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.
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(Exact name of Registrant as specified in its charter)
Bermuda N/A
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Clarendon House, Church Street, Hamilton HM CX, Bermuda
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(Address of Principal Executive Offices with Zip Code)
Registrant's telephone number, including area code (441) 295-1422)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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("Common Stock")
Class A Redeemable Warrants
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("Class A Warrants")
Class B Redeemable Warrants
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("Class B Warrants")
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [_]
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.
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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
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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
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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
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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.
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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
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Common Stock
- ------------
1996
3rd Quarter $ 4.75 $ 2.88
4th Quarter $ 6.00 $ 3.00
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High Bid Low Bid
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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
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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.)
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL AND PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected financial data for Starpak and L.S. Pressings,
the Company's predecessor, as of and for the periods presented have been derived
from the combined audited financial statements of Starpak and L.S. Pressings.
The unaudited financial data, in the opinion of management, contain all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of such data. The 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
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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.
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<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.
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<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.
57
<PAGE>
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
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<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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<PAGE>
<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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<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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(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.
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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.
65
<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.
66
<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.
67
<PAGE>
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
68
<PAGE>
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
AGREEMENT
between
FIRST SOUTH AFRICA HOLDINGS (PTY) LIMITED
("the company")
and
C. ROODT
("the employee")
<PAGE>
EMPLOYMENT CONTRACT AND PERIOD
1. This agreement serves to confirm the employee's employment as Managing
Director with effect from 1 July 1996 ("the commencement date") with the
company and sets out the terms and conditions of such employment. The
employee's employment with the company shall endure for an initial period
until 30 June 1997 ("the initial period of employment"), unless terminated
in accordance with the provisions relating to termination below.
2. The company may in its absolute discretion require the employee to perform
duties which may fall outside his job title and job description.
TERMINATION OF EMPLOYMENT
The company shall be entitled to terminate the employee's employment
without notice if he -
2.1 commits any serious or persistent breach of any of the provisions of
this agreement;
2.2 is guilty of any serious misconduct or deliberate neglect in the
discharge of his duties under this agreement;
2.3 is declared provisionally or finally insolvent or effects or attempts
to effect a general compromise with some or all of his creditors;
2.4 absents himself from his employment without leave;
2.5 disobeys any lawful order or direction of the Board of Directors of
the company ('the board") or the management of the company;
<PAGE>
2.6 fails to carry out any of his duties in a fit and proper manner;
2.7 becomes of unsound mind;
2.8 is convicted of any criminal offence other than an offence which, in
the reasonable opinion of the company management, does not affect his
position as an employee of the company;
2.9 fails to give his whole time and attention to the business of the
company; or
2.10 is guilty of any other conduct which will justify summary dismissal at
common law.
3. Notwithstanding the above and only in the event that the company elects to
extend this agreement beyond the 48 month period referred to in paragraph
14, the employee's employment with the company shall terminate at the end
of the month in which the employee turns 55 years of age, unless the
company and employee agree otherwise in writing.
REMUNERATION
4. The employee's salary will be an amount of US$ 150,000 per annum payable
monthly on the last business day of each month in arrears. The employee's
salary will be converted on the last business day of each month by applying
the middle market exchange rate as per the company's bankers.
5. The employee's salary shall be subject to review on the anniversary of his
employment. Salary increases will be reviewed on the basis of merit and
related factors by the board, whose decision shall be final.
6. The company shall be entitled to deduct or set off from the employee's
salary any amounts due by him to the company for any reason whatsoever.
BONUS
7. The company shall pay the employee an annual incentive bonus of 4% (4 per
cent) of the Minimum Pre-Tax Income above US$ 5 million, as shall be
reported in the company's audited financial statements for each fiscal
year, exclusive of any extraordinary earnings or charges which would result
from the release of the Earn-Out Escrow Shares.
SHARE OPTION PLAN
8. Within a 60 day period following the commencement date, the company shall
use its best efforts to cause First South African Holdings (Pty) Ltd to
grant the employee "B" class options at market value in terms of the
company's stock option plan on the following basis:
8.1 150,000 options granted at market value of R13.05 on 22 May 1996, to
be exercised over a period of 5 years or earlier on the following
basis -
- 2 -
<PAGE>
8.1.1 30,000 options, exercisable when the company realises earnings
of US$ .75 on a fiscal year basis,
8.1.2 50,000 options, xercisable when the company realises earnings
of US$ 1.00 on a fiscal year basis; and
8.1.3 70,000 options, exercisable when the company realises earnings
of US$ 1.50 on a fiscal year basis.
