenture of capital stock of the Company (other than
Disqualified Stock) or of warrants to purchase such capita stock (other than
warrants to purchase such Disqualified Stock), other than in connection with the
conversion of any Indebtedness; (3) the aggregate net proceeds received by the
Company subsequent to the date of the execution of the Indenture from the issue
or sale of any debt securities or Disqualified Stock of the Company, if, at such
time, such debt securities, or Disqualified Stock, as the case may be, have been
converted into capital stock of the Company; and (4) $500,000.
"Consolidated Net Income" means, for any period, the aggregate of the
Net Income of the Company and its subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles; provided that (i) the Net Income of any person which is not a
subsidiary or is accounted for by the Company
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by the equity method of accounting shall be included only to the extent of the
amount of dividends or distributions paid to the Company or a subsidiary, and
(ii) the Net Income of any person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition shall be excluded. "Net
Income" of any person shall mean the net income (loss) of such person,
determined in accordance with generally accepted accounting principles;
excluding, however, from the determination of Net Income any gain (but not loss)
realized upon the sale or other disposition (including, without limitation,
dispositions pursuant to leaseback transactions, except any gain from such
leaseback transaction may be amortized into Net Income over the term of the
lease) of any real property or equipment of such person which is not sold or
otherwise disposed of in the ordinary course of business, or of any capital
stock of the Company or a subsidiary owned by such person.
"Disqualified Stock" means capital stock subject to mandatory redemption
or redemption at the option of the holder, in either case prior to the maturity
of the Debentures.
"Equity Interests" means capital stock or warrants, options or other
rights to acquire capital stock.
(iii) Restriction on Transactions with Affiliates. Neither the Company
nor any of its subsidiaries may (i) engage in any transaction with an affiliate
of the Company on terms less favorable to the Company or such subsidiary than
that which might be obtained at the time of such transaction from unrelated
entities, (ii) loan or advance any funds to any affiliate(s) (other than to the
Company or any of its direct or indirect subsidiaries) in excess of $100,000 in
the aggregate outstanding at any time, or (iii) purchase less than all of the
securities of an affiliate or an entity controlled by any affiliate; provided,
however, that any such purchase of all securities shall be deemed fair to the
Company as evidenced by an opinion rendered by an investment banker selected by
independent directors of the Company.
(iv) Plan of Liquidation. The Company may not adopt any plan of
liquidation (other than a plan of liquidation incident to a permitted merger,
consolidation, sale of assets or other transaction described above) which
provides for, contemplates or the effectuation of which is preceded by, (i) the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than substantially as an entirety and (ii) the
distribution of all the proceeds of such sale, lease, conveyance or other
disposition unless the Company redeems the Debentures at the then redemption
price.
Modification of the Indenture and Waiver. The Indenture contains
provisions permitting the Company and the Trustee, with the consent of the
Holders of a majority in the aggregate principal amount of the outstanding
Debentures, to execute supplemental indentures adding any provisions to or
changing or eliminating any of the provisions of the Indenture or modifying the
rights of the Holders of Debentures, provided that no such supplemental
indenture may (i) extend the fixed maturity of any Debenture, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, without the consent of each Holder of the Debentures so
affected, (ii) modify the provisions of the Indenture with respect to the
subordination of the Debentures in a manner adverse to the Holders or alter the
provisions of the Indenture with respect to the sinking fund, without the
consent of the Holders of all of the outstanding Debentures, or (iii) reduce the
aforesaid percentage of Debentures, the consent of the Holders of which is
required for any such supplemental indenture, without the consent of the Holders
of all the outstanding Debentures. The Holders of a majority in aggregate
principal amount of outstanding Debentures may waive any past default under the
Indenture, except a default in the payment of principal (and premium, if any) or
interest or default with respect to certain covenants under the Indenture.
Direction of Trustee by Holders of Debentures. In addition to the rights
of the Holders of the Debentures to take certain action previously described,
the Holders of a majority in aggregate principal amount of the Debentures at the
time outstanding, subject to the provision of the Indenture relating to the
duties and rights of the Trustee, will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
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Trustee or the exercising of any trust or power conferred on the Trustee.
However, the Trustee will have the right to decline to follow any such
direction, if the Trustee determines that the action requested may not be
lawfully taken, would subject the Trustee to liability, or would be unduly
prejudicial to the other Holders of the Debentures. As a requisite to taking any
such action, the Trustee may require the Holders of the Debentures requesting
the same to provide it with reasonable security or indemnity against the cost,
expenses and liabilities which may be incurred in connection with such action.
The Holders of at least 10% in aggregate principal amount of Debentures may call
a meeting of the Holders of the Debentures if the Trustee fails to do so within
twenty (20) days after receiving the request.
The Trustee. The Trustee will also act as the paying and
conversion agent with respect to the payments under the conversion of the
Debentures in accordance with the terms of the Indenture, subject to the
Trustee's right to resign.
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Common Stock and Class B Common Stock and
the broad discretion conferred upon the Board of Directors with respect to the
issuance of series of Preferred Stock (including with respect to voting rights)
could substantially impede the ability of one or more shareholders (acting in
concert) to acquire sufficient influence over the election of directors and
other matters to effect a change in control or management of the Company, and
the Board of Directors' ability to issue Preferred Stock could also be utilized
to change the economic and control structure of the Company. As a result, such
provisions, together with certain other provisions of the bye-laws summarized in
the succeeding paragraph, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in such shareholder's best interest, including attempts that
might result in a premium over the market price for the Common Stock held by
shareholders.
The bye-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors at annual general meetings of shareholders. In general,
notice of intent to nominate a director at such meeting must be received by the
Company not less than 90 days prior to the meeting and must contain certain
specified information concerning the person to be nominated or the matter to be
brought before the meeting and concerning the shareholder submitting the
proposal.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda differs in certain material respects
from laws generally applicable to United States corporations and their
shareholders. Set forth below is a summary of certain significant provisions of
The Companies Act (including any modifications adopted pursuant to the Company's
bye-laws) applicable to the Company, which differ in certain respects from
provisions of Delaware corporate law. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be relevant
to the Company and its shareholders.
Interested Directors. The bye-laws provide that any transaction entered
into by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction provided the nature of the interest is disclosed at
the first opportunity at a meeting of directors, or in writing to the directors.
Under Delaware law no such transaction would be voidable if (i) the material
facts as to such interested directors' relationship or interests are disclosed
or are known to the board of directors and the board in good faith authorizes
the transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed or are known to the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of
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the time it is authorized, approved or ratified. Under Delaware law, such
interested director could be held liable for any transaction for which such
director derived an improper personal benefit.
Merger and Similar Arrangements. The Company may amalgamate (merge) with
another Bermuda exempted company or a company incorporated outside Bermuda and
carry on such business when it is within the objects of the Company's Memorandum
of Association. See "-- Certain Provisions of Bermuda Law." A shareholder may
apply to a Bermuda court for a proper valuation of such shareholder's shares if
such shareholder is not satisfied that fair value has been paid for such shares.
The court ordinarily would not disapprove the transaction on that ground absent
evidence of fraud or bad faith. Under Delaware law, with certain exceptions, any
merger, consolidation or sale of all or substantially all the assets of a
corporation must be approved by the board of directors and a majority of the
outstanding shares entitled to vote. Under Delaware law, a stockholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair market value of the
shares held by such stockholder (as determined by a court or by agreement of the
corporation and the stockholder) in lieu of the consideration such stockholder
would otherwise receive in the transaction. Delaware law does not provide
stockholders of a corporation with voting or appraisal rights when the
corporation acquires another business through the issuance of its stock or other
consideration (i) in exchange for the assets of the business to be acquired,
(ii) in exchange for the outstanding stock of the corporation to be acquired or
(iii) in a merger of the corporation to be acquired with a subsidiary of the
acquiring corporation. Under Bermuda law, the Company's shareholders have the
right to vote on (i) any compromise or arrangement between the Company and its
shareholders, (ii) a take-over scheme for 100% of the Company's shares enabling
the compulsory acquisition of a 10% minority interest, (iii) an amalgamation
(merger) of the Company and (iv) the discontinuance of the Company from Bermuda.
Takeover. Bermuda law provides that where an offer is made for shares of
another Company and, within four months of the offer the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares on
the terms of the offer. Dissenting shareholders may apply to the court within
one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion to
enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith or collusion as between the offeror and
the holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any shareholder
vote, may merge with any 90% or more owned subsidiary. Upon any such merger,
dissenting stockholders of the subsidiary would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are not
as extensive as the right of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association and
bye-laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys fees incurred in connection with such
action. Class actions and derivative actions generally are available to
stockholders under Delaware law for, among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In such actions, the court has discretion to permit the winning party to recover
attorney fees incurred in connection with such action.
Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default,
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breach of duty or breach of trust of which a director or officer may be guilty
in relation to the Company other than in respect of his own fraud or dishonesty.
Under Delaware law, a corporation may adopt a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for breaches
of the director's duty of loyalty, for acts or omission not in good faith or
which involve intentional misconduct or knowing violations of law, for improper
payment of dividends or for any transaction from which the director derived an
improper personal benefit. Delaware law has provisions and limitations similar
to Bermuda regarding indemnification by a corporation of its directors or
officers, except that under Delaware law the statutory rights to indemnification
may not be as limited.
Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to an increase, reduction or
other alteration of the Company's share capital. The shareholders have the
additional right to inspect the bye-laws, minutes of general meetings and
audited financial statements of the Company, which must be presented to the
annual general meeting of shareholders. The register of shareholders of the
Company is also open to inspection by shareholders without charge, and to
members of the public for a fee. The Company is required to maintain its share
register in Bermuda but may establish a branch register outside Bermuda. The
Company is required to keep at its registered office a register of its directors
and officers which is open for inspection by members of the public without
charge. Bermuda law does not, however, provide a general right for shareholders
to inspect or obtain copies of any other corporate records. Delaware law permits
any shareholder to inspect or obtain copies of a corporation's shareholder list
and its other books and records for any purpose reasonably related to such
person's interest as a shareholder.
CERTAIN PROVISIONS OF BERMUDA LAW
In a September 1, 1995 letter to the Company's Bermuda counsel, the
Bermuda Monetary Authority approved the Company's application for "non-resident"
status in Bermuda for exchange control purposes. The Bermuda Monetary Authority
has granted permission for the issuance of the Units, Warrants and shares of
Common Stock of the Company. Prior to the Exchange Offer, this Offering Circular
will be filed with the Registrar of Companies in Bermuda in accordance with
Bermuda law.
In granting such permission and in accepting this Offering Circular for
filing, neither the Bermuda Monetary Authority, nor the Registrar of Companies
in Bermuda accepts any responsibility for the financial soundness of the Company
or of the correctness of any of the statements made or opinions expressed in
this Offering Circular.
The transfer of securities between persons regarded as resident outside
Bermuda for exchange control purposes and the issue of securities after the
completion of the Exchange Offer to such persons may be effected without
specific consent under the Exchange Control Act 1972 and regulations thereunder.
Issues and transfers of securities involving any person regarded as resident in
Bermuda for exchange control purposes require specific prior approval under the
Exchange Control Act 1972.
Owners of the Company's shares of Common Stock who are non-residents of
Bermuda for Bermuda exchange control purposes are not restricted in the exercise
of the rights to hold or vote their shares. Because the Company has been
designated as a non-resident for Bermuda exchange control purposes there are no
restrictions on its ability to transfer funds in and out of Bermuda or to pay
dividends to United States residents who are holders of the Company's Common
Stock, other than in respect of local Bermuda currency.
In accordance with Bermuda law, securities certificates are only issued
in the names of corporations, partnerships or individuals. In the case of an
applicant acting in a special capacity (for example as a trustee), certificates
may, at the
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request of the applicant, record the capacity, in which the applicant is acting.
Notwithstanding the recording of any such special capacity the Company is not
bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.
The Company will take no notice of any trust applicable to any of its
securities whether or not it had notice of such trust. Specifically, the Company
has no obligation under Bermuda law to ensure that a Trustee who is holding
shares of the Company subject to a trust is properly carrying out the terms of
such trust.
As an "exempted Company," the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted Company the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years); (2) the taking of mortgages on land in Bermuda
to secure an amount in excess of $50,000 without the consent of the Minister of
Finance of Bermuda; or (3) the carrying on of business of any kind in Bermuda,
except in furtherance of the business of the Company carried on outside Bermuda
or under a license granted by the Minister of Finance of Bermuda.
TRANSFER AGENT, WARRANT AGENT AND TRUSTEE
The Company's transfer and warrant agent for the Units, Common Stock and
Warrants, and the Trustee and paying agent with respect to the Debentures, is
American Stock Transfer & Trust Company, New York, New York.
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of the material United States
federal income tax consequences to holders of Warrants tendering their Warrants
pursuant to the Exchange Offer and certain anticipated tax consequences of the
operations of the Company and of an investment in the Common Stock under Bermuda
tax laws and South African tax laws. The discussion does not deal with all
possible tax consequences relating to the Company's operations or to an
investment in the Warrants and Common Stock. In particular, the discussion does
not address the tax consequences under state, local and other (e.g., non-United
States federal, non-Bermuda) tax laws. Accordingly, each prospective investor
should consult his or her tax advisor regarding the tax consequences of the
Exchange Offer. The discussion is based upon laws and relevant interpretation
thereof in effect as of the date of this Offering Circular, all of which are
subject to change.
EFFECT OF THE EXCHANGE OFFER UNDER U.S. LAW
THE FOLLOWING DISCUSSION OF CERTAIN UNITED STATES FEDERAL TAX
CONSEQUENCES IS NOT TAX ADVICE. EACH PERSON CONSIDERING THE EXCHANGE OFFER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
TO HIM OR HER OF THE EXCHANGE OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN INCOME OR OTHER TAX LAWS AS WELL AS POSSIBLE
CHANGES IN THE TAX LAWS.
The Exchange Offer will not affect the Federal income tax treatment of
holders of Warrants who do not participate in the Exchange Offer. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, administrative pronouncements and judicial
decisions, all as in effect and existing on the date hereof and all of which are
subject to change, possibly with retroactive effect.
This summary applies only to those holders who have held Warrants and
will hold the common Stock received in exchange therefor as capital assets
pursuant to Section 1221 of the Code, and does not address the Federal income
tax consequences to holders who are subject to special rules (such as insurance
companies, financial institutions, tax-exempt organizations, foreign holders and
broker-dealers) or special rules with respect to integrated transactions (such
as certain hedging transactions) or certain "straddle" transactions.
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Although the matter is not entirely free from doubt, the Company
believes that gain or loss will be recognized for Federal income tax purposes by
a holder of Warrants on the exchange of such Warrants for Common Stock pursuant
to the Exchange Offer. The amount of the gain or loss will be equal to the
difference between the fair market value of the Common Stock received in the
Exchange Offer on the date of the exchange and the holder's tax basis in the
Warrants exchanged therefor. Such gain or loss will be long-term capital gain or
loss if the Warrants have been held for more than one year at the time of the
exchange. The holding period of the Warrants began the day after the purchase of
such Warrants and ends on the day of the exchange.
The exchanging holder's tax basis in the Common Stock will equal its
fair market value on the date of the exchange, and the holding period will begin
on the day following the exchange.
BERMUDA TAXATION
The following discussion describes correctly certain tax consequences to
the Company with respect to ownership of shares of Common Stock under Bermuda
law. The Company will not obtain an opinion of tax counsel with respect to tax
consequences under Bermuda law.
At the date hereof, there is no Bermuda income, corporation or profits
tax, withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its stockholders other than
stockholders ordinarily resident in Bermuda. The Company is not subject to stamp
or other similar duty on the issue, transfer or redemption of the Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares or other
obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares or
other obligations of the Company or any real property or leasehold interests in
Bermuda owned by the Company. No reciprocal tax treaty affecting the Company
exists between Bermuda and the United States.
As an exempted Company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
SOUTH AFRICAN TAXATION
The following discussion describes correctly certain tax consequences to
the Company with respect to ownership of the Common Stock under South African
law.
Taxation of the Company. Dividends received by the Company will not be
subject to South African withholding tax. Interest received by the Company will
not be subject to South African tax provided the Company is not managed and
controlled in South Africa and provided that such interest income is not
effectively connected with any business carried on by the Company in South
Africa. It is intended that the Company will not be managed and controlled in
South Africa. Royalties received by the Company from South Africa will be
subject to a flat rate of taxation equivalent to 10.5% of the gross value of
such royalties.
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Taxation of FSAH
Income Tax. Income tax is levied in South Africa on income which is
classified as being of a "revenue" nature. Income of a capital nature is not
currently subject to tax. The current corporate income tax rate is 35%.
Dividends to be received by FSAH from its subsidiaries will be exempt from
income tax. Interest received by FSAH will be subject to income tax. No
assurance can be given that proceeds derived by FSAH from the sale of its
investments in underlying companies will not be subject to South African
corporate income tax at a rate of 35%. Although an exemption from tax is
available under the South African Income Tax Act, an application by the Company
to take advantage of such exemption was not granted. Based on this denial, the
Company's income may be subject to South African income tax at a rate of 35%.
However, the denial of the application is not dispositive of the ultimate tax
treatment of the Company's realization gains, and although no assurance can be
given as to the tax treatment of such gains, the Company believes that based on
its investment policy of acquiring, owning and operating closely-held South
African companies, its realization gains will be held to be of a capital nature.
South Africa does not currently impose any tax on capital gains. However, no
assurance can be given that a capital gains tax will not be introduced in the
future.
Secondary Tax on Companies. A Company declaring a dividend becomes
liable to an additional tax known as secondary tax on companies ("STC"). STC is
levied at the rate of 12.5% on the difference between dividends declared by a
Company and dividends received by that Company in any given "dividend cycle." An
exemption from STC is available in respect of dividends declared by one South
African Company which is a wholly-owned subsidiary of another South African
Company, where the subsidiary derives at least 90% of its profits from its
sources within South Africa and has notified the Commissioner for Inland Revenue
that it is availing itself of the exemption. The exemption will be available in
respect of dividends declared by wholly-owned subsidiaries of FSAH to FSAH.
Dividends declared by FSAH to the Company will be subject to STC.
Marketable Securities Tax and Stamp Duty. Any listed securities
purchased by FSAH through a stockbroker will be subject to marketable securities
tax. The current rate of marketable securities tax is 0.25% of the acquisition
price. Unlisted securities are subject to the payment of stamp duty at the rate
of 0.25% of the greater of the acquisition price or market value.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this Offering Circular, the Company has outstanding an
aggregate of 5,548,498 shares of Common Stock and 1,822,500 shares of Class B
Common Stock, which shares of Class B Common Stock are held by 8 holders. In
addition, an aggregate of 7,985,839 shares of Common Stock are issuable upon
exercise of the Class A and Class B Warrants included in the Units and the
exercise of certain other Class A Warrants and Class B Warrants. If 2,513,959
currently outstanding Class A Warrants and 2,513,959 currently outstanding Class
B Warrants are exchanged pursuant to the Company's offer to exchange two shares
of Common Stock for three currently outstanding Class A Warrants and three
currently outstanding Class B Warrants and the remaining 221,981 Class A
Warrants are exchanged pursuant to the Company's offer to exchange two shares of
Common Stock for five currently outstanding Class A Warrants, then the Company
would have outstanding an aggregate of 7,313,263 shares of Common Stock and no
shares of Common Stock issuable on the exercise of currently outstanding Class A
and Class B Warrants. The 2,300,000 shares included in the Units sold in
connection with the Company's initial public offering are freely transferable
without restriction under the Securities Act except for any shares purchased by
any person who is or thereby becomes an "affiliate" of the Company, which shares
will be subject to the resale limitations contained in Rule 144 promulgated
under the Securities Act. 1,191,837 shares of Common Stock currently held by the
Escrow Agent are "restricted securities" and may not be sold unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
exemption from registration. None of the shares of Common Stock held by the
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Escrow Agent will be eligible for sale under Rule 144 until July 1998. All of
the 1,822,500 shares of Class B Common Stock outstanding prior to this Offering
are "restricted securities" as that term is defined under Rule 144 and may not
be sold publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. All of the shares
of Class B Common Stock issued prior to the Company's initial public offering
are currently eligible for sale under Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) may sell within any three-month period a number of
restricted shares beneficially owned for at least one year which does not exceed
the greater of 1% of the then outstanding shares of such class of securities or
the average weekly trading volume during the four calendar weeks prior to such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. Rule 144 also permits, under certain circumstances, the sale of
shares beneficially owned for at least two years by a person who is not an
affiliate of the Company without regard to the volume or other resale
limitations. For shares issued in consideration of an unsecured or non-recourse
promissory note, the holding period does not commence until the note is paid in
full. The above is a brief summary of Rule 144 and is not intended to be a
complete description of the Rule.
