AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1997
REGISTRATION NO. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST SOUTH AFRICA CORP., LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 3599 NOT APPLICABLE
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Identification No.)
or organization) Classification Code Number)
CLARENDON HOUSE, CHURCH STREET, HAMILTON HM CX, BERMUDA
(441) 295-1422
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
CLIVE KABATZNIK, PRESIDENT
FIRST SOUTH AFRICA MANAGEMENT CORP.
2665 SOUTH BAYSHORE, SUITE 702
COCONUT GROVE, FLORIDA 33133
(305) 857-5009
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
HENRY I. ROTHMAN, ESQ.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Tel: (212) 704-6000
Fax: (212) 704-6288
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities
Act, please check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement
number of the earlier effective registration statement for
the same offering. [_]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [_]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9% Senior Subordinated Convertible
Debentures due June 15, 2004
(Debentures) 10,000 $1,000.00 $10,000,000 $3,030.30
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share
("Common Stock")(3) 1,666,667 $6.00 $10,000,002 $3,030.30
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock(4) 135,000 $6.00 $ 810,000 $ 245.46
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock(5) 25,000 $3.75 $ 93,750 $ 28.41
- ---------------------------------------------------------------------------------------------------------------------------
Total $20,903,752 $6,337.47
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</TABLE>
(1) Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may become issuable pursuant to anti-dilution
provisions of the Company's 9% Senior Subordinated Convertible Debentures,
Placement Warrants and Purchase Options (as defined herein).
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(3) Issuable upon conversion of the Debentures.
(4) Issuable upon exercise of the Placement Warrants.
(5) Issuable upon exercise of the Purchase Options.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 13, 1997
PROSPECTUS
- ----------
FIRST SOUTH AFRICA CORP., LTD.
10,000 9% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
1,666,667 SHARES OF COMMON STOCK
(UNDERLYING THE CONVERSION OF OUTSTANDING 9% SENIOR SUBORDINATED
CONVERTIBLE DEBENTURES)
135,000 SHARES OF COMMON STOCK
(UNDERLYING THE CONVERSION OF CERTAIN OUTSTANDING WARRANTS)
25,000 SHARES OF COMMON STOCK
(UNDERLYING THE EXERCISE OF CERTAIN OUTSTANDING STOCK OPTIONS)
This Prospectus relates to the following securities which may be sold by
certain securityholders (the "Selling Securityholders") of First South Africa
Corp., Ltd., a Bermuda corporation (the "Company"): (i) 10,000 9% Senior
Subordinated Convertible Debentures due June 15, 2004 issued by the Company in a
private placement which was consummated upon a number of separate closings
during April 1997 to August 1997 (the "Private Placement"), (ii) 1,666,667
shares of Common Stock of the Company, $.01 par value ("Common Stock")
underlying the conversion of the Debentures; (iii) 135,000 shares of Common
Stock underlying the exercise of certain warrants issued to the placement agent
with respect to the Private Placement (the "Placement Warrants") entitling the
holder thereof to purchase 135,000 shares of Common Stock at an exercise price
of $6.00 per share, subject to adjustment, at any time during the ten year
period ending in July 31, 2007, and (iv) certain stock purchase options, granted
to a third party in exchange for certain services rendered for the Company (the
"Purchase Options") entitling the holder thereof to purchase 25,000 shares of
Common Stock at an exercise price of $3.75 per share, subject to adjustment.
Each Debenture was sold at an offering price of $1,000 and is convertible into
shares of Common Stock at any time at a conversion price of $6.00 per share,
subject to adjustment. See "Description of Securities - Debentures".
Prior to this offering, there has been no public market for the Debentures
and there can be no assurance that any trading market for the Debentures will
develop or be sustained. The Common Stock is listed on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol FSACF. The conversion price and other terms
of the Debentures and Placement Warrants were determined by negotiation between
the Company and Value Investing Partners, Inc. (the "Placement Agent") pursuant
to which it was agreed that the conversion price of the Debentures and Placement
Warrants would equal 120% of the average closing bid price of the Company's
Common Stock on the NASDAQ for the sixty trading days immediately preceding the
initial closing of the Private Placement, but not less than $4.00 nor more than
$6.00 per share of Common Stock. The exercise price of the Purchase Options was
arbitrarily determined by negotiation between the Company and Barretto Pacific
Corporation and was not related to the Company's asset value, net worth,
financial condition or other established criteria of value. On August 11, 1997,
the closing sales price for Common Stock was $8.125.
The securities offered by the Selling Securityholders by this Prospectus
may be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Debentures and the Common Stock offered
hereby by the Selling Securityholders may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary brokers' transactions, privately negotiated transactions or through
sales to one or more dealers for resale of such securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders.
The Selling Securityholders, and intermediaries through whom such
securities are sold , may be deemed underwriters within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders. In the event the Placement Warrants
and Purchase Options are exercised, the Company will receive gross proceeds of
$810,000 and $93,750, respectively. See "Selling Securityholders" and "Plan of
Distribution."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE .
THE DATE OF THIS PROSPECTUS IS ___________, 1997
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus does
not give effect to (i) the conversion of the Debentures, (ii) the exercise of
the Placement Warrants and Purchase Options, (iii) the exercise of the
outstanding Redeemable Class A Warrants and Class B Warrants of the Company (the
"Warrants"), (iv) the exercise of the Unit Purchase Options issued in connection
with the Company's Initial Public Offering in January 1996, (v) the exercise of
the options to purchase shares of Common Stock reserved for issuance under the
Company's Stock Option Plan, and (vi) 500,000 shares of Common Stock reserved
for issuance upon exercise of certain additional stock options granted by the
Board of Directors of the Company. See "Description of Securities." Unless
otherwise indicated, references in this Prospectus to "Rand" or "R" are to South
African Rand. On August 8 ,1997, the market average exchange rate was
approximately 4.68 Rand per U.S. dollar. See "Risk Factors - Risks Relating to
Operations in South Africa, Currency Considerations." Unless otherwise
indicated, U.S. dollar equivalent information in South African Rand for a period
is based on the average of the daily exchange rates for the days in the period,
and U.S. dollar information for South African Rand as of a specified date is
based on the exchange rate for that date unless otherwise indicated. Certain
numbers in this Prospectus have been rounded.
THE COMPANY
First South Africa Corp., Ltd., (the "Company") was organized to
acquire, own and operate seasoned, closely-held companies in South Africa with
annual sales in the range of approximately $5 to $50 million. The Company has
acquired through its wholly-owned subsidiary, First South African Holdings (Pty)
Ltd. ("FSAH"), ten businesses based in South Africa ("the Acquisitions") that
are as a group engaged in the following industry segments:
1. High quality plastic packaging machinery.
2. Metal washers used in the fastener industry.
3. Air conditioning and refrigeration machinery components.
4. Processed foods.
Upon completion of its initial public offering in January 1996, the
Company acquired Starpak (Pty) Limited, which is engaged in the manufacture of
high quality plastic packaging machinery; L.S. Pressing (Pty) Limited, 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 (Pty) Limited ("Piemans
Pantry"), a manufacturer and distributor of high quality meat pies. In October
1996, FSAH acquired Astoria Bakery CC ("Astoria Bakery") and Astoria Bakery
Lesotho Proprietary Ltd., ("Astoria Bakery Lesotho") manufacturers and
distributors of speciality baked breads and confectionary products (collectively
referred to as "Astoria"). In November 1996, the Company acquired the assets of
Alfapak (Pty) Ltd., a manufacturer pf plastic film and printed plastic bags. In
January 1997, FSAH acquired Seemann's Meat Products (Pty) Ltd. ("Seemanns") a
manufacturer and distributor of a wide range of processed meat products. In
April 1997, FSAH acquired the business and assets of Gull Foods (Pty) Ltd.
2
<PAGE>
("Gull Foods"), a manufacturer of value-added prepared foods. In May 1997, the
Company acquired Pakmatic Company (Pty), Ltd., a distributor of automatic
process and packaging machinery. In June 1997, FSAH transferred all of the
shares of Piemans Pantry, Astoria, Seemanns and Gull Foods to First S.A. Food
Holdings Ltd. ("FSA Food") and completed (i) the initial public offering of
5,000,000 ordinary shares of common stock of FSA Food in South Africa, which
shares are listed on the Johannesburg Stock Exchange, (ii) an institutional
private placement in South Africa of 20,000,000 ordinary shares of common stock
of FSA Food, and (iii) a private placement of 12,500,000 ordinary shares of
common stock of FSA Food to management and staff. As of 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 businesses, and in other businesses
that may be identified by the Company's management.
The Company was formed in September 1995. The Company's principal
executive offices are located at Clarendon House, Church Street, Hamilton HM II
Bermuda, and its telephone number at such location is: (441) 295-1422. Certain
management, shareholder relations and administrative services are provided to
the Company by First South Africa Management Corp., a Delaware corporation that
is a wholly-owned subsidiary of the Company ("FSAM"). FSAM's principal executive
offices are located at 2665 South Bayshore, Suite 702, Coconut Grove, Florida
33133, and its telephone number at such location is (305) 857-5009.
3
<PAGE>
THE OFFERING
Securities Offered by the Selling
Securityholders..................(i) 10,000 Debentures, (ii) 1,666,667 shares
of Common Stock underlying the conversion of
the Debentures, (iii) 135,000 shares of
Common Stock underlying the exercise of the
Placement Warrants, and (iv) 25,000 shares
of Common Stock underlying the exercise of
the Purchase Options. The Debentures are
subject to redemption in certain
circumstances. See "Description of
Securities."
Number of Shares of Common Stock
Outstanding:
Before the offering (1).............3,614,133 shares of Common Stock (2)
1,822,500 shares of Class B Common Stock (3)
After the offering (1)(4)...........5,440,800 shares of Common Stock (2)
1,822,500 shares of Class B Common Stock (3)
Nasdaq Symbols......................Units - FSAUF
Common Stock - FSACF
Class A Warrants - FSAWF
Class B Warrants - FSAZF
Risk Factors........................An investment in the securities offered
hereby involves a high degree of risk. See
"Risk Factors."
- ------------------
(footnotes on next page)
4
<PAGE>
(1) For a description of the voting and other rights of the Common Stock and
Class B Common Stock, see "Description of Securities."
(2) Excludes (i) an aggregate of 8,097,704 shares of Common Stock reserved for
issuance upon exercise of certain Redeemable Class A Warrants and
Redeemable Class B Warrants issued by the Company ("Warrants") and upon
exercise of the Warrants included in the Units offered in connection with
the Company's initial public offering (the "Offering"); (ii) 800,000 shares
issuable upon exercise of the Unit Purchase Options and the Warrants
included in the Units underlying the Unit Purchase Options; (iii) 350,000
shares reserved for issuance under the Company's 1995 Stock Option Plan,
(iv) 500,000 Shares of Common Stock reserved for issuance upon exercise of
certain additional stock options granted by the Board of Directors of the
Company, (v) 1,666,667 shares of Common Stock issuable upon the conversion
of the Debentures, (vi) 135,000 shares of Common Stock issuable upon the
exercise of the Placement Warrants, and (vii) 25,000 shares of Common Stock
issuable upon the exercise of the Purchase Options. See "Management -
Executive Compensation", "Management - Stock Option Plan," "Description of
Securities" and "Certain Transactions - Escrow Agreements." Includes
1,191,837 shares of Common Stock issued to the American Stock Transfer &
Trust Company (the "FSAH Escrow Agent") pursuant to certain escrow
agreements (the "FSAC Escrow Agreements") entered into between the Company,
FSAH, the FSAH Escrow Agent and certain other parties. See "Certain
Transactions."
(3) Includes 729,979 shares of Class B Common Stock issued upon the
consummation of the Offering to the FSAH Escrow Agent pursuant to an escrow
agreement entered into by and among certain holders of FSAH Class B Stock,
the FSAH Escrow Agent, FSAH and the Company prior to the closing of the
Offering (the "FSAH Escrow Agreement"), pursuant to which such FSAH
shareholders may tender their shares of FSAH Class B Stock to the FSAH
Escrow Agent against payment by the FSAH Escrow Agent of the purchase price
therefor, which payment may be made through the sale by the FSAH Escrow
Agent of an equal number of shares of Class B Common Stock (which shall be
automatically converted to shares of Common Stock upon such sale) and
delivery of the net proceeds thereof. See "Certain Transactions - FSAH
Escrow Agreement" and "Principal Shareholders."
(4) Assumes exercise of all the Debentures, Placement Warrants and Purchase
Options and no exercise of the outstanding Class A Warrants and Class B
Warrants. Inasmuch as the Company has received no firm commitments
therefore, there can be no assurances, however, as to the number of
Debentures, Placement Warrants and Purchase Options which will be
exercised. To date, a total of 102,296 Class A Warrants have been
exercised.
5
<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION
PREDECESSOR COMPANY (1) THE COMPANY
----------------------- ---------------------------
MARCH 1, JULY 1, JULY 1,
1995 1995 1996
TO JUNE TO JUNE TO MARCH
YEARS ENDED FEBRUARY 28, 30, 1995 30, 1996 31, 1997
----------------------------------------------------- ----------- ----------- -----------
1992 1993 1994 1995
$ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales ..................5,374,147 6,256,667 6,851,457 8,826,856 3,297,507 14,911,097 44,536,940
Total operating expenses....4,744,035 5,818,092 6,414,144 8,179,083 292,806 19,833,942(2) 40,594,655
Operating income ........... 630,112 438,575 437,313 647,773 334,701 (4,922,845) 3,942,285
Interest paid .............. 219,424 223,314 180,960 152,163 18,801 865,733(3) 770,087
Net income before tax ...... 361,678 269,251 321,319 536,440 359,045 (5,248,942) 3,771,719
Net income after tax ....... 271,036 138,839 207,916 313,882 213,829 (5,737,560) 2,972,589
PREDECESSOR COMPANY (1) THE COMPANY
----------------------- -----------------------------
FEBRUARY 28, JUNE 30, JUNE 30, MARCH 31,
------------ ----------- ----------- -----------
1992 1993 1994 1995
$ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- ----------
BALANCE SHEET DATA
Total assets ...............4,446,132 3,976,769 3,976,974 5,161,709 5,917,394 23,604,994 42,832,742
Long term liabilities ......1,562,095 1,140,244 1,112,391 1,123,665 954,718 2,361,372 4,293,682
Net working capital ........1,305,961 1,177,250 1,194,931 1,366,602 1,524,129 4,624,417 1,632,720
Stockholder's equity .......2,280,434 1,527,356 1,580,826 1,828,656 2,017,995 12,792,376 19,465,727
</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) Includes a one time non-cash escrow shares charge of $6,314,000 related to
the release of 1.1 million shares under the terms of an Earnout Escrow
Agreement, as amended, between the Company, certain shareholders of the
Company and American Stock Transfer and Trust Company.
(3) Includes a non-cash charge of $396,500 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
6
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained under "Management's Discussion and
Analysis of Financial Condition and Results of Operations," such as those
concerning future revenues, certain statements contained under "Business," such
as statements concerning the effect of market conditions, and other statements
contained in this Prospectus regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the rules promulgated
pursuant to the Securities Act of 1933, as amended (the "Securities Act")).
Because such forward-looking statements include risks and uncertainties, actual
results may differ materially from those expressed in or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed herein under "Risk
Factors", (political risks, risks related to currency exchange, economic risks,
government regulatory considerations, absence of substantive disclosure relating
to acquisitions, risks related to operations of FSA Foods, possible fluctuations
in operating results, competition, labour relations, dependence on key
personnel, control by insiders, potential adverse effect of redemption of
warrants, absence of public market for Debentures, current prospectus and state
registration requirements, shares eligible for future sales, potential
anti-takeover effects of preferred stock, and limited rights of shareholders
under Bermuda law. The Company undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RISK FACTORS
An investment in the securities offered hereby is speculative in
nature and involves a high degree of risk. In addition to the other information
contained in this Prospectus, prospective investors should carefully consider
the following risk factors before purchasing the securities offered hereby.
RISKS RELATING TO OPERATIONS IN SOUTH AFRICA
The Company's operations are conducted through its direct and
indirect subsidiaries located in South Africa. For the foreseeable future, the
Company expects to continue to focus all of its efforts in South Africa. The
conduct of the Company's business in South Africa exposes the Company to certain
risks, including the following:
Political Risks. Historically, the social structure of South Africa
was governed according to the apartheid system. Racial tensions in South Africa
have from time to time resulted in social unrest, strikes, riots and other
sporadic localized violence. The apartheid system also resulted in the
imposition of international financial and trade sanctions against South Africa.
Although a new interim constitution was adopted providing for universal suffrage
and the first national election under the new constitution took place in April
1994, there can be no assurance that social unrest, which could range in
magnitude from civil disobedience to civil war, will not occur. The Company's
businesses in South Africa have experienced politically-related work stoppages
in the past, although since 1994 no such disturbance has been material. In
addition, certain other countries in the region are currently engaged in or have
had civil war with the corresponding severe adverse economic and social
conditions and effects. Moreover, there can be no assurance as to the economic
and tax policies which the South African government may pursue and whether those
policies may include nationalization, expropriation and confiscatory taxation.
Nationalization, expropriation or confiscatory taxation, as well as currency
blockage, political changes, government
7
<PAGE>
regulation, strikes, political or social instability or diplomatic developments
could adversely affect the economy of South Africa and could have a material
adverse effect on the Company.
Risks Related to Currency Exchange. All of the Company's operating
subsidiaries do business in South African Rand and the Company's revenues are
generally received in such currency. Historically, there has been significant
inflation in South Africa (averaging 10-15% per annum in recent years) and
significant fluctuations in the exchange rate of the South African Rand. Because
South Africa's inflation rate would impact its economy both domestically and
internationally, and higher levels of inflation have frequently reduced the real
return on capital and investment (thereby lowering the demand for capital goods
including the types that the Company produces), South Africa's level of
inflation may increase the Company's risk related to currency fluctuation. The
U.S. Dollar equivalent of the Company's net assets and results of operations
will be adversely affected by reductions in the value of the Rand relative to
the U.S. Dollar. Similarly, if the exchange rate declines between the time the
Company incurs expenses in other currencies and the time cash expenses are paid,
the amount of South African Rand required to be converted into such other
currencies in order to pay such expenses could be greater than the equivalent
amount of such expenses in South African Rand at the time they were incurred.
The exchange rate for South African Rand against the U.S. dollar declined during
fiscal year 1997 during which period the average rate of exchange for the Rand
against the dollar was $1.00 to Rand 4.53 as compared with an average rate of
$1.00 to Rand 3.85 for fiscal year 1996. As of August 8, 1997 the Rand was
trading at 4.68 Rand to the Dollar. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Tax Considerations -
South African Taxation."
Economic Risks. The economy of South Africa may differ unfavorably
from the U.S. economy in such respects as growth of gross domestic product or
gross national product, rate of inflation, taxation, capital reinvestment,
resource self-sufficiency and balance of payments position. South Africa may be
particularly susceptible to changes in the world price of gold and other primary
commodities as these represent a majority of South Africa's exports. Any such
unfavorable aspects of the South African economy may materially adversely affect
the financial condition of the Company.
Government Regulatory Considerations. Generally, the making of loans
by the Company to its subsidiaries, the ability of those subsidiaries to borrow
from South African sources and the repatriation of dividends, interest and
royalties by those subsidiaries is regulated by the Exchange Control Department
of the South African Reserve Bank (the "Reserve Bank"). South Africa formerly
operated a dual currency system comprising the commercial rand and the financial
rand, which was abolished in 1995. The financial rand was the investment
currency, which traded at a discount to the commercial rand. No guarantee can be
given that the financial rand will not be reintroduced in the future with
possible adverse consequences on the U.S. dollar value of the Company's
investments in South Africa. Current South African Exchange Control Regulations
provide that, subject to any exemption which may be granted by the South African
Treasury (the "Treasury"), no non-resident of South Africa and no "affected
person" (which includes any entity (i) that may distribute 50% or more of its
capital, assets or earnings to a non-resident of South Africa or (ii) 50% or
more of the voting power of which is controlled by a non-resident of South
Africa) may provide any "financial assistance" to any South African resident.
"Financial assistance" is broadly defined to include any loans, guarantees,
sale/leasebacks, etc. Because FSAH will be deemed to be an "affected person,"
the Company is generally required to obtain the permission of the Treasury prior
to loaning money to, providing guarantees on behalf of, or otherwise providing
"financial assistance" to FSAH. Notwithstanding the above, a South African
company such as FSAH is permitted a certain level of local borrowing without
reference to the exchange
8
<PAGE>
control authorities and without prior consent. The amount which any affected
person may borrow is calculated in accordance with the following formula:
100%+ (percentage South African interest X 100%)
------------------------------------------
(percentage non-resident interest).
In addition, the terms of repayment of any such loan and the interest rate
(which is generally market-related) will be regulated.
Under other regulations, no person may, without permission, acquire
any security from a non-resident or make any entry in a security register which
involves the transfer of a security into or out of the name of a non-resident.
The control is exercised by placing the endorsement "non-resident" on all
securities owned by non-residents or in which non-residents have an interest.
The non-resident endorsement is placed on the share certificates by a bank and
is in practice easy to obtain.
Certain other regulations impact the remittance of dividends and
interest from South Africa, including any potential dividends to the Company
from a South African subsidiary. In practice, the South African Reserve Bank
does not restrict the remittance of genuine dividends from income earned by
South African companies although approval must be obtained. As a result, there
can be no assurance that a South African subsidiary would be permitted to
declare and pay a dividend to the Company. See "South Africa - Foreign Direct
Investment."
ABSENCE OF SUBSTANTIVE DISCLOSURE RELATING TO ACQUISITIONS
Although management of the Company will endeavor to evaluate the
risks inherent in any particular acquisition, there can be no assurance that the
Company will properly ascertain all such risks. Management of the Company will
have virtually unrestricted flexibility in identifying and selecting prospective
acquisition candidates. The Company does not intend to seek stockholder approval
for any acquisitions unless required by applicable law or regulations and
stockholders will most likely not have an opportunity to review financial
information on an acquisition candidate prior to consummation of an acquisition.
See "Description of Securities - Differences in Corporate Law."
South African companies that may be acquired by the Company are
subject to South African GAAP which, in certain instances, may differ from U.S.
GAAP. Although the Company intends to prepare financial statements in accordance
with U.S. GAAP, the Company can provide no assurance that it will be able to do
so. Although the Company is unaware of any South African GAAP requirement that
would adversely affect it, there can be no assurance that the Company's
financial condition or the ability of the Company to consummate future
acquisitions will not be adversely affected by differences between South African
GAAP and U.S. GAAP.
RISKS RELATED TO OPERATIONS OF FSA FOODS
Two of the operating subsidiaries of FSA Foods each rely on a single
major customer for a substantial portion of their respective revenues. The loss
of any such major customer may have a material adverse effect on the financial
condition of the Company. There can be no assurance that such major customers
will continue to purchase the products of such FSA Foods subsidiaries.
9
<PAGE>
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS
There can be no assurance that the Company's operating subsidiaries
will continue to operate profitably, or that prior trends will be indicative of
future results of operations. Future results of operations may fluctuate
significantly based upon factors such as increases in competition, losses
incurred by new businesses that may be acquired in the future, currency
fluctuations, political changes, macroeconomic factors, the continued
availability of new materials and other circumstances that may not be reasonably
foreseeable at this time.
COMPETITION
The Company competes with a number of companies, from South Africa
and from other countries, offering similar products and services, some of whom
may have substantially greater financial, management, technical and other
resources than the Company. As a result of South Africa's recent political
transformation, some South African businesses may be adversely affected by
increased competition from foreign firms doing business in South Africa. In
addition, South Africa has historically imposed significant tariffs against a
number of industrial products. To the extent such tariffs are reduced or removed
to comply with international treaty requirements or otherwise, the Company would
face much greater pressure from globally competitive firms. There can be no
assurance that the Company will compete effectively with such other companies or
that other companies will not develop products which are superior to the
Company's or which achieve greater market penetration. In addition, the Company
may experience competition from other companies seeking to identify and
consummate acquisitions of South African companies. Such competition may result
in the loss of an acquisition candidate or an increase in the price the Company
would be required to pay for any such acquisition. See "Business - Competition."
LABOUR RELATIONS
A significant number of South Africa's workers belong to either
registered or unregistered trade unions, and most of the major industries are
unionized. A number of the trade unions have close links to various political
parties. In the past, trade unions have had a significant influence in South
Africa as vehicles for social and political reform as well as the collective
bargaining process. It is uncertain whether labor disruptions will be used to
advocate political causes in the future. Significant labor disruptions could
have a material adverse effect on the financial condition of the Company.
South Africa has also recently enacted a new Labour Relations Act.
The Act entrenches the rights of employees to belong to trade unions and the
rights of representative trade unions to have access to the workplace. The right
to strike is guaranteed, as is the right to participate in secondary strikes, in
certain prescribed circumstances. The right to picket has also been entrenched.
The Act recognizes the rights of employers to belong to employers' associations.
Importantly, the Act envisages an increased role for employees in the decision
making of companies by providing, where a majority trade union so requests, for
the compulsory establishment of workplace forums to represent the interests of
employees where a company employs more than 100 employees. The range of issues
on which the workplace forum must be consulted include restructurings of the
workplace, partial or total plant closures, mergers and transfers of ownership
insofar as these affect employees, and retrenchments. The implementation of the
Labour Relations Act's provisions may have a material adverse effect on the
Company's cost of labor and consequently on its financial condition. New
legislation is currently being proposed regarding minimum conditions of labor.
Such legislation, if enacted, is expected to increase South African labor costs.
10
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success depends upon the continued contributions of
its executive officers, most of whom are also principal stockholders of the
Company, and the continued contributions of the management of Starpak, L.S.
Pressings, Europair, FSA Foods and the FSA Foods Subsidiaries. The Company has
obtained key man insurance in the amounts of $2,000,000 on the lives of each of
Michael Levy and Clive Kabatznik. The business of the Company could be adversely
affected by the loss of services of, or a material reduction in the amount of
time devoted to the Company by, its executive officers. See "Management."
CONTROL BY INSIDERS; OWNERSHIP OF SHARES HAVING DISPROPORTIONATE VOTING RIGHTS;
POSSIBLE DEPRESSIVE EFFECT ON THE PRICE OF THE COMPANY'S SECURITIES
The Company's founders and certain other shareholders own 1,822,500
shares of Class B Common Stock (excluding certain shares of Common Stock and
options), representing approximately 33.5% of the Company's outstanding capital
stock and approximately 71% of the total voting power (assuming no conversion of
the Debentures and no exercise of the Placement Warrants and Purchase Options)
and are able to elect all of the Company's directors and otherwise control the
Company's operations. See "Principal Shareholders." Furthermore, the
disproportionate vote afforded the Class B Common Stock could also serve to
impede or prevent a change of control of the Company. As a result, potential
acquirers may be discouraged from seeking to acquire control of the Company
through the purchase of Common Stock, which could have a depressive effect on
the price of the Company's securities and will make it less likely that
shareholders receive a premium for their shares as a result of any such attempt.
See "Principal Shareholders," "Certain Transactions" and "Description of
Securities."
DIVIDENDS UNLIKELY
The Company has not paid any cash dividends and does not anticipate
paying any such cash dividends in the foreseeable future. Earnings, if any, will
be retained to finance future growth. See "Dividend Policy."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Class A Warrants and the Class B Warrants have been, and will
continue to be, redeemable by the Company at a redemption price of $.05 per
Warrant upon 30 days' prior written notice if the average bid price per share of
the Common Stock exceeds $9.10 (subject to adjustment) with respect to the Class
A Warrants and $12.25 (subject to adjustment) with respect to the Class B
Warrants, for 30 consecutive trading days ending within 15 days of the notice of
redemption. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price therefor at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which, at the time the Warrants are called for
redemption, is likely to be substantially less than the market value of the
Warrants. See "Description of Securities Warrants."