9. The options granted to the employee in terms of the company's stock option
plan shall only vest in the employee if the initial period of employment is
extended in terms of paragraph 14.
EMPLOYMENT DUTIES
10. The employee will be responsible for the management of the company's
business and for the management of all the company's present and future
subsidiaries.
11. The employee will be responsible for the development of the company's short
and long term operational and strategic goals and for directing the
activities of the company towards the achievement of such goals within such
time frames as may be determined by the board in consultation with the
employee.
12. The employee undertakes to:
12.1 carry out all such functions and duties as are from time to time
assigned to him by the board as are reasonable or lawful;
12.2 obey and comply with all lawful and reasonable instructions given to
him by the board;
12.3 be true and faithful to the company in all dealings and transactions
relating to the business and interests of the company and to use his
best endeavours to protect and promote the business, reputation and
goodwill of the company;
12.4 submit to the board such information and reports as may be required of
him in connection with the performance of his duties and the business
of the company;
12.5 devote the whole of his time and attention during the employee's
working hours, and such additional time as the exigencies of the
company's business may require, to the business affairs of the company
and to his duties in terms of this agreement.
EXTENSION OF FIXED TERM
13. This agreement will endure for an initial period of 12 months until 30 June
1997.
14. This agreement may be extended, at the company's election, for a further
period of 48 months, during which period either the employee or the company
shall be entitled to terminate the employee's employment on 6 months'
written notice.
CONFIDENTIALITY
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<PAGE>
15. The employee acknowledges that, in the course of his employment with the
company, he may have access to confidential technical or commercial
information concerning the affairs of the company or its licensors, trading
partners or other associates. The employee undertakes, both while he is
employed by the company and after the termination of his employment for any
reason, not to disclose any such confidential information to any person not
employed by the company unless expressly instructed by the company to do
so, nor to make unauthorized use of any such confidential information. The
employee undertakes further not to disclose any such confidential
information to employees of the company other than those who are required
to know such information for the purposes of their employment by the
company, and then only to the extent necessary.
16. If the employee is uncertain as to whether any information is confidential,
the employee shall in writing request a ruling from the company. The
employee undertakes to abide by any ruling made in good faith by the
company.
17. The employee undertakes that, should he at any stage be aware of any
improper disclosure or use of any such confidential information by another
employee of the company or any other person, he will immediately bring the
matter to the attention of the company in writing.
INVENTIONS, INNOVATIONS AND DISCOVERIES BY THE EMPLOYEE
18. The employee acknowledges that if, while he is employed by the company, he
makes any invention, innovation or discovery that is within the scope of
the existing or possible activities of the company, whether or not employed
in a capacity which normally requires him to make technological or
commercial improvement to the property or assets or activities of the
company, or if, in the course of making any invention, innovation or
discovery, he makes use of the personnel or other resources or facilities
of the company, all proprietary rights in such invention, discovery or
innovation (including copyright in any work associated with the invention,
innovation or discovery) will vest in the company.
19. The rights of the company under paragraph 1/8 above will include the right
to obtain formal registration In its name of the proprietary or
intellectual property rights in the invention, innovation or discovery. The
employee undertakes, both while employed by the company and after the
termination of employment for any reason, to take all steps reasonably
necessary to assist the company in this regard, including
19.1 disclosing full details promptly in writing to the company of the
invention, innovation or discovery;
19.2 signing all assignment deeds or other documents prepared in this
regard by or on behalf of the company
19.3 giving the company and its attorneys or other advisers such assistance
as may be required in obtaining legal protection for, and in
commercially exploiting, the invention, innovation or discovery.
20. If the employee applies within 1 year after the termination of his
employment by the company for any reason for the registration of a patent,
registered design or trade mark, or is cited as the inventor or author in
respect of any patent, registered design or trade mark applied for in this
period, the invention, innovation or discovery will be deemed, unless the
employee
- 4 -
<PAGE>
proves otherwise, to have been made during his employment by the company.