D.H. Blair also has demand and piggyback registration rights with
respect to the securities underlying the Unit Purchase Options.
No predictions can be made of the effect, if any, that sales of Common
Stock or the availability of Common Stock for sale will have on the market price
of such securities prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock or other securities of the Company in the
public market could adversely affect prevailing market prices.
LEGAL MATTERS
Certain legal matters have been passed upon for the Company by Parker
Chapin Flattau & Klimpl, LLP, New York, New York, United States counsel for the
Company. A partner of Parker Chapin Flattau & Klimpl, LLP owns shares of the
Company's Class B Common Stock. Certain other legal matters have been passed on
by Webber Wentzel Bowens, Johannesburg, South Africa, South African counsel for
the Company.
EXPERTS
The financial statements incorporated in this Offering Circular by
reference to the Annual Report on Form 10-K of First South Africa Corp., Ltd.
for the year ended June 30, 1997 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is organized under the laws of Bermuda. Certain of the
directors and officers of the Company, and the South African experts named
herein, are or may be residents of Bermuda or South Africa and all or a
substantial portion of the assets of the Company and such persons are or may be
located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States upon such
persons, or to enforce against them judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the United
States federal securities laws. The Company understands that the United States
does not currently have a treaty providing for reciprocal recognition and
enforcement of judgments in civil and commercial
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matters with Bermuda or South Africa and that there is doubt (i) whether a final
judgment for the payment of money rendered by a federal or state court in the
United States based on civil liability, whether or not predicated upon the civil
liability provisions of the United States federal securities laws, would be
enforceable in Bermuda or South Africa against the Company or certain of the
Company's officers and directors, and (ii) whether an action could be brought in
Bermuda or South Africa against the Company or certain of the Company's officers
and directors in the first instance on the basis of liability predicated solely
upon the provisions of the United States federal securities laws.
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================================================================================
THE EXCHANGE AGENT AND THE INFORMATION AGENT
American Stock
Transfer & Trust Company
40 Wall Street
46th Floor
New York, New York 10005
By Facsimile:
(718) 234-5001
Telephone:
(718) 921-8200
-----------
TABLE OF CONTENTS
PAGE
Available Information..........................................................2
Incorporation of Certain Documents by Reference................................2
Offering Summary...............................................................3
Cautionary Statement Regarding Forward-Looking
Information..................................................................8
Risk Factors...................................................................8
Background Purpose of the Exchange Offer; Certain Effects.....................14
Dividend Policy...............................................................15
Market for Registrant's Common Stock, Units and Warrants......................16
PAGE
Pro Forma Effect of the Exchange Offer........................................18
The Exchange Offer............................................................19
Description of Securities.....................................................25
Certain Tax Considerations....................................................36
Shares Eligible for Future Sale...............................................38
Legal Matters.................................................................39
Experts.......................................................................39
Enforceability of Civil Liabilities...........................................39
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS OFFERING CIRCULAR AND THE LETTER OF
TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS OFFERING CIRCULAR
DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY AND OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
OFFERING CIRCULAR NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
================================================================================
<PAGE>
EXHIBIT A
---------
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, 1997
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.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Bermuda N/A
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Clarendon House, Church Street, Hamilton HM CX, Bermuda
-------------------------------------------------------
(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
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------------
("Common Stock")
Class A Redeemable Warrants
----------------------------------
("Class A Warrants")
Class B Redeemable Warrants
----------------------------------
("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 [_]
<PAGE>
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. [_]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CFR 230.405).
The aggregate market value of the Registrants Common Stock held by
non-affiliates of the Registrant as of September 30, 1997, was $21,175,157.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
As of September 25, 1997 there were 3,694,498 shares of the Registrant's Common
Stock outstanding and 1,822,500 shares of the Registrant's Class B Common Stock.
2
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
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. The Company has acquired through FSAH, twelve
businesses based in South Africa that are as a group engaged in the following
industry segments:
1. Packaging equipment and materials.
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 in January 1996, 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 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 the assets and
business of Paper & Metal Industries, a small manufacturer of rough washers for
use in the fastener industry. In April 1996, Europair acquired the assets and
business of Universal Refrigeration, an agent and supplier of refrigeration
products. In June 1996, FSAH acquired Piemans Pantry, a manufacturer and
distributor of high quality meat pies. In October 1996, FSAH acquired Astoria
Bakery and Astoria Bakery Lesotho, manufacturers and distributors of speciality
baked breads and confectionary products. In November 1996, the Company acquired
the assets of Alfapak (Pty) Ltd., a manufacturer of plastic film and printed
plastic bags. In November 1996, Europair acquired the assets and business of
First Strut (Pty) Ltd, a manufacturer of electrical trunking conduits. In
January 1997, FSAH acquired Seemann's, a manufacturer and distributor of a wide
range of processed meat products. In April 1997, FSAH acquired the business and
assets of Gull Foods, a manufacturer of value-added prepared foods. In May 1997,
the Company acquired Pakmatic Company (Pty), Ltd., a distributor of automatic
process and packaging machinery. In June 1997, FSAH transferred all of the
shares of Piemans Pantry, Astoria, Seemanns and Gull Foods to FSA Food and
completed (i) the initial public offering in South Africa of 5,000,000 ordinary
shares of common stock of FSA Food, which shares are listed on the Johannesburg
Stock Exchange, (ii) an institutional private placement in South Africa of
20,000,000 ordinary shares of common stock of FSA Food, and (iii) a private
placement of 12,500,000 ordinary shares of common stock to management and staff.
As of August 11, 1997, FSAH owned 70% of the issued and outstanding shares of
FSA Food.
FSAH manages the Company's business interests in South Africa. FSAH
monitors the operational performance of its subsidiaries and seeks out
prospective acquisition candidates in businesses that complement or are
otherwise related to the Company's existing acquisitions, and in other
businesses that may be identified by the Company's management.
HISTORY
The Company was founded in September 1995 in response to management's
perception of a growing global interest in South Africa as an emerging market.
The Company believes that the recent relaxation of trade and financial sanctions
and the reintegration of South Africa into the world economic community may
increase the opportunity for improved growth in the South African economy in
general and more particularly in the industry segments in which the Company is
engaged. See Note 18 of the Notes to the Consolidated Financial Statements with
respect to certain financial information relating to industry segments of the
Company.
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STRATEGY
The Company intends to continue to focus its efforts on businesses
related to infrastructure development and consumer goods that the Company
believes are well situated to benefit from South Africa's on-going
transformation into an active participant in the global market place. The
Company's strategy is to expand and improve its current operations in the
industry sectors in which its operating subsidiaries are currently engaged, and
in other related industry sectors, by acquiring mid-size, closely held companies
in South Africa that operate efficiently, profitably and have seasoned
management. The Company believes that it can acquire these types of companies at
lower multiples of earnings than comparable companies would command in the
United States. The Company seeks to benefit from the combination of business
factors that South Africa has to offer, which includes a skilled work force,
effective and expanding infrastructure and increasing access to foreign markets.
The Company may also consider investments in businesses that are located in
other countries, or are engaged in other industries, and in South African
companies, the securities of which are publicly traded, that meet the Company's
price and quality requirements. The Company has and will continue to identify
potential acquisition candidates through the industry contacts of management and
the managements of its subsidiaries, as well as through other general business
sources. To date, the Company has financed its acquisitions through a
combination of cash, issuance of shares of stock of FSAH or the Company and debt
financing. The Company anticipates that it will continue to follow similar
financing strategies in its future acquisitions.
DESCRIPTION OF BUSINESSES IN EACH OF THE COMPANY'S INDUSTRY SEGMENTS
VALUE ADDED SPECIALTY FOODS
PIEMANS PANTRY
Piemans Pantry was acquired by the Company in June 1996. Piemans
Pantry manufactures, sells and distributes quality meat, vegetarian and fruit
pies, both in the baked and frozen, unbaked form. The business manufactures,
markets and distributes from its headquarters in Krugerdorp, Gauteng and has a
regional sales office in KwaZulu-Natal. Piemans Pantry strives to emphasize the
highest standards of quality control and consistency of product. It's major
customers are independent retail baker shops, pie shop franchises, in-store
bakeries, national bread bakery groups, institutional cafeterias and convenience
stores. Piemans Pantry's sales are conducted through its own employees, as well
as through distributors/agents. Approximately 60% of Piemans' sales are
internally generated with the remainder through agents. During the last fiscal
year the Spar Group (a cooperative of independent supermarkets) accounted for
19% of the Piemans Pantry's sales, while the London Pie Company (a pie store
franchise chain) contributed 15% of Piemans Pantry's sales. In the previous two
fiscal years, no customer accounted for more than 20% of Piemans Pantry's sales.
Piemans Pantry competes on the basis of quality. It faces competition
from a number of manufacturers, primarily those supplying to the lower end of
the market. Piemans Pantry believes that it has only one significant competitor
and that its market share is currently around 20%. Piemans Pantry's business is
slightly stronger in the months of July through October as well as in December.
However, these increases are not significant to make this a seasonal business.
Piemans Pantry manufactures to order on a daily basis. Backlog is therefore not
counted, nor is it relevant in the analysis of Piemans Pantry's business.
Piemans Pantry's principal suppliers for its pastry and filling
ingredients are both local and foreign companies. All suppliers except one have
immediate alternative sources. Piemans Pantry selects its suppliers on the basis
of quality and price and to date it has had no difficulty in obtaining
sufficient supplies.
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ASTORIA BAKERY
Astoria Bakery manufactures, sells and distributes high margin
specialty breads such as special rye breads in the Republic of South Africa from
its bakery in Randburg. Its major customer is Woolworths, a leading South
African high-end retail chain, accounting for approximately 65% of sales. In the
previous two fiscal years, Woolworths accounted for approximately 57% of
Astoria's sales. Astoria strives to emphasize the highest standards of quality
as well as uniqueness of product in its specialty lines. It faces competition
from a number of manufacturers, however, Astoria believes that it dominates the
market for specialty breads in Gauteng.
In addition, Astoria Bakers Lesotho manufactures, sells and
distributes staple bread to the Lesotho market, from its bakers in Maseru, the
capital of Lesotho. In Lesotho, Astoria has one major competitor who has 40% of
the Lesotho bread market. Astoria also has approximately 40% of this market and
the balance is controlled by in-store bakeries.
GULL FOODS
Gull Foods manufactures and sells a wide range of prepared food
products. Gull's product line includes over 150 products ranging from hamburger
patties, prepared sandwiches, salads, prepared pastas, pizzas, and flavored
breads. Gull manufactures and markets from its headquarters in Bronkhorstpruit,
a small town east of Pretoria. It strives to emphasize the highest standard of
quality in all its product lines. Its major customer is Woolworths, (a large
South African department store chain) which in Gull's last three fiscal years
has accounted for approximately 86% of Gull's revenues. Gull's remaining
business is derived from sales to the airline and institutional catering
industries.
Gull competes on the basis of quality and range of product. It
believes that it does not face direct competition in the Gauteng area of South
Africa and has a number of smaller competitors who supply to Woolworths in the
South African Cape. All of the products sold to Woolworths are marketed under
the Woolworths label. Gull generally sees an increase in its business during
November and December, as well as a seasonal increase during the Easter period.
However, these increases are not significant enough to make Gull a seasonable
business.
Gull sells its products to order and therefore does not carry a
backlog. Gull's suppliers are all located in South Africa. All of Gull's
suppliers have immediate alternative sources. Gull selects its suppliers on the
basis of quality and price and to date has had no difficulty obtaining adequate
supplies.
SEEMANNS
Seemanns manufactures, sells, and distributes a wide range of
processed meat products including products typically found in retail butcheries,
as well as high margin processed and smoked meat products. Seemanns
manufactures, markets and distributes from its headquarters in Randburg. It
strives to emphasize the highest standard of quality in all its product lines
and has become a well known brand name in its specialty areas. Its major
customers are its own retail outlets, accounting for approximately 35% of its
revenues, as well as the Pick n' Pay Group, one of South Africa's largest
supermarket chains, which accounted for approximately 35% of Seemanns' sales in
Seemanns fiscal year ending February 28, 1997. In the previous two years, Pick
n' Pay accounted for more than 10% but less than 20% of Seemanns' sales. In
addition, Seemanns sells to a number of institutional catering organizations,
restaurant chains, and other institutional customers. Seemanns competes on the
basis of quality and range of product. It faces competition from retail butchery
chains, as well as supermarket groups. As a manufacturer, Seemanns believes that
it has established a strong niche in the
5
<PAGE>
market for high quality smoked and processed meat products in the Johannesburg
area. Seemanns generally sees an increase in its business during November and
December, as well as a seasonal increase during the Easter period. However,
these increases are not significant enough to make Seemanns a seasonable
business.
Seemanns carries significant amounts of raw meat inventory, as it
purchases supplies on a market related basis. When raw materials are cheap,
Seemanns typically uses its strong cash resources, to stock pile meat at
favorable prices. On the manufacturing side however, Seemanns sells its
processed meats on a daily basis and therefore does not carry a significant
backlog of orders. Seemanns' principal suppliers are mostly local. All suppliers
have immediate alternative sources. Seemanns selects its suppliers on the basis
of quality and price and to date has had no difficulty obtaining adequate
supplies.
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
96% 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 1996 was approximately
$11,100,000. Of this total market, Starpak has an estimated 46% 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 July 31, 1997, Starpak's backlog of firm orders was
approximately $920,784 compared to approximately $975,074 as of July 31, 1996.
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.
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 Petersburg. Europair seeks
6
<PAGE>
to provide a single source of components and accessories for original equipment
manufacturers, contractors and duct shops in South Africa and neighboring
countries. Its products include grilles, flexible ducting, flanging, insulation,
humidifiers, fire dampers and other accessory products for the air conditioning
industry. Europair markets its products primarily through its sales personnel
directly to air conditioning and building contractors as well as to other
agents.
Europair believes it is unique in South Africa in its increasing
capacity as a full-range supplier to the HVAC industry and believes it does not
currently compete directly with any supplier that offers as comprehensive a
range of products. Europair does, however, have a number of competitors in each
of its product groups. Increasingly, the threat of competition is presented by
less expensive imports, although such imports are sometimes lower quality and
the importers are generally unable to stock a broad range of products. 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.
Europair's firm order backlog does not represent a material portion of its
annual sales.
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.
FASTENER INDUSTRY
L.S. PRESSINGS
L.S. Pressings and its subsidiary, Paper & Metal Industries,
manufacture washers for supply to distributors of nuts and bolts who in turn
distribute L. S. Pressing products to end users in various industries and
markets. L.S. Pressings' operations are located in Johannesburg. L.S Pressings
manufactures a full range of washers to metric, capital imperial as well as U.S.
specifications. In addition, it manufactures special size washers to suit
customers specific requirements. Washers are manufactured from mild steel, black
(heat tempered) steel, copper, brass, fiber and various plastics. Washers are
used in numerous industries, including automotive, electrical, furniture and
construction industries. They are also used for sealing purposes, water piping
and as a non-conductive element. L.S. Pressings has no sales representatives
with orders being placed directly by customers. Substantially all of the
customers are distributors who resell the washers to end users.
L.S. Pressings believes that it is the single largest supplier of
washers in the South African market, although a number of competitors compete
with L.S. Pressings in particular niches. L.S. Pressings' strongest competition
is from importers of standard size washers manufactured in Taiwan. However,
importers of Taiwanese washers generally do not offer a "one-stop" source of
supply and L.S. Pressings believes it competes successfully with respect to
pricing. As a result, the importers have not had a substantial impact on
7
<PAGE>
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 July 31, 1997, L.S. Pressings' firm order backlog
was $46,758 as compared with $43,377 on July 31, 1996.
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.
REGULATION
The Company's South African business operation is subject to a number
of laws and regulations governing the use and disposition of hazardous
substances, air and water pollution and other activities that effect the
environment. The Company's management believes that each of its subsidiaries is
in substantial compliance with applicable South African law and the regulations
promulgated under such law and that no violation of any such law or regulation
by any such company has occurred which would have a material adverse effect on
the financial condition of the Company.
EMPLOYEES
As of September 25, 1997, 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 only four 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 "Management- Employment
Agreements". As of September 25, 1997, the Company's operating subsidiaries
employed approximately 2,500 people.
ITEM 2.
PROPERTIES
The Company's principal executive offices are located at Clarendon
House, Church Street, Hamilton, HM 11, Bermuda, which space is made available to
the Company pursuant to a corporate services agreement entered into with a
corporate services company in Bermuda.. The Company's U.S. subsidiary, First
South African Management Corp. (FSAM) has its principal executive offices at
2665 South Bayshore Drive, Suite 702, Coconut Grove, Florida 33133. FSAM's
offices consist of approximately 2,000 square feet of office space in an office
section of Coconut Grove, Florida, which FSAM occupies pursuant to a three-year
lease agreement (expiring in 1999) with a monthly rental of $2,600. 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.
8
<PAGE>
Europair operates from premises and facilities that it owns in
Gauteng and from leased premises in KwaZulu-Natal, Western Cape and the Eastern
Cape. Pursuant to an option granted by the Company, Mr. Bruce Thomas (the Chief
Executive Officer of Europair) has acquired Europair's premises for $890,868 and
entered into a ten year lease (expiring in 2006) with Europair with respect to
such premises for an initial rental rate of $110,111 per annum. Europair
believes this property is well suited to Europair's operations and can
accommodate relatively large increases in manufacturing and storage. Europair's
other leased properties are located in Durban, Cape Town and Port Elizabeth.
Piemans Pantry operates from premises and facilities that it owns in
Krugersdorp. The facility has two floors with a total size of 38,000 square
feet. In addition, Piemans Pantry rents a retail facility in Krugersdorp, as
well as an office space in KwaZulu-Natal.
Paper & Metal Industries rents two adjacent industrial properties in
Germiston, Gauteng. The total size of the facility is 8,975 square feet. Paper &
Metal have a two year lease (expiring in 1998) at approximately $34,744 per
annum.
Astoria leases approximately 20,000 square feet of space in Randberg
for which it pays an annual rental amount of approximately $100,000 (pursuant to
a lease expiring in 2006). Astoria also leases approximately 6,000 square feet
in Lesotho for which it pays an annual rental amount of approximately $7,000
(pursuant to a lease expiring in 2006).
Gull operates from premises and facilities that it rents in
Bronkhorstspruit. Such premises include approximately 52,000 square feet of
space. Rental cost is approximately $44,000 per annum with a lease term of five
years. In addition, Gull rents a small manufacturing and retail facility of
approximately 4,000 square feet in downtown Johannesburg. Rental cost of these
premises is approximately $8,000 per annum with a lease term of five years.
Seemanns operates from premises and facilities that it owns in
Randburg. These premises include the retail outlet and comprises approximately
44,000 square feet.
ITEM 3.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries 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 Unites as
reported by Nasdaq. Quotation reflect prices between dealers, without retail
mark-up, mark down or commissions and may not necessarily represent actual
transactions.