11
<PAGE>
ABSENCE OF PUBLIC MARKET FOR DEBENTURES
Prior to this offering, there has not been a public market for the
Debentures and there can be no assurance that an active trading market will be
developed or be sustained after this offering.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO CONVERT DEBENTURES
AND EXERCISE PLACEMENT WARRANTS AND PURCHASE OPTIONS
Holders of Debentures, Placement Warrants and Purchase Options will
only be able to convert the Debentures and exercise the Placement Warrants and
the Purchase Options if (i) a current prospectus under the Securities Act
relating to the shares of Common Stock underlying the Debentures, Placement
Warrant and Purchase Options is then in effect, and (ii) such shares of Common
Stock are qualified for sale or exempt from qualification under the applicable
securities laws of the states. There can be no assurance that the Company will
be able to maintain the effectiveness of a current prospectus covering the
shares of Common Stock underlying the Debentures, Placement Warrants and
Purchase Options. The value of the Debentures, Placement Warrants and Purchase
Options may be greatly reduced if a current prospectus, covering the shares of
Common Stock issuable upon the exercise of such securities, is not kept
effective or if such securities are not qualified or exempt from qualification
under applicable state securities laws. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALES; POSSIBLE DEPRESSIVE EFFECT OF
FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS
Future sales of Common Stock by existing stockholders pursuant to
Rule 144 under the Securities Act, or otherwise, including with respect to
outstanding Class A Warrants and Class B Warrants, or the possibility of such
sales in the public market, could have a material adverse affect on the market
price of the securities offered hereby. Immediately following the effectiveness
of this offering, there will be an aggregate of 3,614,133 shares of Common Stock
and 1,822,500 Class B Common Stock outstanding (assuming no conversion of the
Debentures and no exercise of the Placement Warrants and Purchase Options). In
addition, an aggregate of 8,097,704 shares of Common Stock are issuable upon
exercise of certain Warrants issued by the Company and upon exercise of the
Warrants included in the Units sold in connection with the Offering. The
2,300,000 shares of Common Stock included as part of the Units sold pursuant to
the Offering were freely tradeable without restriction under the Securities Act
immediately following the Offering. All other shares of Common Stock and the
shares of Class B Common Stock, are "restricted securities" as that term is
defined under the Securities Act, and in the future may be sold in compliance
with Rule 144 under the Securities Act or pursuant to a Registration Statement
filed under the Securities Act. See "Description of Securities - Class B Common
Stock." Of the 3,614,133 shares of Common Stock issued and outstanding as of the
date of this Prospectus, 1,191,837 shares were issued to the FSAH Escrow Agent
pursuant to the terms of the FSAC Escrow Agreements. Of the 1,822,500 shares of
Class B Common Stock issued and outstanding upon the date of this Prospectus,
729,979 shares were issued to the FSAH Escrow Agent pursuant to the terms of the
FSAH Escrow Agreement. See "Certain Transactions." Such shares of Common Stock
and Class B Common Stock (issued with respect to the FSAC Escrow Agreements and
the FSAH Escrow Agreement) are "restricted securities" which in the future may
be sold in compliance with Rule 144 or pursuant to a registration statement
filed under the Securities Act. All the shares of Common Stock issued pursuant
to the FSAC Escrow Agreements will be eligible for sale under Rule 144 in July
1998. All of the shares of Class B Common Stock are currently eligible for sale
under Rule 144. Rule 144 generally provides that a person holding restricted
securities for a period of one year may sell every three months in brokerage
12
<PAGE>
transactions and/or market-maker transactions an amount not to exceed the
greater of (a) one percent (1%) of the Company's issued and outstanding Common
Stock, or (b) the average weekly trading volume of the Common Stock during the
four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a person
who is not an affiliate of the Company and who has satisfied a two-year holding
period.
As of January 24, 1997, D.H. Blair Investment Banking Corp., the
Company's Underwriter in connection with its IPO ("D.H. Blair")and certain other
holders have the right to two demand registrations of the Units underlying the
Unit Purchase Options. The holders of the Unit Purchase Options also will have
certain piggyback registration rights. The exercise of registration rights may
involve substantial expense to the Company and have a depressive effect on the
market price of the Company's securities. See "Description of Securities -
Shares Eligible for Future Sale."
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Memorandum of Association authorizes the issuance of
5,000,000 shares of preferred stock with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval
(but subject to applicable government regulatory restrictions), to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. See "Description of
Securities."
LIMITED RIGHTS OF SHAREHOLDERS UNDER BERMUDA LAW
The Company's corporate affairs are governed by its Memorandum of
Association and bye-laws, as well as the common law of Bermuda relating to
companies and the Companies Act 1981. The laws of Bermuda relating to
shareholder rights, protection of minorities, fiduciary duties of directors and
officers, matters of corporate governance, corporate restructurings, mergers and
similar arrangements, takeovers, shareholder suits, indemnification of directors
and inspection of corporate records, may differ from those that would apply if
the Company were incorporated in a jurisdiction within the United States. The
rights of shareholders in a Bermuda company may not be as extensive as the
rights of a shareholder of a United States company and, accordingly, the holders
of the Company's shares of Common Stock may be more limited in their ability to
protect their interests in the Company. In addition, there is uncertainty
whether the courts of Bermuda would enforce judgements of the courts of the
United States and of other foreign jurisdictions. There is also uncertainty
whether the courts of Bermuda would enforce actions brought in Bermuda which are
predicated upon the securities laws of the United States. See "Enforceability of
Civil Liabilities," "Description of Securities - Differences in Corporate Law"
and "Certain Provisions of Bermuda Law."
13
<PAGE>
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the growth of the
Company. The Board of Directors of the Company will review its dividend policy
from time to time to determine the feasibility and desirability of paying
dividends, after giving consideration to the Company's earnings, financial
condition, capital requirements and such other factors as the Board of Directors
deems relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
at March 31, 1997; and (ii) as adjusted to give effect to the completion of all
acquisitions of the Company since March 31, 1997, the proceeds of the Debenture
offering net of issue costs and the formation and the sale of 30% of FSA Food.
This table should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Long term debt .................................................................................. 4,293,682 14,293,682
----------- -----------
Minority Interest in Subsidiary ................................................................. -- 13,032,046
----------- -----------
Stockholders' Equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; no shares issued and outstanding.. -- --
Common Stock, $0.01 par value; 23,000,000 shares authorized; 2,300,000 shares issued and
outstanding actual .......................................................................... 23,000 23,000
Class B Common Stock, $0.01 par value; 2,000,000 shares authorized; 1,842,500 shares issued
and outstanding; actual and as adjusted(1)(2)(3) ............................................ 18,857 18,857
Additional paid-in capital .................................................................. 22,059,698 22,059,698
Deficit/Retained Income ..................................................................... (914,818) 2,709,385
Foreign currency translation adjustments .................................................... (1,728,317) (1,728,317)
Income restricted as to distribution ........................................................ 7,307 0
----------- -----------
Total Stockholders' Equity .................................................................. 19,465,727 23,082,623
----------- -----------
Total capitalization ............................................................................ 23,759,409 50,408,351
=========== ===========
</TABLE>
- -----------
(1) The Common Stock and Class B Common Stock are essentially identical except
that each share of Common Stock is entitled to one vote and each share of
Class B Common Stock is entitled to five votes. See "Description of
Securities".
(2) Excludes (i) an aggregate of 1,300,000 shares of Common Stock reserved for
issuance upon exercise of certain Redeemable Class A Warrants and
Redeemable Class B Warrants issued by the Company ("Warrants"); (ii)
6,900,000 shares issuable upon exercise of the Warrants included in the
Units offered in connection with the Company's initial public offering that
was effective on January 24, 1996, (the "Offering"); (iii) 800,000 shares
issuable upon exercise of the Unit Purchase Options and the Warrants
included in the Units underlying the Unit Purchase Options; and (iv)
350,000 shares reserved for issuance under the Company's 1995 Stock Option
Plan ; (v) 500,000 shares of Common Stock reserved for issuance upon
exercise of certain additional stock options granted by the Board of
Directors of the Company; and (vi) 1,198,177 shares of Common Stock issued
to the "FSAH Escrow Agent" pursuant to the FSAC Escrow Agreements. See
"Certain Transactions," "Management - Executive Compensation," "Management
- Stock Option Plan," "Description of Securities" and "Certain
Transactions." Also excludes the effect of the conversion of 102,296 Class
A Warrants subsequent to March 31, 1997.
(3) Includes 729,979 shares of Class B Common Stock issued upon the
consummation of the Offering to the FSAH Escrow Agent pursuant to the FSAH
Escrow Agreement, pursuant to which such FSAH shareholders may tender their
shares of FSAH Class B Stock to the FSAH Escrow Agent against payment by
the FSAH Escrow Agent of the purchase price therefor, which payment may be
made through the sale by the FSAH Escrow Agent of an equal number of shares
of Class B Common Stock (which shall be automatically converted to shares
of Common Stock upon such
15
<PAGE>
sale) and delivery of the net proceeds thereof. See "Certain Transactions -
FSAH Escrow Agreements" and "Principal Shareholders."
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On January 24, 1996 , the Company's Common Stock, Units, Class A
Warrants and Class B Warrants were listed for quotation on the SmallCap Market
on the Nasdaq System under the symbols FSAUF, FSACF, FSAWF and FSAZF,
respectively. The following table sets forth, for the periods indicated the high
and low bid prices for the Common Stock, Units, Class A Warrants and Class B
Warrants as reported by Nasdaq. Quotations reflect prices between dealers,
without retail mark-up, mark down or commissions and may not necessarily
represent actual transactions.
HIGH BID LOW BID
----------- -----------
COMMON STOCK
1996
3rd Quarter $ 4.75 $ 2.88
4th Quarter $ 6.00 $ 3.00
1997
1st Quarter $ 6.50 $ 4.50
2nd Quarter $ 5.75 $ 4.00
3rd Quarter $ 7.38 $ 3.50
4th Quarter $ 8.75 $ 4.63
1998
1st Quarter (through August 8, 1997) $ 8.43 $ 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 August 8, 1997) $ 12.63 $ 10.00
CLASS A WARRANTS
- ----------------
1996
3rd Quarter $ 3.00 $ 1.50
4th Quarter $ 2.87 $ 1.58
1997
1st Quarter $ 3.28 $ 2.25
2nd Quarter $ 5.00 $ 2.75
16
<PAGE>
HIGH BID LOW BID
----------- -----------
3rd Quarter $ 2.38 $ 1.25
4th Quarter $ 3.88 $ 1.06
1998
1st Quarter (through August 8, 1997) $ 3.28 $ 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 August 8, 1997) $ 1.44 $ 1.00
As of August 8, 1997, there were approximately 1,330 shareholders
both of record and beneficial, of the Company's Common Stock.
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following selected financial data for Starpak and L.S.
Pressings, the Company's predecessor, as of and for the periods presented have
been derived from the combined audited financial statements of Starpak and L.S.
Pressings. The unaudited financial data, in the opinion of management, contain
all adjustments (consisting only of normal and recurring adjustments) necessary
for a fair presentation of such data. The result of the interim periods are not
necessarily indicative of the results of a full year. All of the financial data
set forth below should be read in conjunction with the information appearing
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) THE COMPANY
----------------------- -----------------------------
MARCH 1, JULY 1,
1995 JULY 1, 1995 1996
TO JUNE TO JUNE TO MARCH
YEARS ENDED FEBRUARY 28, 30, 1995 30, 1996 31, 1997
----------------------------------------------------- ----------- ----------- -----------
1992 1993 1994 1995
$ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales ................. 5,374,147 6,256,667 6,851,457 8,826,856 3,297,507 14,911,097 44,536,940
Total operating expenses... 4,744,035 5,818,092 6,414,144 8,179,083 292,806 19,833,942(2) 40,594,655
Operating income .......... 630,112 438,575 437,313 647,773 334,701 (4,922,845) 3,942,285
Interest paid ............. 219,424 223,314 180,960 152,163 18,801 865,733(3) 770,087
Net income before tax ..... 361,678 269,251 321,319 536,440 359,045 (5,248,942) 3,771,719
Net income after tax ...... 271,036 138,839 207,916 313,882 213,829 (5,737,560) 2,972,589
PREDECESSOR COMPANY (1) THE COMPANY
------------------------ -----------
FEBRUARY 28, JUNE 30, JUNE 30, MARCH 31
------------ ----------- ----------- -----------
1992 1993 1994 1995 1995 1996 1997
$ $ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA
Total assets .............. 4,446,132 3,976,769 3,976,974 5,161,709 5,917,394 23,604,994 42,832,742
Long term liabilities ..... 1,562,095 1,140,244 1,112,391 1,123,665 954,718 2,361,372 4,293,682
Net working capital ....... 1,305,961 1,177,250 1,194,931 1,366,602 1,524,129 4,624,417 1,632,720
Stockholder's equity ...... 2,280,434 1,527,356 1,580,826 1,828,656 2,017,995 12,792,376 19,465,727
</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 ends on June 30.
(2) Includes a one time non-cash escrow shares charge of $6,314,000 related to
the release of 1.1 million shares under the terms of an Earnout Escrow
Agreement between the Company, certain shareholders and D.H. Blair.
(3) Includes a non-cash charge of $396,500 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
PRO FORMA FINANCIAL INFORMATION
Pro forma adjustments have been made to the consolidated statements
of income for the year ended June 30, 1996 to reflect the acquisitions of the
combined Starpak and L.S. Pressings operations, Europair and of the Piemans
Pantry operations as if these acquisitions had occurred on July 1, 1994.
The Starpak and L.S. Pressings transactions were accounted for as
predecessor to the Company, and the Europair transaction as a purchase for
financial reporting purposes.
The unaudited pro forma combined financial statements of the Company
have been derived from the historical financial statements of Starpak, L.S.
Pressings, Europair and Piemans Pantry. The pro forma combined statement of
operations data set forth below do not purport to be indicative of the
18
<PAGE>
combined financial position or combined results of operations that would have
occurred had the transactions been completed on July 1, 1994 or which may be
expected to occur in the future.
PRO FORMA CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Nine months Year
Ended Ended
March 31, June 30,
1997 1996
$ $
----------- -----------
Revenues 53,966,727 43,815,542
----------- -----------
Net Income 3,095,212 (5,022,781)
----------- -----------
Net profit/(loss) per share 0.53 (1.95)
Number of shares in issue 5,886,833 2,578,238
The pro forma information has been prepared assuming that the
acquisitions consummated prior to June 30, 1996 had taken place and that
operations had commenced on July 1, 1994.
The proforma information does not purport to be indicative of the
results that would have actually been obtained if the acquisitions consummated
prior to June 30, 1996 had occurred at the beginning of the period nor is it
indicative of future results.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was incorporated in September 1995 to acquire, own and
operate closely held companies in South Africa with annual sales in the range of
approximately $5 million to $50 million. In this regard, the Company, through
its South African subsidiary, FSAH, has acquired ten South African companies
(collectively, the "Acquisitions") engaged in the following industry segments
(i) the manufacture of high-quality plastic packaging machinery through Starpak,
(ii) the manufacture of washers for use in the fastener industry through L.S.
Pressings and its subsidiary Paper and Metal Industries, (iii) the manufacture
and supply of air conditioning and refrigeration products through Europair and
its subsidiary Europair Refrigeration, and (iv) the manufacture and distribution
of processed food products through Piemans Pantry, Astoria, Seemanns and Gull
Foods subsequently reorganized as subsidiaries of FSA Food. See "Business" and
"Certain Transactions." The Company has funded itself since inception primarily
through stockholders' loans and capital contributions and the private placements
of notes and warrants and debentures and the proceeds of its initial public
offering completed in January 1996. The Company anticipates that it will derive
revenues primarily through income generated from the operations of acquired
operating companies in South Africa.
The annual rate of inflation in South Africa for the periods set
forth below was as follows:
FISCAL YEAR 1995 FISCAL YEAR 1996
---------------- ----------------
10.0% 6.9%
The average rate for the South African Rand against the U.S. dollar
for the periods under discussion were as follows:
FISCAL YEAR 1995 FISCAL YEAR 1996
---------------- ----------------
$1 = R3.53 $1 = R3.85
Depreciation of 9.06%
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this document. In this discussion, "Pro
Forma" includes all the combined results for the Company's acquisitions that
have been consummated since the Company's Initial Public Offering in January,
The "Pro Forma" results may not be representative of the actual results that
would have been achieved had such events actually occurred at the beginning of
the periods indicated.
20
<PAGE>
The Company's Consolidated Balance Sheet and Statement of Income
reflect the twelve month period ending June 30, 1996. The Statement of Income
includes the operations of L.S. Pressings (Pty) Limited and Starpak (Pty)
Limited for the full twelve month period, the operations of Europair (Pty)
Limited from January 24, 1996 and the operation of Piemans Pantry (Pty) Limited
from June 3, 1996. Starpak and L.S. Pressings are deemed capital predecessors of
the Company, while the operations of Europair and Piemans Pantry have been
accounted for upon consummation of their acquisition.
Due to the lack of comparative prior financial periods, and in order
to provide a meaningful reference point in the Management's Discussion and
Analysis, comparative twelve month pro forma results have been added for the
twelve-month periods ended June 30, 1996 and 1995 respectively. These pro forma
results include the results for all of the Company's acquisitions made prior to
June 30, 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.
<TABLE>
<CAPTION>
PROFORMA (UNAUDITED) (UNAUDITED)
Year Ended Year ended Nine Months Ended
June 30, June 30, Sept. 30, Sept. 30,
1996 1995 1996 1997
<S> <C> <C> <C> <C>
Costs of sales ................................ 53.0% 53.4% 60.6% 55.1%
Gross profit .................................. 47.0% 46.6% 39.4% 44.9%
Selling, general and administrative
expenses ................................... 37.0% 36.0% 31.9% 36.0%
Interest expense .............................. 3.9% 2.3% 5.8% 1.7%
Operating income (pre-noncash escrow
charge) .................................... 10.0% 9.0% 7.4% 8.9%
Other income (net of other expenses) .......... 2.3% 1.4% 2.0% 1.3%
Income before income taxes (pre-noncash
escrow charge) ............................. 8.4% 8.1% -- --
Income before income taxes .................... (8.7%) 8.1% 3.7% 8.5%
</TABLE>
Nine Months Ended March 31, 1997
Compared to Nine Months Ended March 31, 1996
Sales for the nine months ended March 31, 1997 were $44,536,940
versus $13,406,104 for the comparable period in 1996. This increase is primarily
due to the acquisitions the Company has completed since its IPO on January 24,
1996. All results for the nine months ended March 31, 1996 relate to the results
of L.S. Pressings, Starpak, and Europair alone.
Costs of goods sold for the nine months ended March 31, 1997 were
$24,543,952, or 55.1 % of sale versus $8,128,789 or 60.6%, for the comparable
period in 1996. This decrease in the percentage of cost of goods sold is
primarily due to the lower cost of goods percentage associated with the
Company's processed food operations.
Sales, general and administrative costs were $16,050,703 for the
nine months ended March 31, 1997 or 36% of sales versus $4,274,943 for the
comparable period in 1996 or 31.9% of sales. This increase can
21
<PAGE>
primarily be attributed to their increased ratio of sales costs to revenues
generated in the Company's processed food operations as opposed to the
manufacturing operations of the Company's predecessor, as well as general and
administrative costs incurred by the Company's corporate offices during the nine
months ended March 31, 1997, which were not incurred in the comparable period in
1996.
Interest expenses were $770,087 for the nine months ended March 31,
1997 versus $777,004 for the comparable period in 1996. The interest expense for
the nine months ended March 31, 1996 includes a one time interest expense of
$418,167 related to the interest charged to the Company as a result of its
Bridge Financing transaction which took place in November 1995. The operating
interest expenses of the Company's subsidiaries has increased from $358,837 to
$770,087. The increase is primarily attributable to the increase in the
Company's bank borrowings and long term debt for the nine months ended March 31,
1997 as compared to the comparable period in 1996. In addition, the Company's
subsidiary, FSAH, borrowed approximately $1,100,000 which it utilized as a
portion of its acquisition costs.
Other income for the nine months ended March 31, 1997, was $599,521
versus $269,292 in the comparable period in 1996. This is primarily made up of
rebates and other supplier discounts paid to the Company's operating
subsidiaries.
Net profit for the nine month period ended March 31, 1997, was
$2,972,589 or a gain of $.61 per share as compared to a net loss of $198,174 or
$.16 per share in the comparable period in 1996. For purposes of its earnings
per share calculation for the nine months ended March 31,1997, the Company had
4,902,280 shares outstanding at such date (including 1,033,583 shares to be
issued in fulfilment of acquisition agreements entered into during the prior six
months) as opposed to 1,209,349 for the comparable period in 1996.
Pro Forma Twelve Months Ended June 30, 1996
Compared to Pro Forma Twelve Months Ended June 30, 1995
Proforma sales for the 12 months ended June 30, 1996 increased 11.6%
to $36,907,198 from $33,062,715 for the period ended June 30, 1995. The increase
included a 2.0% decrease in the combined sales of L.S. Pressings, and of
Starpak, a 3.9% increase in the sales of Europair Africa and a 26% increase in
the sales of Piemans Pantry. The decrease in sales of L.S. Pressings and Starpak
as well as the relatively slow growth of Europair Africa can be primarily
attributed to the above average macro-economic growth South Africa experienced
following the April 1994 elections. In the 12 months leading up to the first
South African national elections the country faced tremendous uncertainty.
Corporate capital expenditures were frozen pending the results of the election.
Upon the peaceful conclusion of the election, business confidence was boosted
and spending on capital goods resumed at an above average pace, resulting in
increased volume sales for all three companies. Capital spending rates have
decreased in fiscal 1996 as opposed to the above average rates following the
April 1994 elections. In contrast, Piemans Pantry's rapid growth continued to be
fueled by an overall increase in the South African meat pie market.
Proforma cost of goods sold were $19,555,997 and $17,983,400 for the
twelve months ended June 30, 1996 and 1995 respectively. This represented 53% of
sales for the twelve months ended June 30, 1996 versus 54.4 % for the
corresponding period in 1995. This decrease can be primarily explained by
improved productivity at Piemans Pantry due to increased automation.
22
<PAGE>
Proforma sales, general and administrative costs increased to
$13,670,868 from $12,110,748 for the twelve months ended June 30, 1996 and 1995,
respectively. This represented 37.0% of sales for the twelve months ended June
30, 1996 versus 36.6% for the corresponding period a year earlier. During the
period in fiscal 1996, the Company's net corporate expenses accounted for
approximately .6% of this increase.
Proforma interest expenses increased to $1,428,617 during the twelve
months ended June 30, 1996 from $768,413 for the twelve months ended June 30,
1995. Most of this increase can be attributed to a non-cash charge of $396,000
that the Company took in connection with its November 1995 private placement of
Bridge Notes. In addition, long-term debt increased as a result of debt utilized
as part of the Company's acquisition financing as well as increased investment
in fixed assets which was facilitated through the utilization of long-term debt
facilities.
Proforma other income was $832,519 and $466,356 for the twelve
months ended June 30, 1996 and 1995, respectively, primarily as a result of
interest earned on greater net positive cash balances for the year ended June
30, 1996, as opposed to the corresponding period in 1995.
The Company recorded a non-cash escrow share charge of $6,314,000
for the year ended June 30, 1996. This charge relates to the release of
1,100,000 shares pursuant to an Earnout Escrow Agreement that the Company
entered into on October 30, 1995, as amended. Under the terms of this agreement,
1,100,000 shares were deposited in escrow subject to the Company achieving
certain pre-tax Pro Forma earnings results as set forth in such agreement, as
amended. It is management's belief that the Pro Forma results for June 30, 1996
have met the earnout requirements of this agreement, as amended, and as a result
the Company has taken this one time non-cash charge which is calculated by
multiplying 1,100,000 shares by the current bid price of the Company's Common
Stock. The $6,314,000 charge has been reflected as additional Capital in Excess
of Par in the June 30, 1996 Balance Sheets. The release of such 1,100,000 shares
from the earnout escrow was effected in October 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - PREDECESSOR COMPANY.
The annual rate of inflation in South Africa for the period set forth below was
as follows:
1993 1994 1995
---- ---- ----
13.9% 9.7% 8.6% (est.)
The average rate for the South African Rand against the U.S. dollar for the
periods under discussion were as follows:
FISCAL YEAR 1993 FISCAL YEAR 1994 FISCAL YEAR 1995
---------------- ---------------- ----------------
$1 = R2.90 $1 = R3.32 $1 = R3.53
Depreciation of 14.48% 6.3%
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
23
<PAGE>
inflation of South Africa. The calendar year figures are provided with the
fiscal year figures as set forth above to provide an effective comparison of
inflation figures for the periods in question.
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this Prospectus. In this discussion,
"Historical" reflects the combined historical financial data of Starpak and L.S.
Pressings. Prior to the Company's initial public offering, such entities were
each principally owned by FSA Stock Trust, a principal stockholder of the
Company, and are therefore treated as the Company's predecessor. "Pro Forma"
assumes the consummation of this Offering and the acquisition of Europair.
COMBINED RESULTS FOR STARPAK AND L.S. PRESSINGS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1995 TO
AS PERCENTAGE OF SALES JUNE 30, 1995 FISCAL YEAR ENDED FEBRUARY 28,
---------------------- ------------- -------------------------------
1995 1994 1993
---- ---- ----
<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 ...........................20.5% 1.7% 2.6% 3.6%
Operating income ...........................10.1% 7.3% 6.4% 7.0%
Other income (net of other expenses) ....... 1.3% 0.5% 0.9% 0.9%
Income before income taxes ................. 1.9% 6.1% 4.7% 4.3%
</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 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
24
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company raised approximately $9 million in net
proceeds after all fees and expenses from its initial public offering. Proceeds
of that offering have been primarily utilized to fund the Company's acquisitions
as well as to provide a certain amount of working capital to its South African
subsidiaries. During the period April 1996 to August 1997, the Company closed a
subordinated convertible
25
<PAGE>
debenture offering which raised approximately $9.4 million in net proceeds after
all fees and expenses. Of this amount, approximately $3 million was utilized to
acquire Gull Foods, approximately $1,000,000 was utilized to acquire Pakmatic,
and approximately $1,000,000 was utilized to pay for the cash portion of the
second tranche of the Piemans Pantry acquisition.
As of March 31, 1997, the Company had $2,245,322 in cash with
working capital of $1,632,720. As of March 31, 1997, the Company had a total of
$8,237,937 in bank debt, of which $3,944,255 was classified as current.
Cash flows provided by operating activities for the period ended
March 31, 1997 totaled $6,180,417. Cash flows used in investing activities for
the period ended March 31, 1997 totaled $10,172,593 primarily attributable to
the purchase of assets and acquisition of subsidiaries. Net cash provided by
financing activities generated $1,488,837 during the period ended March 31,
1997. Approximately $1,700,000 remains to be paid with respect to the Piemans
Pantry acquisition subsequent to the date of this Prospectus.
The Company's operating subsidiaries generally collect their
receivables within 65 - 90 days and reserve approximately 19% for doubtful
accounts. Historically, the Company's operating and capital needs have been met
by internal cash flow and outside bank borrowing. It is management's belief that
capital expenditures for the foreseeable future can continue to be met by
internal cash flow and bank borrowing. The Company's operating subsidiaries
engage in certain hedging transactions with respect to certain overseas
purchases in order to lock in a specified exchange rate. In addition, in May
1996, the Company, through Swiss Bank Corporation, purchased a 12 month option
to acquire the equivalent of $5 million in South African Rand at the strike
price of five Rand to the Dollar. This option has the effect of hedging $5
million of the Company's fiscal 1997 earnings, in the event the exchange rate of
the South African Rand falls below this strike price. The cost of such option
was approximately $150,000 and is being amortized over the length of the option.
On June 3, 1996, the Company, through FSAH, acquired all of the
outstanding stock and assets of Piemans Pantry Proprietary Ltd., and Surfs-Up
Proprietary Ltd. (collectively referred to as "Piemans Pantry") from John Welch,
Heinz Andreas and Michael Morgan. The consideration for all of the stock and
assets of Piemans Pantry was 40,000,000 South African Rand (approximately $9.2
million as of June 3, 1996) which consideration was comprised of both cash and
Class B Shares of FSAH, $3,400,000 of which remains to be paid subsequent to the
date of this Prospectus.
On October 24, 1996, the Company, through FSAH, acquired Astoria
from Wolfgang Burre. The consideration for all of the stock and assets of
Astoria was 24,000,000 South African Rand (approximately $5,106,383.00 as of
November 8, 1996) which consideration was comprised of both cash and Class B
shares of FSAH, of which approximately 50% remains to be paid subsequent to the
date of this Prospectus.
On January 23, 1997, the Company acquired Seemanns through FSAH from
Mark and Ivan Jericevich. The consideration for all the stock of Seemanns was
Rand 25,000,000 (approximately $5,300,000 as of January 23, 1996), which
consideration was comprised of both cash and Class B shares of FSAH, of which
approximately 40% remains to be paid subsequent to the date of this Prospectus.
On April 22, 1997, the Company acquired Gull Foods through FSAH from
Ian Store, Allen James, and Douglas Varkevisser. The consideration for all the
stock of Seemanns was Rand 18,000,000 (approximately $10,660,000 as of April 22,
1996), which consideration was comprised of both cash and Class B shares of
FSAH, of which approximately 48% remains to be paid, subsequent to the date of
this Prospectus.