The employee undertakes to notify the company in writing, and in advance of
the event, of any proposed application for such registration.
21. The company undertakes that if the company decides not to obtain legal
protection for any invention, innovation or discovery mentioned in
paragraph 19 above, or if the company decides not to exploit commercially
any such invention, innovation or discovery, the company will promptly
notify the employee in writing of the decision and if the company in its
discretion so decides, the company will also notify the employee in writing
that he may himself obtain legal protection for, and exploit commercially,
the invention, innovation or discovery, at his cost and for his benefit.
22. The employee acknowledges that, regardless of his position or rank in the
company, he is obliged as part of his duties to apply his skills, training,
and experience for the benefit of the company.
23. The employee agrees that copyright in all works made in the course and
scope of his employment by the company and of which he is the author or
co-author, will vest in the company.
CHANGE IN CONTROL, TERMINATION OF EMPLOYMENT AND COMPENSATION IN EVENT OF
TERMINAT10N
24. After a direct or indirect change in control of the company has occurred,
if either the employee terminates his employment within 6 months after he
has obtained actual knowledge of the direct or indirect change in control
of the company (or any successor thereto) or the employee's employment with
the company is terminated by a party other than the employee within one
year after the direct or indirect change in control, the employee -
24.1 shall be entitled to his salary, benefits and reimbursable expenses
accrued to the date that the employee's employment with the company is
terminated ("the termination date"); and
24.2 shall be entitled to be paid a lump-sum, on the termination date, an
amount of cash (to be computed, at the expense of the company, by the
independent certified accountants regularly employed by the company
("the accountants") whose computation shall be conclusive and binding
upon the employee and the company) equal to 2.99 x the employee's
annual basic salary. Such lump-sum payment shall be paid by the
company and is hereinafter referred to as the "termination
compensation".
25. For the purposes of this paragraph, a change in control shall be deemed to
have occurred where :
25.1 any person acquires securities of the company representing twenty per
cent (20%) or more of the company's then outstanding shares;
25.2 if the shareholders of the company or First South Africa Corp ("FSAC")
approve a plan of complete liquidation of the company or FSAC, as the
case may; or
- 5 -
<PAGE>
25.3 if the shareholders of FSAC or the company approve an agreement for
the sale or disposition of all or substantially all of FSAC's or the
company's assets.
HOLIDAY LEAVE
26. The employee shall be entitled to 20 working days' leave with pay for each
completed period of twelve consecutive months of employment, which leave
shall be taken at a time or times convenient to the company.
27. Upon termination of his employment, the employee shall be entitled to any
accrued leave not yet taken during the twelve months preceding the
termination of his employment.
28. The employee is entitled to accumulate a maximum of 40 days' annual leave.
SICK LEAVE
29. Notwithstanding anything to the contrary contained in this agreement,
should the employee be precluded, through illness, accident (other than an
accident, not caused by his negligence, arising out of his employment) or
any other cause, from the performance of his duties, then the company
undertakes for the first 120 days of such indisposition during the period
of this agreement, to pay the employee at the full rate of his
remuneration.
30. If after the lapse of an aggregate of 120 days during the period of this
agreement, the employee is unable to resume or properly perform his duties,
the company shall be entitled to forthwith cancel this agreement on notice
to that effect to the employee.
COMPASSIONATE LEAVE
31. The employee shall be entitled to compassionate leave in the event of the
death of a family member or close relative.
32. In the event of the death of a family member or close relative
32.1 the company will grant compassionate leave of three (3) days where the
deceased lived in the Gauteng Province;
32.2 the company will grant compassionate leave of five (5) days where the
deceased lived outside the Gauteng Province.
PENSION FUND
33. It is the intention of the company to establish a pension fund. The
employee will be obliged to join such pension fund as may be established by
the board of the company.
RETIREMENT ANNUITY
34. The company shall pay 5% (five per cent) of the employee's annual salary
towards a retirement annuity of the employee's choice.
GROUP LIFE COVER
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<PAGE>
35. The company shall contribute an amount equivalent to 1% (one per cent) of
the employee's annual salary towards group life cover.
MEDICAL AID
36. The employee shall remain a member of the Chartered Accountants' Medical
Aid Fund ("the fund"). The company shall pay 100% of the monthly
contributions to the fund.