High Bid Low Bid
-------- -------
Common Stock
- ------------
1996
3rd Quarter $ 4.75 $ 2.88
4th Quarter $ 6.00 $ 3.00
9
<PAGE>
High Bid Low Bid
-------- -------
1997
1st Quarter $ 6.50 $ 4.50
2nd Quarter $ 5.75 $ 4.00
3rd Quarter $ 7.38 $ 3.50
4th Quarter $ 8.75 $ 4.63
1998
1st Quarter(through September 24, 1997) $ 8.69 $ 7.13
Units
1996
3rd Quarter $ 6.50 $ 5.38
4th Quarter $ 10.00 $ 5.25
1997
1st Quarter $ 9.72 $ 6.75
2nd Quarter $ 11.00 $ 8.25
3rd Quarter $ 9.75 $ 6.75
4th Quarter $ 14.13 $ 6.38
1998
1st Quarter(through September 24, 1997) $ 13.75 $10.00
Class A Warrants
1996
3rd Quarter $ 3.00 $1.50
4th Quarter $ 2.87 $1.58
1997
1st Quarter $ 3.00 $2.25
2nd Quarter $ 5.00 $2.75
3rd Quarter $ 2.38 $1.25
4th Quarter $ 3.88 $1.06
1998
1st Quarter(through September 24, 1997) $ 3.875 $2.00
Class B Warrants
1996
3rd Quarter $ 1.62 $ .62
4th Quarter $ .88 $ .62
1997
1st Quarter $ 1.25 $ .25
2nd Quarter $ 1.50 $ .63
3rd Quarter $ 1.50 $ .59
4th Quarter $ 1.94 $ .39
1998
1st Quarter(through September 24, 1997) $ 1.875 $ 1.00
10
<PAGE>
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 September 24, 1996, there were approximately 1,430
shareholders, both of record and beneficial, of the Company's Common Stock.
In January, 1997, the Company entered into a stock option agreement
with Barretto Pacific Corporation ("BPC") pursuant to which the Company granted
BPC an option to purchase 25,000 shares of Common Stock at an exercise private
of $3.75 per share. Such option shall expire 180 days after the effectiveness of
the Registration Statement on Form S-1 with respect to the registration of the
Company's Debentures (as defined in the following paragraph) and certain other
securities of the Company as filed on August 13, 1997. Such option was granted
in consideration of certain services rendered by BPC for the Company. The
Company believes that such transaction is exempt from the registration
provisions of the Act in reliance on Section 4(2) of the Securities Act of 1933,
as amended (the "Act").
In April 1997 through August, 1997 the Registrant completed a private
placement of 10,000 senior Subordinated Convertible Debentures due June 15,
2004. The Registrant believes that such private placement is exempt from the
registration provisions of the Act in reliance upon Regulation D and Regulation
S promulgated under the Act. Value Investing Partners, Inc. earned a commission
equal to $700,000, a non-accountable expense allowance equal to $100,000 and
will receive 10 year warrants to purchase 135,000 shares of Common Stock at an
exercise price of $6.00 per share with respect to such private placement. (See
Item 12 "Certain Relationships and Related Transactions - FSAC Escrow
Agreements," for a description of the issuance of additional shares of Common
Stock in May 1997. The Company believes that such transaction is exempt from the
registration provisions of the Act in reliance on Section 4(2) of the Act.)
11
<PAGE>
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 results of the interim periods are not
necessarily indicative of the results of a full year. All of the financial data
set forth below should be read in conjunction with the 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) March 1, 1995 The Company
----------------------- ------------- ------------
Years ended February 28, to June 30, July 1, 1995 July 1, 1996
-------------------------- ----------- ------------- ------------
1995 to June 30, 1996 to June 30, 1997
---- ----------------- ----------------
1993 1994 1995
Statement of Operations Data $ $ $ $ $ $
------- ------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... 6,256,667 6,851,457 8,826,856 3,297,507 14,911,097 66,575,931
Total operating expenses........... 5,818,092 6,414,144 8,179,083 292,806 19,833,942(3) 61,134,362
Operating income................... 438,575 437,313 647,773 334,701 (4,922,845) 5,441,569
Interest paid...................... 223,314 180,960 152,163 18,801 856,733(4) 858,067
Net income before tax and minority
interests...................... 269,251 321,319 536,440 359,045 (5,248,942) 8,379,511(5)
Net Income after tax............... 138,839 207,916 313,882 213,829 (5,737,560) 6,683,165
</TABLE>
<TABLE>
<CAPTION>
Predecessor Company (1)
February 28,
June
30, June 30,1997
1993 1994 1995 1996
Balance Sheet Data $ $ $ $ $
------- ------- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Total assets....................... 3,976,769 3,976,974 5,161,709 23,604,994 64,197,149
Long term liabilities.............. 1,140,244 1,112,391 1,123,665 2,361,372 13,341,758
Net working capital................ 1,177,250 1,194,931 1,366,602 4,624,417 26,196,023
Stockholders' equity............... 1,527,356 1,580,826 1,828,656 12,792,376 23,220,014
</TABLE>
- -----------
(1) Represents the combined results for Starpak and L.S. Pressings, which are
deemed to be the predecessor of the Company due to the Common ownership and
control of such entities. The Company's fiscal year end is June 30.
(2) No dividends were declared or paid during the periods presented.
(3) Includes a one time non cash escrow shares charge of $6,314,000 related to
the release of 1.1 million shares under the terms of an Earnout Escrow
Agreement between the Company, certain shareholders and 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.
(5) Includes a net gain of $3,327,478 on the sale of investment in First SA
Food Holdings, Ltd., L.C. As well as a minority interest of $35,224.
12
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro-forma information has been prepared assuming that the acquisitions had
taken place and that operations had commenced on July 1, 1995.
The pro-forma information does not purport to be indicative of the results that
would have been obtained if the acquisitions had occurred at the beginning of
the period, nor is it indicative of future results.
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,
1997 1996
$ $
----------- -----------
Revenues 78,596,647 71,374,856
----------- -----------
Operating expenses
Cost of sales 46,006,407 42,259,173
Selling, general and administrative costs 26,575,103 23,636,005
Non cash escrow share charge -- 6 ,314,000
----------- -----------
72,581,510 72,209,178
----------- -----------
Operating (loss)/income 6,015,137 (834,323)
Other income 3,904,884 872,766
Interest expense (823,912) (1,524 ,287
----------- -----------
(Loss)/income before income taxes and minority 9,096,109 (1,485,844)
interests
Provision for taxes on income (1,834, 833) (2,049,047)
----------- -----------
Minority interest in consolidated subsidiary
companies (135,224) --
----------- -----------
Net (loss)/income 7,136,979 (3,534,891)
=========== ===========
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The Company was incorporated in September 1995 to acquire, own and
operate closely held companies in South Africa with annual sales in the range of
approximately $5 million to $50 million. In this regard, the Company, through
its South African subsidiaries has acquired twelve South African companies
(collectively, the "Acquisitions" engaged in the following industry segments.
1. Packaging equipment and materials through Starpak, Alfapak
and Pakmatic
2. Metal washers used in the fastener industry through LS
Pressings and Paper and Metal.
3. Air conditioning and refrigeration machinery components
though Europair Refrigeration and First Strut.
4. Processed foods through Piemans Pantry, Astoria Bakery,
Seemanns and Gull Foods.
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 if
its Initial Public Offering completed in January 1996, as well as the issuance
of subordinated convertible debentures. 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 1996 Fiscal Year 1997
---------------- ----------------
6.9% 8.8%
The average rate for the South African Rand against the U.S. dollar
for the periods under discussion were as follows:
Fiscal Year 1996 Fiscal Year 1997
---------------- ----------------
$1 = R3.85 $1 =R4.53
Depreciation of 17.7%
As the Company's results are reported in U.S. dollars, but revenues
and earnings are primarily generated in South African Rand, the local inflation
rate and the depreciation of the South African Rand against the US dollar for
the periods in question are important to further the understanding of the
Company's results. In general, if the rate of depreciation of the South African
Rand to the U.S. dollar for any comparable period is greater than the South
African rate of inflation for that same period then the Company would have had
to generate local revenues and earnings in excess of the South African inflation
rate in order to maintain dollar parity. For the period ended June 30, 1997, the
depreciation of the South African Rand to the dollar equaled 17.7% while the
annual rate of inflation was 8.8%. In order for the Company to report dollar
growth in revenues and earnings it would need to have generated growth of over
8.9% in inflation adjusted numbers through its local South African operations.
The results, therefore, for the period indicated above as reflected in U.S.
dollars, is in excess of inflation adjusted South African Rand for revenue and
earnings growth.
14
<PAGE>
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.
15
<PAGE>
FIRST SOUTH AFRICA CORPORATION, LTD.
Bermuda
Listed on NASDAQ
<TABLE>
<CAPTION>
================================================================================
First South Africa First South African Holdings
Management Corp. South Africa
Delaware
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First SA Food Holdings
Listed on Johannesburg
Stock Exchange
Specialty Food Air Conditioning and
Fasteners Manufacturing Packaging Refrigeration
L.S. Pressings Piemans Pantry* Starpak Europair
Acquired January 1996 Acquired June 1996 Acquired January 1996 Acquired January 1996
Purchase price: $1,900,905 Purchase price: $9,200,000 Purchase price: $838,545 Purchase price: $1,029,206
Paper & Metal Astoria Bakery* Alfapak Europair Refrigeration
Acquired April 1996 Acquired July 1996 Acquired November 1996 Acquired April 1996
Purchase price: $380,000 Purchase price: $4,400,000 Purchase price: $300,000 Purchase price: less than
$100,000
Seemanns Meat Products* Pakmatic First Strut
Acquired November 1996 Acquired April 1997 Acquired July 1996
Purchase price: $5,300,000 Purchase price: $1,228,000 Purchase price: $600,000
Gull Foods*
Acquired January 1997
Purchase price: $9,000,000
</TABLE>
* These acquisitions include contingent payments based on a multiple of
future earnings. The purchase prices reflected for these acquisitions
include the Company's current estimate of the total price to be paid
after all contingent payments are made.
16
<PAGE>
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
periods ended June 30, 1997 and 1996 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, 1997 June 30, 1996
Costs of sales ................................... 58.0% 59.2%
Gross profit ..................................... 41.5% 40.8%
Selling, general and administrative expenses ..... 33.8% 33.1%
Interest expense ................................. 1.0% 2.1%
Operating income (pre non cash escrow charge) .... 7.7% 7.7%
Other income (net of other expenses) ............. 5.0% 1.2%
Income before income taxes( pre non cash escrow
charge) ...................................... 11.4% 6.8%
Income before income taxes ....................... 11.4% (2.1%)
Pro Forma Twelve Months Ended June 30, 1997
Compared to Pro Forma Twelve Months Ended June 30, 1996
Pro-forma sales for the 12 months ended June 30, 1997 increased 10.1%
to $78,596,647 from $71,374,856 for the period ended June 30, 1996. In local
currency, this increase was equal to approximately 28% which reflects a net
growth after inflation of approximately 19%. For the year ended June 30, 1997
the Company's processed foods operations contributed approximately 65.7% of the
Company's sales versus 67.7% for 1996. Air conditioning and refrigeration
segment for 1997 contributed approximately 15.8% of sales versus 12% for 1996.
The packaging equipment segment for 1997 contributed approximately 12.9% of
sales versus 12.8% for 1996. While the fastener segment for 1997 contributed
approximately 5.6% of sales versus 7.5% for 1996. Sales in all business segments
increased, except for the fastener segment. The overall increase can be
attributed to increasing demand for the Company's products as the middle class
base of consumers continues to grow as South Africa continues its transition to
more broad based economic participation. In addition, the Company's subsidiaries
have continued to purchase additional manufacturing capacity to take advantage
of this demand.
Pro-forma cost of goods sold were $46,006,407 and $42,259,173 for the
twelve months ended June 30, 1997 and 1996 respectively. This represented 58.5%
of sales for the twelve months ended June 30, 1997 versus 59.2 % for the
corresponding period in 1996. For the year ended June 30, 1997 the pro-forma
cost of goods for the Company's processed foods operations was approximately 56%
versus 58% for 1996. Air conditioning and refrigeration segment for 1997 was
approximately 66% versus 60% for 1996. The packaging equipment segment for 1997
was approximately 59% versus 56% for 1996. While the fastener segment for 1997
was approximately 62% versus 60% for 1996. The overall decrease can therefore be
primarily explained by improved productivity in the food companies due to
increased automation.
Pro-forma sales, general and administrative costs increased to
$26,575,103 from $23,636,005 for the twelve months ended June 30, 1997 and 1996
respectively. This represented 33.8% of sales for the twelve
17
<PAGE>
months ended June 30, 1997 versus 33.1% for the corresponding period a year
earlier. For the year ended June 30, 1997 the SG and A expenses for the
Company's processed foods operations was approximately 34.5% of sales versus
34.4% for 1996. Air conditioning and refrigeration for 1997 was 30% versus 33.5%
in 1996. The packaging equipment segment for 1997 was 29.2% versus 31.6% in
1996. While the fastener segment for 1997 was 14.1% versus 13.2% for 1996. This
increase is primarily attributable to the Company's net corporate expenses. The
Company was formed in September 1995 and completed its Initial Public Offering
in January of 1996. As a result the pro-forma results for fiscal 1996 do not
reflect a full charge for the Company's corporate overhead. During fiscal 1996,
the Company expended approximately $400,000 in corporate overhead, while in 1997
this number increased to approximately $1.4 million. In addition, under the
terms of certain executive employment agreements, the Company recorded
approximately $300,000 in bonuses related to the gain on the sale of 30% of
First SA Food Holdings, Ltd., as part of its general SG&A expense.
Pro-forma Interest expenses decreased to 823,912 during the twelve
months ended June 30, 1997 from $1,524,827 for the twelve months ended June 30,
1996. Most of this decrease 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 some of the Company's operating subsidiaries generated
interest on net cash balances which reduced the Company's consolidated net
interest.
Proforma other income was $3,904,884 and $872,766 for the twelve
months ended June 30, 1997 and 1996, respectively. This increase is primarily
attributable to a net gain of $3,327,478 on the sale of the Company's investment
in First SA Food Holdings Ltd. In June 1997, the Company completed the Initial
Public Offering of 5,000,000 ordinary shares of common stock of its subsidiary
First SA Food Holdings, which shares are listed on the Johannesburg Stock
Exchange; an institutional private placement in South Africa of 20,000,000
ordinary shares of common stock of FSA Food, and a private placement of
12,500,000 ordinary shares of common stock to management and staff. As of
September 30, 1997 the Company owned 70% of First SA Food.
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 of Class B Common Stock from an Earnout Escrow Agreement that the Company
entered into with the underwriter of its January 24, 1996 Initial Public
Offering. 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 the pro forma results for June 30, 1996 met the earnout requirements
of this agreement, the Company took this one time non-cash charge which was
calculated by multiplying 1,100,000 shares by the then current bid price of the
Company's Common Stock. The $6,314,000 charge was reflected as additional
Capital in Excess of Par in the June 30, 1996 Balance Sheets.
MANAGEMENTS 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%
18
<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
As Percentage of Sales to 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.
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
19
<PAGE>
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 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.
20
<PAGE>
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. In May
1997, the Company raised approximately $9.2 million in net proceeds from the
issuance of 10,000 9% convertible debentures. Such debentures mature on June 15,
2004 and are convertible any time prior to maturity at a price of $6.00 per
share. In June 1997, the Company's subsidiary, First SA Food Holdings, raised
approximately $16.5 million in cash through the placement of its shares in South
Africa. Of this amount, approximately $5.5 million was retained by First South
African Holdings, while the remainder was retained by FSA Foods. Proceeds from
these offerings have been and will continue to be primarily utilized to fund the
Company's acquisitions as well as to provide a certain amount of working capital
to its South African subsidiaries.
As of June 30, 1997, the Company had cash of $19,889,111 with working
capital of $26,196,023. As of June 30, 1996, the Company had a total of
$15,015,170 in debt, of which amount $10 million related to the Company's 9%
subordinated convertible debentures with the remainder being bank debt. Of the
bank debt, $1,673,712 was classified as current. The Company currently has
$3,537,000 available in bank credit lines, which lines are unsecured and
renewable on an annual basis.
Cash flows provided by operating activities for the period ended June
30, 1997 totaled $2,730,571. Cash flows used in investing activities for the
period ended June 30, 1997 totaled $920,272 of which the Company realized
$16,479,827 on the disposal of its investment in First SA Food Holdings Ltd. The
Company expended $11,431,059 on the acquisition of subsidiaries, $1,801,032 on
the acquisition of recipes and other intellectual property, and purchased
$2,142,954 in net addition to property, plant and equipment of its subsidiaries.
Net cash provided by financing activities generated $11,759,220 during the
period ended June 30, 1997.
As of June 30, 1997, the Company had cash of approximately $20
Million. Under the various acquisition agreements, the Company anticipates
having to spend approximately $3.2 million in cash for its contingent payments
over the next 12 months as well as approximately $2.2 million in stock. The
Company anticipates that this cash and operating cash flows will be sufficient
to fully fund these payments as well as fund the capital expenditures for its
various operations. Excess cash will also be utilized to fund additional
acquisitions. In this regard, the Company entered into a letter of intent to
acquire Fifers Bakery, a specialty confectionary manufacturer. Such acquisition
is anticipated to close by the end of October 1997. The Company will expend
approximately $1.6 million on closing to acquire this company. The Company
anticipates that any longer term contingent acquisition payments will be funded
out of operating cash flows of the acquired entities.
The Company's operating subsidiaries generally collect their
receivables within 65 - 90 days and reserve approximately 5.8% 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 July
1997, the Company, through Swiss Bank Corporation, purchased a 12 month option
to acquire the equivalent of $10 million in South African Rand at the strike
price of R5.50 to the Dollar. This option has the effect of hedging $10 million
of the Company's fiscal 1998 earnings, in the event the exchange rate of the
South African Rand falls below this strike price. The cost of such option was
approximately $133,000 and is being amortized over the length of the option.
21
<PAGE>
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.
22
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
First South Africa Corp., Ltd.