26
<PAGE>
As of March 31, 1997, the Company had approximately $9.5 million in
cash contingent payment due to the vendors of the various businesses it had
acquired. The Company utilized approximately $1.35 million of the money raised
through the sale of its debentures to meet a portion of these payments. In
addition, approximately $3.4 million raised by the Company in the sale through a
private placement of 12,500,000 shares of FSA Food will be utilized to pay down
forthcoming contingency payments due by September 30, 1997. The Company
anticipates that the remaining amounts, under these obligations, will be paid
through its operating cash flow, external borrowings, or further equity
placements.
The Company also utilized $3 million from the sale of its debentures
for the acquisitions of Gull Foods and approximately $1 million for the
acquisition of Pakmatic. The remaining proceeds from the debenture offering will
be utilized for further acquisitions and other corporate purposes.
The Company intends to continue to pursue an acquisition strategy in
South Africa and anticipates utilizing a substantial portion of its cash
balances and operating earnings to fund this strategy to the extent that
suitable acquisition candidates can be identified.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," issued in February 1997, changes the method of calculating
earnings per share and will be effective for the Company's financial statements
for the year ending December 31, 1997. Earlier application is not permitted.
However, the Company is permitted to disclose pro forma earnings per share
amounts computed using this Statement in periods prior to adoption. Upon
adoption, all prior period earnings per share data presented shall be restated
to conform to this Statement. The calculation of earnings per share under SFAS
No. 128 is simpler than prior methods and more consistent with International
Accounting Standards. Given the Company's historical losses, common stock
equivalents were excluded from prior pro forma earnings per share calculations
because they were anti-dilutive. Therefore, adoption of this standard is not
expected to have a material impact on amounts previously reported as pro forma
net loss per common share.
As calculated under SFAS 128, pro forma basic earnings per share for
the Company, on an As Adjusted basis, would be as follows:
Year ended June 30, 1995....................... $0.51
Year ended June 30, 1996....................... (1.95)
Nine months ended March 31, 1997............... 0.53
Nine months ended March 31, 1996............... 0.42
Amounts previously disclosed As Adjusted pro forma earnings per
share are not materially different from diluted earnings per share as computed
under SFAS 128.
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997,
will require the Company to disclose, in financial statement format, all
non-owner changes in equity. Such changes include, for example, cumulative
foreign currency translation adjustments, certain minimum pension liabilities
and unrealized gains and losses on available-for-sale securities. This Statement
is effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for
27
<PAGE>
comparability purposes. The Company expects to adopt this Statement beginning
with its 1998 financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company is currently evaluating its options for
disclosure and will adopt the Statement in its financial statements for the year
ending December 31, 1998.
28
<PAGE>
BUSINESS
GENERAL
The Company was organized to acquire, own and operate seasoned,
closely held companies in South Africa with annual sales in the range of
approximately $5 to $50 million. The Company has acquired through FSAH, ten
businesses based in South Africa that are as a group engaged in the following
industry segments:
1. High quality plastic packaging machinery.
2. Metal washers used in the fastener industry.
3. Air conditioning and refrigeration machinery components.
4. Processed foods.
Upon completion of its initial public offering 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 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 of 5,000,000
ordinary shares of common stock of FSA Food in South Africa, which shares are
listed on the Johannesburg Stock Exchange, (ii) an institutional private
placement in South Africa of 20,000,000 ordinary shares of common stock of FSA
Food, and (iii) a private placement of 12,500,000 ordinary shares of common
stock 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.
29
<PAGE>
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.
THE ACQUISITIONS
The following is a description of the businesses in each of the
Company's industry segments:
PLASTIC PACKAGING MACHINERY
STARPAK
Starpak manufactures high quality plastic packaging machinery and
does business under the name of Levy and Smith. Starpak's operations are located
in Johannesburg with service offices in Durban and Cape Town. Machinery
manufactured by Starpak is generally used by manufacturers to provide low cost
and high quality packaging for a broad spectrum of consumer goods. Its machines
are used in industries such as food, baking, beverages, cosmetics,
pharmaceuticals, chemicals, motor oils, printing, hardware and general trade.
Starpak markets its products directly and through independent sales agents. Over
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
30
<PAGE>
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 4,171,152 Rand compared to approximately 3,754,037
Rand 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.
FASTENER INDUSTRY
L.S. PRESSINGS
L.S. Pressings and its subsidiary, Paper & Metal Industries,
manufacture washers for supply to distributors of nuts and bolts who in turn
distribute L. S. Pressing products to end users in various industries and
markets. L.S. Pressings' operations are located in Johannesburg. L.S Pressings
manufactures a full range of washers to metric, capital imperial as well as U.S.
specifications. In addition, it manufactures special size washers to suit
customers specific requirements. Washers are manufactured from mild steel, black
(heat tempered) steel, copper, brass, fiber and various plastics. Washers are
used in numerous industries, including automotive, electrical, furniture and
construction industries. They are also used for sealing purposes, water piping
and as a non-conductive element. L.S. Pressings has no sales representatives
with orders being placed directly by customers. Substantially all of the
customers are distributors who resell the washers to end users.
L.S. Pressings believes that it is the single largest supplier of
washers in the South African market, although a number of competitors compete
with L.S. Pressings in particular niches. L.S. Pressings' strongest competition
is from importers of standard size washers manufactured in Taiwan. However,
importers of Taiwanese washers generally do not offer a "one-stop" source of
supply and L.S. Pressings believes it competes successfully with respect to
pricing. As a result, the importers have not had a substantial impact on L.S.
Pressings' sales although there can be no assurance that this will remain the
case. L.S. Pressings believes that no other South African manufacturer of
washers offers a comparable range of products. L.S. Pressings typically
manufactures to order and delivers within approximately 10 days of order.
Backlog numbers are therefore not significant for L.S. Pressings and tend to
vary widely. However, as of July 31, 1997, L.S. Pressings' firm order backlog
was 210,000 Rand as compared with 167,000 Rand 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.
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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 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 has been renamed Europair Refrigeration and
is a wholly-owned subsidiary of Europair engaged as an agent in the distribution
and supply of various refrigeration related products. Its sales are generated
through Europair's existing national sales network.
PROCESSED FOODS - FSA 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
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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.
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 large South African
department chain store, 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
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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 Seemann's 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 Seemann's 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 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 it 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 is suppliers on the basis of
quality and price and to date has had no difficulty obtaining adequate supplies.
REGULATION
The Company's South African business operation is subject to a
number of laws and regulations governing the use and disposition of hazardous
substances, air and water pollution and other activities that effect the
environment. The Company's management believes that each of its subsidiaries is
in substantial compliance with applicable South African law and the regulations
promulgated under such law and that no violation of any such law or regulation
by any such company has occurred which would have a material adverse effect on
the financial condition of the Company.
EMPLOYEES
As of August 8, 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,
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1996, FSAH entered into an employment agreement with Cornelius J. Roodt to act
as its Managing Director. See "Management- Employment Agreements". As of August
8, 1997, the Company's operating subsidiaries employed approximately 1,500
people.
PROPERTIES
The Company's principal executive offices are located at Clarendon
House, Church Street, Hamilton, HM 11, Bermuda. The Company's U.S. subsidiary,
First South African Management Corp. (FSAM) has its principal executive offices
at 2665 South Bayshore Drive, Suite 702, Coconut Grove, Florida 33133. FSAM's
offices consist of approximately 2,000 square feet of office space in an office
section of Coconut Grove, Florida, which FSAM occupies pursuant to a three-year
lease agreement with a monthly rental of $2,400. FSAH's principal executive
offices are located in the facilities of Europair in South Africa.
Starpak and L.S. Pressings operate out of a facility made up of
adjacent buildings owned by Levy & Smith Properties (Proprietary) Limited, a
wholly-owned subsidiary of Starpak. The facility has a total lot size of
approximately 30,000 square feet. The facility has three floors at 85% coverage
equal to a total of 76,500 square feet. The Company anticipates that it will
require additional space and is considering the rental of additional space at a
nearby location. Starpak also has branches in Durban and Cape Town, South
Africa.
Europair operates from premises and facilities that it owns in
Gauteng and from leased premises in KwaZulu-Natal, Western Cape and the Eastern
Cape. Pursuant to an option granted by the Company, Mr. Bruce Thomas (the Chief
Executive Officer of Europair) has acquired Europair's premises for $890,868 and
entered into a ten year lease with Europair with respect to such premises for an
initial rental rate of $110,111 per annum. Europair believes this property is
well suited to Europair's operations and can accommodate relatively large
increases in manufacturing and storage. Europair's other leased properties are
located in Durban, Cape Town and Port Elizabeth.
Piemans Pantry operates from premises and facilities that it owns in
Krugersdorp. The facility has two floors with a total size of 38,000 square
feet. In addition, Piemans Pantry rents a retail facility in Krugersdorp, as
well as an office space in KwaZulu-Natal.
Paper & Metal Industries rents two adjacent industrial properties in
Germiston, Gauteng. The total size of the facility is 8,975 square feet. Paper &
Metal have a two year lease at approximately $34,744 per annum.
Astoria leases approximately 20,000 square feet of space in Randberg
for which it pays an annual rental amount of approximately $100,000. Astoria
also leases approximately 6,000 square feet in Lesotho for which it pays an
annual rental amount of approximately $7,000.
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.
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Seemanns operates from premises and facilities that it owns in
Randburg. These premises include the retail outlet and comprises approximately
44,000 square feet.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries are subject to any
material legal proceedings.
SOUTH AFRICA
Except where otherwise indicated, sources of the statistical
information contained in this section include data compiled and made public by
the following South African governmental agencies: the Department of Manpower
(with respect to labor and employment statistics), the Department of Customs and
Excise (with respect to trade statistics), the Central Statistical Service (with
respect to data on the economy) and SATOUR (South African Tourist Board with
respect to data on tourism). The source for statistical information relating to
investment, spending, consumption and exchange rates is information compiled and
made publicly available by the South African Reserve Bank.
BACKGROUND
The Republic of South Africa ("South Africa") is located on the
southernmost portion of the African continent and has a land area of
approximately 471,000 square miles, which is approximately one eighth the size
of the United States and five times the size of the United Kingdom. The country
is bounded by the Atlantic and Indian Oceans on the east, west and south, and by
Zimbabwe, Mozambique, Namibia, Botswana and Swaziland to the north. In addition,
the independent Kingdom of Lesotho is situated within South Africa's borders.
South Africa is currently divided into nine provinces: Eastern Cape, Mpumalanga,
Kwazulu/Natal, Northern Province, Northwest, Free State, Gauteng, Northern Cape
and Western Cape. South Africa is a signatory to the GATT agreement and is a
member of the Organization of African Unity and the Southern African Customs
Union which includes Botswana, Swaziland, Lesotho and Namibia.
According to Government estimates, the population of South Africa
was approximately 45 million in October 1995. Government statistics and
estimates generally are believed to be inaccurate due to significant
undercounting of the black population. The last official Government census was
conducted in 1996, however. as of the date of this Prospectus, official results
with respect to such census have not been released.
DOMESTIC ECONOMY
South Africa has a highly developed free market economy. The base of
the economy has evolved from agriculture to mining and, more recently, to
manufacturing, which accounted for approximately 24.3% (as of the second quarter
of 1997) of the gross domestic product. The historic strength of the South
African economy has been its extensive mineral deposits. Diamonds, gold and
other metals account for a majority of South Africa's annual exports. Government
incentives have been introduced in recent years to encourage greater processing
and finishing by the country's industrial sector of South Africa's wealth of
natural resources to add value to the economy and increase foreign export
earnings. Although the country represents only 4% of the land area of the
continent of Africa and accounts for just over 6% of its total population, South
Africa accounted for approximately 26.4% of the continent's gross domestic
product ("GDP") in 1994. Apart from manufacturing and mining, agriculture,
finance, communications, transport
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and energy also play an important part in the South African economy. Alongside
South Africa's developed economy there also exists a large informal economy
which was effectively imposed by apartheid. Due to the political changes
currently taking place, it is anticipated that the formal and informal economies
will eventually merge.
LABOR AND SOCIAL LEGISLATION
The economically active population in 1996 (wage and salary earners,
self-employed individuals and unemployed individuals) was estimated by means of
mid-year estimates at 14.3 million individuals. The total employment in the
formal non-agricultural sectors in 1996 was 1,424,000 of which approximately 28%
were employed in manufacturing, 12.3% in mining, 6.4% in service industries,
14.4% in the trade sector, comprised of wholesale, retail and motor trade, and
7% in the construction sector. Data for the agricultural sector is not
published; only estimates are available. Total estimated employment in the
formal agricultural sector in 1990 was 1,208,370.
Approximately 21% of South Africa's wage and salary earners in the
formal non-agricultural sector were unionized as of year-end 1995. As of
December 31, 1995, 3,065,860 employees (21% of the economically active
population), belonged to registered trade unions. The remaining union employees
were members of unregistered trade unions. Unions must be registered with the
Department of Manpower in order to operate within the framework of the Labor
Relations Act, which provides procedures for arbitration and court action in
industrial disputes.
Most of the major industries in South Africa are unionized. There
are well developed collective bargaining structures and many of the unions have
affiliated themselves to trade union federations such as the non-racial Congress
of South African Trade Unions and the National Congress of Trade Unions. A
number of the trade unions and their leaderships have close links to various
political parties. Similarly, many employers have become affiliated with
employer organizations and federations of these organizations, such as the Steel
Engineering Industries Federation of South Africa, for purposes of collective
bargaining with trade unions. In some industries there are industrial councils
which provide a forum for collective bargaining and which administer the
collective bargaining agreements arrived at. Existing legislation requires
parties to industrial disputes to endeavor, in most cases, to settle their
disputes through conciliation prior to embarking on industrial action or having
the dispute resolved through adjudication by the industrial court. The
industrial court has a wide unfair labor practice jurisdiction intended to
further the aim of maintaining industrial peace through adjudicating upon and,
where possible, preventing harm arising from disputes of right such as unfair
dismissals. Both the industrial court and the High Court are empowered to make
orders preventing the occurrence or continuation of illegal strikes or
lock-outs.
FOREIGN DIRECT INVESTMENT
South Africa imposes restrictions on the debt-equity ratio of a
foreign-owned Company, which restrictions are imposed and administered by the
South African Reserve Bank. Also, if 50% or more of the shares of a South
African company are held by a foreigner, the ability of the local company to
borrow from local sources is restricted. The restriction is calculated by
reference to the company's so-called "effective capital" which is comprised of,
among other things, share capital and share premium, foreign and local
shareholders loans (local shareholders loans are only included to the extent
that they are pro-rata to foreign shareholders loans) and retained earnings. The
local borrowing restrictions are often waived for
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listed companies with dispersed shareholders. Although the current debt-equity
restrictions are imposed and administered by the South African Reserve Bank,
amendments to the Income Tax Act passed in July 1995 impose similar statutory
thin-capitalization rules which provide that excessive interest will be treated
as a dividend, disallowed for tax purposes, and subjected to secondary tax on
companies at the rate of 12.5% of the disallowed interest. A safe harbor
debt-equity ratio of 3:1 is generally permissible. Debt-equity ratios in excess
of this will require approval from the taxation authorities. The Company intends
to utilize a substantial portion of the use of proceeds from this Offering to
acquire additional companies in South Africa. The Company anticipates that these
acquisitions will be funded with sufficient equity infusions into FSAH so that
the safe harbor debt equity ratio should be easily maintained. The Company and
its auditors intend to monitor the Company's compliance with these debt/equity
restrictions on an ongoing basis. The Company does not anticipate that these
restrictions will significantly impact the Company's acquisition strategies or
its ongoing operations.
RECONSTRUCTION AND DEVELOPMENT PROGRAMME
The Government of National Unity has adopted a Reconstruction and
Development Programme (the "RDP") to address the inequalities arising from
apartheid. The RDP is intended to provide a framework for social and economic
policy. The Government of National Unity wishes to implement the RDP within a
framework of fiscal discipline and it is expected that much of the finance for
the RDP will be made available from the reallocation of existing financial
resources.
The RDP aims to achieve numerous objectives. These include meeting
the basic needs of the population (such as for housing and water), the
development of human resources, building the economy, democratizing the South
African state and society at large and the reform of government structures.
In March 1996, the South African Government adopted a further plan
known as "Gear" which forms part of the overall RDP and concerns the
implementation of the RDP policy. Gear is premised on national growth, job
creation, a responsible fiscal framework and the alleviation of poverty.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of the Company, their ages and present
positions held with the Company are as follows:
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
Michael Levy 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. Bleichnoder, Inc., an institutional
brokerage firm from 1983 to 1984. During the period 1971 to 1983, Mr. Goodwin
was a Director and Vice President of Warburg Pincus Capital Corp., EMW Ventures;
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
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College in 1961 and his Master of Business Administration - International
Finance from the Columbia University Graduate School of Business in 1965.
JOHN MACKEY is the Chairman of the Board of QTI, Inc., a
privately-held global trading firm doing business in Africa, Asia and in the
United States since 1992. Mr. Mackey has also been a member of the Board of
Advisors of the Leukemia Society of America since 1987, and a member of the
Board of Advisors of the Syracuse University Business School since 1990. Mr.
Mackey played football for 10 seasons in the National Football League and was
elected to the Pro Football Hall of Fame in 1992. Mr.
Mackey has been a director of the Company since January 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.
Alan R. Grant, 45. Mr. Grant is the financial director of Starpak
and L.S. Pressings and is responsible for all of Starpak's accounting,
administrative and financial management functions as well as its industrial
relations and statutory personnel functions. Mr. Grant has been employed by
Starpak since 1981.
Rhona L. Kabatznik, 61. Ms. Kabatznik is a General Manager and
Director of L.S. Pressings. Ms. Kabatznik's responsibilities include production
and sales administration. Ms. Kabatznik is the mother of Clive Kabatznik, the
Vice Chairman, President and Chief Executive Officer of the Company, and a first
cousin of Michael Levy, the Chairman of the Company's Board of Directors.
Raymond Shaftoe, 45. Mr. Shaftoe has been a joint Managing Director
of Starpak since 1986 and has been employed by Starpak since 1980. Mr. Shaftoe
has also served on the Board of Directors of Starpak since 1986. His current
responsibilities include supervision of the sales and marketing of Starpak's
products, administration and product development.
Bruce Thomas, 44. Mr. Thomas is the Chief Executive Officer of
Europair. He has held this position since 1991 and was the principal shareholder
of Europair until its sale to the Company. Prior to that he was the Chief
Financial Officer for Europair and held that position from 1976. His
responsibilities include the management of Europair, product development, sales
and financial oversight.
John Welch, 48. Mr. Welch is the founder and Managing Director of
Piemans Pantry, a company he established in 1982. His responsibilities include
overall supervision of all aspects of the business.
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Michael Morgan, 49. Mr. Morgan is Director of Human Resources at
Piemans Pantry, a position he has held since joining Piemans Pantry in 1989 and
is responsible for all aspects of labor relations and employee benefits.
Helen Britz, 41. Ms. Britz is National Sales Manager for Piemans
Pantry and has held that position since 1992 when she joined Piemans Pantry.
Prior to such time, Ms. Britz was the National Sales Manager for a rival pie
manufacturer. Ms. Britz oversees Piemans Pantry national sales staff.
Malcolm Moore, 38. Mr. Moore is the Financial Manager of Piemans
Pantry, a position he has held for the last three years. Prior to such time, Mr.
Moore was Financial Manager of Burhose, a leading South African hosiery
manufacturer.
Trevor Knight, 36. Mr. Knight is the Factory Manager for Piemans
Pantry, a position he has held for the last five years. Mr. Knight was an
independent food consultant prior to joining Piemans Pantry. He is responsible
for all aspects of plant production at Piemans Pantry.
Wolfgang Burre, 55. Mr. Burre is the founder of Astoria. He is a
fifth generation master baker and is responsible for overall corporate strategy,
product development and quality control. Mr. Burre traditionally has devoted 50%
of his time to Astoria and will continue to do so.
Mrs. H. Hoffman, 60. Mrs. Hoffman is the General Manager of Astoria
Bakery. Mrs. Hoffman is in charge of all financial and operational issues at
Astoria Bakery. She has been employed in this position since 1975.
Wilfred Wesslau, 48. Mr. Wesslau is the joint General Manager of
Astoria Bakery Lesotho. Mr. Wesslau focuses on technical production issues, as
well as all aspects of distribution, including motor vehicle repair and
maintenance. He has held this position since 1981.
Ms. Dagmar Blanker, 54. Ms. Blanker is the General Manager of
Astoria Bakery Lesotho. Ms. Blanker is in charge of all financial matters as
well as sales. She has held this position since 1981.
Each of the above key employees, other than Bruce Thomas, John
Welch, Michael Morgan, Wolfgang Burre, H. Hoffman, Wilfred Wesslau and Dagmar
Blanker has entered into a three-year service contract with their respective
companies, commencing March 1, 1995. Bruce Thomas and Europair have executed a
Management Agreement which shall be in effect for a three year period commencing
January 24, 1996. Cornelius Roodt and FSAH entered into an employment agreement
commencing July 1, 1996. John Welch and Michael Morgan have each entered into a
two year employment agreement with Piemans Pantry commencing March 1, 1996.
Wolfgang Burre, H. Hoffman, Wilfred Wesslau and Dagmar Blanker have each agreed
to enter into three year employment agreements to be effective as of July 1,
1996.
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
41
<PAGE>
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.
Hans Karner, 56. Mr. Karner has been the Production Manager at
Seemanns for the past six years. He is a master butcher and is in charge of all
meat processing, smoking and product development.
Theo Osmond, 59. Mr. Osmond has been the Sales Manager at Seemanns
for the past five years and is in charge of Seemanns' telesales organization.
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.
Douglas Varkevisser, 34. Mr. Varkevisser has been the Factory
Manager at Gull for the past twelve years and works closely with Mr. Store in
supervising Gull's manufacturing facility.
Marty Roodt, 34. Mr. Roodt has been a food scientist at Gull for the
past seven years and is in charge of quality control, and along with Messrs.
Store and James, is responsible for new product development.
David Legett, 34. Mr. Legett has been the Chief Buyer at Gull for
the past nine years and is in charge of all Gull's purchases.
Robert Store, 40. Mr. Store has been the System Manager at Gull for
the past three years and is in charge of all information systems and
computerized production systems.
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.
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.
42
<PAGE>
Mr. Levy receives an annual service fee of $30,000 and options to purchase 5,000
shares of the Company's Common Stock for every year of service as a director of
the Company. However, directors will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection with their duties to the Company.
COMMITTEES OF THE BOARD
The Board has an Audit Committee (the "Audit Committee") and a
Compensation Committee (the "Compensation Committee"). The Audit Committee is
composed of Clive Kabatznik, Charles Goodwin and John Mackey. The Audit
Committee is responsible for recommending annually to the Board of Directors the
independent auditors to be retained by the Company, reviewing with the
independent auditors the scope and results of the audit engagement and
establishing and monitoring the Company's financial policies and control
procedures. The Compensation Committee is composed of Charles Goodwin and John
Mackey. These persons are intended to be Non-Employee Directors within the
meaning of Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of
1934 (the Securities Exchange Act). The responsibilities of the Compensation
Committee are described below under the heading Stock Option Plan.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to its Chief Executive Officer
during the Period from September 6, 1995 through June 30, 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.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
YEAR SALARY STOCK OPTIONS
---- ------ -------------
Clive Kabatznik, President 1997 $180,000 255,000(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. Kabatnick 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
43
<PAGE>
such options will be accelerated as follows: (i) 50,000 options will be
exercisable on such earlier date that the Company realizes earnings per share of
$.75 or more on a fiscal year basis, (ii) an additional 50,000 options will be
exercisable on such earlier date that the Company realizes earnings per share of
$1.00 or more on a fiscal year basis, and (iii) an additional 50,000 options
will be exercisable on such earlier date that the Company realizes earnings per
share of $1.50 or more on a fiscal year basis. The Company intends, during the
term of Mr. Kabatznik's employment agreement, to pay Mr. Kabatznik an annual
incentive bonus of five percent of the Minimum Pretax Income (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 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
44
<PAGE>
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 250,000 shares of Common
Stock under the Plan as described in the table set forth below:
<TABLE>
<CAPTION>
OPTIONS GRANTED
POTENTIAL REALIZABLE VALUE
AT ASSUMED
ANNUAL
PERCENT OF TOTAL RATE OF STOCK PRICE
OPTIONS APPRECIATION FOR OPTION
GRANTED TO PER SHARE TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
GRANTED(1) FISCAL YEAR(2) PRICE DATE 5% 10%
---------- -------------- ------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Levy ......... 5,000 1.11% $ 5.00 (3) $ 6,900 $ 15,273
5,000 1.11% 3.75 (3) 5,200 11,500
Clive Kabatznik ......205,000 90.01% 5.00 (4) 1,547,571 1,363,332
5,000 1.11% 3.75 (3) 5,200 11,500
Laurence M. Nestadt... 5,000 1.11% 5.00 (3) 6,900 15,273
Charles S. Goodwin.... 5,000 1.11% 5.00 (3) 6,900 15,273
5,000 1.11% 3.75 (3) 5,200 11,500
John Mackey .......... 5,000 1.11% 5.00 (3) 6,900 15,273
5,000 1.11% 3.75 (3) 5,200 11,500
Cornelius J. Roodt.... 5,000 1.11% 3.75 (3) 5,200 11,500
</TABLE>
- ---------------
(1) Excludes 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
45
<PAGE>
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).
(2) The numbers have been rounded for the purpose of this table.
(3) Options granted will expire five years from the date granted and are
immediately exercisable.
(4) 55,000 options granted will expire five years from the date granted;
150,000 additional options will be exercisable following the seventh
anniversary of the grant date and until the tenth anniversary of such date,
subject to accelerated vesting upon the Company's realization of certain
earnings per share targets.
46
<PAGE>
CERTAIN TRANSACTIONS
In connection with the Company's organization in September 1995, the
Company sold 1,212,521 shares of Class B Common Stock to Clive Kabatznik, the
President and Chief Executive Officer of the Company for a purchase price of
$.01 per share, which amount was paid by Mr. Kabatznik in the form of advances
made by him to pay for certain expenditures of the Company. In October 1995, Mr.
Kabatznik transferred 1,002,521 of such shares, which included 670,137 shares to
Mrs. Stephanie Levy as Trustee of the FSA Stock Trust, 97,210 shares to the
Stopia Trust, 97,210 shares to the 2 RAS Trust, 93,307 to the Presspack Trust,
24,657 shares to the Two Year Trust and 20,000 shares to Henry Rothman. The
transferees have paid Mr. Kabatznik $.01 per share for each of such shares.
STARPAK ACQUISITION
In January 1996, pursuant to the terms of an agreement executed by
the FSA Stock Trust, Raymond Shaftoe, Steven Smith and FSAH, as amended (the
"Starpak Agreement"), the previous shareholders of Starpak sold 100% of the
equity shares of Starpak (the "Starpak Stock") to FSAH in exchange for 167,709
shares of FSAH Class B Stock.
The 167,709 shares of FSAH Class B Stock delivered to the previous
Starpak shareholders may be tendered to the FSAH Escrow Agent against payment
therefor by the FSAH Escrow Agent, which payment may be made through the sale by
the FSAH Escrow Agent of an equal number of shares of Class B Common Stock of
the Company (which shares will automatically convert to Common Stock upon such
sale) and delivery of the net proceeds thereof pursuant to the terms of the FSAH
Escrow Agreement.
See "Certain Transactions - FSAH Escrow Agreement."
L.S. PRESSINGS ACQUISITION
In January 1996, pursuant to the terms of an agreement executed by
the FSA Stock Trust, Rhona Kabatznik, Raymond Shaftoe, Samuel Smith and FSAH, as
amended, (the "L.S. Pressings Agreement"), the previous shareholders of L.S.
Pressings sold 100% of the equity shares of such company (the "L.S. Pressings
Stock") to FSAH in exchange for 380,181 shares of FSAH Class B Stock.
The 380,181 shares of FSAH Class B Stock delivered to the previous
L.S. Pressings' shareholders may be tendered to the FSAH Escrow Agent against
payment therefor by the FSAH Escrow Agent, which payment may be made through
sale by the FSAH Escrow Agent of an equal number of shares of Class B Common
Stock of the Company (which shares will be automatically converted to Common
Stock upon such sale) and delivery of the net proceeds thereof pursuant to the
terms of the FSAH Escrow Agreement.
In September 1995, prior to the execution of the Starpak Agreement
and the L.S. Pressings Agreement, Michael Levy transferred all of his shares in
Starpak and L.S. Pressings to the FSA Stock Trust, which shares constitute all
of the shares of Starpak and L.S. Pressings sold to the Company by the FSA Stock
Trust.