EXPENSES
37. The company shall refund to the employee any bona fide expenses incurred by
the employee from time to time on the company's business provided that the
expenses are reasonably and necessarily incurred and have been authorised
or approved by the board and are supported by satisfactory voucher proof.
38. Motor vehicle travel expenses incurred by the employee in furtherance of
the company's business shall be refunded by the company at the rates
applied by Automobile Association of South Africa.
NO CREDIT
39. The employee shall at no time borrow any money from the company without the
written consent of the board.
RETURN OF ASSETS AND RECORDS ON TERMINATION OF EMPLOYMENT
40. On termination of his employment the employee shall immediately deliver to
the company all assets, records, documents, accounts, letters, notes,
memoranda and papers of every description within his possession or control
relating to the affairs and business of the company, whether or not they
were originally supplied by the company.
MEDICAL EXAMINATIONS
41. The nature of the employee's job in the company's business requires good
health and physical fitness.
42. The employee shall, whenever the company deems it necessary, undergo a
medical examination at the expense of the company by a medical practitioner
nominated and appointed by the company. The employee gives his irrevocable
consent to any such medical practitioner making the results and record of
any medical examination available to the company.
SECURITY
43. The company's security regulations shall be observed by the company and may
at the discretion of the company be varied from time to time.
44. The employee shall not unlawfully possess any substance, article or thing
which is the property of the company or of any employee of the company.
- 7 -
<PAGE>
45. The employee gives his irrevocable consent to a duly authorised
representative of the company to search him or any article in his
possession or control or any article worn by him or in his possession at
the company's premises for the unlawful presence of any substance, article
or thing.
GENERAL
46. No indulgence granted by a party shall constitute a waiver of any of that
party's rights under this agreement; accordingly, that party shall not be
precluded, as a consequence of having granted such indulgence, from
exercising any rights against the other which may have arisen in the past
or which may arise in the future.
47. No agreement varying, adding to, deleting from or cancelling this
agreement, shall be effective unless reduced to writing and signed by or on
behalf of the parties.
48. This agreement as read with the disciplinary, grievance and retrenchment
procedures laid down by the company from time to time, shall constitute the
entire contract between the parties with regard to the matters dealt with
in this agreement, and no representations, terms, conditions or warranties
not contained in this agreement shall be binding on the parties.
49. This agreement and the disciplinary, grievance and retrenchment procedures
as laid down by the company from time to time, shall at all times be
subject to the provisions of the Labour Relations Act, 28 of 1956, and any
other law applicable at the time.
Kindly retain the copy of this letter for your own records and sign the
original hereof in order to signify your acceptance of the terms and
conditions of your employment contained herein.
Signed at ___________________ on ______________
AS WITNESSES
1.
------------------------------
C. ROODT
2.
------------------------------
Signed at ___________________ on _______________
AS WITNESSES
1.
------------------------------
2.
------------------------------ ------------------------------
FIRST SOUTH AFRICA HOLDINGS
(PTY) LIMITED
- 8 -
EXHIBIT 11.1
Weighted number of shares and earnings per share calculations:
YEAR ENDED 30 JUNE 1997
1. Basic earnings per share
<TABLE>
<CAPTION>
<S> <C>
A CLASS ORDINARY SHARES 2,200,000
In issue at July 1, 1996 120,000
Conversion of B Class ordinary shares 536,127
Weighted average number of shares issued to acquire subsidiary companies 536,127
Weighted average number of shares related to conversion of warrants 5,367
Weighted average number of shares related to conversion of options 123,282
----------
2,984,776
B CLASS ORDINARY SHARES
In issue at July 1, 1996 1,942,500
Conversion of B Class ordinary shares to A Class shares (120,000)
Weighted average number of shares issued to acquire subsidiary companies 332,579
----------
2,155,079
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,139,855
==========
Net income 6,683,165
Earnings per share $ 1.30
</TABLE>
-1-
<PAGE>
YEAR ENDED JUNE 30, 1997