Report of the independent auditors
Consolidated Balance Sheets at June 30, 1997
and 1996
Consolidated Statements of Income for the years
ended June 30, 1997 and 1996, the period March
1 to June 30, 1995 and the year ended February
28, 1995
Pro-forma Consolidated Statements of Income for
the years ended June 30, 1997 and 1996
(Unaudited)
Consolidated Statements of Cash Flows for the
years ended June 30, 1997 and 1996, the period
March 1 to June 30, 1995 and the year ended
February 28, 1995
Consolidated Statement of Changes in
Stockholders' Investment for the period
February 28, 1994 to June 30, 1997
Notes to the Consolidated Financial Statements
for the years ended June 30, 1997 and 1996, the
period March 1 to June 30, 1995 and the year
ended February 28, 1995
23
<PAGE>
FIRST SOUTH AFRICA 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 sheet and the
related consolidated statement of income, of cash flow 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, 1997
and 1996, and the results of their operations and their cash flows for the years
ended June 30, 1997 and 1996, the period March 1 to June 30, 1995 and the year
ended February 28, 1995 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 19, 1997
24
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, June 30,
1997 1996
$ $
----------- -----------
<S> <C> <C>
Current assets
Cash on hand 19,889,111 4,682,035
Trade accounts receivable 12,000,224 5,833,542
Less: Allowances for bad debts (696,279) (402,333)
----------- -----------
11,303,945 5,431,209
Inventories (net) 7,219,960 2,510,868
Prepaid expenses and other current assets 934,263 451, 551
Deferred charges (net) 838,439 --
----------- -----------
Total current assets 40,185,718 13,075,663
Property, plant and equipment 16,197,605 9,000,334
Less: Accumulated depreciation (4,849,396) (2,119,912)
----------- -----------
11,348,209 6,880,422
Intangible assets (net) 12,620,822 3,363,923
Other assets 42,730 84,768
Loan to shareholder -- 126,668
Deferred income taxes -- 73,550
----------- -----------
64,197,479 23,604,994
=========== ===========
</TABLE>
25
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
Current liabilities
Bank overdraft payable -- 745,724
Current portion of long term debt 1,673,712 2,101,799
Trade accounts payable 6,755,823 2,162,257
Other provisions and accruals 3,184,428 1,923,371
Other taxes payable 654,653 --
Income tax payable 1,721,079 1,518,095
----------- -----------
Total current liabilities 13,989,695 8,451,246
----------- -----------
Long term debt 13,341,758 2,361,372
Deferred income taxes 358,446 --
----------- -----------
27,689,899 10,812,618
----------- -----------
Minority shareholders' investment 13,287,566 --
Stockholders' investment
Capital stock:
A class common stock, $0.01 par value - authorized
23,000,000 shares, issued and outstanding
3,536,115 shares 35,361 22,000
B class common stock, $0.01 par value - authorized
2,000,000 shares, issued and outstanding
1,822,500 shares 18,691 19,701
Preferred stock, $0.01 par value, - authorized
5,000,000 shares, issued and outstanding nil shares -- --
Capital in excess of par 22,891,093 18,518,986
----------- -----------
Retained earnings 2,803,065 (3,880,100)
Foreign currency translation adjustments (2,528,196) (1,888,211)
----------- -----------
64,197,479 23,604,994
=========== ===========
</TABLE>
26
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 66,575,931 14,911,097 3,297,507 8,826,856
----------- ----------- ----------- -----------
Operating expenses
Cost of sales 37,869,755 8,385,511 1,881,686 5,058,749
Selling, general and administrative costs 23,264,607 5,134,431 1,081,120 3,120,334
Non cash compensation charge -- 6,314,000 -- --
----------- ----------- ----------- -----------
61,134,362 19,833,942 2,962,806 8,179,083
----------- ----------- ----------- -----------
Operating income/(loss) 5,441,569 (4,922,845) 334,701 647,773
Gain on disposal of subsidiary stock 3,327,478 -- -- --
Other income 468,531 539,636 43,145 40,830
Interest expense (858,067) (865,733) (18,801) (152,163)
----------- ----------- ----------- -----------
Income/(loss) from consolidated companies
before income taxes and minority interests 8,379,511 (5,248,942) 359,045 536,440
Provision for taxes on income (1,572,049) (488,618) (145,216) (222,558)
----------- ----------- ----------- -----------
6,807,462 (5,737,560) 213,829 313,882
Minority interest in consolidated subsidiary
companies (135,224) -- -- --
----------- ----------- ----------- -----------
Net income/(loss) from consolidated companies 6,672,238 (5,737,560) 213,829 313,882
Equity in net earnings of affiliated companies 10,927 -- -- --
----------- ----------- ----------- -----------
Net income/(loss) 6,683,165 (5,737,560) 213,829 313,882
=========== =========== =========== ===========
Basic earnings/(loss) per share $1,30 ($3,03) $ .39 $ .57
Fully diluted earnings per share $1,22 ($1,39) $ .39 $ .57
Weighted average number of shares outstanding
Basic earnings per share 5,139,855 1,893,463 547,890 547,890
Fully diluted earnings per share 5,594,912 1,893,463 547,890 547,890
</TABLE>
27
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PRO-FORMA CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Year ended Year ended
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
Revenues 78,596,647 71,374,856
----------- -----------
Operating expenses
Cost of sales 46,006,407 42,259,173
Selling, general and administrative costs 26,575,103 23,636,005
Non cash compensation charge -- 6,314,000
----------- -----------
72,581,510 72,209,178
----------- -----------
Operating income/(loss) 6,015,137 (834,322)
Gain on disposal of subsidiary stock 3,327,478 --
Other income 577,406 872,766
Interest expense (823,912) (1,524,287)
----------- -----------
Income/(loss) from consolidated companies before income
taxes and minority interests 9,096,109 (1,485,843)
Provision for taxes on income (1,834,833) (2,049,047)
----------- -----------
7,261,276 (3,534,890)
Minority interest in consolidated subsidiary companies (135,224) --
----------- -----------
Net income/(loss) from consolidated companies 7,126,052 (3,534,890)
Equity in net earnings of affiliated companies 10,927 --
----------- -----------
Net income/(loss) 7,136,979 (3,534,890)
=========== ===========
Basic earnings/(loss) per share $1,34 ($0,66)
Fully diluted earnings per share $1,25 --
Weighted average number of shares outstanding
Basic earnings per share 5,345,208 5,345,208
Fully diluted earnings per share 5,800,266 --
</TABLE>
The pro-forma information has been prepared assuming that all acquisitions had
taken place on July 1, 1995.
The pro-forma information does not purport to be indicative of the results that
would have been obtained if the acquisitions had occurred at the beginning of
the period, nor is it indicative of future results.
28
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) 6,683,165 (5,737,560) 213,829 313,882
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Non-cash compensation charge -- 6,314,000 -- --
Depreciation and amortization 2,011,354 395,757 50,678 92,746
Deferred income taxes 349,543 (90,559) -- (69,295)
Net (gain)/loss on sale of assets (198,473) (22,523) 1,320 19,636
Net gain on sale of investment in
First SA Food Holdings Limited (3,327,478) -- -- --
Effect of changes in current assets
and current liabilities (2,922,764) 10,185 (94,090) (23,012)
Minority interest in consolidated
subsidiary companies 135,224 -- -- --
Assets acquired at a discount -- 7,307 -- --
----------- ----------- ----------- -----------
Net cash provided by operating activities 2,730,571 876,607 171,737 333,957
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds on disposal of investment in First
SA Food Holdings Limited 16,479,827 -- -- --
Additions to property, plant and equipment (3,325,153) (453,768) (166,124) (327,039)
Proceeds on disposal of property, plant and
equipment 1,182,199 -- -- --
Additional purchase price payments (2,023,835) -- -- --
Other assets acquired (42,676) (704,117) (16,502) 22,053
Decrease in loans to related companies 80,969 145,823 (280) 45,241
Acquisitions of subsidiaries (net of cash
of $985,410) (11,431,059) (4,498,043) -- --
----------- ----------- ----------- -----------
Net cash used in investing activities 920,272 (5,510,105) (182,906) (259,745)
----------- ----------- ----------- -----------
</TABLE>
29
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net (repayments)/borrowings in bank
overdrafts (1,155,094) 135,941 119,473 (26,269)
Borrowings of long term debt 10,601,298 -- 93,202 93,618
Repayments of long term debt (985,630) (1,525,613) -- --
Increase in deferred debt issue costs (853,683) -- -- --
Repayments in loans from related parties -- (880,034) -- --
Borrowings in loans from related parties -- -- -- 30,473
Borrowings in loans from stockholders -- 137,656 -- --
Borrowings in short term debt 689,682 1,954,673 -- 81,972
Repayments in short term debt (921,810) -- -- --
Proceeds on stock issues 4,384,458 9,197,446 -- --
----------- ----------- ----------- -----------
Net cash provided in financing activities 11,759,221 9,020,069 212,675 179,794
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash (202,988) (448,787) (9,783) (16,573)
----------- ----------- ----------- -----------
Cash generated by operations 15,207,076 3,937, 784 191,723 237,433
Cash on hand at beginning of period 4,682,035 744,251 552,528 315,095
----------- ----------- ----------- -----------
Cash on hand at end of period 19,889,111 4,682,035 744,251 552,528
=========== =========== =========== ===========
</TABLE>
30
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS INVESTMENT
[Part 1 of 2]
<TABLE>
<CAPTION>
Capital stock Capital stock
First South Capital in LS Pressings
Africa Corp., excess of (Pty)
Ltd. par Ltd.
$ $ $
----------- ----------- -----------
<S> <C> <C> <C>
Balance at February 28, 1994 -- -- 460,978
Net income -- -- --
Translation adjustment -- -- --
----------- ----------- -----------
Balance at February 28, 1995 -- -- 460,978
Net income -- -- --
Translation adjustment -- -- --
----------- ----------- -----------
Balance at June 30, 1995 -- -- 460,978
Issuance of stock to acquire predecessor
Starpak and LS Pressings 150 1,208,628 (460,978)
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 --
Issuance of stock to FSAH escrow agent 11,915 -- --
Issuance of stock to acquire subsidiaries 190 4,357,228 --
Proceeds on warrants exercised 246 159,879 --
Stock issue expenses written off -- (145,000) --
Net income for the year -- -- --
Translation adjustment -- -- --
----------- ----------- -----------
</TABLE>
[Part 2 of 2]
<TABLE>
<CAPTION>
Capital stock Capital in Foreign
Starpak excess of par currency
(Pty) Starpak (Pty) Retained translation
Ltd. Ltd. earnings adjustments Total
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1994 1,010 746,790 1,322,442 (950,394) 580,826
Net income -- -- 313,882 -- 313,882
Translation adjustment -- -- -- (66,052) 66,052
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1995 1,010 746,790 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 1,010 746,790 1,850,153 (1,040,934) 2,017,997
Issuance of stock to acquire predecessor
Starpak and LS Pressings (1,010) (746,790) -- -- --
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 -- -- (3,880,100) (1,888,211) 12,792,376
Issuance of stock to FSAH escrow agent -- -- -- -- 11,915
Issuance of stock to acquire subsidiaries -- -- -- -- 4,357,418
Proceeds on warrants exercised -- -- -- -- 160,125
Stock issue expenses written off -- -- -- -- (145,000)
Net income for the year -- -- 6,683,165 -- 6,683,165
Translation adjustment -- -- -- (639,985) (639,985)
----------- ----------- ----------- ----------- -----------
</TABLE>
31
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Capital stock Capital stock Capital stock Capital in Foreign
First South Capital in LS Pressings Starpak excess of par currency
Africa Corp., excess of (Pty) (Pty) Starpak (Pty) Retained translation
Ltd. par Ltd. Ltd. Ltd. earnings adjustments Total
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1997 54,052 22,891,093 -- -- -- 2,803,065 (2,528,196) 23,220,014
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
32
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
1. PRINCIPAL ACTIVITIES OF THE GROUP
The principal activities of the group include the following:
ENGINEERING INTERESTS
The business of manufacturing, servicing and selling packaging
machines, receiving commission income, receiving rental income,
manufacture of washers for use in the fastener industry, manufacture
and supply of air-conditioning products.
FOOD INTERESTS
The manufacture, sale and distribution of both ready to eat and ready
for bake off pastry related food products, the manufacture, sale and
distribution of high margin speciality breads and staple breads, the
manufacture and sale of a wide range of prepared food products and the
manufacture, sale and distribution of a wide range of processed meat
products.
2. ORGANIZATION
First South Africa Corp., Ltd. (the "Company") was founded on September
6, 1995. The purpose of the Company is to acquire and operate in South
African companies.
The following subsidiaries/businesses acquired, were accounted for
using the purchase method of accounting. The assets and liabilities
were recorded at fair market value as determined by management:
<TABLE>
<CAPTION>
PURCHASE
PRICE
CONSIDERATION
SUBSIDIARY/BUSINESS DATE ACQUIRED $
<S> <C> <C>
Astoria Bakery CC and Astoria Bakery Lesotho (Pty) Ltd. July 1, 1996 2,344,123
First Strut (Pty) Ltd. July 1, 1996 175,836
Seemann's Quality Meat Products (Pty) Ltd. and
Hammer Street Investments CC November 1, 1996 2,989,077
Gull Foods CC and Trek Biltong CC January 1, 1997 5,288,629
Pakmatic Company (Pty) Ltd. and
Pakmatic Spares and Service (Pty) Ltd. March 1, 1997 924,379
----------
11,722,044
==========
</TABLE>
The purchase consideration has been decreased to give effect to the
debt ceded to the holding company in the acquisition of all
subsidiaries/businesses with the exception of Gull Foods CC and Trek
Biltong CC, which has no debt ceded to the holding company.
33
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
2. ORGANIZATION (continued)
<TABLE>
<CAPTION>
Combined
purchase
consideration
and allocation
$
--------------
<S> <C>
Acquisition costs
Stock issued in lieu of cash 3,685,866
Cash consideration (net of debt ceded to holding company) 7,897,235
Other direct expenses 138,943
----------
Purchase price to be allocated 11,722,044
==========
Summary allocation of purchase price
Current assets 6,138,945
Property, plant and equipment 3,974,294
Recipes and other intellectual property 7,131,434
Goodwill 694,108
----------
Total assets acquired 17,938,781
Current liabilities 4,055,918
Long term debt 1,387,301
Deferred income taxes 79,093
Debt ceded to holding company 694,425
----------
Total liabilities assumed 6,216,737
----------
Excess of assets over liabilities assumed 11,722,044
==========
</TABLE>
The Company is required to make additional payments to the former
owners based on a multiple of pre-tax earnings. These payments are to
be made by the issue of stock and cash over the next two to three
years. In fiscal 1997, the Company paid $2,023,835 in cash and stock
under these contingent consideration arrangements.
34
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
3. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles and incorporate the
following significant accounting policies.
Consolidation
First South Africa Corp., Ltd., consolidates its majority owned
subsidiaries. The consolidated financial statements include the
accounts of the company, First South Africa Corp., Ltd. and its
subsidiaries. Minority interests have been taken into account when
determining the net income due to the Company. Material intercompany
transactions have been eliminated on consolidation.
Accounting estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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 on common shares is based on net income and reflects
dilutive effects of any stock options and warrants which exist at year
end.
Intangible assets
Goodwill resulting from acquisitions, recipes and other intellectual
property, and trademarks are 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 amortized on a
straight line basis over the six year term of the agreements.
The company has adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121") "Accounting for the impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". No impairments in
long-lived assets has taken place.
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:
* Assets and liabilities are translated into United States
Dollars using the exchange rates at the balance sheet date.
* Common stock and capital in excess of par are translated into
United States Dollars using historical rates at date of
issuance.
35
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
3. SUMMARY OF ACCOUNTING POLICIES (continued)
* 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".
Foreign assets and liabilities
Transactions in foreign currencies arise as a result of inventory
purchases from foreign countries and intercompany funding transactions
between the subsidiaries and First South Africa Corp., Ltd.
Transactions in foreign currencies are accounted for at the rates
ruling on transaction dates. Exchange gains and losses are charged to
the income statement during the period in which they are incurred.
Foreign assets and liabilities of the group which are not denominated
in United States Dollars are converted into United States Dollars at
the exchange rates ruling at the financial year end or at the rates of
forward cover purchased. Forward cover is purchased to hedge the
currency exposure on foreign liabilities.
Inventories
Inventories are valued at the lower of cost and net realizable value,
using both the first-in, first-out and the weighted average methods.
The value of work-in-progress and finished goods includes an
appropriate portion of manufacturing overheads. A valuation reserve has
been established to reduce the values of certain identified inventories
(determined to be obsolete or otherwise impaired) to their estimated
net realizable values (market or selling price less costs to dispose).
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
20 years.
Plant and equipment, and motor vehicles are written off over their
estimated useful lives of 5 to 10 years.
Income taxes
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes represent the impact of temporary differences
between the amounts of assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes.
Deferred taxes are measured by applying currently enacted tax laws.
Fair value of financial instruments
As at June 30 1997, the carrying value of accounts receivable, accounts
payable and investments approximate their fair value. The carrying
value of long term debt approximates fair value, as the debt, other
than convertible debentures, interest rates are keyed to the prime
lending rate. The convertible debentures are believed to approximate
fair market due to their recent issuance in June 1997.
36
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
3. SUMMARY OF ACCOUNTING POLICIES (continued)
Revenues
Revenues comprise net invoiced sales of washers, manufactured packaging
machines, spares and service charges, food products, air conditioning
systems, fans and related accessories, and rental income. Combined
revenues exclude sales to group companies. The company recognizes
revenues on an accrual basis.
Revenues are stated net of allowances granted to customers and trade
discounts. Returns of defective products are offset against revenues.
Due to the low incidence of warranty returns, where warranties are
provided to customers, the warranty costs are charged to cost of goods
sold as and when incurred.
Gain on disposal of subsidiary stock
Subsidiary stock disposed of during the period is recognized as a gain
in the statement of income and is separately disclosed as a non
operating gain.
4. INVENTORIES
Inventories consist of the following:
June 30, June 30,
1997 1996
$ $
---------- ----------
Finished goods 4,032,523 2,077,679
Work in progress 532,144 272,377
Raw materials and ingredients 2,365,213 501,562
Supplies 716,081 93,055
---------- ----------
Inventories (Gross) 7,645,961 2,944,673
Less: Valuation allowances (426,001) (433,805)
---------- ----------
Inventories (Net) 7,219,960 2,510,868
========== ==========
5. DEFERRED CHARGES
Represents the debt issue costs of the 9% convertible debentures
amounting to $853,683. This charge is being amortized over the tenure
of the debenture issue (Refer note 9). The charge for the current year
is $15,244.
37
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
June 30, June 30,
1997 1996
$ $
----------- -----------
Land and buildings 2,650,410 2,713,473
Plant and equipment 10,376,002 3,463,121
Vehicles 3,153,985 1,789,905
Capital work in progress 17,208 1,033,835
----------- -----------
Total cost 16,197,605 9,000,334
Accumulated depreciation (4,849,396) (2,119,912)
----------- -----------
Net book value 11,348,209 6,880,422
=========== ===========
Depreciation charge 1,481,824 345,884
=========== ===========
Certain assets of the company are encumbered as security for the
liabilities of the group (Refer note 9).
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
June 30, June 30,
1997 1996
$ $
----------- -----------
Recipes 11,264,035 2,858,011
Trademarks 359,521 --
Goodwill arising from acquisitions 1,099,475 414,610
Non competition agreements 331,575 115,842
----------- -----------
Total cost 13,054,606 3,388,463
Accumulated amortization (433,784) (24,540)
----------- -----------
12,620,822 3,363,923
=========== ===========
38
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
8. BANK OVERDRAFT FACILITIES
The group has general short term banking facilities of $3,537,000
available. These facilities bear interest at the prime lending rate,
which is currently 20,25%, and are repayable on demand. The terms of
these facilities are generally less than twelve months, the facilities
are secured by a cession over book debts, and have no covenants,
renewable annually.
9. SHORT AND LONG TERM DEBT
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
$ $
----------- -----------
<S> <C> <C>
Long term debt
9% Convertible debentures 10,000,000 --
Mortgage loans 1,025,406 1,508,870
Equipment notes 3,990,064 1,904,980
Unsecured notes -- 125,214
----------- -----------
15,015,470 3,539,064
Less: Current portion (1,673,712) (1,177,692)
----------- -----------
Total long term debt 13,341,758 2,361,372
=========== ===========
Short term debt
Current portion of long term debt 1,673,712 1,177,692
Trade finance loan -- 924,107
----------- -----------
1,673,712 2,101,799
=========== ===========
</TABLE>
9% Convertible debentures
Convertible debentures issued in June 1997 are unsecured, senior, and
subordinated, bearing interest at 9% per annum, payable quarterly. The
debentures are convertible into shares of common stock at any time
prior to maturity at a price of $6,00 per share (fair market value at
debenture issue date). The debentures may be redeemed at the option of
the Company from June 15, 1999 through June 14, 2003 at a redemption
premium ranging from 109% to 102.5% of face value, depending on the
redemption date.
The debentures have mandatory sinking fund payments due in two equal
installments totaling 67% of the outstanding fair value on June 15,
2002 and June 15, 2003, with the balance of the issue due at maturity
on June 15, 2004.
The Company has filed an S-1 Registration Statement for the shares
issuable upon conversion.
39
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
9. SHORT AND LONG TERM DEBT (continued)
The following covenants are in existence:
* A restriction has been placed on the ability of the Company to
pay any dividends and to repurchase stock.