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.
47
<PAGE>
The FSAH 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:
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:
48
<PAGE>
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
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
- --------
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.
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.
49
<PAGE>
The rights and preferences accruing to holders of FSAH Class A Stock
and holders of FSAH Class B Stock are substantially identical except that (i)
FSAH is required to pay dividends to holders of FSAH Class B Stock equivalent,
on a pro rata basis, to the dividends paid by the Company to holders of its
Common Stock, (ii) payment of the above dividends on FSAH Class B Stock must be
made no later than three business days subsequent to payment of dividends by the
Company on its Common Stock, (iii) accrued dividends on FSAH Class B Stock must
be paid prior to payment of any declared dividends on FSAH Class A Stock and
(iv) any shares of FSAH Class B Stock acquired by the Company will be
automatically converted to shares of FSAH Class A Stock upon such acquisition.
J. LEVY LOAN
In 1986, Mr. J. Levy, Michael Levy's father, extended to Starpak a
loan in the principal amount of R600,000 (which equaled approximately $300,000
at the prevailing exchange rate at the time of the loan), which loan bears
interest at 1% per annum below the prime bank overdraft rate and is secured by a
second mortgage on certain property owned by Starpak having a book value of
$767,180. The original loan contained no fixed terms of repayment. Upon the
closing of the Offering, the terms of the loan were amended as follows: the loan
bears interest at 1% below the prime bank overdraft rate (currently 19.25% per
annum) and is repayable over a period of 30 months. The first twenty four
monthly installments are $5,563 each, inclusive of principal and interest, the
first of which was paid on October 30, 1995. The balance outstanding after
twenty four months will be repayable in six equal monthly installments.
MICHAEL LEVY LOAN AND MANAGEMENT FEES
During the period commencing March 1, 1995 and ending January 15,
1996, Michael Levy received certain non-interest bearing loans from Starpak and
L.S. Pressings in the aggregate amount of $47,000. Mr. Levy shall repay such
amount by 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.
50
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as to the stock
ownership of (i) each person known by the Company to be the beneficial owner of
more than five percent of the Company's Common Stock or Class B Common Stock,
(ii) each director of the Company, (iii) each named executive officer and (iv)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership(1)
-----------------------
Before offering After offering
Percentage of
Class B Common Percentage of Voting Percentage of Percentage of
Name and Address of -------------- ------------- ------ ------------- -------------
Beneficial Shareholder Common Stock Stock (2)(3) Ownership(3) Power(3) Ownership Ownership
- ---------------------- ------------ ------------ ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Levy ............. 1,201,837(4) 1,300,116(5)(6) 46.0% 60.5% 34.3% 52.5%
9511 West River Street
Shiller Park, IL 60176
Clive Kabatznik .......... 185,000(7) 190,000 6.9% 8.9% 5.2% 7.8%
2665 S. Bayshore
Suite 702
Coconut Grove, FL 37137
FSA Stock Trust .......... 0 953,660(5)(8) 17.5% 37.2% 13.1% 32.5%
9511 West River Street
Shiller 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 2.4% 1.0% 1.8% *
P.O. Box 4001
Kempton Park, South Africa
All executive officers and
directors as a group (5
persons) ................. 1,536,837(10) 1,490,116 55.7% 70.6% 41.4% 61.3%
</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.
51
<PAGE>
(4) Includes 10,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
(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 185,000 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 400,000 shares issuable upon exercise of
options not exercisable within 60 days.
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DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate
of 23,000,000 shares of Common Stock, par value $.01 per share, 2,000,000 shares
of Class B Common Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share. As of the date hereof, 1,822,500
shares of Class B Common Stock are outstanding. The following statements are
summaries of certain provisions of the Company's Memorandum of Association,
bye-laws and The Companies Act 1981 of Bermuda. These summaries do not purport
to be complete and are qualified in their entirety by reference to the full
Memorandum of Association and bye-laws which have been filed as exhibits to the
Company's Registration Statement of which this Prospectus is a part.
UNITS
Each Unit consists of one share of Common Stock, one Class A Warrant
and one Class B Warrant. Each Class A Warrant entitles the holder to purchase
one share of Common Stock and one Class B Warrant. Each Class B Warrant entitles
the holder to purchase one share of Common Stock. The Common Stock, Class A
Warrants and Class B Warrants comprising the Units were immediately separately
transferable upon issuance.
COMMON STOCK
Holders of Common Stock have one vote per share on each matter
submitted to a vote of the shareholders and a ratable right to the net assets of
the Company upon liquidation. Holders of the Common Stock do not have preemptive
rights to purchase additional shares of Common Stock or other subscription
rights. The Common Stock carries no conversion rights and is not subject to
redemption or to any sinking fund provisions. All shares of Common Stock are
entitled to share equally in dividends from legally available sources as
determined by the Board of Directors, subject to any preferential dividend
rights of the Preferred Stock (described below). Upon dissolution or liquidation
of the Company, whether voluntary or involuntary, holders of the Common Stock
are entitled to receive assets of the Company available for distribution to the
shareholders, subject to the preferential rights of the Preferred Stock. All of
the shares of Common Stock offered hereby are validly authorized and will be,
when issued, fully paid and non-assessable.
CLASS B COMMON STOCK
The Class B Common Stock and the Common Stock are substantially
identical on a share-for-share basis, except that the holders of Class B Common
Stock have five votes per share on each matter considered by shareholders and
the holders of the Common Stock have one vote per share on each matter
considered by shareholders, and except that the holders of each class will vote
as a separate class with respect to any matter requiring class voting by The
Companies Act 1981 of Bermuda.
Each share of Class B Common Stock is automatically converted into
one share of Common Stock upon (i) the death of the original holder thereof, or,
if such shares are subject to a shareholders agreement or voting trust granting
the power to vote such shares to another original holder of Class B Common
Stock, then upon the death of such other original holder, or (ii) the sale or
transfer to any person other than the following transferees: (a) the spouse of a
holder of Class B Common Stock; (b) any lineal descendants of a holder of Class
B Common Stock, including adopted children (said descendants, together with the
holder of Class B Common Stock and his or her spouse are hereinafter referred to
as "Family Members"); (c) a trust for the sole benefit of a Class B Common
shareholder's Family Members; (d) a
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partnership made up exclusively of Class B Common shareholders and their Family
Members or a corporation wholly-owned by a holder of Class B Common Stock and
their Family Members, and (e) any other holder of Class B Common Stock thereof.
Presently, there are 1,842,500 shares of Class B Common Stock issued and
outstanding. The difference in voting rights increases the voting power of the
holders of Class B Common Stock and accordingly has an anti-takeover effect. The
existence of the Class B Common Stock may make the Company a less attractive
target for a hostile takeover bid or render more difficult or discourage a
merger proposal, an unfriendly tender offer, a proxy contest, or the removal of
incumbent management, even if such transactions were favored by the shareholders
of the Company other than the holders of Class B Common Stock. Thus, the
shareholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices in the event of a hostile takeover bid. Those
seeking to acquire the Company through a business combination will be compelled
to consult first with the holders of Class B Common Stock in order to negotiate
the terms of such business combination. Any such proposed business combination
will have to be approved by the Board of Directors, which may be under the
control of the holders of Class B Common Stock, and if shareholder approval were
required, the approval of the holders of Class B Common Stock will be necessary
before any such business combination can be consummated.
REDEEMABLE WARRANTS
Class A Warrants. Each Class A Warrant entitles the registered
holder to purchase one share of Common Stock and one Class B Warrant, at an
exercise price of $6.50, until January 24, 2001. The Class A Warrants are
redeemable by the Company on 30 days' prior written notice at a redemption price
of $.05 per Class A Warrant, if the "closing price" of the Company's Common
Stock for any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $9.10 per share (subject to adjustment by the
Company, as described below, in the event of any reverse stock split or similar
events). "Closing price" shall mean the closing bid price, if listed in the
over-the-counter market on Nasdaq, or the closing sale price if listed on the
Nasdaq National Market or a national securities exchange. The notice of
redemption will be sent to the registered address of the registered holder of
the Class A Warrant. All Class A Warrants must be redeemed if any are redeemed;
provided, however, that the Class A Warrants underlying the Unit Purchase
Options may only be redeemed under limited circumstances. See "Warrant
Solicitation Fee."
Class B Warrants. Each Class B Warrant entitles the registered
holder to purchase one share of Common Stock at an exercise price of $8.75 per
share at any time after issuance until January 24, 2001. The Class B Warrants
are redeemable by the Company on 30 days' prior written notice at a redemption
price of $.05 per Class B Warrant, if the closing price of the Company's Common
Stock for any 30 consecutive trading days ending within 15 days of the notice of
redemption averages in excess of $12.25 per share (subject to adjustment by the
Company, as described below, in the event of any reverse, stock split or similar
events). The notice of redemption will be sent to the registered address of the
registered holder of the Class B Warrant. All Class B Warrants must be redeemed
if any are redeemed; provided, however, that the Class B Warrants subject to the
Unit Purchase Options may only be redeemed under limited circumstances. See
"Description of Securities - Unit Purchase Options."
General. The Class A Warrants and Class B Warrants (collectively,
the "Warrants") were issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, D.H. Blair and American Stock Transfer & Trust
Company as warrant agent (the "Warrant Agent"), and are evidenced by warrant
certificates in registered form. The exercise price of the Warrants and the
number and kind of shares of Common Stock or other securities and property to be
obtained upon exercise of the Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or the
issuance of shares of Common Stock at less than the market price of the Common
Stock. Additionally, an adjustment would be made upon
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the sale of all or substantially all of the assets of the Company for less than
the market value, a merger or other unusual events (other than share issuances
pursuant to employee benefit and stock incentive plans for directors, officers
and employees of the Company) so as to enable holders of Warrants, to purchase
the kind and number of shares or other securities or property (including cash)
receivable in such event by a holder of the kind and number of shares of Common
Stock that might otherwise have been purchased upon exercise of such Warrants.
No adjustment for previously paid cash dividends, if any, will be made upon
exercise of the Warrants.
The exercise prices of the Warrants were determined by negotiation
between the Company and D.H. Blair and should not be construed to be predictive
of, or to imply that, any price increases will occur in the Company's
securities.
The Warrants may be exercised upon surrender of the Warrant
certificate on or prior to the expiration date (or earlier redemption date) of
such Warrants at the offices of the Warrant Agent with the form of "Election of
Purchase" on the reverse side of the Warrant certificate completed and executed
as indicated, accompanied by payment of the full exercise price (by certified or
bank check payable to the order of the Company) for the number of Warrants being
exercised. Shares of Common Stock issuable upon exercise of Warrants and payment
in accordance with the terms of the Warrants will be fully paid and
non-assessable.
The Warrants do not confer upon the holders of Warrants any voting
or other rights of the Shareholders of the Company. Upon notice to the holders
of Warrants, the Company has the right in its sole discretion to reduce the
exercise price or extend the expiration date of the Warrants. Although this
right is intended to benefit the holders of Warrants, to the extent the Company
exercises this right when the Warrants would otherwise be exercisable at a price
higher than the prevailing market price of the Common Stock, the likelihood of
exercise, and resultant increase in the number of shares outstanding, may result
in making more costly, or impeding, a change in control in the Company.
The description above is subject to the provisions of the Warrant
Agreement, which has been filed as an exhibit to the Registration Statement, a
copy of which this Prospectus forms a part, and reference is made to such
exhibit for a detailed description thereof summarized here.
UNIT PURCHASE OPTIONS
The Company granted to D.H. Blair the Unit Purchase Options to
purchase up to 200,000 Units. The Units issuable upon exercise of the Unit
Purchase Options will, when so issued, be identical to the Units offered in
connection with the Offering, except that the warrants contained therein are
subject to redemption by the Company, in accordance with the terms of the
Warrant Agreement, at any time after the Unit Purchase Option has been exercised
and the underlying warrants are outstanding. The Unit Purchase Options cannot be
transferred, sold, assigned or hypothecated for three years, except to any
officer of D.H. Blair or members of the selling group (in connection with the
Offering) or their officers. The Unit Purchase Options are exercisable during
the two year period commencing January 24, 1999 at an exercise price of $6.00
per Unit (120% of the initial public offering price) subject to adjustments in
certain events. The holders of the Unit Purchase Options have certain demand and
piggyback registration rights.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue this
Preferred Stock in one or more series and to fix the number of shares and the
relative rights, conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences, without further
vote or action by the stockholders. If shares
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of Preferred Stock with voting rights are issued, such issuance could affect the
voting rights of the holders of the Company's Common Stock by increasing the
number of outstanding shares having voting rights, and by the creation of class
or series voting rights. If the Board of Directors authorizes the issuance of
shares of Preferred Stock with conversion rights, the number of shares of Common
Stock outstanding could potentially be increased by up to the authorized amount.
Issuance of Preferred Stock could, under certain circumstances, have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Common Stock. Also, Preferred Stock could have
preferences over the Common Stock (and other series of preferred stock) with
respect to dividend and liquidation rights. The Company currently has no plans
to issue any Preferred Stock.
DEBENTURES
The Debentures were issued by the Company under an indenture (the
"Indenture"), dated April 25, 1997 between the Company, as issuer, and American
Stock Transfer & Trust Company, as Trustee ("the Trustee"). The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Indenture, including the definitions therein of certain
terms. Wherever particular defined terms of the Indenture are referred to, such
defined terms are incorporated herein by reference.
General. The Debentures are unsecured senior subordinated
obligations of the Company, limited to $10,000,000 aggregate principal amount
and maturing June 15, 2004. The Debentures bear interest at the rate of nine
percent (9%) per annum, payable quarterly commencing June 15, 1997 to the
persons in whose names such Debentures are registered at the close of business
on the first day of the month in which the interest is to be paid (the "Interest
Payment Date"). Interest is computed on the basis of a 360-day year of twelve
30-day months. Principal and interest are payable, and the Debentures may be
presented for conversion, redemption, exchange or transfer, at the office of the
Company or its agent maintained by the Company for such purpose. In addition,
payment of interest will be made by check mailed to the address of the person
entitled thereto as it appears in the register of the holders ("Holders") of the
Debentures on the record date for each interest payment. The Debentures were
issued in fully registered form without coupons, in authorized denominations of
$1,000 and any whole multiple thereof. A Holder may transfer or exchange
Debentures in accordance with the Indenture. The company may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law. The Company need not transfer or
exchange any Debentures if such Debentures have been selected for redemption.
Conversion Rights. The Debentures are convertible into shares of the
Company's Common Stock at the option of the holder at any time period to
maturity at a price of $6.00 per share (the "Conversion Price"). The conversion
Price is subject to adjustment under certain conditions. A Holder may convert
his Debentures by surrendering them to the Company in accordance with the terms
of the Indenture, at any time after forty (40) days after the last closing of
the Debentures.
The Conversion Price will be subject to adjustment upon the
occurrence of certain events, including, (i) the issuance of stock of the
Company as a divided or distribution on any shares of Common Stock, (ii)
subdivisions, combinations and certain reclassifications of Common Stock, (iii)
the issuance to all holders of Common Stock of certain rights or warrants
entitling them to subscribe for or purchase shares of common Stock at less than
the then current market price per share (as determined in the manner set forth
in the Indenture), and (iv) the distribution to all holders of Common Stock of
any shares of capital stock of the Company (other than Common Stock), evidences
of indebtedness of the Company or other assets (including securities, but
excluding any rights or warrants referred to above, excluding any dividend or
distribution paid in cash out of the earned surplus of the Company). In addition
the Conversion Price will be adjusted upon the issuance of Common Stock or of
rights or warrants entitling holders thereof to subscribe for or purchase
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shares of Common Stock, or the issuance of securities convertible into or
exchangeable for shares of Common Stock, at less than the then current market
price of the Common Stock to equal the price offered by the Company to such
holders if such subscription or purchase price is less than the then Conversion
Price.
No adjustment in the Conversion Price will be required unless such
adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect; provided, however, that any adjustment that
would otherwise be required to be made will be carried forward and taken into
account in any subsequent adjustment.
If the Company consolidates or merges into or sells, leases, conveys
or otherwise disposes of all or substantially all of its assets to any person,
and the Debentures are assumed by the successor, the Debentures will become
convertible into the kind and amount of securities, cash or other assets which
the Holders of the Debentures would have owned immediately after the transaction
if the Holders and converted the Debentures immediately before the effective
date of the transaction at the Conversion Price in effect immediately prior to
such effective date.
Redemption. The Debentures may be redeemed by the Company at any
time or from time to time commencing June 15, 1999, at the Company's option, in
whole or in part, upon not less than 30 nor more than 60 days' notice, mailed to
the registered Holders thereof at their last registered addresses, at the
redemption prices (expressed as percentages of the principal amount) set forth
below, plus accrued and unpaid interest to the Redemption Date (and subject to
the right of any record holder to receive the interest payable on the applicable
Interest Payment Date that is on or prior to the Redemption Date). If redeemed
during the periods indicated below, the applicable redemption percentage would
be:
FROM THROUGH PERCENTAGE
---- ------- ----------
June 15, 1999 June 14, 2000... 109.0%
June 15, 2000 June 14, 2001... 107.0%
June 15, 2001 June 14, 2002... 105.0%
June 15, 2002 June 14, 2003... 102.5%
June 15, 2003 June 15, 2004... 100.0%
Debentures in denominations larger than $1,000 may be redeemed in
part in whole multiples of $1,000. If fewer than all the Debentures are
redeemed, the Trustee will select the particular Debentures to be redeemed by
such methods as the Trustee shall deem fair and appropriate and as are in
accordance with the rules and regulations of the applicable self-regulatory
organizations. The Company may not redeem the Debentures prior to June 15, 1998.
The Company may redeem the Debentures after June 15, 1998 but prior to June 15,
1999 if the market price of the Common Stock on any 20 trading days during a
period of 30 consecutive trading days shall be equaled or exceeded 150% of the
then Conversion Price of the Debentures. The applicable redemption percentage
would be 109%. On and after the Redemption Date, unless the company defaults on
the payment of the redemption price or on interest accrued and unpaid to the
Redemption Date, interest will cease to accrue on Debentures called for
redemption and all rights of Holders of the Debentures will cease except the
right to receive the applicable redemption price, plus interest accrued and
unpaid to the Redemption Date.
Sinking Fund. The Debentures are redeemable, subject to the terms of
the Indenture, through the operation of a mandatory sinking fund in two equal
installments totaling 67% of the issue on June 15, 2002 and June 15, 2003, with
the balance of the issue being retired at maturity on June 15, 2004.
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SUBORDINATION OF DEBENTURES
The payment of principal of, premium, if any, and interest on the
Debentures are, to the extent set forth in the Indenture, subordinated and
subject to right of payment to the prior payment in full of all Senior
Indebtedness (as defined below) of the Company, whether outstanding at the date
of the Indenture or later incurred. In the event and during the continuation of
any default in the payment of the principal of, or interest on, any Senior
Indebtedness of the Company or any event of default under any Senior
Indebtedness of the Company, no payment with the respect to the principal or
interest on the Debentures will be made by the Company unless and until such
default has been cured or waived. Upon any payment or distribution of the
Company's assets to creditors upon any dissolution, winding up, liquidation,
reorganization, bankruptcy, insolvency, receivership or other proceedings
relating to the Company, whether voluntary or involuntary, the holders of all
Senior Indebtedness of the Company will first be entitled to receive payment in
full prior to any payment upon the principal of, premium, if any, or interest on
the Debentures.
"Senior Indebtedness" means Indebtedness of the Company outstanding
at any time for money borrowed from a bank, financial company or other lending
institution and Indebtedness which is at least 50% secured by assets of the
Company or any subsidiary. "Indebtedness" means any debt of the Company for
borrowed money, capitalized leases and purchase money obligations or evidenced
by a note, debenture, letter of credit or similar instrument given in connection
with the acquisition, other than in the ordinary course of business, of any
property or assets; any debt of any subsidiary of the Company described in the
preceding definition which the Company has guaranteed or for which it is
otherwise liable; and any amendment, renewal, extension or refunding of any such
debt.
By reason of such subordination, in the event of the insolvency of
the Company, Holders of the Debentures may recover less, ratably, then holders
of Senior Indebtedness of the Company.
At March 31, 1997, the principal amount of Senior Indebtedness of
the Company on a consolidated basis was approximately $5,296,038 consisting
primarily of bank and other long term debt.
Events of Default, Notice of Waiver. The Indenture provides that, if
an Event of Default specified therein shall have happened and be continuing,
either the Trustee or the Holders of 25% in principal amount of the Debentures
then outstanding may declare the principal of all such Debentures to be due and
payable; provided, however, that if any and all defaults (other than the
non-payment of principal and interest on Debentures then outstanding) shall have
been remedied, the Holders of a majority in aggregate principal amount of
Debentures then outstanding may waive such defaults and rescind and annul such
declaration and its consequences.
"Events of Default" are defined in the Indenture as being (i) a
default for ten (10) days in payment of any interest installment; (ii) a default
for ten (10) days in payment of principal and premium, if any, when due and
payable; (iii) a default for ten (10) days in the deposit of any sinking fund
payment when and as due; (iv) a default for thirty (30) days after written
notice to the company by the Trustee or to the Company and the Trustee by the
Holders of 25% in principal amount of the outstanding Debentures, in the
performance of any other covenant or agreement in the Indenture; (v) a default
under any bond, debenture, note or other evidence of indebtedness for money
borrowed by the Company or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company, which default shall constitute a
failure to pay any portion of interest or principal when due after any
applicable grace period or shall have resulted in such indebtedness becoming or
being declared due and payable without such indebtedness having been discharged
or such acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency and reorganization; and (vii) in the event that the
Company's reporting obligations pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 are suspended or terminated.
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The Indenture provides that the Trustee shall, within thirty (30)
days after learning of the occurrence of a default give to the Holders of the
Debentures notice of all uncured defaults known to it; provided that except in
the case of default in the payment of principal and premium, if any, or interest
on any of the Debentures, or failure to make a required sinking fund deposit or
redemption payment, the Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interest of the Holders. The term "default" for the purposes of this provision
only shall mean the happening of any of the Events of Default specified above,
not including any grace period or any requirement for the giving of written
notice.
Merger and Consolidation. The Indenture provides that the Company
may not be consolidated with or merged into another entity, or have transferred
all or substantially all of its assets in one or more related transactions,
unless (i) the Company shall be the surviving entity, or the successor shall
expressly assume by supplemental indenture all of the obligations of the Company
under the Debentures and the Indenture, (ii) immediately after giving effect to
such transaction, no Event of Default shall have occurred and be continuing,
(iii) the assuming corporation has a net worth not less than the consolidated
net worth of the Company, and (iv) certain other conditions are met.
Covenants.
(i) Dividend and Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company may not, and may not permit any of its
subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction, unless such
encumbrance or restriction relates to presently existing Senior Indebtedness, on
the ability of any subsidiary to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation in, or
measured by, its profits, owned by the Company or any of its subsidiaries or pay
any Indebtedness owed to the Company or any of its subsidiaries, (ii) make loans
or advances to the Company or any of its subsidiaries, or (iii) transfer any of
its properties or assets to the Company or any of its subsidiaries, except for
such encumbrances or restrictions in existence on the date of the Indenture and
encumbrances or restrictions existing under or by reason of (A) the Indenture
and the Debentures, (B) applicable law, (C) any instrument governing
Indebtedness or capital stock of a person acquired by the Company, or any of its
subsidiaries, in existence at the time of such acquisition (bit not in
connection with such acquisition), including any renewals, refundings or
refinancings thereof, provided that the restrictions contained in such renewals,
refundings, or refinancings, or refinancings are no more restrictive than those
contained in such instrument at the time of such acquisition, which encumbrance
or restriction is not applicable to any person, or to the properties or assets
of any person, other than the person, or the property or assets of the person,
so acquired or its subsidiaries, (D) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, or (E) with respect to clause (iii) above,
purchase money obligations for property acquired in the ordinary course of
business. For purposes of the covenants, a "subsidiary" shall mean any
corporation in which the Company, directly or indirectly, owns more than 50% of
the outstanding voting stock.
(ii) Restriction of Payment of Dividends and Stock Repurchases. The
Company may not (i) declare or pay any dividend or make any distribution on its
capital stock of any class or its shareholders (other than dividends or
distributions payable in shares of capital stock of the Company); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Company, any subsidiary or other affiliate (other than any Equity Interests
owned by the Company or any subsidiary and other than in connection with an
acquisition of any business entity where payment includes a stock in lieu of
cash component); or (iii) permit any subsidiary to declare or pay any dividend
on, or make any distribution to the holders (as such), of, any shares of its
capital stock except to the Company or a subsidiary (other than dividends or
distributions payable in Equity Interests of it or the Company) or (iv) permit
any subsidiary to purchase, redeem or otherwise acquire or retire for value any
Equity Interests of such subsidiary, the
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Company or any affiliate of either of them (other than any such Equity Interests
owned by the Company or any subsidiary), if at the time of such action a Event
of Default (see above) shall have occurred and be continuing, or shall occur as
a consequence thereof, or if upon giving effect to such payment the aggregate
amount expended favor all such payments (the amount expended for such purposes,
if other than cash, to be conclusively determined by the Board of Directors as
evidenced by a Board resolution) subsequent to the date of execution of the
Indenture shall exceed the sum of (1) 30% of the aggregate Consolidated Net
Income of the Company accrued during fiscal quarters ending subsequent to
December 31, 1996; (2) the aggregate net proceeds, including cash and the fair
market value of property other than cash, received by the Company from the issue
or sale after the date of execution of the Indenture of capital stock of the
Company (other than Disqualified Stock) or of warrants to purchase such capita
stock (other than warrants to purchase such Disqualified Stock), other than in
connection with the conversion of any Indebtedness; (3) the aggregate net
proceeds received by the Company subsequent to the date of the execution of the
Indenture from the issue or sale of any debt securities or Disqualified Stock of
the Company, if, at such time, such debt securities, or Disqualified Stock, as
the case may be, have been converted into capital stock of the Company; and (4)
$500,000.
"Consolidated Net Income" means, for any period, the aggregate of
the Net Income of the Company and its subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles; provided that (i) the Net Income of any person which is not a
subsidiary or is accounted for by the Company by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid to the Company or a subsidiary, and (ii) the Net Income of any person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded. "Net Income" of any person shall mean the
net income (loss) of such person, determined in accordance with generally
accepted accounting principles; excluding, however, from the determination of
Net Income any gain (but not loss) realized upon the sale or other disposition
(including, without limitation, dispositions pursuant to leaseback transactions,
except any gain from such leaseback transaction may be amortized into Net Income
over the term of the lease) of any real property or equipment of such person
which is not sold or otherwise disposed of in the ordinary course of business,
or of any capital stock of the Company or a subsidiary owned by such person.
"Disqualified Stock" means capital stock subject to mandatory
redemption or redemption at the option of the holder, in either case prior to
the maturity of the Debentures.
"Equity Interests" means capital stock or warrants, options or other
rights to acquire capital stock.
(iii) Restriction on Transactions with Affiliates. Neither the
Company nor any of its subsidiaries may (i) engage in any transaction with an
affiliate of the Company on terms less favorable to the Company or such
subsidiary than that which might be obtained at the time of such transaction
from unrelated entities, (ii) loan or advance any funds to any affiliate(s)
(other than to the Company or any of its direct or indirect subsidiaries) in
excess of $100,000 in the aggregate outstanding at any time, or (iii) purchase
less than all of the securities of an affiliate or an entity controlled by any
affiliate; provided, however, that any such purchase of all securities shall be
deemed fair to the Company as evidenced by an opinion rendered by an investment
banker selected by independent directors of the Company.
(iv) Plan of Liquidation. The Company may not adopt any plan of
liquidation (other than a plan of liquidation incident to a permitted merger,
consolidation, sale of assets or other transaction described above) which
provides for, contemplates or the effectuation of which is preceded by, (i) the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than substantially as an entirety and (ii) the
distribution of all the proceeds of such sale, lease, conveyance or other
disposition unless the Company redeems the Debentures at the then redemption
price.
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Modification of the Indenture and Waiver. The Indenture contains
provisions permitting the Company and the Trustee, with the consent of the
Holders of a majority in the aggregate principal amount of the outstanding
Debentures, to execute supplemental indentures adding any provisions to or
changing or eliminating any of the provisions of the Indenture or modifying the
rights of the Holders of Debentures, provided that no such supplemental
indenture may (i) extend the fixed maturity of any Debenture, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, without the consent of each Holder of the Debentures so
affected, (ii) modify the provisions of the Indenture with respect to the
subordination of the Debentures in a manner adverse to the Holders or alter the
provisions of the Indenture with respect to the sinking fund, without the
consent of the Holders of all of the outstanding Debentures, or (iii) reduce the
aforesaid percentage of Debentures, the consent of the Holders of which is
required for any such supplemental indenture, without the consent of the Holders
of all the outstanding Debentures. The Holders of a majority in aggregate
principal amount of outstanding Debentures may waive any past default under the
Indenture, except a default in the payment of principal (and premium, if any) or
interest or default with respect to certain covenants under the Indenture.