2. Fully diluted earnings per share
<TABLE>
<CAPTION>
<S> <C>
A CLASS ORDINARY SHARES
In issue at July 1, 1996 2,200,000
Conversion of B Class ordinary shares 120,000
Weighted average number of shares issued to acquire subsidiary companies 536,127
Weighted average number of shares related to conversion of warrants 144,074
Weighted average number of shares related to conversion of options 161,093
Weighted average number of shares related to conversion of debentures 278,539
3,439,833
B CLASS ORDINARY SHARES
In issue at July 1, 1996 1,942,500
Conversion of B Class ordinary shares to A Class shares (120,000)
Weighted average number of shares issued to acquire subsidiary companies 332,579
----------
2,155,079
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,594,912
==========
Net income 6,683,165
Interest cost related to debentures 124,761
6,807,926
Earnings per share $1.22
</TABLE>
-2-
<PAGE>
YEAR ENDED JUNE 30, 1996
1. Basic earnings per share
<TABLE>
<CAPTION>
<S> <C>
A CLASS ORDINARY SHARES
Issued during the period 940,437
Weighted average number of shares related to conversion of warrants --
Weighted average number of shares related to conversion of options --
----------
940,437
B CLASS ORDINARY SHARES
Issued during the period 842,500
Weighted average number of shares issued to acquire subsidiary companies 110,526
----------
953,526
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,893,463
==========
Net loss (5,737,560)
Earnings per share ($3,03)
</TABLE>
Note:Warrants and options are not taken into account for the calculation of
earnings per share as they would be antidilutive.
-3-
<PAGE>
YEAR ENDED JUNE 30, 1996
2. Fully diluted earnings per share
<TABLE>
<CAPTION>
<S> <C>
A CLASS ORDINARY SHARES
Issued during the period 940,437
Weighted average number of shares related to conversion of warrants --
Weighted average number of shares related to conversion of options --
----------
940,437
B CLASS ORDINARY SHARES
Issued during the period 842,500
Weighted average number of shares issued to acquire subsidiary companies 110,526
----------
953,026
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 1,893,463
==========
Net loss (5,737,560)
Earnings per share ($3,03)
</TABLE>
Note:Warrants and options are not taken into account for the calculation of
earnings per shares as they would be antidilutive.
-4-
<PAGE>
PERIOD MARCH 1, TO JUNE 30, 1995
1. Basic earnings per share
B CLASS ORDINARY SHARES
Issued to acquire predecessor companies 547,890
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 547,890
=======
Net Income 213,829
Earnings per share $0.39
PERIOD MARCH 1, TO JUNE 30, 1995
B CLASS ORDINARY SHARES
Issued to acquire predecessor companies 547,890
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 547,890
=======
Net loss 213,829
Earnings per share $0.39
YEAR ENDED FEBRUARY 28, 1995
1. Basic earnings per share
B CLASS ORDINARY SHARES
Issued to acquire predecessor companies 547,890
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 547,890
=======
Net loss 313,882
Earnings per share $0.57
2. Fully diluted earnings per share
B CLASS ORDINARY SHARES
Issued to acquire predecessor companies 547,890
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 547,890
=======
Net loss 313,882
Earnings per share $0.57
-5-
Independent Auditor's Consent
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the 1995 Stock Option Plan of our report dated September 19,
1997 with respect to the financial statements and schedule of First South Africa
Corp. Ltd. In the Annual Report (Form 10-K) for the year ended June 30, 1997.
/s/ Price Waterhouse
Price Waterhouse
Sandton, South Africa
September 29, 1997
<TABLE>
<CAPTION>
FIRST SOUTH AFRICA CORP., ACQUISITION SCHEDULE
DATE TOTAL PAYMENT ON CLOSING SECOND THIRD FOURTH PAYMENT
ACQUIRED PURCHASE PAYMENT PAYMENT
PRICE
<S> <C> <C> <C> <C>
Starpak 1/24/96 $838,545 167,709 shares N/A N/A N/A
L.S. 1/24/96 $1,900,905 380,181 shares N/A N/A N/A
Pressing
Europair 1/24/96 $1,029,206 80,000 shares N/A N/A N/A
(= $400,000) and
$629,206
Paper & 4/29/96 $380,000 $190,000 $85,000 on $85,000 on N/A
Metal 10/29/96 04/29/97
Piemans 6/03/96 $9,200,000 331,579 shares 4X pre-tax 4X pre-tax N/A
(approx.) (= $1,658,000) and profits for profits for
$3,656,000 year ended year ended
February 28, February 28,
1997 X by a 1998 X by a
factor of factor of
20% 62.5% 20%. 62.5%
cash and cash and
37.5% stock 37.5% stock
Astoria 7/01/96 $4,400,000 $1,300,000 $1.55 4X pre-tax 4X pre-tax
(approx.) 186,000 FSAH Class B million cash profits for profits for year
Shares ($930,000, at year ended ended June 30,
price of $5.00 a share) June 30, 1998 1999 X by a
X by a factor factor of 25%.