* A restriction has been placed on transactions with affiliates,
whereby all transactions must be no less favorable than those
on normal commercial terms.
* The Company may not adopt any plan of liquidation
(bankruptcy).
Mortgage loans
Mortgage loans are collateralized by first and second mortgage bonds
over property with a net book value of $2,504,855. These loans are repayable in
equal monthly instalments of $18,909 and equal annual instalments of $17,684
over periods ranging from five to twenty years and bear interest at rates
ranging from 14,5% to 18,59%. Generally these interest rates are linked to the
prime lending rate which is currently at 20,25%.
Equipment notes
Equipment notes are collateralized over movable assets with a net book
value of $3,611,203. These loans are generally repayable in equal monthly
instalments over a maximum period of five years. These loans bear interest at
rates ranging from 7% to 1,75% above the prime lending rate, which is currently
20,25%.
The following is a schedule of repayments of long term debt by year of
repayment:
Year ended June 30, $
1998 1,673,712
1999 1,903,670
2000 646,655
2001 329,237
Thereafter 10,462,196
10. RETAINED EARNINGS
Included in retained earnings is an amount of $7,307 which 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.
11. 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.
40
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
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, 1997:
Year ended June 30, $
1998 634,295
1999 685,880
2000 614,060
2001 573,914
Thereafter 631,270
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 Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
Minimum rentals 614,450 415,815 25,562 78,730
======= ======= ====== ======
12. GAIN ON DISPOSAL OF SUBSIDIARY STOCK
During 1997, the Company formed First SA Food Holdings Limited ("FSA
Food") to own all of its food interest companies.
In June 1997, the Company sold an effective 30% interest in FSA Food
through a private placement and subsequent public listing on The
Johannesburg Stock Exchange.
The gain on disposal recognized in the Statement of Income is made up
as follows:
Year ended
June 30,
1997
$
-----------
Proceeds received 16,479,827
Less: Net carrying value of shares of FSA Food (13,152,349)
-----------
Net gain on sale of investment in subsidiary company 3,327,478
===========
41
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
13. OTHER INCOME
Other income includes profit on disposal of assets, proceeds from
insurance claims and commissions received.
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
------- ------- ------- -------
Profit on disposal of assets 198,473 -- -- --
Insurance claims and
commissions received 270,058 539,696 43,145 40,830
------- ------- ------- -------
468,531 539,696 43,145 40,830
======= ======= ======= =======
14. INCOME TAXES
Income taxes are accounted for under Statement of Financial Standards
No. 109 "Accounting for Income Tax" ("SFAS 109"), an asset and
liability method. SFAS 109 requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of
temporary differences between the tax bases and financial reporting
bases of the company's assets and liabilities. In addition, SFAS 109
requires the recognition of future tax benefits such as net operating
loss carryforwards, to the extent realization of such benefit is more
likely than not.
42
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
14. INCOME TAXES (continued)
The provision for income taxes charged to continuing operations was as
follows:
<TABLE>
<CAPTION>
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
South African normal taxation 1,161,998 848,006 145,216 291,858
Foreign normal taxation 62,345 -- -- --
--------- --------- --------- ---------
Total current taxes 1,224,343 848,006 145,216 291,858
--------- --------- --------- ---------
Deferred:
South African normal taxation 347,706 (359,388) -- (69,300)
--------- --------- --------- ---------
Total deferred taxes 347,706 (359,388) -- (69,300)
--------- --------- --------- ---------
Provision for taxes on income 1,572,049 488,618 145,216 222,558
========= ========= ========= =========
</TABLE>
Deferred tax liability/(asset) at June 30, is comprised of the
following:
June 30, June 30,
1997 1996
$ $
-------- --------
Property, plant and equipment 765,624 346,961
Prepaid expenditure 7,036 12,245
-------- --------
Gross deferred tax liabilities 772,660 359,206
-------- --------
Accruals (371,148) (372,447)
Deposits received on equipment sales (42,813) (60,309)
Assessable losses (253) --
-------- --------
Gross deferred tax assets (414,214) (432,756)
-------- --------
Net deferred tax liability/(asset) 358,446 (73,550)
======== ========
43
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
14. 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 taxable income of $8,892,317 after eliminating
expenditure of $512,806 which is not allowable for tax purposes as
this represents expenditure incurred in Bermuda, where no taxation
laws are in existence. After eliminating the disallowable expenditure
incurred in Bermuda, the tax rate reconciliation is as follows:
<TABLE>
<CAPTION>
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
% % % %
------ ------ ------ ------
<S> <C> <C> <C> <C>
South African statutory tax rate 35.0 35.0 35.0 35.0
Disallowable expenditures 1.3 0.7 5.0 1.0
Creation/utilization of assessable losses 3.2 (1.0) -- --
Non taxable income - profit on sale of
investment (12.9) -- -- --
Non taxable income (1.1) -- -- --
Foreign tax rate differential (0.9) -- -- --
Tax rate adjustment -- -- -- 1.0
Transitional levy -- -- -- (2.0)
Capital allowances (6.5) (2.0) -- --
Other (0.4) -- -- 6.0
------ ------ ------ ------
17.7 32.7 40.0 41.0
====== ====== ====== ======
</TABLE>
44
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
15. CASH FLOWS
The changes in assets and liabilities consist of the following:
<TABLE>
<CAPTION>
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Increase)/decrease in trade accounts (2,788,051) (756,684) 36,382 (989,374)
receivable (3,158,181) 146,179 (357,614) 13,759
(Increase)/decrease in inventories
(Increase)/decrease in prepaid expenses and (368,252) (134,650) (146,445) 15,906
other current assets (9,990) -- -- --
Increase in income taxes prepaid 1,872,035 360,265 91,094 97,479
Increase in trade accounts payable
Increase/(decrease) in other provisions and 1,096,189 (38,785) 127,573 659,078
accruals 656,088 -- -- --
Increase in other taxes payable (222,602) 433,860 154,920 180,140
----------- ----------- ----------- -----------
(Decrease)/increase in income taxes payable
(2,922,764) 10,185 (94,090) (23,012)
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Acquisition of subsidiaries is reconciled to
the purchase consideration of the
subsidiaries/businesses as follow:
Purchase consideration of subsidiaries/
businesses (11,722,044) (4,502,789) -- --
Add: Debts assumed (694,425) -- -- --
Less:Cash acquired 985,410 4,746 -- --
----------- ----------- ----------- -----------
(11,431,059) (4,498,043) -- --
=========== =========== =========== ===========
Interest paid 858,067 865,733 18,801 152,163
=========== =========== =========== ===========
Taxes paid/(refunded) 1,513,166 (239,962) (9,704) 118,834
=========== =========== =========== ===========
</TABLE>
45
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
16. EMPLOYMENT BENEFITS
The group participates in various retirement benefit funding plans
and health 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 group is
the contribution to these plans 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:
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
Pension costs 497,788 99,028 37,440 84,438
======= ======= ======= =======
The group and employees participate in various health plans which
provide medical cover for employees on an annual basis. Neither the
health plan nor the group are liable for post retirement medical
costs. The contributions to the health plan 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 health plan.
Amounts charged to health plan costs and contributed by the Company
were as follows:
Year ended Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
Health plan costs 336,706 242,186 42,366 123,233
======= ======= ======= =======
46
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
17. 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 Year ended March 1, Year ended
June 30, June 30, to June 30, February 28,
1997 1996 1995 1995
$ $ $ $
Profit share bonus 390,284 140,828 -- 294,307
======= ======= ======= =======
18. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into four business
segments: packaging machinery, fastener industry, air conditioning
and refrigeration components and processed foods. The packaging
machinery segment includes the manufacture, import and distribution
of packaging machinery. The fastener industry includes the
manufacture and distribution of fasteners. The air conditioning and
refrigeration components segment includes the manufacture, import and
distribution of air conditioning and refrigeration related products.
The processed foods segment includes the manufacture, processing and
distribution of food related products for resale to wholesalers and
retailers.
Summarized financial information by business segment for the years
ending June 30, 1997 and 1996 is presented. (Information prior to
this date if not available)
Year ended Year ended
June 30, 1997 June 30, 1996
$ $
----------- -----------
Net sales:
Packaging machinery 7,838,872 5,102,597
Fastener industry 4,399,591 4,458,636
Air conditioning and refrigeration components 12,409,404 3,778,976
Processed foods 41,928,064 1,570,888
----------- -----------
66,575,931 14,911,097
----------- -----------
Operating income:
Packaging machinery 605,948 364,695
Fastener industry 685,873 826,086
Air conditioning and refrigeration components 355,408 297,049
Processed foods 4,782,675 137,483
Corporate (988,335) (6,548,158)
----------- -----------
5,441,569 (4,922,845)
----------- -----------
47
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
Year ended Year ended
June 30, 1997 June 30, 1996
$ $
---------- ----------
Total assets:
Packaging machinery 4,979,316 2,660,370
Fastener industry 2,846,135 2,649,505
Air conditioning and refrigeration components 4,041,505 3,491,366
Processed foods 41,037,271 6,085,800
Corporate 11,293,252 8,717,953
---------- ----------
64,197,479 23,604,996
---------- ----------
Depreciation and amortization:
Packaging machinery 183,376 150,797
Fastener industry 76,223 65,440
Air conditioning and refrigeration components 282,276 95,371
Processed foods 1,311,669 56,692
Corporate 157,810 27,457
---------- ----------
2,011,654 395,757
---------- ----------
Capital expenditure:
Packaging machinery 1,103,386 96,617
Fastener industry 43,362 89,532
Air conditioning and refrigeration components 508,018 133,217
Processed foods 1,652,677 45,201
Corporate 17,710 9,396
---------- ----------
3,325,153 453,768
---------- ----------
19. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two key
employees. In terms of the agreements the two employees will devote
substantially all of their business time to the group and receive
annual salaries of $180,000 and $150,000 per annum. The salaries
payable will not increase until thirteen months after the closing of
the offering. The Company intends to pay the key employees an annual
incentive bonus based on pre-tax profits. The option prices of $5.00
per share of Common Stock of the Company and 13.05 Rand per share of
First South Africa Holdings (Proprietary) Limited Class B Common
Stock granted in connection with various employment agreements
represent the price of the respective shares of stock on the grant
dates.
48
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
20. 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 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.
49
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
20. STOCK OPTION PLAN (continued)
The company has granted options to purchase 925,000 shares of common
stock under the Plan as described in the table set forth below:
<TABLE>
<CAPTION>
OPTIONS GRANTED PER SHARE
EXERCISE PRICE EXPIRATION DATE EXERCISABLE
<S> <C> <C> <C> <C> <C>
Stock options granted during 1996 75,000 $5,00 January 24, 2001 Immediately
150,000 $5,00 On the seventh
anniversary subject
to earlier vesting
On the seventh
150,000 $3,00 anniversary subject
to earlier vesting
Stock options granted during 1997 25,000 $3,75 Immediately
500,000 $4,75 250,000
Immediately,
250,000 on June 24,
1999.
25,000 $3,75 Immediately
925,000
=======
Options exercisable at June 30, 1997 totalled 555,000.
</TABLE>
50
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
21. WARRANTS OUTSTANDING
In connection with the initial public offering, consummated in
January 1996, the Company issued 2,300,000 units. 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 pursuant
to 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.
In consideration for the debenture offering the Company issued
warrants over 135,000 shares of common stock at an exercise price of
$6.00 per share, the fair market price at date of issuance.
Class A warrants over 24,635 shares were exercised during the fiscal
year resulting in proceeds to the Company of $160,125.
Warrants outstanding at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Number of
Warrant warrants Exercise price Expiry date Entitlement
- ------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Redeemable 2,925,365 $6.50 January 24, 2001 One share of common
warrants
stock and one Class B
warrant
Class B Redeemable 5,250,000 $8.75 January 24, 2001 One share of common
warrants stock
Debenture warrants 135,000 $6.00 July 31, 2007 One share of common
stock
</TABLE>
The Class A 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 $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.
The Company subsequent to year end, has indicated that it will make
an offer to its warrant holders to redeem all Class A Warrants and
Class B Warrants under the following terms and conditions:
51
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
21. WARRANTS OUTSTANDING (continued)
* Two shares of common stock for three Class A and Class B
Warrants surrendered
* One share of common stock in exchange for three Class A
Warrants
* One share of common stock in exchange for six Class B
Warrants
22. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT
The 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 FSAH. These shares will be tendered to the
Company and they will be immediately converted to FSAH Class A common
stock.
Since the consummation of the Company's initial public offering in
January 1996, the Company has entered into FSAC Escrow Agreements
with the FSAH escrow agent, FSAH and certain principal shareholders
of the Company's subsidiaries which were acquired since January 1996.
The terms of the FSAC Escrow Agreement are substantially similar to
the terms of the FSAH Escrow Agreement, except that only the FSAH
Escrow Agreement provided for the issue of shares of Class B common
stock to the FSAH escrow agent while the FSAC Escrow Agreements
provide for the issue of shares of common stock to the FSAH escrow
agent which correspond to the issuances of FSAH Class B common stock
by FSAH.
A further 1,191,840 shares of common stock were issued to the FSAH
escrow agent in terms of FSAC Escrow Agreements entered into during
the fiscal year in connection with the acquisitions of Piemans
Pantry, Astoria Bakery, Seemanns' Quality Meat Products, Gull Foods
and First Strut.
The FSAC escrow agreement is intended to provide security for certain
holders of FSAH Class B stock who are residents of South Africa and
who are subject to exchange controls which prevent them from holding
shares in a foreign company. In closing acquisitions of South African
entities it follows that the South African residents are not entitled
to FSAC common stock in lieu of cash consideration paid for the
business. Therefore a vehicle has been created where the South
African residents are issued FSAH Class B common stock, FSAH being a
registered South African entity, in lieu of FSAC common stock. The
disposal of FSAH Class B common stock by these South African
residents may only be made to the FSAC Escrow Agent who in turn will
dispose of the FSAC common stock held by it in escrow, who will then
pass the disposal proceeds on to the holders of the FSAH Class B
common stock in exchange for their FSAH B Class shares.
The accounting treatment is as follows:
52
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996, THE PERIOD MARCH 1, TO JUNE
30, 1995 AND THE YEAR
ENDED FEBRUARY 28, 1995
22. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT (continued)
Previous vendors of companies acquired are issued FSAH B Class shares
at the closing market price of the FSAC common stock, denominated in
Dollars and converted to South African Rands at the average spot rate
ruling, on the effective date of closing the acquisition agreements.
Concurrently with this transaction a similar amount of FSAC common
stock is issued to the FSAC Escrow Agent.
The FSAH B Class shares so issued are not eliminated on
consolidation, but rather, form part of the issued capital stock of
FSAC and the non cash proceeds of these issues are disclosed as
capital and capital in excess of par in the Statement of Changes in
Stockholders equity. Thereby giving full effect to the issues of FSAH
B Class shares as if they were FSAC common stock issues.
Therefore the shares are issued at fair market value and no
additional charges/gains are needed in the Statement of Income.
23. CONTINGENT LIABILITIES
South African Secondary Tax on Companies at 12,5 percent is payable
on all future dividends declared out of distributable reserves.
24. EVENTS SUBSEQUENT TO BALANCE SHEET DATE
Effective July 1, 1997 the Company completed negotiations to acquire
Fifers Bakery (Proprietary) Limited ("Fifers"), subject to the
satisfactory outcome of a due diligence investigation to be performed
by Price Waterhouse. Fifers will fit into the Company's Bakery and
Confectionery interests under First SA Food Holdings Limited, in
which the Company holds an effective 70% interest.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
53
<PAGE>
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 51 Chairman of the Board of Directors
Clive Kabatznik 40 Chief Executive Officer, President, Chief
Financial Officer, Controller and Director
Tucker Hall 41 Secretary
Charles S. Goodwin 58 Director
John Mackey 56 Director
Cornelius J. Roodt 38 Director
The following is a brief summary of the background of each director and
executive officer of the Company:
Michael Levy is a co-founder of the Company and has served as Chairman of
the Board of Directors since the Company's inception. Since 1987, Mr. Levy has
been the Chief Executive Officer and Chairman of the Board of Arpac L.P., a
Chicago-based manufacturer of plastic packaging machinery.
Clive Kabatznik is a co-founder of the Company and has served as a
director and its President since its inception and as its Vice Chairman, Chief
Executive Officer and Chief Financial Officer since October 1995. Since June
1992, Mr. Kabatznik has served as President of Colonial Capital, Inc. a
Miami-based investment banking Company that specializes in advising middle
market companies in areas concerning mergers, acquisitions, private and public
agency funding and debt placements. From 1989 to 1992, Mr. Kabatznik was the
President of Biltmore Capital Group, a financial holding Company that he
co-founded that controlled a registered NASD broker-dealer. From 1981 to 1986,
Mr. Kabatznik was the Chief Financial Officer of the Learning Annex, Inc., which
he co-founded. Mr. Kabatznik was born in South Africa.
Tucker Hall has been the Secretary of the Company since its inception and
is an employee of Codan Services Limited, an affiliated company of Conyers, Dill
& Pearman, Bermuda counsel to the Company, and has been employed by such Company
as a manager since 1989.
Charles S. Goodwin has been a director for the Company since its inception
and has been Managing Director and Chief Executive Officer of Tessellar
Investment, Ltd., a money management firm operating from Cape Cod, Massachusetts
since 1985. Mr. Goodwin was Senior Vice President and Director of International
Research of Arnhold & S. Bleichroeder, 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; 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.
54
<PAGE>
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 1996.
Cornelius J. Roodt has been a director of the Company since December 1996.
Mr. Roodt was appointed Managing Director and Chief Financial Officer of FSAH,
on July 1, 996. 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 Wichahn Meyernel in South Africa.
OTHER KEY EMPLOYEES
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.
Rhona L. Kabatznik, 61. Ms. Kabatznik is a General Manager and Director of
L.S. Pressings. Ms. Kabatznik's responsibilities include production and sales
administration. Ms. Kabatznik is the mother of Clive Kabatznik, the Vice
Chairman, President and Chief Executive Officer of the Company, and a first
cousin of Michael Levy, the Chairman of the Company's Board of Directors.
Raymond Shaftoe, 45. Mr. Shaftoe has been a joint Managing Director of
Starpak since 1986 and has been employed by Starpak since 1980. Mr. Shaftoe has
also served on the Board of Directors of Starpak since 1986. His current
responsibilities include supervision of the sales and marketing of Starpak's
products, administration and product development.
Bruce Thomas, 44. Mr. Thomas is the Chief Executive Officer of Europair.
He has held this position since 1991 and was the principal shareholder of
Europair until its sale to the Company. Prior to that he was the Chief Financial
Officer for Europair and held that position from 1976. His responsibilities
include the management of Europair, product development, sales and financial
oversight.
John Welch, 48. Mr. Welch is the founder and Managing Director of Piemans
Pantry, a company he established in 1982. His responsibilities include overall
supervision of all aspects of the business.
Wolfgang Burre, 55. Mr. Burre is the founder of Astoria. He is a fifth
generation master baker and is responsible for overall corporate strategy,
product development and quality control. Mr. Burre traditionally has devoted 50%
of his time to Astoria and will continue to do so.
Each of the above key employees, other than Bruce Thomas, John Welch and
Wolfgang Burre 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. John Welch and Michael Morgan have entered into a
two year employment agreement with
55
<PAGE>
Piemans Pantry commencing March 1, 1996. Wolfgang Burre has agreed to enter into
a three year employment agreement to be effective as of July 1, 1996.
Mark Jericevich, 51. Mark Jericevich was the founder of Seemanns and has
been a Managing Director since Seemanns' inception in 1983.