Direction of Trustee by Holders of Debentures. In addition to the
rights of the Holders of the Debentures to take certain action previously
described, the Holders of a majority in aggregate principal amount of the
Debentures at the time outstanding, subject to the provision of the Indenture
relating to the duties and rights of the Trustee, will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or the exercising of any trust or power conferred on the Trustee.
However, the Trustee will have the right to decline to follow any such
direction, if the Trustee determines that the action requested may not be
lawfully taken, would subject the Trustee to liability, or would be unduly
prejudicial to the other Holders of the Debentures. As a requisite to taking any
such action, the Trustee may require the Holders of the Debentures requesting
the same to provide it with reasonable security or indemnity against the cost,
expenses and liabilities which may be incurred in connection with such action.
The Holders of at least 10% in aggregate principal amount of Debentures may call
a meeting of the Holders of the Debentures if the Trustee fails to do so within
twenty (20) days after receiving the request.
The Trustee. The Trustee will also act as the paying and
conversion agent with respect to the payments under the conversion of the
Debentures in accordance with the terms of the Indenture, subject to the
Trustee's right to resign.
ANTI-TAKEOVER PROTECTIONS
The voting provisions of the Common Stock and Class B Common Stock
and the broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more shareholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions of the bye-laws
summarized in the succeeding paragraph, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in such shareholder's best interest, including
attempts that might result in a premium over the market price for the Common
Stock held by shareholders.
The bye-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors at annual general meetings of shareholders.
In general, notice of intent to nominate a director at such meeting must be
received by the Company not less than 90 days prior to the meeting and must
contain certain specified information
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concerning the person to be nominated or the matter to be brought before the
meeting and concerning the shareholder submitting the proposal.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda differs in certain material
respects from laws generally applicable to United States corporations and their
shareholders. Set forth below is a summary of certain significant provisions of
The Companies Act (including any modifications adopted pursuant to the Company's
bye-laws) applicable to the Company, which differ in certain respects from
provisions of Delaware corporate law. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be relevant
to the Company and its shareholders.
Interested Directors. The bye-laws provide that any transaction
entered into by the Company in which a director has an interest is not voidable
by the Company nor can such director be liable to the Company for any profit
realized pursuant to such transaction provided the nature of the interest is
disclosed at the first opportunity at a meeting of directors, or in writing to
the directors. Under Delaware law no such transaction would be voidable if (i)
the material facts as to such interested directors' relationship or interests
are disclosed or are known to the board of directors and the board in good faith
authorizes the transaction by the affirmative vote of a majority of the
disinterested directors, (ii) such material facts are disclosed or are known to
the stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be held
liable for any transaction for which such director derived an improper personal
benefit.
Merger and Similar Arrangements. The Company may amalgamate (merge)
with another Bermuda exempted company or a company incorporated outside Bermuda
and carry on such business when it is within the objects of the Company's
Memorandum of Association. See "Description of Securities - Certain Provisions
of Bermuda Law." A shareholder may apply to a Bermuda court for a proper
valuation of such shareholder's shares if such shareholder is not satisfied that
fair value has been paid for such shares. The court ordinarily would not
disapprove the transaction on that ground absent evidence of fraud or bad faith.
Under Delaware law, with certain exceptions, any merger, consolidation or sale
of all or substantially all the assets of a corporation must be approved by the
board of directors and a majority of the outstanding shares entitled to vote.
Under Delaware law, a stockholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair market value of the shares held by such stockholder (as
determined by a court or by agreement of the corporation and the stockholder) in
lieu of the consideration such stockholder would otherwise receive in the
transaction. Delaware law does not provide stockholders of a corporation with
voting or appraisal rights when the corporation acquires another business
through the issuance of its stock or other consideration (i) in exchange for the
assets of the business to be acquired, (ii) in exchange for the outstanding
stock of the corporation to be acquired or (iii) in a merger of the corporation
to be acquired with a subsidiary of the acquiring corporation. Under Bermuda
law, the Company's shareholders have the right to vote on (i) any compromise or
arrangement between the Company and its shareholders, (ii) a take-over scheme
for 100% of the Company's shares enabling the compulsory acquisition of a 10%
minority interest (iii) an amalgamation (merger) of the Company and (iv) the
discontinuance of the Company from Bermuda.
Takeover. Bermuda law provides that where an offer is made for
shares of another Company and, within four months of the offer the holders of
not less than 90% of the shares which are the subject of the offer accept, the
offeror may by notice require the nontendering shareholders to transfer their
shares on the terms of the offer. Dissenting shareholders may apply to the court
within one month of the notice
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objecting to the transfer. The burden is on the dissenting shareholders to show
that the court should exercise its discretion to enjoin the required transfer,
which the court will be unlikely to do unless there is evidence of fraud or bad
faith or collusion as between the offeror and the holders of the shares who have
accepted the offer as a means of unfairly forcing out minority shareholders.
Delaware law provides that a parent corporation, by resolution of its board of
directors and without any shareholder vote, may merge with any 90% or more owned
subsidiary. Upon any such merger, dissenting stockholders of the subsidiary
would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are
not as extensive as the right of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association and
bye-laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys fees incurred in connection with such
action. Class actions and derivative actions generally are available to
stockholders under Delaware law for, among other things, breach of fiduciary
duty, corporate waste and actions not taken in accordance with applicable law.
In such actions, the court has discretion to permit the winning party to recover
attorney fees incurred in connection with such action.
Indemnification of Directors. The Company may indemnify its
directors or officers in their capacity as such in respect of any loss arising
or liability attaching to them by virtue of any rule of law in respect of any
negligence, default, breach of duty or breach of trust of which a director or
officer may be guilty in relation to the Company other than in respect of his
own fraud or dishonesty. Under Delaware law, a corporation may adopt a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for breaches of the director's duty of loyalty, for acts or
omission not in good faith or which involve intentional misconduct or knowing
violations of law, for improper payment of dividends or for any transaction from
which the director derived an improper personal benefit. Delaware law has
provisions and limitations similar to Bermuda regarding indemnification by a
corporation of its directors or officers, except that under Delaware law the
statutory rights to indemnification may not be as limited.
Inspection of Corporate Records. Members of the general public have
the right to inspect the public documents of the Company available at the office
of the Registrar of Companies in Bermuda which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to an increase, reduction or
other alteration of the Company's share capital. The shareholders have the
additional right to inspect the bye-laws, minutes of general meetings and
audited financial statements of the Company, which must be presented to the
annual general meeting of shareholders. The register of shareholders of the
Company is also open to inspection by shareholders without charge, and to
members of the public for a fee. The Company is required to maintain its share
register in Bermuda but may establish a branch register outside Bermuda. The
Company is required to keep at its registered office a register of its directors
and officers which is open for inspection by members of the public without
charge. Bermuda law does not, however, provide a general right for shareholders
to inspect or obtain copies of any other corporate records. Delaware law permits
any shareholder to inspect or obtain copies of a corporation's shareholder list
and its other books and records for any purpose reasonably related to such
person's interest as a shareholder.
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CERTAIN PROVISIONS OF BERMUDA LAW
In a September 1, 1995 letter to the Company's Bermuda counsel, the
Bermuda Monetary Authority approved the Company's application for "non-resident"
status in Bermuda for exchange control purposes. The Bermuda Monetary Authority
has granted permission for the issuance of the Debentures and shares of Common
Stock of the Company. Prior to the Offering, this Prospectus will be filed with
the Registrar of Companies in Bermuda in accordance with Bermuda law.
In granting such permission and in accepting this Prospectus for
filing, neither the Bermuda Monetary Authority, nor the Registrar of Companies
in Bermuda accepts any responsibility for the financial soundness of the Company
or of the correctness of any of the statements made or opinions expressed in
this Prospectus.
The transfer of securities between persons regarded as resident
outside Bermuda for exchange control purposes and the issue of securities after
the completion of the Offering to such persons may be effected without specific
consent under the Exchange Control Act 1972 and regulations thereunder. Issues
and transfers of securities involving any person regarded as resident in Bermuda
for exchange control purposes require specific prior approval under the Exchange
Control Act 1972.
Owners of the Company's shares of Common Stock who are non-residents
of Bermuda for Bermuda exchange control purposes are not restricted in the
exercise of the rights to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of the Company's Common
Stock, other than in respect of local Bermuda currency.
In accordance with Bermuda law, securities certificates are only
issued in the names of corporations, partnerships or individuals. In the case of
an applicant acting in a special capacity (for example as a trustee),
certificates may, at the request of the applicant, record the capacity, in which
the applicant is acting. Notwithstanding the recording of any such special
capacity the Company is not bound to investigate or incur any responsibility in
respect of the proper administration of any such trust.
The Company will take no notice of any trust applicable to any of
its securities whether or not it had notice of such trust. Specifically, the
Company has no obligation under Bermuda law to ensure that a Trustee who is
holding shares of the Company subject to a trust is properly carrying out the
terms of such trust.
As an "exempted Company", the Company is exempt from Bermuda laws
which restrict the percentage of share capital that may be held by
non-Bermudians, but as an exempted Company the Company may not participate in
certain business transactions including: (1) the acquisition or holding of land
in Bermuda (except that required for its business and held by way of lease or
tenancy for terms of not more than 21 years); (2) the taking of mortgages on
land in Bermuda to secure an amount in excess of $50,000 without the consent of
the Minister of Finance of Bermuda; or (3) the carrying on of business of any
kind in Bermuda, except in furtherance of the business of the Company carried on
outside Bermuda or under a license granted by the Minister of Finance of
Bermuda.
TRANSFER AGENT, WARRANT AGENT AND TRUSTEE
The Company's transfer and warrant agent for the Units, Common Stock
and Warrants, and the trustee and paying agent with respect to the Debentures,
is American Stock Transfer & Trust Company, New York, New York.
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SELLING SECURITYHOLDERS
An aggregate of up to 10,000 Debentures and up to 1,826,667 shares
of Common Stock underlying the Debentures, Placement Warrants and the Purchase
Options may be offered for resale by the Selling Securityholders.
The following table sets forth certain information with respect to
each Selling Securityholder for whom the Company is registering securities for
resale to the public. The Company will not receive any of the proceeds from the
sale of such securities. To the Company's knowledge, there are no material
relationships between any of the Selling Securityholders and the Company, nor
have any such material relationships existed within the past three years, except
that Value Investing Partners Inc. was the placement agent for the Company's
Private Placement and Barretto Pacific Corporation provided certain public
relations services for the Company during the first half of 1997.
<TABLE>
<CAPTION>
Number of Debentures Number of Shares
Beneficially Owned of Common Stock Beneficially
and Maximum Number Owned and Maximum Number
Selling Securityholders to be Sold (1) to be Sold (1)(2)(3)
----------------------- --------------- ----------------------------
<S> <C> <C>
Michelangelo L.P. 200 33,333
Angelo Eurdon's Co. L.P. 100 16,666
Raphael L.P. 200 33,333
EP Opportunity Fun L.L.C. 700 116,666
Weghsteen & Driege 200 33,333
Ferri S.A. 250 41,666
Chase Manhattan Bank 250 41,666
L.I.P. Select Fund Ltd. 100 16,666
Reverse Convertible Securities Fund 450 74,999
G.E. Pension Trust 157 26,166
Global Developing Markets Fund 126 20,999
U.S. West Pension Trust 217 36,166
RCB Trust New Africa 359 59,833
Leonard Loventional Trust U/A/B 9/24/92 25 4,166
BT Global Credit Limited 1,000 166,666
First National Nominees Pty. Ltd. 2,500 416,666
Jeffries Int'l Ltd. 1,000 166,666
Starlight & Co. 1,000 166,666
Calver New African Fund 141 23,499
Bank Sal Oppenheimer Jr. 50 8,333
Ellis AG 50 8,333
Cogefin (Bermuda) Limited 100 16,666
Waveland Partners, L.P. 500 83,333
Paul Pardon 50 8,333
LA Investments LDC 150 24,999
De Martelaere 25 4,166
Van Moer Santelle Luxembourg SA 50 8,333
Bankers Trust 50 8,333
Value Investing Partner Inc. 0 135,000
Barretto Pacific 0 25,000
------------ -----------
Total: 10,000 1,826,650
</TABLE>
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- ---------------
(1) None of the Selling Securityholders will beneficially own in excess of 1%of
the outstanding Debentures or shares of Common Stock after this Offering,
if the maximum amount of Debentures and shares are sold.
(2) Assumes the conversion of all the Debentures and the exercise of all the
Placement and Purchase Options by the Securityholders.
(3) The Company will not issue fractional shares of Common Stock upon
conversion of the Debentures and, in lieu thereof, will pay a cash
adjustment based upon the last reported sale price of the Common Stock on
NASDAQ (or on such National Securities exchange or automated trading system
on which the Common Stock is then primarily traded) on the last trading day
prior to the date of conversion.
PLAN OF DISTRIBUTION
The sale of the securities by the Selling Securityholders may be
effected from time to time in transactions (which may include block transactions
by or for the amount of the Selling Securityholders) in the over-the counter
market or in negotiated transactions, through the writing of options on the
securities, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as agents
for the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).
Under applicable rules and regulations under the Securities Exchange
Act of 1934 (the "Exchange Act"), any person engaged in the distribution of the
securities to be sold by the Selling Securityholders may not simultaneously
engage in market making activities with respect to any securities of the Company
for a period of at least two (and possibly nine) business days prior to the
commencement of such distribution. Accordingly, in the event that D.H. Blair,
the underwriter of the company's initial public offering, or D.H. Blair & Co.,
Inc., a selling group member which distributed substantially all of the Units
offered in connection with the Company's initial public offering ("Blair"), is
engaged in a distribution of the securities to be sold by the Selling
Securityholders, neither of such firms will be able to make a market in the
Company's securities during the applicable restrictive period. However, neither
D.H. Blair nor Blair have agreed to nor are either of them obliged to act as
broker/dealer in the sale of the securities owned by the Selling Securityholders
and the Selling Securityholders may be required, and in the event Blair is a
market maker, will likely be required, to sell such securities through another
broker/dealer. In addition, each Selling
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Securityholder desiring to sell securities will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
CERTAIN TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated tax
consequences of the operations of the Company and of an investment in the Common
Stock under Bermuda tax laws and South African tax laws and United States
federal income tax laws. The discussion does not deal with all possible tax
consequences relating to the Company's operations or to an investment in the
Debentures and Common Stock. In particular, the discussion does not address the
tax consequences under state, local and other (e.g., non-United States federal,
non-Bermuda) tax laws. Accordingly, each prospective investor should consult his
or her tax advisor regarding the tax consequences of an investment in the
Debentures and Common Stock. The discussion is based upon laws and relevant
interpretation thereof in effect as of the date of this Prospectus, all of which
are subject to change.
BERMUDA TAXATION
The following discussion describes correctly certain tax
consequences to the Company with respect to this offering and with respect to
ownership of shares of Common Stock and Debentures under Bermuda law. The
Company will not obtain an opinion of tax counsel with respect to tax
consequences under Bermuda law.
At the date hereof, there is no Bermuda income, corporation or
profits tax, withholding tax, capital gains tax, capital transfer tax, estate
duty or inheritance tax payable by the Company, or its stockholders or holders
of Debentures other than stockholders or holders of Debentures ordinarily
resident in Bermuda. The Company is not subject to stamp or other similar duty
on the issue, transfer or redemption of the Common Stock or holders of
Debentures.
The Company has obtained an assurance from the Minister of Finance
of Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares, debentures or
other obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or any real property or leasehold
interests in Bermuda owned
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by the Company. No reciprocal tax treaty affecting the Company exists between
Bermuda and the United States.
As an exempted Company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
SOUTH AFRICAN TAXATION
The following discussion describes correctly certain tax
consequences to the Company with respect to this offering and with respect to
ownership of the Common Stock and Debentures under South African law.
Taxation of the Company. Dividends received by the Company will not
be subject to South African withholding tax. Interest received by the Company
will not be subject to South African tax provided the Company is not managed and
controlled in South Africa and provided that such interest income is not
effectively connected with any business carried on by the Company in South
Africa. It is intended that the Company will not be managed and controlled in
South Africa. Royalties received by the Company from South Africa will be
subject to a flat rate of taxation equivalent to 10.5% of the gross value of
such royalties.
Taxation of FSAH
Income Tax. Income tax is levied in South Africa on income which is
classified as being of a "revenue" nature. Income of a capital nature is not
currently subject to tax. The current corporate income tax rate is 35%.
Dividends to be received by FSAH from its subsidiaries will be exempt from
income tax. Interest received by FSAH will be subject to income tax. No
assurance can be given that proceeds derived by FSAH from the sale of its
investments in underlying companies will not be subject to South African
corporate income tax at a rate of 35%. Although an exemption from tax is
available under the South African Income Tax Act, an application by the Company
to take advantage of such exemption was not granted. Based on this denial, the
Company's income may be subject to South African income tax at a rate of 35%.
However, the denial of the application is not dispositive of the ultimate tax
treatment of the Company's realization gains, and although no assurance can be
given as to the tax treatment of such gains, the Company believes that based on
its investment policy of acquiring, owning and operating closely-held South
African companies, its realization gains will be held to be of a capital nature.
South Africa does not currently impose any tax on capital gains. However, no
assurance can be given that a capital gains tax will not be introduced in the
future.
Secondary Tax on Companies. A Company declaring a dividend becomes
liable to an additional tax known as secondary tax on companies ("STC"). STC is
levied at the rate of 12.5% on the difference between dividends declared by a
Company and dividends received by that Company in any given "dividend cycle." An
exemption from STC is available in respect of dividends declared by one South
African Company which is a wholly owned subsidiary of another South African
Company, where the subsidiary derives at least 90% of its profits from
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its sources within South Africa and has notified the Commissioner for Inland
Revenue that it is availing itself of the exemption. The exemption will be
available in respect of dividends declared by wholly-owned subsidiaries of FSAH
to FSAH. Dividends declared by FSAH to the Company will be subject to STC.
Marketable Securities Tax and Stamp Duty. Any listed securities
purchased by FSAH through a stockbroker will be subject to marketable securities
tax. The current rate of marketable securities tax is 0.25% of the acquisition
price. Unlisted securities are subject to the payment of stamp duty at the rate
of 0.25% of the greater of the acquisition price or market value.
General. Effective July 1, 1997, exchange control restrictions on
South African resident individuals were relaxed to permit such persons to invest
a limited amount abroad. South African residents may therefore lawfully acquire
debentures offered by the Company within the financial limits imposed by the
South African Reserve Bank.
Coupled with the relaxation in exchange controls new Section 9C was
introduced into the Income Tax Act with effect from July 1, 1997. In essence,
this section extends the source of South African deemed source income to include
"Investment Income." "Investment Income" includes interest and would encompass
interest paid on the debentures. Section 9C(2) provides that any investment
income received by or accrued to any South African resident from any country
other than the Republic of South Africa shall be deemed to have been received by
or accrued to such resident from a South African source and will hence be
subject to South African tax.
Debenture Interest will, unless a South African resident taxpayer
may avail itself of any exemption, be deemed to be from a South African source
and will be taxable at 35% after allowable deductions.
UNITED STATES FEDERAL INCOME TAXATION
The following is a general summary of certain material United States
federal income tax consequences to a United States citizen or resident
individual, a United States corporation, a Untied States partnership, a trust in
which one or more United States fiduciaries have the authority to control all
substantial decisions of the trust and a United States court is able to exercise
primary supervision over the administration of the trust, or an estate subject
to United States federal income tax on all of its income regardless of source
(each a "United States Investor"), who purchases a Debenture, or acquires shares
of Common Stock by purchase or upon conversion of a Debenture that was
purchased, subsequent to the Registration hereunder and who holds such
Debentures and/or shares of Common Stock as a capital asset within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended. This summary
is provided for general information only and does not purport to address all the
United States federal income tax consequences that may be relevant to a United
States Investor, including without limitation the treatment of certain types of
United States Investors (e.g., persons who own, directly or constructively, at
least 10% of the voting power or value of the Company's outstanding stock,
qualified plans, financial institutions, insurance companies, tax-exempt
organizations or other persons subject to special treatment under United States
federal income tax laws) or persons other than United States Investors, all of
whom may be subject to tax rules that differ significantly
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from those summarized below. In addition, it does not discuss any state, local,
foreign or minimum income or other United States federal tax considerations. The
discussion is based upon the provisions of the United States federal income tax
law as of the date hereof, which is subject to change retroactively as well as
prospectively.
THE FOLLOWING DISCUSSION OF CERTAIN UNITED STATES FEDERAL TAX
CONSEQUENCES IS NOT TAX ADVICE. EACH PERSON CONSIDERING THE PURCHASE OF A
DEBENTURE OR OWNERSHIP OF COMMON STOCK SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP,
CONVERSION AND DISPOSITION OF THE DEBENTURE OR COMMON STOCK, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAXES INCOME OR
OTHER TAX LAWS, AS WELL AS POSSIBLE CHANGES IN THE TAX LAWS.
Taxation of the Company and its Subsidiaries
In general, the Company and its foreign subsidiaries will be subject
to United States federal corporate income tax only to the extent they have
income which has its source in the United States or is effectively connected
with a United States trade or business. It is not anticipated that either the
Company or any of its foreign subsidiaries will be engaged in a trade or
business in the United States.
The United States subsidiary of the Company will be subject to
United States federal income taxation on its worldwide income (subject to
reduction by allowable foreign tax credits, if any), and distributions by such
United States subsidiary to the Company generally will be subject to United
States withholding taxes. There is no income tax treaty between the United
States and Bermuda.
Conversion of Debentures
Except as otherwise indicated below, no gain or loss will be
recognized upon the conversion of Debentures into Common Stock pursuant to the
conversion feature in the Debentures. Cash paid in lieu of fractional shares of
Common Stock will be taxed as if the fractional shares of Common Stock were
issued and then redeemed for cash, resulting in either sale treatment or
dividend treatment depending upon whether the redemption is considered "not
essentially equivalent to a dividend." The tax basis of the Common Stock
received upon conversion will be equal to the tax basis of the Debentures
converted reduced by the portion of such basis, if any, allocable to any
fractional share interest deemed to have been exchanged for cash. The holding
period of the Common Stock received upon conversion will include the holding
period of the Debentures converted.
A distribution to the United States Investor which has the effect of
preventing dilution of the treatment of the United States Investor will not be
taxable. However, a distribution which increases a United States Investor's
proportionate interest in the Company's earnings and profits or assets will be
treated as a taxable dividend.
Distributions on Common Stock
Distributions paid with respect to shares of Common Stock will be
includible in the gross income of the United States Investor as ordinary income
to the extent such distribution is paid from current or accumulated earnings and
profits of the Company, as determined under United States federal income tax
principles. Such distribution will be treated as foreign source dividend income
and will not be eligible for the dividends received deduction allowed to United
States corporations. Distributions in excess of the
70
<PAGE>
Company's current and accumulated earnings and profits will be treated as a
non-taxable return of basis to the extent thereof, and then as a gain from the
sale of Common Stock.
Dispositions
A United States Investor will recognize gain or loss upon the sale
or other disposition of the Debenture or Common Stock in an amount equal to the
difference between the amount realized and the United States Investor's tax
basis in such Debenture or Common Stock. Such gain or loss will be long-term
capital gain or loss if the Debenture (subject to the discussion below under
"Market Discount") or the Common Stock, as the case may be, has been held for
more than one year at the time of sale or other disposition.
Market Discount
A United States Investor is required to include the stated interest
derived from a Debenture in income in accordance with his or her method of
accounting. In addition, if a United States Investor purchases a Debenture at a
market discount, any gain recognized on a disposition of the Debenture (or the
Common Stock into which such Debenture is converted) is treated as ordinary
interest income to the extent it does not exceed the accrued market discount on
such Debenture. Gain may also be required to be recognized to the extent of
accrued market discount upon certain dispositions which would otherwise be
nonrecognition transactions.
Market discount is defined as the excess of the Debenture's stated
redemption price at maturity over the United States Investor's tax basis in the
Debenture immediately after its acquisition. If the market discount is less than
1/4 of 1% of the stated redemption price at maturity multiplied by the number of
complete years remaining to maturity at the time the Untied States Investor
acquires the Debenture, the market discount is considered to be zero. Unless a
United States Investor elects to use a constant rate method, market discount
accrues ratably each day. If a United States Investor that acquires a Debenture
at a market discount receives a partial principal payment on the Debenture prior
to maturity, that payment is treated as ordinary income to the extent of the
accrued market discount on the Debenture at the time payment is received. When
the United States Investor subsequently disposes of the Debenture, the accrued
market discount at that time is reduced by the amount of the partial principal
payment already included in income.
Alternatively, a United States Investor may elect to include the
market discount in income as the discount accrues, either on a ratable basis, or
if elected, on a constant interest rate basis. Once made, the current inclusion
election applies to all market discount obligations acquired on or after the
first day of the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service.
In addition, the United States Investor who does not elect to
currently accrue the market discount may deduct his or her net direct interest
expense incurred or continued to purchase or carry a Debenture acquired at a
market discount only to the extent it exceeds the portion of market discount
allocable to the days during such year the Debenture is held by the United
States Investor. The net direct interest expense is the excess of interest paid
or accrued to purchase or carry such Debenture over the interest includible in
the United States Investor's gross income for the taxable year. Any net direct
interest expense that is not deductible is deferred and deducted in the year of
disposition, or if an election is made, in any year prior to disposition. In the
year of such an election and for any subsequent year, if the United States
Investor's interest income exceeds his or her net direct interest expense for
the taxable year, the United States Investor may deduct any deferred net direct
interest expense in an amount equal to such excess.
71
<PAGE>
Bond Premium
If, as a result of a purchase of a Debenture at a premium, a United
States Investor's tax basis (for determining loss on a subsequent sale or
exchange) in a Debenture exceeds the amount payable at the Debenture's maturity
or, if it results in a smaller amortizable bond premium, on an earlier call
date, the United States Investor may elect to amortize any such excess under the
constant interest rate method as an offset against interest income earned on the
Debenture. The premium does not include any amount attributable to the
conversion feature. If the United States Investor is required to amortize bond
premium by reference to a call date and the Debenture is not in fact called on
such date, the remaining unamortized premium must be amortized by reference to
the next succeeding call date or maturity.
An election to amortize bond premium applies to all taxable bonds
held by the United States Investor at the beginning of the first taxable year to
which the election applies or thereafter acquired by the United States Investor
and is irrevocable without the consent of the Internal Revenue Service. A United
States Investor's tax basis in a Debenture must be reduced by the amortization
of the bond premium. Upon conversion of the Debenture into Common Stock, any
remaining unamortized bond premium is included in the basis of the Common Stock
received in the conversion. (See "Conversion of Debentures").
Backup Withholding and Other Rules
To prevent United States federal "backup withholding" equal to 31%
of any payment of (i) principal, premium, if any, and interest on the
Debentures, (ii) proceeds from the sale or redemption of the Debentures, (iii)
dividends on the Common Stock and (iv) proceeds from the sale or redemption of
the Common Stock, the United States Investor must either (a) qualify as a payee
exempt from backup withholding and demonstrate this fact when required, or (b)
provide a taxpayer identification number to the payor (or certify that it has
applied for a taxpayer identification number), certify as to no loss of
exemption from backup withholding and otherwise comply with applicable
requirements of the backup withholding rules. Any amounts paid as backup
withholding with respect to the Debentures or Common Stock will be credited to
the income tax liability of the United States Investor receiving the payment
from which such amount was withheld. United States Investors should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption. A United States
Investor that is otherwise required to but does not provide the Company with a
correct taxpayer identification number may be subject to penalties imposed by
the Code.