of 25%. 10% 100% shares,
cash and 90% minus the lesser
shares of the second and
third installment
<PAGE>
FIRST SOUTH AFRICA CORP., ACQUISITION SCHEDULE(Page 2)
DATE TOTAL PAYMENT ON CLOSING SECOND THIRD FOURTH PAYMENT
ACQUIRED PURCHASE PAYMENT PAYMENT
PRICE
First Strut 7/01/96 $600,000 19,230 shares $100,000 if $125,000 if $145,000 if pre-
(approx.) (= $96,000) and pre-tax pre-tax tax profits for
$170,000 profits for profits for year ended June
eight months year ended 30, 1999 is
ended June June 30, 1998 greater than
30, 1997 is is greater than $320,000
greater than $190,000
$81,000
Alfapac 11/10/96 $300,000 $300,000 to settle all N/A N/A N/A
(approx.) creditor claims
Seemanns 11/1/96 $5,300,000 258,065 shares 5.5X pre-tax 4X pre-tax N/A
(approx.) (= $1,333,000) and profits for profits for
$1,900,000 the eight year ended
months June 30, 1998
ended June X by a factor
30, 1997 X of 20%. 60%
by a factor cash and 40%
of 20%. shares
60% cash
and 40%
shares
Gull Foods 1/1/97 $9,000,000 $3,110,000 and 4X pre-tax 4X pre-tax 4X pre-tax
(approx.) 245,000 shares (= profits for profits for profits for year
$1,347,500). year ended year ended ended June 30,
$890,000 (approx.) by June 30, June 30, 1999 2000 X by a
September 30, 1997 1998 X by a X by a factor factor of 16%.
factor of of 16%. 50% 50% cash and
16%. 50% cash and 50% 50% shares
cash and shares
50% shares
<PAGE>
FIRST SOUTH AFRICA CORP., ACQUISITION SCHEDULE(Page 3)
DATE TOTAL PAYMENT ON CLOSING SECOND THIRD FOURTH PAYMENT
ACQUIRED PURCHASE PAYMENT PAYMENT
PRICE
Pakmatic 4/1/97 $1,228,000 $962,000 $88,666 $88,666 $88,666
(approx.)
Fifers 7/1/97* $2.1 $1.6 million in cash and $106,000 $106,000 $106,000
Bakery* million 26,000 shares (= escalated if escalated if escalated if
includes $220,000) profits profits exceed profits exceed
assumption exceed certain goals certain goals
of certain goals
$425,000
debt
</TABLE>
* Subject to a Letter of Intent. Acquisition has not been consummated as of
September 26, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001003390
<NAME> FIRST SOUTH AFRICA CORP., LTD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,889,111
<SECURITIES> 0
<RECEIVABLES> 12,000,224
<ALLOWANCES> 696,279
<INVENTORY> 7,219,960
<CURRENT-ASSETS> 40,185,718
<PP&E> 16,197,605
<DEPRECIATION> 4,849,396
<TOTAL-ASSETS> 64,197,479
<CURRENT-LIABILITIES> 13,989,695
<BONDS> 10,000,000
0
0
<COMMON> 54,052
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 64,197,479
<SALES> 66,575,931
<TOTAL-REVENUES> 66,575,931
<CGS> 37,869,755
<TOTAL-COSTS> 61,134,362
<OTHER-EXPENSES> (468,531)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 858,067
<INCOME-PRETAX> 5,052,033
<INCOME-TAX> 1,572,049
<INCOME-CONTINUING> 3,479,984
<DISCONTINUED> 0
<EXTRAORDINARY> 3,327,478
<CHANGES> (124,297)
<NET-INCOME> 6,683,165
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.22
</TABLE>