Matthew Jericevich, 27. Matthew Jericevich has been a Managing Director of
Seemanns since November 1996. For the past five years Mr. Jericevich has held a
number of marketing and production positions at Seemanns. Mark Jericevich and
Matthew Jericevich are jointly responsible for overall corporate strategy, as
well as all financial and operational issues at Seemanns.
Mark Jericevich and Matthew Jericevich have entered into three year
service contracts with Seemanns, commencing November 1, 1996.
Ian Store, 44. Mr. Store is a Managing Director and founder of Gull Foods.
Mr. Store is responsible for all production and operational management at Gull,
and together with Alan James, is jointly responsible for overall corporate
strategy.
Alan James, 45. Mr. James is a Managing Director and founder of Gull. Mr.
James is responsible for Gull's marketing and sales efforts.
Ian Store and Alan James have entered into three year service contracts
with Gull Foods, commencing January 1, 1997.
All directors of the Company hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. The officers
of the Company are elected by the Board of Directors at the first meeting after
each annual meeting of the Company's shareholders, and hold office until their
death, until they resign or until they have been removed from office. The
Company has no executive committee. Pursuant to the Underwriting Agreement,
dated January 24, 1996 by and among the Company, FSA Stock Trust and D.H. Blair
and executed with respect to certain provisions thereof by Messrs Clive
Kabatznik and Michael Levy, the Company is required to nominate a designee of
D.H. Blair of its initial public offering to the Board of Directors for a period
of five years from the date of the completion of the Offering. D.H. Blair has
not yet selected such a designee.
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.
56
<PAGE>
EXECUTIVE COMPENSATION
Except for Mr. Levy, directors of the Company do not receive fixed
compensation for their services as directors other than options to purchase
5,000 shares under the Company's stock option plan. Mr. Levy 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.
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 July 1, 1996 through June 30, 1997. Apart from Mr.
Kabatznik, whose annual salary is $180,000, no executive officer of the Company
received compensation in excess of $100,000 during such period.
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SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION
YEAR SALARY BONUS STOCK OPTIONS
Clive Kabatznik, President 1997 $180,000 $195,142 255,000(1)
and Chief Executive Officer 1996 $135,000 205,000(2)
(1) Includes (i) options granted under the Stock Option Plan to purchase 5,000
shares of Common Stock at an exercise price of $3.75 per share, and (ii)
options granted by the Board of Directors to purchase 250,000 Shares of
common Stock at an exercise price of $4.75 per share (of which 125,000
were immediately exercisable and 125,000 would become exercisable on June
24, 1999, if Mr. Kabatznik is still employed by the Company on such date).
(2) See " - Stock Option Plan."
EMPLOYMENT AGREEMENTS
FSAM has entered into an Employment Agreement with Clive Kabatznik,
the Vice Chairman, President and Chief Executive Officer of the Company and of
FSAM. Under the terms of such agreement, Mr. Kabatznik shall devote
substantially all of his business time, energies and abilities to the Company
and its subsidiaries and receives 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.
In addition, Mr. Kabatznik has been granted additional options to purchase
150,000 shares of Common Stock of the Company at the exercise price of $5.00 per
share, exercisable after the seventh anniversary following the grant date,
provided that vesting of such options will be accelerated as follows: (i) 50,000
options will be exercisable on such earlier date that the Company realizes
earnings per share of $.75 or more on a fiscal year basis, (ii) an additional
50,000 options will be exercisable on such earlier date that the Company
realizes earnings per share of $1.00 or more on a fiscal year basis, and (iii)
an additional 50,000 options will be exercisable on such earlier date that the
Company realizes earnings per share of $1.50 or more on a fiscal year basis. The
options referred to in (i) and (ii) above have vested as a result of the
Company's realization of the applicable earnings per share requirements. 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 provided in Mr. Kabatznik's employment agreement) 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 Michael Levy,
pursuant to which Mr. Levy serves as a consultant to FSAM. The term of the
agreement is for a period of three years until January 31, 1999. Mr. Levy's
compensation for such consulting services is $60,000 per annum.
FSAH has entered into an Employment Agreement with Cornelius J.
Roodt, the Managing Director and Chairman of the Board of FSAH. Under the terms
of such agreement, Mr. Roodt shall devote substantially all of his business
time, energies and abilities to the Company and its subsidiaries and shall
receive an annual salary of $150,000 and options to purchase 150,000 shares of
FSAH Class B Stock at an exercise price of Rand 13.05 per share. Mr. Roodt's
salary under his Employment Agreement shall be reviewed on an annual basis. In
addition, the 150,000 shares of FSAH Class B Stock are exercisable after the
fifth anniversary following the grant date, provided that vesting of such
options will be accelerated as follows: (i) 50,000 options will be exercisable
on such earlier date that the Company realizes earnings per share of $.75 or
more on a fiscal year basis, (ii) an additional 50,000 options will be
exercisable on such earlier date that the Company realizes earnings per share of
$1.00 or more on a fiscal year basis, and (iii) an additional 50,000 options
will be exercisable on such earlier date that the Company realizes earnings per
share of $1.50 or more on a fiscal year basis. The options referred to in (i)
and (ii) above have vested
58
<PAGE>
as a result of the Company's realization of the applicable earnings per share
requirements. 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 (as provided in Mr. Roodt's employment agreement) above
$5,000,000, as shall be reported in the Company's audited financial statements
for each fiscal year in which Mr. Roodt is employed, exclusive of any
extraordinary earnings or charges which would result from the release of the
Earnout Escrow Shares.
STOCK OPTION PLAN
The Board of Directors of the Company has adopted and the
shareholders (prior to the Company's initial public offering) approved the
Company's 1995 Stock Option Plan (the "Stock Option Plan"). The Stock Option
Plan provides for the grant of (i) options that are intended to qualify as
incentive stock options (Incentive Stock Options) within the meaning of Section
422 of the Code to key employees and (ii) options not intended to so qualify
(Nonqualified Stock Options) to key employees (including directors and officers
who are employees of the Company), and to directors and consultants who are not
employees. The total number of shares of Common Stock for which options may be
granted under the Stock Option Plan is 350,000 shares.
The Stock Option Plan is to be administered by the Compensation
Committee of the Board of Directors. The Committee shall determine the terms of
options exercised, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted under the
Stock Option Plan is transferable by the optionee other than by will or the laws
of descent and distribution and each option is exercisable during the lifetime
of the optionee only by such optionee or his legal representatives.
The exercise price of Incentive Stock Options granted under the Stock
Option Plan must be at least equal to the fair market value of such shares on
the date of grant (110% of fair market value in the case of an optionee who owns
or is deemed to own stock possessing more than 10% of the voting rights of the
outstanding capital stock of the Company (or any of its subsidiaries). The term
of each option granted pursuant to the Stock Option Plan shall be established by
the Committee, in its sole discretion; provided, however, that the maximum term
for each Incentive Stock Option granted pursuant to the Stock Option Plan is ten
years (five years in the case of an optionee who owns or is deemed to own stock
possessing more than 10% of the total combined voting power of the outstanding
capital stock of the Company (or any of its subsidiaries). Options shall become
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 750,000 shares of Common
Stock:
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<TABLE>
<CAPTION>
OPTIONS GRANTED
POTENTIAL REALIZABLE VALUE AT
PERCENT OF TOTAL ASSUMED
OPTIONS GRANTED ANNUAL
TO PER SHARE RATE OF STOCK PRICE
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION APPRECIATION FOR OPTION
GRANTED FISCAL YEAR (1) PRICE DATE TERM
------- ----------------- ------- ------ -----
5% 10%
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Levy................... 5,000 .66% $5.00 (2) $ 6,900 $ 15,273
5,000 .66% 3.75 (2) 5,200 11,500
Clive Kabatznik................ 205,000 27.33% 5.00 (3) 1,547,571 1,363,332
5,000 .66% 3.75 (2) 5,200 11,500
250,000 33.33% 4.75 (4) 328,084 724,981
Laurence M. Nestadt............ 5,000 .66% 5.00 (2) 6,900 15,273
Charles S. Goodwin............. 5,000 .66% 5.00 (2) 6,900 15,273
5,000 .66% 3.75 (2) 5,200 11,500
John Mackey.................... 5,000 .66% 5.00 (2) 6,900 15,273
5,000 .66% 3.75 (2) 5,200 11,500
Cornelius J. Roodt............. 5,000 .66% 3.75 (2) 5,200 11,500
250,000 33.33% 4.75 (4) 328,084 724,981
</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; 50,000
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; 100,000 additional options are currently exercisable until
the tenth anniversary of the date of grant.
(4) Non-plan options to purchase 250,000 shares of Common Stock at an exercise
price of $4.75 granted by the Board of Directors to each of Mr. Kabatznik
and Mr. Roodt in the fourth quarter of fiscal year 1997 (of which 125,000
were immediately exercisable and 125,000 will become exercisable on June
24, 1999, if the optionee is still employed by the Company on such date).
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.
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<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
PERCENTAGE OF
NAME AND ADDRESS OF CLASS B COMMON PERCENTAGE OF VOTING
BENEFICIAL SHAREHOLDER COMMON STOCK STOCK (2)(3) OWNERSHIP(3) POWER(3)
- ---------------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Michael Levy.................... 1,201,837(4) 1,300,116(5)(6) 45.3% 60.1%
9511 West River Street
Schiller Park, IL 60176
Clive Kabatznik................. 285,000(7) 190,000 9.9% 10.4%
2665 S. Bayshore
Suite 702
Coconut Grove, FL 37137
FSA Stock Trust................. 0 953,660(5)(8) 17.3% 37.2%
9511 West River Street
Schiller Park, IL 60176
Charles S. Goodwin.............. 10,000(4) 0 * *
801 Old Post Road
Cotuit, MA 02635
John Mackey..................... 10,000(4) 0 * *
1198 Pacific Coast Highway
Seal Beach, CA 90470
Cornelius J. Roodt 130,000(9) 0 2.3% 1.0%
P.O. Box 4001
Kempton Park, South Africa
All executive officers and 1,636,837(10) 1,490,116 54.3% 69.4%
directors as a group (5 persons)
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is calculated in accordance with Rule 13d-3 under the
1934 Act.
(2) Except as otherwise indicated, each of the parties listed has sole voting
and investment power with respect to all shares of Class B Common Stock
indicated below.
(3) For the purposes of this calculation, the Common Stock and the Class B
Common Stock are treated as a single class of Common Stock. The Class B
Common Stock is entitled to five votes per share, whereas the Common Stock
is entitled to one vote per share.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
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<PAGE>
(5) For purposes of Rule 13d-3 under the Exchange Act, such individual or
entity is deemed to be the beneficial owner of the shares held pursuant to
the terms of the FSAH Escrow Agreement, although such individual or entity
disclaims ownership of such shares under South African law.
(6) Includes (i) 570,137 shares of Class B Common Stock owned by the FSA Stock
Trust, (ii) 383,523 shares of Class B Common Stock issued to the FSAH
Escrow Agent pursuant to the terms of the FSAH Escrow Agreement, for which
the FSA Stock Trust may be deemed the beneficial owner and for which Mr.
Levy has been granted a voting proxy and (iii) 36,452 shares of Class B
Common Stock issued to the FSAH Escrow Agent pursuant to the terms of the
FSAH Escrow Agreement, which shares correspond to a like number of shares
of FSAH Class B Stock which was purchased by Mr. Levy upon the closing of
the Europair acquisition. Also includes 310,004 additional shares of Class
B Common Stock issued to the FSAH Escrow Agent, for which Mr. Levy has been
granted a voting proxy and (i) 489,474 shares of Common Stock issued to the
FSAH Escrow Agent in connection with the Piemans Pantry acquisition, (ii)
186,407 shares of Common Stock issued to the FSAH Escrow Agent in
connection with the Astoria acquisition, (iii) 258,066 shares of Common
Stock issued by the Company to the Escrow Agent in connection with the
Seemanns acquisition, (iv) 238,660 shares of Common Stock issued by the
Company to the Escrow Agent in connection with the Gull Foods acquisition,
with respect to which the FSAH Escrow Agent has granted an irrevocable
proxy to Mr. Levy and (v) 19,230 shares of Common Stock issued by the
Company to the Escrow Agent in connection with the acquisition of First
Strut (Pty) Ltd. 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."
(7) Includes 285,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
(8) Includes (i) 570,137 shares of Class B Common Stock owned by the FSA Stock
Trust and (ii) 383,523 shares of Class B Common Stock issued to the FSAH
Escrow Agent pursuant to the terms of the FSAH Escrow Agreement. See
Certain Transactions - FSAH Escrow Agreement.
(9) Includes 130,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
(10) Represents shares issuable upon exercise of options that are immediately
exercisable. Does not include 300,000 shares issuable upon exercise of
options not exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Company's organization in September 1995, the
Company sold 1,212,521 shares of Class B Common Stock to Clive Kabatznik, the
President and Chief Executive Officer of the Company for a purchase price of
$.01 per share, which amount was paid by Mr. Kabatznik in the form of advances
made by him to pay for certain expenditures of the Company. In October 1995, Mr.
Kabatznik transferred 1,002,521 of such shares, which included 670,137 shares to
Mrs. Stephanie Levy as Trustee of the FSA Stock Trust, 97,210 shares to the
Stopia Trust, 97,210 shares to the 2 RAS Trust, 93,307 to the Presspack Trust,
24,657 shares to the Two Year Trust and 20,000 shares to Henry Rothman. The
transferees have paid Mr. Kabatznik $.01 per share for each of such shares.
62
<PAGE>
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.
STARPAK ACQUISITION
In January 1996, pursuant to the terms of an agreement executed by the
FSA Stock Trust, Raymond Shaftoe, Steven Smith and FSAH, as amended (the
"Starpak Agreement"), the previous shareholders of Starpak sold 100% of the
equity shares of Starpak (the "Starpak Stock") to FSAH in exchange for 167,709
shares of FSAH Class B Stock.
The 167,709 shares of FSAH Class B Stock delivered to the previous
Starpak shareholders may be tendered to the FSAH Escrow Agent against payment
therefor by the FSAH Escrow Agent, which payment may be made through the sale by
the FSAH Escrow Agent of an equal number of shares of Class B Common Stock of
the Company (which shares will automatically convert to Common Stock upon such
sale) and delivery of the net proceeds thereof pursuant to the terms of the FSAH
Escrow Agreement. See "Certain Transactions - FSAH Escrow Agreement."
L.S. PRESSINGS ACQUISITION
In January 1996, pursuant to the terms of an agreement executed by the
FSA Stock Trust, Rhona Kabatznik, Raymond Shaftoe, Samuel Smith and FSAH, as
amended, (the "L.S. Pressings Agreement"), the previous shareholders of L.S.
Pressings sold 100% of the equity shares of such company (the "L.S. Pressings
Stock") to FSAH in exchange for 380,181 shares of FSAH Class B Stock.
The 380,181 shares of FSAH Class B Stock delivered to the previous
L.S. Pressings' shareholders may be tendered to the FSAH Escrow Agent against
payment therefor by the FSAH Escrow Agent, which payment may be made through
sale by the FSAH Escrow Agent of an equal number of shares of Class B Common
Stock of the Company (which shares will be automatically converted to Common
Stock upon such sale) and delivery of the net proceeds thereof pursuant to the
terms of the FSAH Escrow Agreement.
In September 1995, prior to the execution of the Starpak Agreement and
the L.S. Pressings Agreement, Michael Levy transferred all of his shares in
Starpak and L.S. Pressings to the FSA Stock Trust, which shares constitute all
of the shares of Starpak and L.S. Pressings sold to the Company by the FSA Stock
Trust.
FSAH ESCROW AGREEMENT
The FSAH Escrow Agreement, executed in January 1996, provided for the
concurrent issuance and delivery by the Company of 729,979 shares of Class B
Common Stock to the FSAH Escrow Agent. The FSAH
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<PAGE>
Escrow Agreement is intended to provide security for certain holders of FSAH
Class B Stock, who are residents of South Africa and are prohibited by South
African law from holding shares in a foreign company. The FSAH Escrow Agreement
provides that the parties to such Agreement that are holders of FSAH Class B
Stock will not sell such shares of stock except as provided in such Agreement.
Specifically, the FSAH Escrow Agreement provides that the FSAH Class B Stock may
be tendered to the FSAH Escrow Agent against payment therefor by the FSAH Escrow
Agent, which payment may consist of the proceeds obtained from the sale by the
FSAH Escrow Agent of an equal number of shares of Class B Common Stock of the
Company, provided that the proceeds of such sale shall be delivered to the
holder in exchange for his or her shares of FSAH Class B Stock. Upon the sale by
the FSAH Escrow Agent of any shares of Class B Common Stock of the Company
pursuant to the FSAH Escrow Agreement, the FSAH Escrow Agent will deliver to the
Company the equivalent number of shares of FSAH Class B Stock tendered in
connection therewith. Such shares of FSAH Class B Stock will then automatically
convert into shares of FSAH Class A Stock and will be held by the Company
together with the other shares of FSAH Class A Stock owned by the Company. The
Company has granted certain piggyback registration rights to the FSAH Escrow
Agent on behalf of the holders of the shares of FSAH Class B Stock held pursuant
to the FSAH Escrow Agreement. Such shares of Class B Common Stock will be
automatically converted to Common Stock of the Company upon the sale of such
shares by the FSAH Escrow Agent pursuant to the terms of the FSAH Escrow
Agreement. Such shares of Class B Common Stock will be controlled by the terms
of the FSAH Escrow Agreement. Michael Levy has paid the purchase price of $.01
per share for each of the shares of Class B Common Stock held pursuant to the
FSAH Escrow Agreement and the FSAH Escrow Agent has granted to Michael Levy an
irrevocable proxy to vote each of such shares of Class B Common Stock prior to
the sale or forfeiture of such shares, as the case may be. The Company owns
25,000,000 shares of FSAH Class A Stock, or approximately 97% of the total
outstanding shares of FSAH, and the remaining shares are held by the following
persons in the amounts set forth below:
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<PAGE>
FSAH Class B Stock
------------------
FSA Stock Trust ................................... 383,523 shares
Global Capital .................................... 50,000 shares
Bruce Thomas ...................................... 80,000 shares
Samuel Smith ...................................... 58,766 shares
Raymond Shaftoe ................................... 58,766 shares
Rhona Kabatznik ................................... 62,472 shares
Michael Levy ...................................... 36,452 shares
--------------
Total ...................................... 729,979 shares
==============
FSAC ESCROW AGREEMENTS
Since the consummation of the Company's IPO in January 1996, the
Company has entered into the FSAC Escrow Agreements which are comprised of a
number of additional agreements with the FSAH Escrow Agent, FSAH and certain
principal shareholders of the Company's subsidiaries which were acquired since
January 1996. The terms of the FSAC Escrow Agreements are substantially similar
to the terms of the FSAH Escrow Agreement, except that only the FSAH Escrow
Agreement provided for the issuance of shares of Class B Common stock to the
FSAH Escrow Agent while each of the FSAC Escrow Agreements provided for the
issuance of shares of Common stock to the FSAH Escrow Agent which correspond to
the following issuances of FSAH Class B Stock by FSAH:
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE PIEMAN'S PANTRY
ACQUISITION(1)
Heinz Andreas................................................ 220,262 shares
John Welch .................................................. 220,262 shares
Michael Morgan............................................... 48,950 shares
--------------
Total .............................. 489,474 shares
==============
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE ASTORIA
ACQUISITION(2)
Wolfgang Burre............................................... 186,407 shares
- --------
1 The Company has issued an additional 489,474 shares of Common Stock to the
FSAH Escrow Agent pursuant to the terms of certain FSAC Escrow Agreements
by and among the Company, the FSAH Escrow Agent, and each of Mr. Andreas,
Mr. Morgan and Mr. Welch in connection with the Pieman's acquisition.
2 The Company has issued an additional 258,066 shares of Common Stock to the
FSAH Escrow Agent pursuant to the terms of a certain FSAC Escrow Agreement
by and among the Company, the FSAH Escrow Agent and each of Mr. Mark
Jericevich and Mr. Matthew Jericevich, respectively, in connection with the
Seemanns Acquisition.