A United States Investor who owns or acquires 5% or more in value of
the Company's stock on or before December 31, 1997 and 10% or more in value or
vote thereafter may be required to file certain additional reports with respect
to the Company with the United States Internal Revenue Service.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this Prospectus, the Company has outstanding an
aggregate of 3,614,133 shares of Common Stock and 1,822,500 shares of Class B
Common Stock, which shares of Class B Common Stock are held by 8 holders. In
addition, an aggregate of 8,097,704 shares of Common Stock are issuable upon
exercise of the Class A and Class B Warrants included in the Units and the
exercise of certain other Class A Warrants and Class B Warrants. The 2,300,000
shares included in the Units sold in connection with the Offering are freely
transferable without restriction under the Securities Act except for any shares
purchased by any person who is or thereby becomes an "affiliate" of the Company,
which shares will be subject to the resale limitations contained in Rule 144
promulgated under the Securities Act. 1,191,837 shares of Common Stock currently
held by the Escrow Agent are "restricted securities" and may not be sold unless
they are registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration. None of the shares of Common Stock held by
the Escrow Agent will be
72
<PAGE>
eligible for sale under Rule 144 until July 1998. All of the 1,822,500 shares of
Class B Common Stock outstanding prior to this Offering are "restricted
securities" as that term is defined under Rule 144 and may not be sold publicly
unless they are registered under the Securities Act or are sold pursuant to Rule
144 or another exemption from registration. See "Certain Transactions." See
"Certain Transactions - FSAH Escrow Agreements." All of the shares of Class B
Common Stock issued prior to the Company's initial public offering are currently
eligible for sale under Rule 144.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) may sell within any three-month period a
number of restricted shares beneficially owned for at least one year which does
not exceed the greater of 1% of the then outstanding shares of such class of
securities or the average weekly trading volume during the four calendar weeks
prior to such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Rule 144 also permits, under certain
circumstances, the sale of shares beneficially owned for at least two years by a
person who is not an affiliate of the Company without regard to the volume or
other resale limitations. For shares issued in consideration of an unsecured or
non-recourse promissory note, the holding period does not commence until the
note is paid in full. The above is a brief summary of Rule 144 and is not
intended to be a complete description of the Rule.
D.H. Blair also has demand and piggyback registration rights with
respect to the securities underlying the Unit Purchase Options.
No predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock or other securities of the Company
in the public market could adversely affect prevailing market prices.
LEGAL MATTERS
The validity of the shares of Common Stock and Debentures offered
hereby has been passed upon for the Company by Conyers, Dill & Pearman, Bermuda
counsel for the Company. Certain legal matters have been passed upon for the
Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York, United
States counsel for the Company. A partner of Parker Chapin Flattau & Klimpl, LLP
owns shares of the Company's Class B Common Stock. Certain other legal matters
have been passed on by Webber Wentzel Bowens, Johannesburg, South Africa, South
African counsel for the Company.
EXPERTS
The Consolidated Balance Sheets of the Company at June 30, 1996 and
1995, the Consolidated Statements of Income and Cash Flows for the year ended
June 30, 1996, four months ended June 30, 1995 and the years ended February 28,
1995 and 1994, and the Consolidated Statements of Changes in Stockholders'
Investment for the period February 28, 1993 to June 30, 1996, appearing in this
Prospectus and Registration Statement have been audited by Price Waterhouse,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is organized under the laws of Bermuda. Certain of the
directors and officers of the Company, and the South African experts named
herein, are or may be residents of Bermuda or South Africa and all or a
substantial portion of the assets of the Company and such persons are or may be
located outside the United States. As a result, it may be difficult for
investors to effect service of process within
73
<PAGE>
the United States upon such persons, or to enforce against them judgments
obtained in United States courts, including judgments predicated upon the civil
liability provisions of the United States federal securities laws. The Company
understands that the United States does not currently have a treaty providing
for reciprocal recognition and enforcement of judgments in civil and commercial
matters with Bermuda or South Africa and that there is doubt (i) whether a final
judgment for the payment of money rendered by a federal or state court in the
United States based on civil liability, whether or not predicated upon the civil
liability provisions of the United States federal securities laws, would be
enforceable in Bermuda or South Africa against the Company or certain of the
Company's officers and directors, and (ii) whether an action could be brought in
Bermuda or South Africa against the Company or certain of the Company's officers
and directors in the first instance on the basis of liability predicated solely
upon the provisions of the United States federal securities laws.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a
Registration Statement on Form S-1 under the Securities Act of 1933, as amended,
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in such Registration Statement and the exhibits
thereto. For further information with respect to the Company, reference is
hereby made to the Registration Statement, and exhibits and schedules thereto
which may be inspected without charge at the public reference facilities
maintained at the principal office of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington D.C. 20549 and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained upon written request from the Public Reference Branch
of the Commission, 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549, at
prescribed rates. Reference is made to the copies of any contracts or other
documents filed as exhibits to the Registration Statement. Electronic
registration statements made through the Electronic Data Gathering Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http:\\www.sec.gov.).
74
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
I. FIRST SOUTH AFRICA CORP., LTD.
A. Annual Financial Statements
Report of the independent auditors F-4
Consolidated Balance Sheets at June 30, 1996 and 1995 F-5
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 F-7
Pro forma Consolidated Statements of Income for the years ended
June 30, 1996 and 1995 (Unaudited) F-8
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 F-9
Consolidated Statements of Changes in Stockholders' Investment for
the period February 28, 1993 to June 30, 1996 F-10
Notes to the Consolidated Financial Statements for the year ended F-11
June 30, 1996, four months ended June 30, 1995 and years ended
February 28, 1995 and 1994
B. Interim Financial Statements
Consolidated Balance Sheets at March 31, 1997 and June 30, 1996 F-28
Consolidated Statements of Income for the nine months ended March
31, 1997 and 1996 F-29
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1997 and 1996 F-30
Consolidated Statements of Changes in Stockholders' Investment for
the period December 31, 1996 to March 31, 1997 F-31
Notes to the Consolidated Financial Statements for the nine months F-32
ended March 31, 1997
F-1
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
C. Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet at March 31, 1997
(Unaudited) F-35
Pro Forma Consolidated Statements of Income for the nine months
ended March 31, 1997 and the year ended June 30, 1996 (Unaudited) F-36
Notes to the Pro Forma Consolidated Financial Statements
for the nine months ended March 31, 1997 and year ended
June 30, 1996 (Unaudited) F-38
II. ASTORIA BAKERY CC AND ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
A. Interim Financial Statements
Unaudited Combined Balance Sheet at June 30, 1996 F-41
Unaudited Combined Statements of Income for the four months ended
June 30, 1996 and 1995 F-42
Unaudited Combined Statements of Cash Flows for the four months
ended June 30, 1996 and 1995 F-43
Notes to the unaudited Consolidated Financial Statements for the four F-44
months ended June 30, 1996 and 1995
B. Annual Financial Statements
Audited Combined Balance Sheet at February 29, 1996 F-45
Audited Combined Statements of Income for the years ended February
29, 1996 and February 28, 1995 F-46
Audited Combined Statements of Cash Flows for the years ended
February 29, 1996 and February 28, 1995 F-47
Audited Combined Statements of Changes in Stockholders' Investment
for the years ended February 29, 1996 and February 28, 1995 F-48
Notes to the Audited Combined Financial Statements for the years
ended February 29, 1996 and February 28, 1995 F-49
F-2
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
III. GULL FOODS CC
A. Interim Financial Statements
Unaudited Balance Sheet at December 31, 1996 F-56
Unaudited Statements of Income for the ten months ended December
31, 1996 and 1995 F-57
Unaudited Statements of Cash Flows for the ten months ended
December 31, 1996 and 1995 F-58
Notes to the Unaudited Financial Statements for the ten months ended
December 31, 1996 and 1995 F-59
B. Annual Financial Statements
Audited Balance Sheet at February 29, 1996 F-60
Audited Statements of Income for the years ended February 29, 1996
and February 28, 1995 F-61
Audited Statement of Cash Flows for the years ended February 29,
1996 and February 28, 1995 F-62
Audited Statements of Change in Stockholders' Investment for the
years ended February 29, 1996 and February 28, 1995 F-63
Notes to the Audited Financial Statements for the years ended F-64
February 29, 1996 and February 28, 1995
F-3
<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 sheets and the
related consolidated statements of income, of cash flows and of changes in
stockholders' investment present fairly, in all material respects, the financial
position of First South Africa Corp., Ltd. and its subsidiaries at June 30, 1996
and 1995, and the results of their operations and their cash flows for the year
ended June 30, 1996, four months ended June 30, 1995 and the years ended
February 28, 1995 and 1994 in conformity with generally accepted accounting
principles in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse
Sandton, South Africa
September 27, 1996
F-4
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 AND 1995
ASSETS
JUNE 30, 1996 JUNE 30, 1995
$ $
----------- -----------
CURRENT ASSETS
Cash on hand 4,682,035 744,251
Trade accounts receivable 5,833,542 2,287,572
Less: Allowances for bad debts (402,333) (232,442)
----------- -----------
5,431,209 2,055,130
Inventories (net) 2,510,868 1,232,728
Prepaid expenses and other current assets 451,551 188,937
----------- -----------
TOTAL CURRENT ASSETS 13,075,663 4,221,046
Property, plant and equipment 9,000,334 1,854,831
Less: Accumulated depreciation (2,119,912) (320,529)
----------- -----------
6,880,422 1,534,302
Goodwill 408,541 --
Recipes and other intellectual property 2,848,532 --
Other assets 318,286 16,224
Deferred income taxes 73,550 10,145
Loan to related company -- 145,823
----------- -----------
23,604,994 5,927,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Bank overdraft payable 745,724 270,822
Current portion of long term debt 2,101,799 147,126
Trade accounts payable 2,162,257 479,179
Other provisions and accruals 1,923,371 1,369,663
Income taxes payable 1,518,095 430,127
----------- -----------
TOTAL CURRENT LIABILITIES 8,451,246 2,696,917
Long term debt 2,361,372 954,717
Loan from related company -- 257,909
----------- -----------
TOTAL LIABILITIES 10,812,618 3,909,543
F-5
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS'S INVESTMENT (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
----------- -----------
<S> <C>
STOCKHOLDERS' INVESTMENT
Capital stock:
First South Africa Corp., Ltd:
A class common stock, $0.01 par value -
authorized 23,000,000 shares; issued and
outstanding 2,200,000 22,000 --
B class common stock, $0.01 par value-
authorized 2,000,000 shares; issued and
outstanding 1,942,500 (see footnote 24) 19,701 --
Preferred stock, $0.01 par value-
authorized 5,000,000 shares; issued and
outstanding nil shares -- --
Capital in excess of par 18,518,986 --
LS Pressings (Pty) Ltd.
Common stock, R1 par value - authorized, issued
and outstanding 3 million shares in 1995 -- 460,978
Starpak (Pty) Ltd.
Common stock, R1 par value - authorized 4,000 shares;
issued and outstanding 1,250 shares in 1995 -- 1,010
Capital in excess of par -- 746,790
Retained earnings (3,887,407) 1,850,153
Foreign currency translation adjustments (1,888,211) (1,040,934)
Income restricted as to distribution 7,307 --
----------- -----------
23,604,994 5,927,540
=========== ===========
</TABLE>
F-6
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
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
<TABLE>
<CAPTION>
JULY 1, 1995 TO MARCH 1, TO YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995 FEBRUARY 28, 1995 FEBRUARY 28, 1994
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 14,911,097 3,297,507 8,826,856 6,851,457
----------- ----------- ----------- -----------
Operating expenses
Cost of sales 8,385,511 1,881,686 5,058,749 4,513,384
Selling, general and administrative
costs 5,134,431 1,081,120 3,120,334 1,900,760
Non cash compensation charge 6,314,000 -- -- --
----------- ----------- ----------- -----------
19,833,942 2,962,806 8,179,083 6,414,144
----------- ----------- ----------- -----------
Operating (loss)/income (4,922,845) 334,701 647,773 437,313
Other income 539,636 43,145 40,830 64,966
Interest expense (865,733) (18,801) (152,163) (180,960)
----------- ----------- ----------- -----------
(Loss)/income before income taxes (5,248,942) 359,045 536,440 321,319
Provision for taxes on income (488,618) (145,216) (222,558) (113,403)
----------- ----------- ----------- -----------
Net (loss)/income (5,737,560) 213,829 313,882 207,916
----------- ----------- ----------- -----------
Net loss per share ($3.03)
Weighted average number of shares 1,893,463
outstanding
</TABLE>
F-7
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PROFORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
$ $
----------- -----------
Revenues 36,907,198 33,062,715
Operating expenses
Cost of sales 19,555,997 17,983,400
Selling, general and administrative costs 13,670,868 12,110,748
Non cash compensation charge 6,314,000 --
----------- -----------
39,540,865 30,094,148
----------- -----------
Operating (loss)/income (2,633,667) 2,968,567
Other income 832,519 466,356
Interest expense (1,428,617) (768,413)
----------- -----------
(Loss)/income before income taxes (3,229,765) 2,666,510
Provision for taxes on income (1,293,084) (944,383)
----------- -----------
Net (loss)/income (4,522,849) 1,722,127
Net (loss)\profit per share ($ 1.34) $ 0.51
Weighted average number of shares
outstanding 3,374,079 3,374,079
The pro forma information has been prepared assuming that the
acquisitions had taken place and that operations had commenced on July 1, 1994.
The pro forma information does not purport to be indicative of the
results that would have actually been obtained if the acquisitions had occurred
at the beginning of the period nor is it indicative of future results.
F-8
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
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
<TABLE>
<CAPTION>
YEAR ENDED
JULY 1, TO MARCH 1, TO YEAR ENDED FEBRUARY 28,
JUNE 30, 1996 JUNE 30, 1995 FEBRUARY 28, 1995 1994
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss)/income (5,737,560) 213,829 313,882 207,916
Adjustments to reconcile net (loss)/income to
net cash provided by operating activities
Non-cash compensation charge 6,314,000 -- -- --
Depreciation 345,884 50,678 92,746 82,988
Amortization of other assets 49,873 -- -- --
Deferred income taxes (90,559) -- (69,295) 5,363
Net (gain)/loss on sale of assets (22,523) 1,320 19,636 3,526
Effect of changes in assets and liabilities 10,185 (94,090) (23,012) (65,840)
Assets acquired at a discount 7,307 -- -- --
---------- ---------- ---------- ----------
Net cash provided by operating activities 876,607 171,737 333,957 233,953
---------- ---------- ---------- ----------
Cash flows from investing activities:
Net additions to property, plant and equipment (453,768) (166,124) (327,039) (255,454)
Other assets (acquired)/disposed (704,117) (16,502) 22,053 (5,188)
Decrease/(increase) in loans to related
companies 145,823 (280) 45,241 94,418
Acquisition of subsidiaries (net of cash of
$4,746) (4,498,043) -- -- --
---------- ---------- ---------- ----------
Net cash used in investing activities (5,510,105) (182,906) (259,745) (166,224)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Net borrowings/(repayments) in bank overdraft 135,941 119,473 (26,269) (24,815)
Net (repayments)/borrowings of long term debt (1,525,613) 93,202 93,618 68,616
Net (repayments)/borrowings in loans from
related parties (880,034) -- 30,473 (66,408)
Net repayments of loans from stockholders 137,656 -- -- --
Net borrowings/(repayments) in short term debt 1,954,673 -- 81,972 (11,835)
Net proceeds on stock issues 9,197,446 -- -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities 9,020,069 212,675 179,794 (34,442)
---------- ---------- ---------- ----------
Effect of exchange rate changes as cash (448,787) (9,783) (16,573) (31,301)
---------- ---------- ---------- ----------
Net increase in cash on hand 3,937,784 191,723 237,433 1,986
Cash on hand at beginning of period 744,251 552,528 315,095 313,109
---------- ---------- ---------- ----------
Cash on hand at end of period 4,682,035 744,251 552,528 315,095
========== ========== ========== ==========
</TABLE>
F-9
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
FOR THE PERIOD FEBRUARY 28, 1993 TO JUNE 30, 1996
[PART 1 OF 2]
<TABLE>
<CAPTION>
Capital Capital in
stock Capital excess of
First South Capital Stock par
Africa Capital in Stock LS Starpak Starpak
Corp., excess of Pressings (Pty) (Pty)
Ltd. par (Pty) Ltd. Ltd. Ltd.
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C>
Balance at February 28, 1993 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1994 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1995 -- -- 460,978 1,010 746,790
Net income -- -- -- -- --
Translation adjustment
-- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 -- -- 460,978 1,010 746,790
Issuance of stock to acquire
predecessor, Starpak and LS Pressings 150 1,208,628 (460,978) (1,010) (746,790)
Issuance of stock to acquire subsidiary
companies 98 1,840,365 -- -- --
Other stock issues 28 260,024 -- -- --
Proceeds on First South Africa Corp.,
Ltd. stock issues 41,425 9,896,646 -- -- --
Share issue expenses written off -- (1,000,677) -- -- --
Escrow stock released -- 6,314,000 -- -- --
Subsidiary assets acquired at a
discount -- -- -- -- --
Net loss -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 41,701 18,518,986 -- -- --
=========== =========== =========== =========== ===========
</TABLE>
[PART 2 OF 2]
<TABLE>
<CAPTION>
Income Foreign
restricted as currency
Retained to translation
earnings distribution adjustments Total
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at February 28, 1993 1,114,526 -- (795,948) 1,527,356
Net income 207,916 -- -- 207,916
Translation adjustment -- -- (154,446) (154,446)
----------- ----------- ----------- -----------
Balance at February 28, 1994 1,322,442 -- (950,394) 1,580,826
Net income 313,882 -- -- 313,882
Translation adjustment -- -- (66,052) (66,052)
----------- ----------- ----------- -----------
Balance at February 28, 1995 1,636,324 -- (1,016,446) 1,828,656
Net income 213,829 -- -- 213,829
Translation adjustment
-- -- (24,488) (24,488)
----------- ----------- ----------- -----------
Balance at June 30, 1995 1,850,153 -- (1,040,934) 2,017,997
Issuance of stock to acquire
predecessor, Starpak and LS Pressings -- -- -- --
Issuance of stock to acquire subsidiary
companies -- -- -- 1,840,463
Other stock issues -- -- -- 260,052
Proceeds on First South Africa Corp.,
Ltd. stock issues -- -- -- 9,938,071
Share issue expenses written off -- -- -- (1,000,677)
Escrow stock released -- -- -- 6,314,000
Subsidiary assets acquired at a
discount -- 7,307 -- 7,307
Net loss (5,737,560) -- (5,737,560)
Translation adjustment -- -- (847,277) (847,277)
----------- ----------- ----------- -----------
Balance at June 30, 1996 (3,887,407) 7,307 (1,888,211) 12,792,376
=========== =========== =========== ===========
</TABLE>
F-10
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
1. ORGANIZATION
First South Africa Corp., Ltd. (the "Company") was founded on September 6, 1995.
The purpose of the Company is to make investments in South African companies.
The predecessor to the Company was the combined entity under common control,
Starpak (Proprietary) Limited and its subsidiary companies and LS Pressings
(Proprietary) Limited.
On January 24, 1996, subsequent to an initial public offering and in terms of an
agreement reached before the initial public offering, the Company acquired 100%
of the common stock of the business combination of Starpak (Proprietary) Limited
and its subsidiary companies and LS Pressings (Proprietary) Limited. The
acquisition was accounted for using the purchase method of accounting at net
book value at date of acquisition.
On January 24, 1996, also subsequent to the initial public offering and also in
terms of an agreement reached before the initial public offering, the Company
acquired 100% of the common stock of Europair Africa (Proprietary) Limited for
an aggregate net purchase price of $1,029,206. The acquisition was accounted for
using the purchase method of accounting. The assets and liabilities were taken
over at fair market value as determined by management.
EUROPAIR AFRICA
(PTY) LTD.
$
---------------
Acquisition costs
Stock issued in lieu of cash 399,638
Cash consideration 629,568
Purchase price to be allocated 1,029,206
=========
Summary allocation of purchase price
Current assets 1,582,299
Property, plant and equipment 1,598,128
Deferred income taxes 21,398
Goodwill 91,150
---------
Total assets acquired 3,292,975
Current liabilities 923,688
Long term debt 1,196,636
Loans from related parties 143,445
---------
Total liabilities assumed 2,263,769
---------
Excess of assets over liabilities assumed 1,029,206
=========
F-11
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
1. ORGANIZATION (CONTINUED)
On June 3, 1996 the Company acquired 100% of the common stock of the business
combination of Piemans Pantry (Proprietary) Limited and Surfs-Up Investments
Limited for an aggregate net purchase price of $5,314,045.
The acquisition was accounted for using the purchase method of accounting. The
assets and liabilities were taken over at fair market value as determined by
management.
PIEMANS PANTRY (PTY) LTD.
AND SURFS-UP
INVESTMENTS (PTY) LTD.
$
-------------------------
Acquisition costs
Stock issued in lieu of cash 1,440,825
Cash consideration 3,630,796
Other direct expenses 242,424
---------
Purchase price to be allocated 5,314,045
=========
Summary allocation of purchase price
Current assets 2,594,124
Property, plant and equipment 3,988,033
Stockholders loans 137,656
Recipes and other intellectual property 2,829,299
Goodwill 12,483
---------
Total assets acquired 9,561,595
---------
Current liabilities 1,984,686
Loans to related companies 478,680
Long term debt 1,735,632
Deferred income taxes 48,552
---------
Total liabilities assumed 4,247,550
---------
Excess of assets over liabilities assumed 5,314,045
=========
2. PRINCIPLE ACTIVITIES OF THE GROUP
The principle activities of the group include the business of manufacturing,
servicing and selling packaging machines, receiving rental income, manufacture
of washers for use in the fastener industry, manufacture and supply of
air-conditioning products and the manufacture, sale and distribution of both
ready to eat and ready for bake off pastry related food products.
F-12
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICIES
The consolidated and combined financial statements have been prepared in
accordance with US generally accepted accounting principles and incorporate the
following significant accounting policies.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company, First
South Africa Corp., Ltd. and its subsidiaries. All subsidiaries are wholly owned
and no minority interests exist. Material intercompany transactions have been
eliminated on consolidation.
The combined financial statements include the financial statements of Starpak
(Proprietary) Limited, its wholly owned subsidiaries, Levy & Smith Properties
(Proprietary) Limited and Michael Levy Family Holdings (Proprietary) Limited and
LS Pressings (Proprietary) Limited, as they are entities under common control.
All significant intercompany balances and transactions have been eliminated.
ACCOUNTING ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the date of the
financial statements, disclosure of contingent liabilities at the financial
statement date and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
EARNINGS PER SHARE
Earnings per share for the Company on common shares is based on net income and
reflects dilutive effects of any stock options which exists at year end.
INTANGIBLE ASSETS
Goodwill resulting from acquisitions, and recipes and other intellectual
property is being amortized on a straight line basis over a period of twenty to
twenty five years. If facts and circumstances were to indicate that the carrying
amount of goodwill, recipes and other intellectual property is impaired the
carrying amount would be reduced to an amount representing the discounted future
cash flows to be generated by the operation. Also included in intangible assets
are non-competition agreements relating to the Europair acquisition which are
being amortized on a straight line basis over a six year term of the agreements.
The company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121") Accounting for the impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". No impairments in long-lived assets has
taken place.
F-13
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of the underlying companies is that of South African
Rands. Accordingly, the following rates of exchange have been used for
translation purposes:
(a) Assets and liabilities are translated into United States Dollars
using the exchange rates at the balance sheet date.
(b) Common stock and capital in excess of par are translated into United
States Dollars using historical rates at date of issuance.
(c) Revenue, expenses, gains and losses are translated into United
States Dollars using the weighted average exchange rates for each
year.
The resultant translation adjustments are reported in the component of
shareholders' investment designated as "Foreign currency translation
adjustment".
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to reduce its exposure to
fluctuations in foreign exchange rates by creating offsetting positions through
the use of derivative financial instruments. The market risk related to the
foreign exchange option is offset by changes in the valuation of the underlying
profits being hedged.
The option premium is accounted for on the accrual basis, and is amortized over
the option term. The notional amount of the option is the amount bought or sold
at maturity. Notional amounts are indicative of the extent of the Company's
involvement in the use of derivative financial instruments and are not a measure
of the company's exposure to credit or market risks through its use of
derivatives.
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of inventory purchases from
foreign countries and intercompany funding transactions between the subsidiaries
and First South Africa Corp., Ltd. Transactions in foreign currencies are
accounted for at the rates ruling on transaction dates. Exchange gains and
losses are charged to the income statement during the period in which they are
incurred. Foreign assets and liabilities of the group which are not denominated
in United States Dollars are converted into United States Dollars at the
exchange rates ruling at the financial year end or at the rates of forward cover
purchased. Forward cover is purchased to hedge the currency exposure on foreign
liabilities.
F-14
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
3. SUMMARY OF ACCOUNTING POLICES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost and net realizable value, using both
the first-in, first-out and the weighted average methods. The value of
work-in-progress and finished goods includes an appropriate portion of
manufacturing overheads.
PROPERTY, PLANT AND EQUIPMENT
Land is stated at cost and is not depreciated. Buildings are depreciated on the
straight line basis over estimated useful lives of 50 years.
Buildings, plant and equipment, and motor vehicles are written off over their
estimated useful lives to each asset's residual value.
The following rates are considered appropriate:
Percentage
----------
Buildings 2%
Plant and equipment 10-33%
Motor vehicles 20%
INCOME TAXES
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes represent the impact of temporary differences between the amounts
of assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes. Deferred taxes are measured by applying
currently enacted tax laws.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As at June 30 1996, the carrying value of accounts receivable, accounts payable
and investments approximate their fair value.
REVENUES
Revenues comprise net invoiced sales of washers, manufactured packaging
machines, spares and service charges, food products, air conditioning systems,
fans and related accessories, and rental income. Combined revenues exclude sales
to group companies. The Company recognizes revenues on an accrual basis.
F-15
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
4. INVENTORIES
Inventories consist of the following:
JUNE 30, JUNE 30
1996 1995
$ $
---------- ----------
Finished goods 2,077,679 1,481,124
Work-in-progress 272,377 185,140
Raw materials 501,562 390,852
Supplies 93,055 --
---------- ----------
Inventories (gross) 2,944,673 2,057,116
Less: Valuation allowances (433,805) (824,388)
---------- ----------
Inventories (net) 2,510,868 1,232,728
========== ==========
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
JUNE 30 JUNE 30, JUNE 30, JUNE 30,
1996 1996 1996 1995
$ $ $ $
---------- ---------- ---------- ----------
Land and buildings 2,713,473 (17,147) 2,696,326 845,479
Plant and equipment 3,463,121 (1,415,524) 2,047,597 372,244
Vehicles 1,789,905 (687,241) 1,102,664 316,579
Capital work in progress 1,033,835 -- 1,033,835 --
---------- ---------- ---------- ----------
9,000,334 (2,119,912) 6,880,422 1,534,302
========== ========== ---------- ----------
Depreciation 345,884 50,678
======= ======
Certain assets of the company are encumbered as security for the liabilities of
the group (Refer note 11)
F-16
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
6. GOODWILL
Goodwill consists of the following:
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
JUNE 30, JUNE 30, JUNE 30,
1996 1996 1996
$ $ $
--------- --------- ---------
Goodwill arising on acquisitions 414,610 (6,069) 408,541
======= ======= =======
7. RECIPES AND OTHER INTELLECTUAL PROPERTY
Recipes and other intellectual property consists of the following:
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
JUNE 30, JUNE 30, JUNE 30,
1996 1996 1996
$ $ $
--------- --------- ---------
Recipes and other intellectual property 2,858,011 (9,479) 2,848,532
========= ========= =========
8. OTHER ASSETS
Other assets consists of the following:
ACCUMULATED NET BOOK NET BOOK
COST AMORTIZATION VALUE VALUE
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1996 1996 1995
$ $ $ $
-------- -------- -------- --------
Loans to shareholder 84,768 -- 84,768 --
Non competition agreements 115,842 (8,992) 106,850 --
Derivative financial instruments 152,000 (25,332) 126,668 --
Other -- -- -- 16,224
-------- -------- -------- --------
352,610 (34,324) 318,286 16,224
======== ======== ======== ========
Derivative financial instruments consist of a purchased foreign currency option
with a notional amount of South African Rands (ZAR) 25,000,000 with a strike
price of ZAR5 to $1. The option term is twelve months and expires on May 2,
1997.
F-17
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
9. LOAN TO RELATED COMPANY
JUNE 30, 1996 JUNE 30, 1995
$ $
-------- --------
Michael Levy Family Holdings (Proprietary) Limited -- 145,823
======== ========
The terms of this loan have changed with the closing of the initial public
offering. The loan has been revalued and disclosed as loans to shareholders, and
is unsecured, interest free and repayable on February 28, 1998.
10. BANK OVERDRAFT FACILITIES
The Company has general short term unsecured banking facilities, which are
renewable annually, of $2,460,437 available. These facilities bear interest at
prime lending rates, which is currently 19.5%, and are repayable on demand.
11. SHORT AND LONG TERM DEBT
JUNE 30, 1996 JUNE 30, 1995
$ $
---------- ----------
LONG TERM DEBT
Secured debt
Mortgage loans 1,508,870 561,301
Equipment notes 1,904,980 540,542
Unsecured debt
Unsecured notes 125,214 --
---------- ----------
3,539,064 1,101,843
Less: Current portion (1,177,692) (147,126)
---------- ----------
Total long term debt 2,361,372 954,717
========== ==========
SHORT TERM DEBT
Current portion of long term debt 1,177,692 147,126
Trade finance loan 924,107 --
---------- ----------
2,101,799 147,126
========== ==========
MORTGAGE LOANS
Mortgage loans are secured by first and second mortgage bonds over property.
These loans are generally repayable in equal instalments of $27,568 over periods
ranging from five to twenty years and bear interest at rates ranging from 12% to
18.5%. Generally these interest rates are linked to the prime lending rate which
is currently at 19.5%.
F-18
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
11. SHORT AND LONG TERM DEBT (CONTINUED)
EQUIPMENT NOTES
Equipment notes are secured over movable assets. These loans are generally
repayable in equal monthly instalments over a maximum period of five years.
These loans bear interest at rates ranging from 16.9% to 2% above the prime
lending rate, which is currently 19.5%.
UNSECURED NOTES
Unsecured notes bear interest at the prime lending rate, which is currently
19.5%, and have no fixed repayment terms. These notes have been included in the
current portion of long term liabilities.
TRADE FINANCE LOAN
The trade finance loan is denominated in United States Dollars and is repayable
within 90 days. This loan is covered forward by a forward exchange contract and
bears interest at 6.5625%. This facility is made available to the group by the
companies bankers as a significant part of the general short term banking
facilities. (see note 10)
The following is a schedule of repayments of long term liabilities by year of
repayment
YEAR ENDED JUNE 30, 1996 $
------------------------ -----------
1997 543,812
1998 537,723
1999 476,208
2000 274,749
Thereafter 528,880
-------
2,361,372
=========
12. LOAN FROM RELATED COMPANY
JUNE 30, 1996 JUNE 30, 1995
$ $
-------- -------
Trumetric Washers (Proprietary) Limited -- 257,909
======== =======
This loan was repaid from cash generated by operations. This loan was unsecured
and interest free.
13. INCOME RESTRICTED AS TO DISTRIBUTION
This represents the excess of assets acquired over liabilities assumed in the
purchase of the assets and liabilities of operating entities. This amount is not
distributable until such time as the assets so acquired are disposed.
There are no restrictions on the future income of the Company.
F-19
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
14. OPERATING LEASES
The group has several operating leases over land and buildings. These leases
generally expire within the next five years. These leases generally contain
renewal options at the fair market value at the date of renewal.
In most cases, management expects that in the normal course of business, leases
will be renewed or replaced by other leases.
The following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of June 30, 1996:
YEAR ENDED JUNE 30, 1996 $
- ------------------------ -----------
1997 337,690
1998 553,677
1999 431,237
2000 35,047
Thereafter 2,233
-----------
1,359,884
===========
The following schedule shows the composition of total rental expense for all
operating leases except those with terms of a month or less:
FOUR MONTHS YEAR ENDED YEAR ENDED
YEAR ENDED JUNE 30, FEBRUARY 28, FEBRUARY 28,
JUNE 30, 1996 1995 1995 1994
$ $ $ $
------- ------- ------- -------
Minimum rentals 415,815 25,562 78,730 98,135
======= ======= ======= =======
15. OTHER INCOME
Other income includes interest received, proceeds from insurance claims, bad
debts recovered, commissions received and profits on sale of assets.
16. INCOME TAXES
Income taxes are accounted for under Statement of Financial Standards No. 109
"Accounting for Income Tax" ("SFAS 109"), an asset and liability method. SFAS
109 requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax bases
and financial reporting bases of the Company's assets and liabilities. In
addition, SFAS 109 requires the recognition of future tax benefits such as net
operating loss carryforwards, to the extent realization of such benefit is more
likely than not.
F-20
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
16. INCOME TAXES (CONTINUED)
The provision for income taxes charged to continuing operations was as follows:
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
$ $ $ $
-------- -------- -------- --------
Current
South African normal 848,006 145,216 291,853 108,040
-------- -------- -------- --------
Total current taxes 848,006 145,216 291,853 108,040
-------- -------- -------- --------
Deferred
South African normal (359,388) -- (69,295) 5,363
-------- -------- -------- --------
Total deferred taxes (359,388) -- (69,295) 5,363
-------- -------- -------- --------
Provision for taxes on income 488,618 145,216 222,558 113,403
======== ======== ======== ========
Deferred tax asset at June 30, is comprised of the following:
JUNE 30, 1996 JUNE 30, 1995
$ $
-------- --------
Fixed assets 346,961 58,956
Prepaid expenditure 12,245 --
-------- --------
Gross deferred tax liabilities 359,206 58,956
-------- --------
Accruals (372,447) (69,101)
Deposits received on equipment sales (60,309) --
-------- --------
Gross deferred tax assets (432,756) (69,101)
-------- --------
Net deferred tax asset (73,550) (10,145)
======== ========
The provision for taxes on income differs from the amount of income tax
determined by applying the applicable South African statutory income tax rate to
pre-tax income from continuing operations as a result of the following
differences:
The Company reflects a net loss position of $5,248,942 before taxation. However,
there is a recorded tax charge as $6,743,000 of the loss before taxation
consists of expenditure not allowable for tax purposes, including a charge of
$6,314,000 for the non cash compensation charge. The balance of the expenditure
not allowable for tax purposes is incurred mainly in Bermuda, where no taxation
laws are in existence. After eliminating non allowable expenditure, the tax rate
reconciliation is as follows:
F-21
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
16. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
% % % %
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
South African Statutory tax rate 35 35 35 40
Capital allowances (2) -- -- --
Disallowable expenditure 1 5 1 2
Transitional levy -- -- 6 --
Tax rate adjustment -- -- (2) (3)
Non taxable income (1) -- -- --
Other -- -- 1 (4)
------ ------ ------ ------
Effective tax rate 33 40 41 35
====== ====== ====== ======
</TABLE>
17. CASH FLOWS
The changes in assets and liabilities consist of the following:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
% % % %
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
(Increase)/decrease in trade accounts
receivable (756,684) 36,382 (989,374) (22,786)
Decrease/(increase) in inventories 146,179 (357,614) 13,759 (189,278)
(Increase)/decrease in prepaid expenses
and other current assets (134,650) (146,445) 15,906 5,453
Increase in trade accounts payable 360,265 91,094 97,479 49,638
(Decrease)/increase in other provisions
and accruals (38,785) 127,573 659,078 178,901
Decrease in dividends payable -- -- -- (90,242)
Increase in income taxes payable 433,860 154,920 180,140 2,474
-------- -------- -------- --------
10,185 (94,090) (23,012) (65,840)
======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid 865,733 18,801 152,163 180,960
======== ======== ======== ========
</TABLE>
F-22
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
18. EMPLOYMENT BENEFITS
The Company participates in various retirement benefit funding plans and medical
aid plans for the benefit of its employees.
All of the retirement benefit funds are defined contribution plans and by nature
of the funds there can be no unfunded obligations or responsibility on the
employer. The only obligation of the Company is the contribution to these
schemes which generally ranges from 6% to 9% of the employees annual earnings.
Amounts charged to pension costs and contributed by the Company to the funds
were as follows:
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
$ $ $ $
---------- ----------- ------------ -------------
Pension costs 99,028 37,440 84,438 77,508
====== ====== ====== ======
The group and employees participate in various medical aid schemes which provide
medical cover for employees on an annual basis. Neither the medical aid nor the
group are liable for post retirement medical costs. The contributions to the
medical aid are borne equally by the employee and the group except for a few
salaried employees where the company is responsible for 100% of the
contribution. The Company has no liability for employees medical costs in excess
of the contributions to the medical fund.
Amounts charged to medical aid costs and contributed by the Company were as
follows:
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
$ $ $ $
---------- ----------- ------------ -------------
Medical aid costs 242,186 42,366 123,233 156,981
======= ====== ======= =======
19. PROFIT SHARE
Management receive an annual bonus, determined at the discretion of the board of
directors. The amounts paid to management were as follows:
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, FEBRUARY 28, FEBRUARY 28,
1996 1995 1995 1994
$ $ $ $
---------- ----------- ------------ -------------
Medical aid costs 140,828 - 294,307 86,031
======= ====== ======= =======
F-23
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
20. EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with, the president and
chief executive officer of the Company. In terms of the agreement he receives an
annual salary of $180,000 and options to purchase 55,000 shares of common stock
at an exercise price of $5 per share. In addition he has been granted additional
options to purchase 150,000 shares of common stock of the Company at an exercise
price of $5 per share exercisable after the seventh anniversary of the grant
date, providing that the vesting of such options will be accelerated as follows:
i) 50,000 options will be exercisable on such earlier date that the Company
realizes earnings per share of $0.75 or more on a fiscal year basis, ii) an
additional 50,000 options will be exercisable on such earlier date that the
Company realizes earnings per share of $1.00 or more on a fiscal year basis and
iii) an additional 50,000 options will be exercisable on such earlier date that
the Company realizes earnings per share of $1.50 or more on a fiscal year basis.
The Company intends to pay an annual incentive bonus of five percent of the
Minimum pre-tax income above $4,000,000, as shall be reported in the Company's
audited financial statements for each fiscal year in which the president is
employed, exclusive of any extraordinary earnings or charges which would result
from the release of the earnout escrow shares.
The Company has entered into an employment agreement with the managing director
of the company. In terms of the agreement he receives an annual salary of
$150,000. He has been granted options to purchase 150,000 shares of First South
African Holdings (Proprietary) Limited class B common stock at an exercise price
of R13.05 per share exercisable after the fifth anniversary of the grant date,
providing that the vesting of such options will be accelerated as follows: i)
30,000 options will be exercisable on such earlier date that the Company
realizes earnings per share of $0.75 or more on a fiscal year basis, ii) an
additional 50,000 options will be exercisable on such earlier date that the
Company realizes earnings per share of $1.00 or more on a fiscal year basis and
iii) an additional 70,000 options will be exercisable on such earlier date that
the Company realizes earnings per share of $1.50 or more on a fiscal year basis.
The Company intends to pay an annual incentive bonus of four percent of the
Minimum pre-tax income above $5,000,000, as shall be reported in the Company's
audited financial statements for each fiscal year in which the managing director
is employed, exclusive of any extraordinary earnings or charges which would
result from the release of the earnout escrow shares.
21. STOCK OPTION PLAN
The board of directors have adopted the Company's 1995 Stock Option Plan. The
stock option plan provides for the grant of i) options that are intended to
qualify as incentive stock options (Incentive Stock Options) within the meaning
of Section 422 of the code to key employees and ii) options not so intended to
qualify ("Nonqualified Stock Options") to key employees (including directors and
officers who are employees of the Company, and to directors and consultants who
are not employees ). The total number of shares of common stock for which
options may be granted under the stock option plan is 350,000 shares.
The Stock Option Plan is to be administered by the Compensation Committee of the
Board of Directors. The committee shall determine the terms of the options
exercised, including the exercise price, the number of shares subject to the
option and the terms and conditions of exercise. No options granted under the
Stock Option Plan are transferable by the optionee other than by the will or the
laws of descent and distribution and each option is exercisable during the
lifetime of the optionee only by such optionee or his legal representatives.
F-24
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
21. STOCK OPTION PLAN (CONTINUED)
The exercise price of Incentive Stock Options granted under the plan must be at
least equal to the fair market value of such shares on the date of the grant
(110% of fair market value in the case of an optionee who owns or is deemed to
own more than 10% of the voting rights of the outstanding capital stock of the
company or any of its subsidiaries). The maximum term for each Incentive Stock
Option granted is ten years (five years in the case of an optionee who owns or
is deemed to own more than 10% of the voting rights of the outstanding capital
stock of the company or any of its subsidiaries). Options shall be exercisable
at such times and in such instalments as the committee shall provide in the
terms of each individual option. The maximum number of shares for which options
may be granted to any individual in any fiscal year is 210,000.
The Stock Option Plan also contains an automatic option grant program for the
non-employee directors. Each non-employee director of the Company on January 24,
1996 (other than Graham B.R. Collis and Anthony D. Whaley) was granted an option
of 5,000 shares of common stock. Thereafter, each person who is a non-employee
director of the Company following an annual meeting of shareholders will
automatically be granted an option for an additional 5,000 shares of common
stock. Each grant will have an exercise price per share equal to the fair market
value of the common stock on the grant date and will have a term of five years
measured from the grant date, subject to earlier termination if an optionee's
service as a board member is terminated for cause.
The Company has granted options to purchase 75,000 shares of common stock under
the Plan as described below:
<TABLE>
<CAPTION>
OPTIONS PER SHARE EXERCISE
NAME GRANTED PRICE EXPIRATION DATE EXERCISABLE
- ---- ------- ----- --------------- -----------
<S> <C> <C> <C> <C> <C>
Stock options issued during 1996 75,000 $5.00 January 24, 2001 Immediately
</TABLE>
22. EARNOUT ESCROW SHARES
In terms of the underwriting agreement, the Company arranged with the president
and chief executive officer to contribute a total of 1,100,000 shares into
escrow in terms of the earnout escrow agreement. These shares were to be
released based on the attainment of a pre-set Net income before income taxes
target. If the targets were not attained the earnout escrow shares would have
been canceled. This target was attained based on the unaudited proforma profit
and loss resulting in the release of these shares from escrow and resulted in a
non-cash compensation charge to the profit and loss account for the period ended
June 30, 1996 of $6,314,000. This was a fourth quarter event after the
acquisition of the business combination of Piemans Pantry (Pty) Ltd and Surfs-Up
Investments (Pty) Ltd.
F-25
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
23. WARRANTS OUTSTANDING
In terms of the initial public offering, each unit issued consisted of one share
of common stock, one redeemable Class A warrant and one redeemable Class B
warrant. In addition, an additional 100,000 warrants were issued to the
underwriter in terms of the underwriting agreement. Concurrently with the
initial public offering the selling security holder offered 650,000 selling
security holder warrants, 650,000 selling security holder Class B warrants
issuable upon exercise of the selling security holder warrants and 1,300,000
shares of common stock issuable upon exercise of these selling security holder
warrants and selling security holder Class B warrants. These selling security
holder warrants are identical to the Class A warrants, except that there are
certain restrictions imposed upon the transferability of these warrants.
Warrants outstanding at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
NUMBER OF
WARRANT WARRANTS EXERCISE PRICE EXPIRY DATE ENTITLEMENT
------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Class A Redeemable One share of common stock and
Warrants 2,300,000 $6.50 January 24, 2001 one Class B warrant
Class B Redeemable
Warrants 2,300,000 $8.75 January 24, 2001 One share of common stock
Selling Security Holder 650,000 $6.50 January 24, 2001 One share of common stock and
Warrants one Class B warrant
</TABLE>
The Class A warrants are redeemable beginning January 24, 1997, or earlier at
the option of the Company with the underwriter's consent, at a redemption price
of $0.05 per Class A Warrant, if the "closing price" of the Company's common
stock trades at an average price in excess of $9.10 per share for any
consecutive 30 trading day period, ending within 15 days of the notice of
redemption. All class A warrants are to be redeemed if any are to be redeemed.
The Class B warrants are redeemable beginning January 24, 1997, or earlier at
the option of the Company with the underwriters consent, at a redemption price
of $0.05 per Class B Warrant, if the "closing price" of the Company's common
stock trades at an average price in excess of $12.25 per share for any
consecutive 30 trading day period, ending within 15 days of the notice of
redemption. All Class B warrants are to be redeemed if any are to be redeemed.
F-26
<PAGE>
FIRST SOUTH AFRICA CORP., LTD. AND ITS SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED JUNE 30, 1996, FOUR MONTHS ENDED JUNE 30, 1995 AND
THE YEARS ENDED FEBRUARY 28, 1995 AND 1994
24. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT
The First South African Holdings (FSAH) escrow agreement was executed prior to
the closing of the offering and provided for the concurrent issuance and
delivery of 729,979 shares of Class B common stock to the FSAH escrow agent. The
FSAH escrow agreement is intended to provide security for the holders of First
South African Holdings (Pty) Ltd Class B common stock, who are residents in
South Africa and are prohibited in terms of South African law from holding
shares in a foreign company. The FSAH escrow agreement provides that the parties
to this agreement that are holders of FSAH Class B common stock will not sell
such shares of stock, but may tender the shares to the FSAH escrow agent against
payment therefore by the escrow agent, which payment may consist of the proceeds
obtained from the sale of an equal number of Class B common stock of the
Company, provided that the proceeds of the sale will be delivered to the holder
of the Class B common stock in exchange for the shares in First South African
Holdings (Pty) Ltd. These shares will be tendered to the Company and they will
be immediately converted to FSAH Class A common stock.
Included in the First South Africa Corp., Ltd. Class B issued common stock is
1,061,558 First South Africa Holdings (Proprietary) Limited Class B common
stock, in terms of this escrow arrangement.
25. CONTINGENT LIABILITIES
South African Secondary Tax on Companies at 12.5 percent is payable on all
future dividends declared out of distributable reserves.
A contingent purchase consideration for the acquisition of Europair existed at
year end. This contingency was met and resulted in an additional payment to the
previous shareholders of approximately $80,861 which occurred subsequent to year
end.
A contingent purchase consideration for the acquisition of the Business
Combination of Piemans Pantry (Proprietary) Limited and Surf-Up Investments
(Proprietary) Limited, is payable based on the pre-tax profit of the Business
Combination as follows:
FIRST INSTALMENT
Four times pre-tax profit for the year ending February 28, 1997 multiplied by
twenty percent, which is then increased by 18.75%, to take into account the
interest cost of the delayed payment.
SECOND INSTALMENT
Four times pre-tax profit for the year ending February 28, 1998 multiplied by
twenty percent, which is then increased by 18.75%, to take into account the
interest cost of the delayed payment.
These instalments will be settled in part by the issue of First South African
Holdings (Proprietary) Limited Class B common stock and in part by a cash
consideration.
F-27
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1997
AND JUNE 30, 1996
(UNAUDITED)
ACTUAL
--------------------------
MARCH 31, JUNE 30,
1997 1996
$ $
----------- -----------
CURRENT ASSETS
Cash on hand 2,245,322 4,682,035
Trade accounts receivable 11,241,016 5,833,542
Less: Allowances for (531,110) (402,333)
----------- -----------
10,709,906 5,431,209
Inventories (net) 6,740,715 2,510,868
Prepaid expenses and other current assets 1,010,110 451,551
----------- -----------
TOTAL CURRENT ASSETS 20,706,053 13,075,663
Property, plant and equipment 17,918,680 9,000,334
Less: Accumulated depreciation (5,888,082) (2,119,912)
----------- -----------
12,030,598 6,880,422
Goodwill 165,139 408,541
Recipes and other intellectual property 9,907,666 2,848,532
Other assets 12,667 318,286
Deferred income taxes 10,619 73,550
----------- -----------
42,832,742 23,604,994
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long term debt 1,002,356 2,101,799
Bank overdraft payable 2,941,899 745,724
Trade accounts payable 7,225,415 2,162,257
Other provisions and accruals 6,304,376 1,923,371
Income taxes payable 1,599,287 1,518,095
----------- -----------
TOTAL CURRENT LIABILITIES 19,073,333 8,451,246
Long term debt 4,293,682 2,361,372
----------- -----------
TOTAL LIABILITIES 23,367,015 10,812,618
Stockholder's investment
Common stock 41,857 41,701
Capital in excess of par 22,059,698 18,518,986
Retained earnings (914,818) (3,887,407)
Foreign currency translation adjustments (1,728,317) (1,888,211)
Income restricted as to distribution 7,307 7,307
----------- -----------
42,832,742 23,604,994
=========== ===========
F-28
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINTH MONTHS ENDED
MARCH 31, 1997 AND 1996
(UNAUDITED)
THE COMPANY PREDECESSOR
----------- -----------
INCEPTION TO
MARCH 31, MARCH 31, 1996
1997 (NINE MONTHS)
$ $
----------- -----------
Revenues 44,536,940 3,349,100
=========== ===========
Operating expense
Cost of sales 24,543,952 2,062,287
Selling, general and administrative expense 16,050,703 1,242,155
----------- -----------
40,594,655 3,304,442
Operating income 3,942,285 44,658
Other income 599,521 98,809
Interest expense (770,087) (497,094)
----------- -----------
Income before income taxes 3,771,719 (353,627)
Provision for taxes on income (799,130) (8,601)
-----------
Net Income 2,972,589 (362,228)
=========== ===========
Net profit per share 0.61 (0.29)
Weighted average number of shares outstanding 4,902,280 1,251,243
F-29
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINTH MONTHS ENDED
MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
----------- -----------
FOR INCEPTION TO
MARCH 31, MARCH 31,
1997 1996
$ $
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income 2,972,589 (362,228)
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities
Depreciation 1,189,800 493,019
Amortization of other assets 208,524 0
Net gain on sale of assets (18,012) 0
Deferred income taxes 240,635 (29,559)
Effect of changes in assets and liabilities 1,586,881 314,860
----------- -----------
Net cash provided by operating activities 6,180,417 416,092
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant and equipment (2,526,740) (86,179)
Other assets (acquired)/disposed 287,069 (414,264)
Increase in loans to related companies 2,891 0
Acquisition of subsidiaries (net of cash of $334,405) (7,935,813) --
----------- -----------
Net cash used in investing activities (10,172,593) (500,443)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(repayments) in bank overdraft 1,867,474 (808,287)
Net (repayments)/borrowings of long term debt 720,806 (366,503)
Net (repayments) in loans from related companies -- (3,294)
Net borrowings in short term debt (1,099,443) (348,975)
Common Stock Issue -- 9,689,795
----------- -----------
Net cash provided by financing activities 1,488,837 8,169,324
----------- -----------
Effect of exchange rate changes as cash and assets (66,626) 52,583
----------- -----------
Net increase/(decrease) in cash on hand (2,436,713) 8,137,556
Cash on hand at beginning of period 4,682,035 12,125
----------- -----------
Cash on hand at end of period 2,245,322 8,149,681
=========== ===========
</TABLE>
F-30
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
FOR THE PERIOD DECEMBER 31, 1996 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
INCOME FOREIGN
RESTRICTED AS CURRENCY
CAPITAL IN CAPITAL STOCK RETAINED TO TRANSLATION
EXCESS OF FIRST SOUTH EARNINGS DISTRIBUTION ADJUSTMENTS
PAR AFRICA, LTD. $ $ $ TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 41,805 20,746,840 (2,060,916) 7,307 (2,653,489) 16,081,547
Issuance of stock to acquire
subsidiary companies 52 1,312,858 -- -- -- 1,312,910
Net profit for the period -- -- 1,146,098 -- -- 1,146,098
Translation adjustment -- -- -- -- 925,172 925,172
---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997 41,857 22,059,698 (914,818) 7,307 (1,728,317) 19,465,727
========== ========== ========== ========== ========== ==========
</TABLE>
F-31
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
1. ORGANIZATION
On July 1, 1996 the Company acquired 100% of the common stock of First Strut
(Proprietary) Limited for an aggregate net purchase price of $ 300,335. The
acquisition was accounted for using the purchase method of accounting. The
assets and liabilities were taken over at fair market value as determined by
management.
On July 1, 1996 the Company acquired the business and assets of Astoria Bakery
CC and 100% of the common stock of Astoria Bakery (Lesotho) (Proprietary)
Limited for an aggregate net purchase price of $3,696,431. The acquisition was
accounted for using the purchase method of accounting. The assets and
liabilities were taken over at fair market value as determined by management.
On November 1, 1996 the company acquired 100% of the common stock of Seemanns
Meat Products (Proprietary) Limited and Hammer Street Investments (Proprietary)
Limited for an aggregate net purchase price of $3,810,054. The acquisition was
accounted for using the purchase method of accounting. The assets and
liabilities were taken over at fair market value as determined by management.
On January 1, 1997 the company acquired the business and assets of Gull Foods CC
and 100% of the common stock of Trek Biltong (Proprietary) Limited for an
aggregate net purchase price of $5,293,079. The acquisition was accounted for
using the purchase method of accounting. The assets and liabilities were taken
over at fair market value as determined by management.
Gull Foods Group
$
----------------
Acquisition costs
Stock in lieu of cash 1,312,910
Cash consideration 3,980,169
Purchase price to be allocated 5,293,079
Summary allocation of purchase price
Current assets 2,105,052
Property, plant and equipment 640,824
Recipes and other intangibles 3,920,291
---------
Total assets acquired 6,666,167
---------
Current liabilities 1,146,049
Long term debt 227,039
---------
Total liabilities assumed 1,373,088
5,293,079
=========
F-32
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
2. PRINCIPLE ACTIVITIES OF THE GROUP
The principle activities of the group include the business of manufacturing,
servicing and selling packaging machines, receiving rental income, manufacture
of washers for use in the fastener industry, manufacture and supply of
air-conditioning products, and the manufacture, sale and distribution of ready
to eat and ready to bake off pastry related food products, rye bread and a
limited number of confectionery items, manufacture, packaging, and distribution
of fresh processed meat products, and manufacture, packaging and distribution of
specialized added value food products.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete Financial
Statements. In the opinion of management, the unaudited interim consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position of the Company at
December 31, 1996, and the results of operations and cash flows for the periods
presented. Results for the interim periods are not necessarily indicative of
results to be expected for the full year. These financial statements should be
read in conjunction with the financial statements and notes included in the Form
10-K for the period ended June 30, 1996.
4. INVENTORIES
Inventories consist of the following
March 31 June 30,
1997 1996
$ $
---------- ----------
Finished goods 3,352,278 2,077,679
Work-in-progress 697,030 272,377
Raw materials 2,424,214 501,562
Supplies 588,279 93,055
---------- ----------
Inventories (gross) 7,061,801 2,944,673
Less: Valuation allowances (400,238) (433,805)
---------- ----------
Inventories (net) 6,661,563 2,510,868
========== ==========
F-33
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
5. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information table below has been prepared
assuming that all of the acquisitions noted under the Organization section of
this Form 10-Q had taken place and that operations had commenced on July 1,
1995.
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
$ $
---------- ----------
Revenues 53,966,727 50,658,928
---------- ----------
Net Income 3,095,212 2,522,001
---------- ----------
Net profit per share 0.56 0.42
Number of shares in issue 5,886,833 5,886,833
6. SUBSEQUENT EVENTS
In June 1997, FSAH transferred all of the shares of Piemans Pantry, Astoria,
Seemanns and Gull Foods to First S.A. Food Holdings Ltd. ("FSA Food") and
completed (i) the initial public offering of 5,000,000 ordinary shares of common
stock of FSA Food in South Africa, which shares are listed on the Johannesburg
Stock Exchange, (ii) an institutional private placement in South Africa of
20,000,000 ordinary shares of common stock of FSA Food, and (iii) a private
placement of 12,500,000 ordinary shares of common stock of FSA Food to
management and staff all of which culminated in the sale of effectively 30% of
FSA Food.
During the period April 1997 to August 1997 the Company closed a subordinated
convertible debenture offering which raised approximately $9.4 million in net
proceeds after all fees and expenses. Of this amount, approximately $3 million
was utilized to acquire Gull Foods, approximately $1,000,000 was utilized to
acquire Pakmatic, and approximately $1,000,000 was utilized to pay for the cash
portion of the second tranche of the Piemans Pantry acquisition.
F-34
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PRO FORMA CONSOLIDATED BALANCE SHEET
AT MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED CONSOLIDATED
COMPANY COMPANY
MARCH 31, PROFORMA MARCH 31,
1997 ADJUSTMENTS 1997
$ $ $
----------- ----------- -----------
<S> <C> <C> <C>
Current assets
Cash on hand 2,245,322 25,748,942(1) 27,994,264
Receivables 11,241,016 11,241,016
Allowances for bad debts (531,110) -- (531,110)
----------- ----------- -----------
10,709,906 -- 10,709,906
Inventories 6,740,715 -- 6,740,715
Prepaid expenses and other current assets 1,010,110 1,010,110
----------- ----------- -----------
Total current Assets 20,706,053 25,748,942 46,454,995
Property, plant and equipment 17,910,680 -- 17,910,680
Less: Accumulated depreciation (5,880,082) -- (5,880,082)
----------- ----------- -----------
12,030,598 -- 12,030,598
Goodwill 165,139 -- 165,139
Investments and other intangibles 9,907,666 -- 9,907,666
Other assets 12,667 -- 12,667
Deferred income taxes 10,619 -- 10,619
Deferred debt issues -- 900,000(1) 900,000
42,832,742 26,648,942 69,481,684
=========== =========== ===========
Current liabilities
Bank overdraft payable 2,941,899 -- 2,941,899
Current portion of long term debt 1,002,356 -- 1,002,356
Trade accounts payable 7,225,415 -- 7,225,415
Other provisions and accruals 6,304,376 -- 6,304,376
Income taxes payable 1,599,287 -- 1,599,287
----------- ----------- -----------
Current liabilities 19,073,333 -- 19,073,333
Long term debt 4,293,682 10,000,000(1) 14,293,682
Total liabilities 23,367,015 10,000,000 33,367,015
Minority shareholders interest -- 13,032,046(2) 13,032,046
Stockholders' investment
Capital stock 41,857 -- (4) 41,857
Capital in excess of par 22,059,698 -- 22,059,698
Retained earnings (907,511) 3,616,896(2) 2,709,385
Foreign currency translation adjustments (1,728,317) -- (1,728,317)
----------- ----------- -----------
42,832,742 26,648,942 69,481,684
=========== =========== ===========
</TABLE>
The pro forma information has been prepared assuming that the acquisitions prior
to March 31, 1997 had taken place and that operations had commenced on July 1,
1995.