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<PAGE>
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE SEEMANN'S
ACQUISITION(3)
Mark Jericevich.............................................. 129,033 shares
Matthew Jericevich........................................... 129,033 shares
--------------
Total .............................. 258,066 shares
==============
ADDITIONAL SHARES ISSUED IN CONNECTION WITH GULL FOODS
ACQUISITION(4)
Trek Biltong................................................. 238,660 shares
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE
ACQUISITION OF FIRST STRUT (PTY) LTD.(5)
The Coch Family Trust........................................ 19,230 shares
The rights and preferences accruing to holders of FSAH Class A Stock
and holders of FSAH Class B Stock are substantially identical except that (i)
FSAH is required to pay dividends to holders of FSAH Class B Stock equivalent,
on a pro rata basis, to the dividends paid by the Company to holders of its
Common Stock, (ii) payment of the above dividends on FSAH Class B Stock must be
made no later than three business days subsequent to payment of dividends by the
Company on its Common Stock, (iii) accrued dividends on FSAH Class B Stock must
be paid prior to payment of any declared dividends on FSAH Class A Stock and
(iv) any shares of FSAH Class B Stock acquired by the Company will be
automatically converted to shares of FSAH Class A Stock upon such acquisition.
J. LEVY LOAN
In 1986, Mr. J. Levy, Michael Levy's father, extended to Starpak a
loan in the principal amount of R600,000 (which equaled approximately $300,000
at the prevailing exchange rate at the time of the loan), which loan bears
interest at 1% per annum below the prime bank overdraft rate and is secured by a
second mortgage on certain property owned by Starpak having a book value of
$767,180. The original loan contained no fixed terms of repayment. Upon the
closing of the Offering, the terms of the loan were amended as follows: the loan
bears interest at 1% below the prime bank overdraft rate (currently 19.25% per
annum) and is repayable over a period of 30 months. The first twenty four
monthly installments are $5,563 each, inclusive of principal and interest, the
- --------
3 The Company has issued an additional 238,660 shares of Common Stock to the
FSAH Escrow Agent pursuant to the terms of a certain FSAC Escrow Agreement
by and among the Company, the FSAH Escrow Agent, and Trek Biltong in
connection with the Gull Foods Acquisition.
4 The Company has issued an additional 186,407 shares of Common Stock to the
FSAH Escrow Agent in connection with the Astoria Acquisition pursuant to
the terms of a certain FSAC Escrow Agreement by and among the Company, the
FSAH Escrow Agent and Mr. Burre.
5 The Company has issued an additional 19,230 shares of Common Stock to the
FSAH Escrow Agent pursuant to the terms of a certain FSAH Escrow Agreement
by and among the Company the FSAH Escrow Agent, First Strut (Pty) Ltd. and
Michael Levy in connection with the acquisition of First Strut (Pty) Ltd.
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<PAGE>
first of which was paid on October 30, 1995. The balance outstanding after
twenty four months will be repayable in six equal monthly installments.
MICHAEL LEVY LOAN AND MANAGEMENT FEES
During the period commencing March 1, 1995 and ending January 15,
1996, Michael Levy received certain non-interest bearing loans from Starpak and
L.S. Pressings in the aggregate amount of $47,000. Mr. Levy shall repay such
amount by September 30, 1997. Mr. Levy has received no non-interest bearing
loans from the Company (or any of its subsidiaries) since January 15, 1996. In
the years ended February 28, 1995 and 1994, Starpak and L.S. Pressings paid Mr.
Levy management fees of $83,570 and $93,670, respectively.
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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 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.
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 Bye-Laws of the Registrant
4.1 Form of Bridge Note
4.2 Form of Warrant Agreement
4.3 Form of Unit Purchase Option
4.4(1) Indenture dated April 25, 1997 between the Company and
American Stock Transfer & Trust Company (as Indenture
Trustee)
4.5(2) Form of Debenture
4.6(2) Form of Placement Warrant
4.7(2) Stock Option Agreement
10.1 Starpak Acquisition Agreements
10.2 Starpak Escrow Agreement
10.3 L.S. Pressings Acquisition Agreements
10.4 L.S. Pressings Escrow Agreement
10.5 Europair Acquisition Agreements
10.6 Europair Escrow Agreement
10.7 Form of Escrow Agreement regarding the Earnout Escrow Shares
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10.8 Form of FSAH Escrow Agreement
10.9 Form of Employment Agreement of Clive Kabatznik
10.10 Form of FSAM 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
10.15 Form of Addendum to L.S. Pressings Acquisition Agreement
10.16 Form of Addendum to Europair Acquisition Agreement
10.17(3) Pieman's Pantry Acquisition Agreements
10.18(4) Form of Astoria Sale of Business Agreement
10.19(5) Form of Gull Foods Sale of Business Agreement
10.20(6) Form of Employment Agreement of Cornelius Roodt
11.1(6) Calculations of Earnings Per Share
21.1 Subsidiaries of the Registrant
23.1(6) Consent of Price Waterhouse
27.1(6) Financial Data Schedule
99.1(6) Acquisition Schedule
-------------
(1) Incorporated by reference is the Company's Current Report on Form 8-K filed
on September 10, 1997 (Exhibit 4.1)
(2) Incorporated by reference is the Company's Registration Statement on Form
S-1 (No. 333-33561)
(3) Incorporated by reference is the Company's Current Report on Form 8-K
(Exhibit 1) (filed on June 14, 1996) as amended on Form 8-K/A (filed on
August 16, 1996).
(4) Incorporated by reference is the Company's Current Report on Form 8-K
(Exhibit 1) (filed on November 7, 1996) as amended on Form 8-K/A (filed on
March 14, 1997).
(5) Incorporated by reference is the Company's Current Report on Form (Exhibit
1) (filed on May 8, 1997) as amended on Form 8-K/A (filed on July 3, 1997).
(6) Filed herewith.
All other Exhibits have been previously filed with the Company's
Registration statement on Form S-1, as amended (No. 33-99180), which is
incorporated by reference.
(B) Reports on Form 8-K
The Registrant filed Current Reports on Form 8-K with the Commission.
On May 8, 1997, the following item was reported by the Company on the Form 8-K:
On April 24, 1997, the Company through its wholly owned subsidiary corporation,
First South African Holdings (Pty) Ltd., acquired all of the outstanding stock
and assets of Gull Foods CC.
The following financial statements of the Company were included as required to
be filed on Form 8-K:
69
<PAGE>
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
70
<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 26th day of September, 1997.
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 September 26, 1997
Michael Levy Directors
/s/ Clive Kabatznik President, Vice Chairman, September 26, 1997
Clive Kabatznik Chief Executive Officer, Chief
Financial Officer, Director and
Controller
/s/ Charles S. Goodwin Director September 26, 1997
Charles S. Goodwin
/s/ John Mackey Director September 26, 1997
John Mackey
/s/ Cornelius Roodt Director September 26, 1997
Cornelius Roodt
71
FIRST SOUTH AFRICA CORP., LTD.
LETTER OF TRANSMITTAL
To Accompany the Surrender
of
Redeemable Class A Warrants
and/or
Redeemable Class B Warrants
Exchange Agent:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall Street
New York, New York 10005
(718) 921-8200
Gentlemen:
Surrendered herewith are Redeemable Class A Warrants (the "Class A
Warrants") and Redeemable Class B Warrants (the "Class B Warrants"; and,
together with the Class A Warrants, the "Warrants") of First South Africa Corp.,
Ltd. (the "Company") numbered and registered as listed below in exchange for
shares of common stock, par value $.01 per share (the "Common Stock"), of the
Company, on the basis of any of the following offers: (i) two shares of Common
Stock for each three Class A Warrants and three Class B Warrants, (ii) two
shares of Common Stock for each five Class A Warrants and/or (iii) two shares of
Common Stock for each ten Class B Warrants. A SEPARATE LETTER OF TRANSMITTAL
MUST BE COMPLETED FOR THE EXCHANGE OF WARRANTS PURSUANT TO OFFER. The Company
will not issue fractional shares of Common Stock or pay cash in lieu of issuing
fractional shares of Common Stock. Any person surrendering an unequal number of
certificates representing Class A Warrants and Class B Warrants or certificates
representing an aggregate number of Class A Warrants and Class B Warrants that
are not evenly divisible by three or six, as the case may be, will receive from
the Company a replacement warrant certificate (the "Replacement Warrant
Certificate") representing the Warrants that have not been accepted by the
Company for exchange. See Instruction 2.
Items A and D of this Letter of Transmittal must be completed in all
cases.
PLEASE FOLLOW CAREFULLY THE INSTRUCTIONS ON THE FOLLOWING PAGES
Item A. (Required)
- --------------------------------------------------------------------------------
NAME AND ADDRESS | PLEASE FILL IN
OF REGISTERED OWNER | NUMBERS AND AMOUNTS*
- --------------------------------------------------------------------------------
| CLASS A WARRANT | NUMBER OF CLASS A
|CERTIFICATE NUMBER | WARRANTS
|------------------------|------------------------
| |
| |
|------------------------|------------------------
| |
| |
|------------------------|------------------------
| TOTAL |
| |
|-------------------------------------------------
| CLASS B WARRANT | NUMBER OF CLASS B
|CERTIFICATE NUMBER | WARRANTS
|------------------------|------------------------
| |
| |
|------------------------|------------------------
| |
| |
|------------------------|------------------------
| TOTAL |
| |
- --------------------------------------------------------------------------------
The undersigned represents and warrants to the Company that the
undersigned is the lawful owner(s) of the above described Warrants and that the
undersigned holds the Warrants free and clear of all liens, charges or
encumbrances whatsoever.
* Please attach additional pages as necessary.
<PAGE>
IF THE NAME AND ADDRESS SHOWN ABOVE ARE NOT CORRECT, PLEASE INDICATE
CHANGES. THE ABOVE DESCRIBED CLASS A WARRANTS AND CLASS B WARRANTS ARE
SURRENDERED BY YOU FOR THE ACTION INDICATED BELOW:
ITEM B. ITEM C.
- --------------------------------------------------------------------------------
|
SPECIAL DELIVERY INSTRUCTIONS | SPECIAL MAILING INSTRUCTIONS
FOR COMMON STOCK |
| TO BE COMPLETED ONLY IF SHARES
TO BE COMPLETED ONLY IF SHARES | OF COMMON STOCK ARE TO BE MAILED
OF COMMON STOCK ARE TO BE ISSUED | TO AN ADDRESS OTHER THAN AS
IN A NAME OTHER THAN AS | INDICATED IN ITEM A ABOVE (SEE
INDICATED IN ITEM A ABOVE (SEE | INSTRUCTIONS 3 AND 4). MAIL TO:
INSTRUCTIONS 3 AND 4). ISSUE TO: |
|
Name______________________________ | Name______________________________
(TYPE OR PRINT) | (TYPE OR PRINT)
|
Address___________________________ | Address___________________________
|
__________________________________ | __________________________________
|
__________________________________ | __________________________________
(ZIP CODE) | (ZIP CODE)
|
__________________________________ | __________________________________
(SOCIAL SECURITY NUMBER OR TAXPAYER | (SOCIAL SECURITY NUMBER OR TAXPAYER
I.D. NUMBER) | I.D. NUMBER)
- --------------------------------------------------------------------------------
ITEM D. (REQUIRED)
- --------------------------------------------------------------------------------
REQUIRED SIGNATURES
THE SIGNATURE(S) ON THIS LETTER OF TRANSMITTAL MUST CORRESPOND EXACTLY WITH
NAME(S) ON THE CLASS A WARRANTS AND CLASS B WARRANTS OR THE NAME(S) OF THE
PERSON(S) TO WHOM THE SHARES OF COMMON STOCK HAVE BEEN PROPERLY ASSIGNED AND
TRANSFERRED (SEE INSTRUCTIONS 1, 3 AND 4).
PLEASE DATED:___________________________________________________________
SIGN HERE SIGNATURE:_______________________________________________________
TITLE (IF APPLICABLE):___________________________________________
SOCIAL SECURITY NUMBER OR TAXPAYER I.D. NUMBER:__________________
PLEASE SIGNATURE:_______________________________________________________
SIGN HERE TITLE (IF APPLICABLE):___________________________________________
IF JOINT SOCIAL SECURITY NUMBER OR TAXPAYER I.D. NUMBER:__________________
OWNERSHIP TELEPHONE: ( ) ________________________________________________
- --------------------------------------------------------------------------------
ITEM E. ITEM F.
- --------------------------------------------------------------------------------
|
SPECIAL DELIVERY INSTRUCTIONS | SIGNATURE(S) GUARANTEED, IF REQUIRED
FOR REPLACEMENT WARRANTS | (SEE INSTRUCTIONS 3 AND 4)
|
To be completed ONLY if the |
Replacement Warrant Certificate | FIRM_________________________________
is to be issued in a name other | (PLEASE PRINT)
than as indicated in Item A | BY___________________________________
above (see Instructions 3 and | (ZIP CODE)
4). | TITLE________________________________
|
Issue to: |----------------------------------------
Name_________________________________ |
(TYPE OR PRINT) |
ADDRESS______________________________ |
_____________________________________ |
_____________________________________ |
(ZIP CODE) |
_____________________________________ |
(SOCIAL SECURITY NUMBER OR |
TAXPAYER I.D. NUMBER) |
- ---------------------------------------|
-2-
<PAGE>
<PAGE>
INSTRUCTIONS
1. GENERAL
Please do not send certificates representing the Class A Warrants (the
"Class A Warrant Certificates") or the Class B Warrants (the "Class B Warrants
Certificates"; and, together with the Class A Warrant Certificates, the "Warrant
Certificates") directly to the Company. Your Warrant Certificate(s), together
with your signed and completed Letter of Transmittal and any required supporting
documents (see Instructions 3 and 4 below), should be mailed or otherwise
delivered to American Stock Transfer & Trust Company, the Exchange Agent, at the
address indicated on the front hereof. The method of delivery is at your option
and risk, but, if mail is used, registered insured mail, return receipt
requested, is suggested.
Items A and D of this Letter of Transmittal must be completed in all
cases.
If you wish share(s) of Common Stock to be mailed to an address other
than that shown in Item A on the front hereof, you MUST complete Item C of this
Letter of Transmittal.
2. ISSUANCE OF SHARE(S) OF COMMON STOCK
To receive your share(s) of Common Stock, your Warrant Certificates and
a completed Letter of Transmittal must be sent to American Stock Transfer &
Trust Company at the address indicated on the front hereof. Your share(s) of
Common Stock will be sent to you when your Warrant Certificates and Letter of
Transmittal have been received by American Stock Transfer & Trust Company.
If the share(s) of Common Stock are to be issued in the same name(s) as
the name(s) in which the surrendered Warrant Certificates are registered,
complete Items A and D on the front hereof.
If the share(s) of Common Stock are to be issued in a different name,
see Instruction 3 and complete Items A, B and D on the front hereof.
The Company will not issue fractional shares of Common Stock or pay cash
in lieu of issuing fractional shares of Common Stock. The Company will accept
Class A Warrant Certificates and Class B Warrant Certificates tendered for
exchange in blocks that consist of (i) three Class A Warrants and three Class B
Warrants, or multiples thereof; (ii) five Class A Warrants, or multiples
thereof; and/or (iii) ten Class B Warrants, or multiples thereof. Any person
surrendering an unequal number of Class A Warrant Certificates and Class B
Warrant Certificates, or an aggregate number of Class A Warrants or Class B
Warrants that are not evenly divisible by three or six, as the case may be, will
receive from the Company a replacement warrant certificate (the "Replacement
Warrant Certificate") representing the Warrants that have not been accepted by
the Company for exchange. If a Replacement Warrant Certificate is to be issued
in a different name, see Instruction 3 and complete Item E on the front hereof.
3. CERTIFICATE TO BE ISSUED IN A DIFFERENT NAME
If a certificate for shares of Common Stock (a "New Share Certificate")
or a Replacement Warrant Certificate is to be issued in a name other than that
of the registered holder(s) of the Warrants, your Warrant Certificates must be
properly endorsed on the back thereof or be accompanied by appropriate stock
powers, properly executed by the registered holder(s), so that the endorsements
or stock powers are signed exactly as the name(s) of the registered holder(s)
appear on the Warrant Certificates; and the signature(s) of the registered
holder(s) on the Letter of Transmittal must be properly guaranteed. See
Instruction 4. To request issuance of shares of Common Stock in a different
name, complete Items A, B, E and F on the preceding page.
The Company will pay all transfer taxes, if any, applicable to the
transfer of Warrant Certificates, to it or its order pursuant to the Exchange
Offer. If, however, shares of Common Stock, or a Replacement Warrant
Certificate, are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the Warrants tendered,
or if tendered Warrant Certificates are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the transfer and sale of the Warrants to the
Company or its order pursuant to the Exchange Offer, the amount of such transfer
taxes (whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to the tendering
holder.
4. SIGNATURE BY OTHER THAN REGISTERED HOLDER/GUARANTEE OF SIGNATURES
If the Letter of Transmittal is signed in Item D by an executor,
administrator, trustee, guardian, attorney or the like, the Letter of
Transmittal and Warrant Certificates must be accompanied by evidence
satisfactory to American Stock Transfer & Trust Company of the authority of that
person to sign the Letter of Transmittal.
If the Letter of Transmittal is signed in Item D by someone other than
the registered holder(s) or one of the persons described in the preceding
paragraph, the Warrant Certificates must be properly endorsed or accompanied by
appropriate stock powers, properly executed by the registered holder(s), so that
the endorsements or stock powers are signed exactly as the name(s) of the
registered holder(s) appear on the Warrant Certificates and the signature(s)
must be properly guaranteed by a financial institution (a commercial bank,
savings and loan association, credit union or brokerage house) that is a
participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program. Complete Items A, B, D and F on the front hereof. See
Instruction 3.
-3-
<PAGE>
5. JOINT HOLDERS OR WARRANTS REGISTERED IN DIFFERENT NAMES
If Warrants are tendered by joint holders, all such persons must sign
the Letter of Transmittal in Item D on the front hereof. If Warrants are
registered in different names or forms of ownership, a separate Letter of
Transmittal must be completed, signed and returned for each different
registration.
6. LOST OR DESTROYED WARRANT CERTIFICATES
If your Warrant Certificates have been either lost or destroyed, notify
American Stock Transfer & Trust Company of this fact promptly at the address set
forth on the front hereof or by telephoning 1-718-921-8200 (Shareholder
Relations). You will then be instructed as to the steps you must take in order
to surrender the certificate representing your Warrants for exchange.
7. BACKUP WITHHOLDING
Under federal income tax law, American Stock Transfer & Trust Company
may be required to withhold 31 percent of payments to holders presenting their
Warrant Certificates for exchange who have failed to furnish a social security
or other taxpayer identification number to American Stock Transfer & Trust
Company, have furnished an incorrect number, have failed to report interest or
dividends correctly or under certain circumstances have failed to provide a
statement, certified to be correct under penalty of perjury, as to their correct
social security or other taxpayer identification number and that they are not
subject to backup withholding. Certification may be made to American Stock
Transfer & Trust Company on Form W-9, a copy of which appears below.
Stockholders who have questions about their status under the law should contact
their attorneys, tax advisors or the Internal Revenue Service.
8. QUESTIONS ON HOW TO SUBMIT YOUR WARRANT CERTIFICATE(S)
Questions and requests for assistance on how to submit Warrant
Certificates and general inquiries should be directed to American Stock Transfer
& Trust Company at the address set forth on the front hereof or by telephoning
1-718- 921-8200 (Shareholder Relations).
COMPLETE AND SIGN SUBSTITUTE FORM W-9 IN ADDITION TO THE SIGNATURE(S)
REQUIRED ON THE FRONT HEREOF.
PAYER'S NAME: FIRST SOUTH AFRICA CORP., LTD.
A SUBSTITUTION FORM W-9 MUST BE COMPLETED BY ALL WARRANTHOLDERS
- --------------------------------------------------------------------------------
SUBSTITUTE | PART 1--PLEASE PROVIDE YOUR | Social Security Number
| TIN IN THE BOX AT RIGHT AND |
FORM W-9 | CERTIFY BY SIGNING AND | OR____________________
DEPARTMENT OF THE TREASURY| DATING BELOW |Employer Identification
INTERNAL REVENUE SERVICE | | Number
| |
PAYER'S REQUEST FOR ------------------------------------------------------
TAXPAYER IDENTIFICATION | |
NUMBER (TIN) | CERTIFICATION--UNDER THE |
| PENALTIE OF PERJURY, I |
| CERTIFY THAT THE INFOR- | Part 2--
| MATION PROVIDED ON THIS |
| FORM IS TRUE, CORRECT | Awaiting TIN [_]
| AND COMPLETE. |
|
| SIGNATURE___________________|
| DATE_________________ |
| |
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
-4-
FIRST SOUTH AFRICA CORP., LTD.
OFFER TO EXCHANGE SHARES
OF ITS COMMON STOCK
FOR ANY AND ALL OF ITS
COMMON STOCK PURCHASE WARRANTS
To Securities Dealers, Commercial Banks,
Trust Companies and Other Nominees:
First South Africa Corp., Ltd (the "Company") is offering, upon the
terms and subject to the conditions set forth in the enclosed Offering Circular,
dated October 10, 1997 (the "Offering Circular"), and Letters of Transmittal
(which together constitute the "Exchange Offer") to exchange (i) two shares of
its Common Stock, par value $.01 (the "Common Stock"), for three of its
Redeemable Class A Warrants (the "Class A Warrants"), and three Redeemable Class
B Warrants (the "Class B Warrants"; and, together with the Class A Warrants, the
"Warrants"); (ii) two shares of its Common Stock for five of its Class A
Warrants; and/or (iii) two shares of its Common Stock for ten of its Class B
Warrants. Each Class A Warrant entitles the holder thereof to purchase one share
of Common Stock for $6.50 and one Class B Warrant. Each Class B Warrant entitles
the holder thereof to purchase one share of Common Stock for $8.75. On October
7, 1997, there were 2,735,940 and 2,513,959 Class A Warrants and Class B
Warrants outstanding, respectively. Consummation of the Exchange Offer is
subject only to a number of customary conditions described in the Offering
Circular, any or all of which may be waived by the Company.
Subject to the terms and conditions of the Exchange Offer, the Company
will accept all Warrants that are validly tendered prior to 5:00 p.m., New York
City time, on the Expiration Date (as defined below), and will issue shares of
Common Stock and, if necessary, a replacement Warrant Certificate(s) pursuant to
the Exchange Offer promptly after the Expiration Date. The Company will not
accept for exchange any Warrants not exchangeable for a whole share of Common
Stock.
We are asking you to contact clients for whom you hold Warrants
registered in your name or in the name of your nominee or who holds Warrants
registered in their own names.
The Company will not pay any fees or commissions to any broker or dealer
or other person for soliciting tenders of Warrants pursuant to the Exchange
Offer. You will be reimbursed for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed materials to your clients. The
Company will pay all transfer taxes, if any, applicable to the transfer and
exchange of Warrants to it or its order, except as otherwise provided in
Instruction 3 of the Letter of Transmittal.
Enclosed is a copy of the following documents:
1. The Offering Circular.
2. The Letter of Transmittal for your use and for the information
of your clients.
3. A form letter that may be sent to your clients for whose account
you hold Warrants registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer.
4. The Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
5. A return envelope addressed to American Stock Transfer & Trust
Company, the Exchange Agent.
<PAGE>
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., New York City time, on November 14, 1997, unless the Exchange Offer is
extended by the Company (the "Expiration Date"). Tenders of Warrants may be
withdrawn at any time prior to 5:00 p.m, New York City time, on the Expiration
Date, or unless previously accepted for exchange, after October 10, 1997.
To participate in the Exchange Offer, certificates for Warrants and a
duly executed and properly completed Letter of Transmittal (or facsimile
thereof), together with all other required documents, must be delivered to the
Exchange Agent as indicated in the Letter of Transmittal and the Offering
Circular prior to 5:00 p.m., New York City time, on the Expiration Date.
If holders of Warrants wish to tender, but it is impracticable for them
to forward their Warrants or any other required document prior to 5:00 p.m., New
York City time, on the Expiration Date, a tender may be effected by following
the guaranteed delivery procedure described in the Offering Circular under the
caption "The Exchange Offer -- Guaranteed Delivery Procedure."
All questions relating to the Exchange Offer, as well as requests for
assistance or additional copies of the Offering Circular and the Letters of
Transmittal, may be directed to American Stock Transfer & Trust Company, the
Information Agent for the Exchange Offer at its address or telephone number set
forth on the back cover page of the Offering Circular.
Very truly yours,
FIRST SOUTH AFRICA CORP., LTD.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF THE COMPANY, THE EXCHANGE AGENT OR THE INFORMATION AGENT, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE OFFERING CIRCULAR OR THE LETTERS OF TRANSMITTAL.
-2-
FIRST SOUTH AFRICA CORP., LTD.
OFFER TO EXCHANGE
SHARES OF ITS COMMON STOCK
FOR ANY AND ALL OF ITS
COMMON STOCK PURCHASE WARRANTS
To Our Clients:
Enclosed for your consideration are an Offering Circular, dated October
10, 1997 (the "Offering Circular"), and Letters of Transmittal (which together
constitute the "Exchange Offer") relating to the offer by First South Africa
Corp., Ltd. (the "Company") to exchange (i) two shares of its Common Stock, par
value $.01 per share (the "Common Stock"), for three of its Redeemable Class A
Warrants (the "Class A Warrants"), and three Redeemable Class B Warrants (the
"Class B Warrants"; and, together with the Class A Warrants, the "Warrants");
(ii) two shares of Common Stock for five of its Class A Warrants; and/or (iii)
two shares of Common Stock for ten of its Class B Warrants. Each Class A Warrant
entitles the holder thereof to purchase one share of Common Stock and one Class
B Warrant for $6.50. Each Class B Warrant entitles the holder thereof to
purchase one share of common Stock for $8.75. As of October 7, 1997, there were
2,735,940 and 2,513,959 class A Warrants and Class B Warrants outstanding,
respectively. Consummation of the Exchange Offer is subject only to a number of
customary conditions described in the Offering Circular, any or all of which may
be waived by the Company.
Subject to the terms and conditions of the Exchange Offer, the Company
will accept all Warrants that are validly tendered prior to 5:00 p.m., New York
City time, on the Expiration Date (as defined below), and will issue shares of
Common Stock and, if necessary, a replacement Warrant Certificate(s) (to
evidence Warrants you have not tendered pursuant to the Exchange Offer) pursuant
to the Exchange Offer promptly after Expiration Date. The Company will not
accept for exchange any Warrants not exchangeable for a whole share of Common
Stock.
This material is being forwarded to you as the beneficial owner of
Warrants carried by us for your account but not registered in your name. A
tender of such Warrants may only be made by us as the holder of record and
pursuant to your instructions.
Accordingly, we request instructions as to whether you would like us to
tender any or all such Warrants held by us for your account, pursuant to the
terms and conditions set forth in the Offering Circular and Letter of
Transmittal. However, we urge you to read these documents carefully before
instructing us to tender any or all of your Warrants on your behalf.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender your Warrants on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on November 14, 1997, unless the Exchange Offer is extended
by the Company (the "Expiration Date"). Tenders of Warrants may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date or,
unless previously accepted for exchange, after October 10, 1997.
If you would like us to tender any or all of your Warrants on your
behalf, please so instruct us by completing, executing, detaching and returning
to us the attached instruction form. The accompanying Letters of Transmittal are
furnished to your for your information only and may not be used by you to tender
Warrants.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter, the Offering
Circular describing the Exchange Offer by First South Africa Corp., Ltd. to
acquire all of its outstanding Warrants and the related Letter of Transmittal.
This will instruct you whether to tender the number of Warrants
indicated in the appropriate space below held by you for the account of the
undersigned, pursuant to the terms and conditions set forth in the Offering
Circular and Letter of Transmittal.
[_] Please TENDER ________ Class A Warrants and a like
number of Class B Warrants held by you for my account on
the Letter of Transmittal.
[_] Please TENDER ________ Class A Warrants held by you for
my account on the Letter of Transmittal.
[_] Please TENDER ________ Class B Warrants held by you for
my account on the Letter of Transmittal.
[_] Please DO NOT TENDER any Class A Warrants held by you
for my account on the Letter of Transmittal.
[_] Please DO NOT TENDER any Class B Warrants held by you
for my account on the Letter of Transmittal.
DATE: ____________________
_____________________________________
Signature:
_____________________________________
Name:
UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN IN THE SPACE PROVIDED,
YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL
YOUR WARRANTS PURSUANT TO THE TERMS AND CONDITIONS SET FORTH IN THE OFFERING
CIRCULAR AND THE LETTER OF TRANSMITTAL.
-2-
FIRST SOUTH AFRICA CORP., LTD.
GUARANTEED DELIVERY FORM
FOR TENDER OF
REDEEMABLE CLASS A WARRANTS
AND
REDEEMABLE CLASS B WARRANTS
As set forth under the caption "The Exchange Offer -- Guaranteed
Delivery Procedure" in the Offering Circular (as defined on the reverse hereof),
this form or one substantially equivalent hereto must be used to accept the
Exchange Offer (as defined on the reverse hereof) if Redeemable Class A Warrants
or Redeemable Class B Warrants (together, the "Warrants") of First South Africa
Corp., Ltd., a Bermuda corporation, are not immediately available or if time
will not permit all required documents to reach the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date (as defined in the Offering
Circular). Such form may be delivered by hand or sent by facsimile transmission
or mail to the Exchange Agent. See "The Exchange Offer -- Guaranteed Delivery
Procedure" in the Offering Circular.
EXCHANGE AGENT:
AMERICAN TRANSFER & TRUST COMPANY
AMERICAN STOCK TRANSFER
& TRUST COMPANY
40 WALL STREET
46TH FLOOR
NEW YORK, NEW YORK 10005
BY FACSIMILE:
(718) 234-5001
TELEPHONE:
(718) 921-8200
Delivery of this Guaranteed Delivery Form to an address other than as
set forth above, or transmission of instructions via a facsimile number other
than the one listed above, will not constitute a valid delivery.
This Form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
(as defined on the reverse hereof) in accordance with Instruction 4 of the
Letter of Transmittal (as defined in the Offering Circular), such signature
guarantee must appear in the applicable space provided in the signature box on
the Letter of Transmittal.
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to First South Africa Corp., Ltd., a
Bermuda corporation, upon the terms and subject to the conditions set forth in
its Offering Circular, dated October 10, 1997 (the "Offering Circular"), and the
related Letter of Transmittal (which together constitute the "Exchange Offer"),
receipt of which is hereby acknowledged, the number of Warrants set forth below,
all pursuant to the guaranteed delivery procedure set forth under the caption
"The Exchange Offer -- Guaranteed Delivery Procedure" in the Offering Circular.
By so tendering, the undersigned hereby does make, at and as of the date hereof,
the representations and warranties of a tendering holder of Warrants as set
forth in the Letter of Transmittal.
Number of Class A Warrants Tendered: _______
Certificate Number(s):
_____________________________________________
_____________________________________________
Number of Class B Warrants Tendered: _______
Certificate Number(s):
_____________________________________________
_____________________________________________
Name(s) of Holder(s) of Record:
_____________________________________________
_____________________________________________
(Please Print)
Address:_____________________________________
_____________________________________________
Area Code and
Tel. No.: ___________________________________
_____________________________________________
_____________________________________________
(Signature(s)
Dated: ______________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States (each of the foregoing being referred to as an "Eligible Institution"),
hereby guarantees delivery to the Exchange Agent, at one of its addresses set
forth on the reverse hereof, of the certificate(s) representing the number of
Warrants tendered hereby, in proper form for transfer, with delivery of a
properly completed and duly executed Letter of Transmittal and all other
required documents, within five New York Stock Exchange, Inc. trading days after
the Expiration Date.
_____________________________________________
Name of Firm
_____________________________________________
Address
_____________________________________________
Zip Code
_____________________________________________
Area Code and Telephone Number
_____________________________________________
Authorized Signature
_____________________________________________
Title
Name ________________________________________
Please Type or Print
Dated: ________________________, 1997
The Eligible Institution that completes this Form must communicate the
Guarantee to the Exchange Agent and must deliver the Letter of Transmittal, the
certificates representing Warrants and all other required documents, if any, to
the Exchange Agent within the time periods set forth herein. Failure to do so
could result in a financial loss to such Eligible Institution.
DO NOT SEND WARRANT CERTIFICATES WITH THIS FORM --
THEY SHOULD BE SENT WITH THE LETTER OF TRANSMITTAL
-2-
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer. Social Security numbers have nine digits separated by two hyphens, i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen, i.e., 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------------------------------
| GIVE THE NAME AND
| SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: | NUMBER OF --
- --------------------------------------------------------------------------------
|
1. Individual |The individual
- --------------------------------------------------------------------------------
2. Two or more individuals (joint account)| The actual owner of the account,
| if combined funds, the first
| individual on the account (1)
- --------------------------------------------------------------------------------
3. Custodian account of a minor (Uniform | The minor (2)
Gift to Minors Act) |
- --------------------------------------------------------------------------------
4. a. The usual revocable savings trust | The grantor-trustee (1)
(grantor is also trustee) |
b. The so-called trust account that | The actual owner (1)
is not a legal or valid trust |
under State law. |
- --------------------------------------------------------------------------------
5. Sole proprietorship | The owner (3)
- --------------------------------------------------------------------------------
|
| GIVE THE NAME AND
| SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: | NUMBER OF - -
- --------------------------------------------------------------------------------
6. A valid trust, estate or pension trust | Legal entity (do not furnish the
| identification number of the
| personal representative or
| trustee unless the legal entity
| itself is not designated in the
| account title) (4)
- --------------------------------------------------------------------------------
7. Corporation | The corporation
|
- --------------------------------------------------------------------------------
8. association, club, religious, | The organization
charitable, educational or |
other tax-exempt organization |
- --------------------------------------------------------------------------------
9. Partnership | The partnership
- --------------------------------------------------------------------------------
10. A broker or registered nominee | The broker or nominee
- --------------------------------------------------------------------------------
11. Account with the Department of | The public entity
Agriculture in the name of a public |
entity (such as a State or local |
government, school district or |
prison) that receives agricultural |
program payments |
- --------------------------------------------------------------------------------
- -------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your Social Security Number or
your Employer Identification Number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and supply
for a number.
<PAGE>
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are exempt from backup withholding. For interest and dividends,
the following payees are exempt:
o A corporation
o An organization exempt from tax under section 501(a), or an individual
retirement account, or a custodial account under section 403(b)(7).
o The United States or any of its agencies and instrumentalities.
o A State, the District of Columbia, a possession of the United States or any
of their political subdivisions or instrumentalities.
o A foreign government or any of its political subdivisions, agencies or
instrumentalities.
o An international organization or any of its agencies or instrumentalities.
o A foreign central bank of issue.
o A dealer in securities or commodities required to register in the United
States or a possession of the United States.
o A real estate investment trust.
o An entity registered at all times under the Investment Company Act of 1940.
o A common trust fund operated by a bank under section 584(a).
o A financial institution.
o A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporation Secretaries,
Inc. Nominee List.
o An exempt charitable remainder trust, or a trust described in section 4947.
Payment of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to non-resident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the United
States and which have at least one non-resident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: you may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the taxpayer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under Section 1451.
o Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACT OF THE FORM. SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see the regulations under section
6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N and the regulations
thereto.
PRIVACY ACT NOTICE.
Section 6109 requires most recipients of dividends, interest, or other
payments to give taxpayer identification numbers to payers who must report the
payments to IRS. The IRS uses the numbers for identification purposes and to
help verify the accuracy of your tax return. Payers must be given the numbers
whether or not recipients are required to file tax returns. Payers must
generally withhold 31% of taxable interest, dividends, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you
fails to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications
or affirmations may subject you to criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE
2
FIRST SOUTH AFRICA CORP., LTD.
CLARENDON HOUSE
CHURCH STREET
HAMILTON HM CX, BERMUDA
October 10, 1997
Dear Warrantholder:
Enclosed you will find materials relating to an offer from the Company
to the holders of its outstanding Redeemable Class A Warrants and Redeemable
Class B Warrants. The materials consist of (1) an Offering Circular, (2) a
Letter of Transmittal for Class A Warrants and Class B Warrants, (3) a
Guaranteed Delivery Form and (4) Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
The Offering Circular sets forth the terms and conditions of the offer
and includes financial and other information concerning the Company. The Letter
of Transmittal, which is to be used by you in the event you wish to participate
in the offer, contains detailed instructions as to the steps to be taken by you.
We urge you to consider the offer carefully. Inquiries and requests for
assistance may be directed to your broker or bank or to the Company's
Information Agent, American Stock Transfer & Trust Company at (718) 921-8200.
Very truly yours,
FIRST SOUTH AFRICA CORP., LTD.
By: /S/ CLIVE KABATZNIK
-----------------------------
Clive Kabatznk
President
[Letterhead of Broker Dealer]
October 10, 1997
In order to comply with the requirements of certain state securities
laws, the undersigned has agreed to act as broker-dealer in connection with the
proposed Exchange Offer described in the enclosed Offering Circular, dated
October 10, 1997, of First South Africa Corp, Ltd. The undersigned is forwarding
the enclosed materials as an accommodation to First South Africa Corp., Ltd..
The undersigned makes no recommendation on whether or not you should accept the
Exchange Offer discussed in the First South Africa Corp., Ltd. Offering
Circular. The offer of Common Stock of First South Africa Corp., Ltd. pursuant
to the Exchange Offer is made only by the enclosed materials, and this letter is
not intended to, and shall not, constitute a solicitation of Warrantholders or
an offering of any securities.
Very truly yours,
FROM: First South Africa Corp., Ltd.
2665 South Bayshore Drive
Coconut Grove, FL 33133
www.firstsouthafrica.com
Contact: Rebecca Freeman (305) 857-5009
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
FIRST SOUTH AFRICA CORP., LTD. PLANS WARRANT CONVERSION
Coconut Grove, FL, September 5, 1997 -- First South Africa Corp., Ltd.
(Nasdaq-FSACF) today announced that it plans shortly to make a conversion offer
to the holders of its A and B Warrants.
Holders of the Company's class A and class B Warrants will be offered the
opportunity to convert 3 A and 3 B Warrants for 2 shares of common stock.
Holders of only A Warrants will be offered the opportunity to convert 5 A
Warrants for 2 shares of Common Stock. Holders of only B Warrants will be
offered the opportunity to convert 10 B Warrants for 2 shares of common stock.
The Company indicated that the offer would be made upon distribution of an
offering circular, would be open for 20 days and at the discretion of its Board
of Directors would require, among other things, a 75% acceptance to close.
"We are making this proposal to simplify our capital structure. As we have grown
and interest in our company has increased, we have come to the conclusion that a
simplified capital structure will be in the best interests of all our
shareholders," said Clive Kabatznik, Chief Executive Officer of First South
Africa Corp., Ltd.
Should all the Warrants be converted, approximately 1.75 million new shares will
be issued.
The Company intends to mail to Warrant holders, at a later date, exchange offer
documents setting forth the terms of the exchange offer. This press release does
not constitute an offer to sell or exchange securities, or the solicitation of
an offer to buy or exchange securities, which offer will be made only by means
of the exchange of the offer documents.