F-35
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS
ENDED MARCH 31, 1997 AND THE YEAR ENDED JUNE 30, 1996
(UNAUDITED)
Nine months ended March 31, 1997
<TABLE>
<CAPTION>
Consolidated Gull Foods Seemanns Pro Forma Pro Forma
Company Adjustments Consolidated
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 44,536,940 5,983,029 3,446,758 -- 53,966,727
=========== =========== =========== =========== ===========
Operating expenses
Cost of sales 24,543,952 3,406,916 2,631,960 -- 30,582,830
Selling, general and administrative costs 16,050,703 2,079,894 806,426 100,464(3) 19,037,487
----------- ----------- ----------- ----------- -----------
40,594,655 5,486,812 3,438,386 100,464 49,620,317
----------- ----------- ----------- ----------- -----------
Operating income 3,942,285 496,217 8,372 (100,464) 4,346,410
Other income 599,521 87,819 514,780 -- 738,818
Interest expense (770,087) (30,757) -- (337,500)(4) (1,138,344)
----------- ----------- ----------- ----------- -----------
Income before income taxes 3,771,719 553,279 59,850 (437,964) 3,946,884
Provision for taxes on income (799,129) (184,882) (20,948) 153,287 (3,4) (851,672)
----------- ----------- ----------- ----------- -----------
Net income 2,972,590 368,397 38,902 (284,677) 3,095,212
=========== =========== =========== =========== ===========
Net profit per share 0.53
Weighted average number of shares -- -- (5) 5,886,833
outstanding
</TABLE>
F-36
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1997
AND THE YEAR ENDED JUNE 30, 1996
(UNAUDITED)
Year ended June 30, 1996
<TABLE>
<CAPTION>
CONSOLIDATED PRO FORMA PRO FORMA
COMPANY ASTORIA GULL FOODS SEEMANNS ADJUSTMENTS CONSOLIDATED
$ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues 14,911,097 6,944,595 11,300,822 10,659,028 -- 43,815,542
=========== =========== =========== =========== =========== ===========
Operating Expenses
Cost of Sales 8,385,511 3,542,258 6,415,620 8,483,065 -- 26,826,454
Selling, general
and administrative costs 11,448,431 3,257,253 3,686,984 1,886,069 340,034(3) 20,598,771
----------- ----------- ----------- ----------- ----------- -----------
19,833,942 6,799,511 10,082,604 10,369,134 340,034 47,425,225
----------- ----------- ----------- ----------- ----------- -----------
Operating (loss)/Income (4,922,845) 145,084 1,218,218 289,894 (340,034) (3,609,683)
Other Income 539,636 69,207 40,245 201,206 -- 850,294
Interest Expense (865,733) (37,440) (15,834) (88,124) (450,000)(4) (1,457,131)
----------- ----------- ----------- ----------- ----------- -----------
(Loss)/income before income taxes (5,248,942) 176,851 1,242,629 402,975 (790,034) (4,216,521)
Provision for taxes on income (488,618) (29,435) (423,559) (141,160) 276,512(3,4) (806,261)
----------- ----------- ----------- ----------- ----------- -----------
Net (loss)/income (5,737,560) 147,416 819,070 261,815 (513,522) (5,022,781)
=========== =========== =========== =========== =========== ===========
Net loss per share (1.95)
Weighted average number of shares outstanding --(5) 2,578,238
</TABLE>
The proforma information does not purport to be indicative of the results that
would have actually been obtained if the acquisitions prior to June 30, 1996,
had occurred at the beginning of the period nor is it indicative of future
results.
F-37
<PAGE>
FIRST SOUTH AFRICAN CORP., LTD
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
AND YEAR ENDED JUNE 30, 1996
(UNAUDITED)
1. ISSUANCE OF 10,000 9% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
Reflects the issue of 10,000 9% Senior Subordinatd
Convertible Debentures of $1,000 each due June 15, 2004,
during the period commencing April 1997 and ending August
1997 Proceeds on issue 10,000,000
Debenture issue costs which have been deferred and will be
amortized over the debenture term (900,000)
------------
Net Debenture proceeds received 9,100,000
============
These Debentures are convertible into shares of Common Stock at $6 per share at
any time at the option of the Debenture holder
2. LISTING OF FIRST S.A. FOOD HOLDINGS LIMITED ON JOHANNESBURG STOCK EXCHANGE
Reflects the disposal of an effective 10% of the stock held by First South
African Holdings (Pty) Ltd, a 100% owned subsidiary of First South Africa Corp.,
Ltd., in First S.A. Food Holdings Limited, previously a 100% owned subsidiary of
First South African Holdings (Pty) Ltd. and the subsequent listing of First S.A.
Food Holdings Limited on the Johannesburg Stock Exchange on June 10, 1997, all
of which culminated in the sale of effectively 30% of the ownership of First
S.A. Food Holdings Limited.
Proceeds received on the disposal of the effective 30%
holding in First S.A. Food Holdings Limited 5,653,678
=============
Consolidated profit on disposal of the effective 30% holding
in First S.A. Food Holdings Limited 1,598,067
=============
Proceeds, net of issue costs, of the listing of First S.A.
Food Holdings Limited on the Johannesburg stock exchange 10,955,264
=============
Consolidated gain on proceeds raised upon listing First S.A.
Food Holdings Limited on the Johannesburg Stock Exchange,
which represents an unrealized gain restricted as to
distribution 2,018,829
=============
Minority share of the equity in First S.A. Food Holding
Limited, representing a 30% share in that company 13,032,046
=============
F-38
<PAGE>
FIRST SOUTH AFRICAN CORP., LTD
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
AND YEAR ENDED JUNE 30, 1996
(UNAUDITED)
3. AMORTIZATION OF INTANGIBLES
Amortization of other intangibles which represents the rights to intangible
knowledge acquired from the selling stockholders. Amoritzed over a twenty five
year period.
NINE MONTHS ENDED MARCH 31, 1997
Amortization not included in company results for the nine
months ended March 31, 1997 100,464
============
Taxation effect at 35%, the South Africn Statutory tax rate,
for the nine months ended March 31, 1997 35,162
============
YEAR ENDED JUNE 30, 1996
Amortization not included in company results for the year
ended June 30, 1996 340,034
============
Taxation effect at 35%, the South African Statutory tax
rate, for the year ended June 30, 1996 119,012
============
4. INTEREST COST OF DEBENTURES ISSUED FOR THE NINE MONTHS
ENDED MARCH 31, 1997
NINE MONTHS ENDED MARCH 31, 1997
Interest cost on 9% Senior Subordinated Convertible
Debentures for the nine months ended March 31, 997. On
assumption that all not all the proceeds ere used to fund
the acquisitions. 337,500
============
Taxation effect at 35%, the South African Statutory tax rate
for the nine months ended March 31, 1997. 118,125
============
YEAR ENDED JUNE 30, 1996
Interest cost on 9% Senior Subordinated Convertible
Debentures for the year ended June 30, 1996 on the
assumption that not all proceeds were used to fund the
acquisitions. 450,000
============
Taxation effect at 35%, the South African Statutory tax rate
for the year ended June 30, 1996. 157,500
============
F-39
<PAGE>
FIRST SOUTH AFRICAN CORP., LTD
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
AND YEAR ENDED JUNE 30, 1996
(UNAUDITED)
5. CALCULATION OF WEIGHTED AVERAGE NUMBER OF SHARES IN
ISSUE
NINE MONTHS ENDED MARCH 31, 1997
The weighted average number of shares has been adjusted to take account of the
shares issued to acquire the subsidiaries assuming the acquisitions took place
at the beginning of the period.
Shares in issue at June 30, 1996 (including the FSAH B class shares) 5,204,058
Shares issued to acquire Astoria Bakery (Pty) Ltd 186,047
Shares issued to acquire Seemanns Meat Products (Pty) ltd 258,065
Shares issued to acquire Gull Foods (Pty) Ltd 238,663
---------
5,886,833
=========
YEAR ENDED JUNE 30, 1997
Weighted average number of shares at June 30, 1996 (including the FSAH B Class
shares) 1,893,463
Shares issued to acquire Astoria Bakery (Pty) Ltd 186,047
Shares issued to acquire Seemanns meat products (Pty) Ltd 258,065
Shares issued to acquire Gull Food (Pty) Ltd 238,663
---------
2,576,238
=========
6. PROFIT REALIZED ON DISPOSAL OF EFFECTIVE HOLDINGS IN FIRST
S.A. FOOD HOLDINGS LIMITED
The profit realized on the disposal of the effective holding in First S.A. Food
Holdings Limited has not been taken into account in the pro forma income
statement. (See note 2 above)
F-40
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
UNAUDITED COMBINED BALANCE SHEET AT JUNE 30, 1996
- --------------------------------------------------------------------------------
JUNE 30,
1996
$
-----------
ASSETS
CURRENT ASSETS
Cash on hand 282,614
Receivables 429,518
Allowances for bad debts -
-----------
429,518
Inventories (note 2) 151,418
Prepaid expenses and other current assets 70,193
Total current assets 933,743
Property, plant and equipment 2,665,807
Less : Accumulated depreciation (1,144,250)
-----------
1,521,557
Goodwill 5,191
Loans to stockholders 116,027
-----------
2,576,518
===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Bank overdraft payable 435,822
Trade accounts payable 543,449
Other provisions and accruals 546,054
Income taxes payable 48,751
-----------
Total current liabilities 1,574,076
Long term debt 294,155
Loans from stockholders -
-----------
Total liabilities 1,868,231
Stockholders' investment
Capital stock
Astoria Bakery: Members' contribution 96
Astoria Bakery Lesotho: Common stock, M1 par value -
authorised 1,000 shares,
issued 100 shares in 1996 and 1995 32
Retained earnings 881,502
Foreign currency translation adjustments (173,343)
-----------
2,576,518
===========
F-41
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
UNAUDITED COMBINED STATEMENTS OF INCOME
FOR THE FOUR MONTHS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
JUNE 30, JUNE 30,
1996 1995
$ $
---------- ----------
Revenues 2,085,260 2,337,179
---------- ----------
Operating expenses
Cost of sales 927,450 1,038,098
Selling, general and administrative costs 967,165 1,178,696
---------- ----------
1,894,615 2,216,794
---------- ----------
Operating income 190,645 120,385
Other income 16,074 15,420
Interest expenses (10,748) (16,183)
---------- ----------
Income before income taxes 195,971 119,622
Provision for taxes on income (22,850) (4,120)
---------- ----------
Net income 173,121 115,502
Retained earnings at beginning of the period 708,381 640,569
---------- ----------
Retained earnings at end of period 881,502 756,071
========== ==========
F-42
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR FOR
JUNE 30, JUNE 30,
1996 1995
$ $
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income 173,121 115,502
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 137,942 139,739
Effect of changes in assets and liabilities 467,205 137,873
-------- --------
Net cash provided by operating activities 778,268 393,114
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to fixed assets (726,062) (481,668)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(repayments) in bank overdraft 231,907 (222,978)
Net proceeds of long term debt 86,682 37,371
Net (repayments)/borrowings in loans from stockholders (256,433) 285,602
Net repayments in short term debt (40,138) (55,375)
-------- --------
Net cash provided by financing activities 22,018 44,620
-------- --------
Effect of exchange rate changes on cash (28,399) (2,828)
-------- --------
Net increase/(decrease) in cash on hand 45,825 (46,762)
Cash on hand at beginning of period 236,789 317,081
-------- --------
Cash on hand at end of period 282,614 270,319
======== ========
</TABLE>
F-43
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited combined financial statements of the company have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with Article 10 Regulation S-X.
Accordingly they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim combined financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position of the company at June 30, 1996 and the
results of operations and cash flows for the periods presented.
Results for interim periods are not necessarily indicative of results to be
expected for the full year.
These financial statements should be read in conjunction with the financial
statements and notes included in the Form 10-K for the period ended June 30,
1996.
2. INVENTORY
Inventory for the period ended June 30, consists of the following:
June 30,
1996
$
---------
Ingredients and work in progress 132,585
Packaging 12,976
Fuel 5,857
-------
151,418
=======
3. CONTINGENT LIABILITIES
South African secondary tax on companies at 12.5 percent is payable on all
future dividend declarations.
4. EVENTS SUBSEQUENT TO JUNE 30, 1996
Subsequent to June 30, 1996 an agreement was reached to dispose of 100 percent
of the equity of Astoria Bakery Lesotho (Proprietary) Limited and the business
of Astoria Bakery CC to First South African Holdings (Proprietary) Limited, a
subsidiary of First South Africa Corp., Ltd, an entity under common control.
F-44
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED BALANCE SHEET AT FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
FEBRUARY 29,
1996
$
----------
ASSETS
Current assets
Cash on hand 236,789
Receivables 521,932
Allowances for bad debts --
----------
521,932
Inventories 186,788
Prepaid expenses and other current assets 38,333
----------
Total current assets 983,842
Property, plant and equipment 2,204,614
Less : Accumulated depreciation (1,140,113)
----------
1,064,501
Goodwill 5,871
----------
2,054,214
==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Bank overdraft 234,108
Current portion of long term debt 44,786
Trade accounts payable 720,525
Other provisions and accruals 26,476
Income taxes payable 29,637
----------
Total current liabilities 1,055,532
Long term debt 235,940
Loans from stockholders 154,911
----------
Total liabilities 1,446,383
Stockholders' investment
Capital stock
Astoria Bakery CC: Members' contributions 96
Astoria Bakery Lesotho
(Proprietary) Limited: Common stock, M1 par value -
authorised 100 000 shares,
issued 100 shares in 1996, 1995 and 1994 32
Retained earnings 708,381
Foreign currency translation adjustments (100,678)
----------
2,054,214
==========
F-45
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
---------- ----------
Revenues 7,200,784 6,315,976
---------- ----------
Operating expenses
Cost of sales 3,679,122 3,177,357
Selling, general and administrative costs 3,471,915 2,972,818
---------- ----------
7,151,037 6,150,175
---------- ----------
Operating income 49,747 165,801
Other income 69,448 38,354
Interest expense (42,951) (63,163)
---------- ----------
Income before income taxes 76,244 140,992
Provision for taxes on income (8,432) (28,029)
---------- ----------
Net income 67,812 112,963
Retained earnings at beginning of year 640,569 527,606
---------- ----------
Retained earnings at end of year 708,381 640,569
========== ==========
F-46
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF CASH FLOWS FOR THE
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
FOR FOR
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
-------- --------
Cash flows from operating activities:
Net income 67,812 112,963
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 157,861 137,502
Net gain on sale of assets (13,233) (5,950)
Effect of changes in assets and liabilities 229,033 (153,866)
-------- --------
Net cash provided by operating activities 441,473 90,649
-------- --------
Cash flows from investing activities:
Net additions to fixed assets (639,494) (171,684)
-------- --------
Cash flows from financing activities:
Net (repayments)/borrowings in bank overdraft (419,532) 11,411
Net proceeds/(repayments) of long term debt 188,468 (20,979)
Net borrowings in loans from stockholders 372,387 387,870
Net (repayments)/borrowings in short term debt (8,068) 5,543
-------- --------
Net cash provided by financing activities 133,255 383,845
-------- --------
Effect of exchange rate changes on cash (15,526) (4,137)
-------- --------
Net (decrease)/increase in cash on hand (80,292) 298,673
Cash on hand at beginning of year 317,081 18,408
-------- --------
236,789 317,081
======== ========
F-47
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital
stock
Astoria Foreign
Capital stock Bakery currency
Astoria Lesotho Retained translation
Bakery CC (Pty) Ltd earnings adjustments Total
$ $ $ $ $
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1994 96 32 527,606 (44,602) 483,132
Net income -- -- 112,963 -- 112,963
Translation adjustment -- -- -- (19,704) (19,704)
-------- -------- -------- -------- --------
Balance at February 28, 1995 96 32 640,569 (64,306) 576,391
Net income -- -- 67,812 -- 67,812
Translation adjustment -- -- -- (36,372) (36,372)
-------- -------- -------- -------- --------
Balance at February 29, 1996 96 32 708,381 (100,678) 607,831
======== ======== ======== ======== ========
</TABLE>
F-48
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
1. BUSINESS AND FORMATION OF THE COMPANIES
Astoria Bakery CC and Astoria Bakery Lesotho (Proprietary) Limited ("the
Companies") were registered in February 1992 and March 1979 respectively, and
both conduct the business of industrial bakers.
2. SUMMARY OF ACCOUNTING POLICIES
The financial statements have been prepared in conformity with Generally
Accepted Accounting practice in the United States of America, on the historical
cost basis and incorporate the following significant accounting policies:
FOREIGN CURRENCY TRANSLATION
The functional currency is that of South African Rands. Accordingly the
following rates of exchange have been used for translation purposes:
o Assets and liabilities are translated to United States Dollars using the
exchange rates at the balance sheet date.
o Common stock is translated to United States Dollars using the historical
exchange rates at the dates of issuance.
o Revenues, expenses, gains and losses are translated to United States
Dollars using weighted average exchange rates during the year.
The resultant translation adjustments are reported in the components of
stockholders' investment designated as "Foreign currency translation
adjustments."
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of plant, equipment and raw
materials purchased from foreign countries.
Transactions in foreign currencies are accounted for at the rates ruling at the
transaction dates. Exchange gains and losses are charged to the income statement
during the period in which they occur. Foreign assets and liabilities of the
Companies which are not denominated in South African Rands are converted into
South African Rands at the exchange rates ruling at the financial year end or
the rates of forward cover purchased. Forward cover is purchased to hedge the
currency exposure on foreign liabilities.
F-49
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost and net realisable value. Cost is
determined on the following basis:
o Raw materials and consumable stores are valued at cost using the FIFO
formula.
o Work in progress and finished goods are valued at direct raw material cost
plus labour costs and related manufacturing overhead expenses.
o Redundant and slow-moving inventory is identified and written down with
regard to its estimated economic or realisable value.
PROPERTY, PLANT AND EQUIPMENT
Improvements to leasehold property, plant, machinery, vehicles, equipment and
furniture and fittings are depreciated on the straight line basis so that the
cost of the assets is written off over their estimated useful lives.
The following periods are considered appropriate:
PERIOD
YEARS
-----
Improvements to leasehold properties 10
Plant, machinery and equipment 3 - 5
Vehicles 5
Furniture and fittings 7 - 10
INTANGIBLE ASSETS
Goodwill represents the excess of the cost of acquisition over the fair values
of the net identifiable assets acquired when the entity was formed. Goodwill is
recognised as an asset in the balance sheet.
GROSS REVENUE
Gross revenue comprises the gross invoiced value of sales in respect of trading
operations, before discounts, and excludes value added taxation. The company
recognises revenue on the accrual basis upon delivery of the products to the
customers.
F-50
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income tax expenses is based on reported earnings before income taxes. Deferred
income taxes represent the impact of temporary differences between the amounts
of assets and liabilities recognised for financial reporting purposes and such
amounts recognised for tax purposes. Deferred taxation is provided on the
comprehensive basis and is measured by applying currently enacted tax laws. No
provision for deferred tax has been raised as the amounts recognised for
financial reporting purposes approximate those recognised for tax purposes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As at the end of February 1996 the carrying value of accounts receivable and
accounts payable approximate their fair value.
3. INVENTORIES
Inventories for the year ended February 29, consist of the following:
FEBRUARY 29,
1996
$
------------
Ingredients and work in progress 163,556
Packaging 16,007
Fuel 7,225
-------
186,788
=======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Accumulated Net book
Cost depreciation value
February 29, February 29, February 29,
1996 1996 1996
$ $ $
----------------- ------------- ---------
<S> <C> <C> <C>
Leasehold improvements 107,426 (26,252) 81,174
Plant, machinery and equipment - owned 1,243,783 (645,816) 597,967
- leased 30,078 (24,063) 6,015
Vehicles - owned 601,666 (341,703) 259,963
- leased 66,396 (37,881) 28,515
Furniture and fittings 155,265 (64,398) 90,867
---------
2,204,614 (1,140,113) 1,064,501
========= ========= =========
Depreciation 157,861
=========
</TABLE>
Certain plant and equipment is encumbered as security for liabilities of the
Companies (refer note 7).
F-51
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
5. LONG TERM DEBT
<TABLE>
<CAPTION>
FEBRUARY 29,
1996
$
----------
<S> <C>
Findevco (Proprietary) Limited - Instalment sale agreements 207,346
Payable monthly at an effective rate of interest of 17,56% per annum
Nedbank instalment sale agreements 15,013
Payable in 36 monthly instalments of R1,596.18, payable from 1 March 1996 until
1 February 1999 with an effective interest rate of 18.5% per annum
Finance lease liabilities 58,367
Payable monthly at effective interest rates varying from 16.44% to 22.25% per
annum
Less : current portion (44,786)
-------
Total long term debt 235,940
=======
</TABLE>
The Findevco loan is secured by a first mortgage bond over land and buildings of
a fellow close corporation. The instalment sale agreements are secured over
certain assets having a book value of $34,530
6. LOANS FROM STOCKHOLDERS
FEBRUARY 29,
1996
$
-----------
Loans from stockholders 154,911
These loans are classified as long term. They do not bear interest and have no
fixed repayment date.
7. OPERATING LEASES
Astoria Bakery CC and Astoria Bakery Lesotho (Proprietary) Limited lease factory
buildings and equipment under operating leases. These leases expire over the
next five years.
In most cases, management expects that in the normal course of business, the
leases will be renewed or replaced by other leases.
The following schedule shows the composition of total rental expense for all
operating leases except those with a term of one month or less:
F-52
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
7. OPERATING LEASES (CONTINUED)
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
----------- -----------
Minimum rentals 257,123 254,859
======= =======
8. OTHER INCOME
Other income includes, interest received, profits on disposal of assets, rental
income and discounts received.
9. INTEREST EXPENSE
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
----------- -----------
Current bank account 42,951 63,163
====== ======
10. INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting Standards
No. 109 "Accounting for Income Tax" ("SFAS 109"), an asset and liability method.
SFAS 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 carry forwards, to the extent realisation of such benefit is more
likely than not.
The provision for income taxes charged to continuing operations was as follows:
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
----------- -----------
Current
South African 8,432 28,029
----- ------
Total current taxes 8,432 28,029
-----
Deferred
South African - -
----- ------
Total deferred taxes - -
----- ------
Provision for taxes on income 8,432 28,029
===== ======
F-53
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
10. 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:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
% %
----------- -----------
<S> <C> <C>
South African statutory tax rate 35.0 35.0
Capital gains/disallowable expenditure (4.0) 0.1
Prior year underprovision -- 4,4
Timing differences not provided for (17.6) (5.5)
Utilisation of operating loss carry forwards 12.4 --
Foreign tax rate differential (14.7) (14.1)
------ ------
Effective tax rate 11.1 19.9
======= ======
</TABLE>
11. CASH FLOWS
The changes in assets and liabilities consist of the following:
<TABLE>
<CAPTION>
February 29, February 28,
1996 1995
$ $
------------ ------------
<S> <C> <C>
Increase in receivables (44,379) (157,685)
Increase in inventories (75,412) (19,968)
Decrease/(increase) in prepaid expenses and other current assets 79,615 (83,157)
Increase in trade accounts payable 261,625 85,640
Increase in other provisions and accruals 7,796 8,607
(Decrease)/increase in income taxes payable (212) 12,697
-------- --------
229,033 (153,866)
======== ========
Supplemental disclosures of cash flow information:
Interest paid 42,951 63,163
======== ========
Income taxes paid 8,644 15,332
======== ========
</TABLE>
12. EMPLOYMENT BENEFITS
The majority of permanent salaried and waged staff belong to the Astoria Bakery
Pension Fund, which is underwritten by Southern Life Assurance. The retirement
fund is a defined contribution plan, and by nature of this fund there can be no
unfunded obligation or responsibility of the employer.
F-54
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
12. EMPLOYMENT BENEFITS (CONTINUED)
The Companies participate in medical aid schemes which provide medical cover for
employees on an annual basis. Neither the Companies nor the medical aid are
liable for post retirement medical costs. The Companies have no liability for
employees' medical costs in excess of the contributions to the medical fund.
Amounts contributed by the Companies to the funds and charged to pension costs
and medical aid costs were as follows:
February 29, February
1996 28, 1995
$ $
------------ --------
Pension costs 63,833 51,825
====== ======
Medical aid contributions 40,997 34,677
====== ======
13. CONTINGENT LIABILITIES
South African secondary tax on companies at 12.5 percent is payable on all
future dividends declared.
14. EVENTS SUBSEQUENT TO FEBRUARY 29, 1996
Subsequent to the year end, an agreement was reached to sell 100% of the equity
of Astoria Bakery Lesotho (Proprietary) Limited and the business of Astoria
Bakery CC to First South African Holdings (Proprietary) Limited, a subsidiary of
First South Africa Corp., Ltd, an entity under common control.
F-55
<PAGE>
GULL FOODS CC
UNAUDITED BALANCE SHEET
AT DECEMBER 31, 1996
DECEMBER 31,
1996
$
----------
ASSETS
CURRENT ASSETS
Cash on hand 611,685
Trade accounts receivable 1,051,578
Less: Allowances for bad debts --
----------
1,051,578
Inventories (net) 783,026
Prepaid expenses and other current assets 7,023
----------
Total current assets 2,453,312
Plant and equipment 1,177,879
Less : Accumulated depreciation (337,263)
----------
840,616
Loans to related parties 295,154
----------
3,589,082
==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long term debt 93,318
Bank overdraft payable 56,833
Trade accounts payable 1,119,557
Income taxes payable 684,996
----------
CURRENT LIABILITIES 1,954,704
Long term debt 223,016
Deferred income taxes 4,871
----------
Total liabilities 2,182,591
Stockholders' investment
Common stock 7,221
Retained earnings 1,647,863
Foreign currency translation adjustments (248,593)
----------
3,589,082
==========
F-56
<PAGE>
GULL FOODS CC
UNAUDITED STATEMENTS OF INCOME
FOR THE TEN MONTHS ENDED DECEMBER 31, 1996 AND 1995
DECEMBER 31, DECEMBER 31,
1996 1995
$ $
---------- ----------
Revenues 9,455,224 9,172,227
---------- ----------
Operating expenses
Cost of sales 5,456,678 5,431,680
Selling, general and administrative costs 3,019,539 2, 907,718
---------- ----------
8,476,217 8,339,398
---------- ----------
Operating income 979,007 832,829
Other income 99,090 8,958
Interest expenses (32,316) (2,297)
---------- ----------
Income before income taxes 1,045,781 839,490
Provision for taxes on income (357,011) (293,821)
---------- ----------
Net income 688,770 545,669
Retained earnings at beginning of the period 959,093 414,457
---------- ----------
Retained earnings at end of period 1,647,863 960,126
========== ==========
F-57
<PAGE>
GULL FOODS CC
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1996 AND 1995
DECEMBER 31, DECEMBER 31,
1996 1995
$ $
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 688,770 545,669
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 148,259 71,541
Deferred income taxes 4,912 --
Effect of changes in assets and liabilities 107,308 89,061
-------- --------
Net cash provided by operating activities 949,249 706,271
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to fixed assets (680,162) (277,925)
Increase in loans to related companies (5,586) (56,823)
-------- --------
Net cash utilized by investing activities (685,748) (334,748)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings in bank overdraft 59,623 211,043
Net repayments of long-term debt (66,187) 581,205
Net repayments in short term debt 47,136 --
Net cash provided by financing activities 40,572 211,043
-------- --------
Effect of exchange rate changes on cash (85,705) (1,361)
Net increase/(decrease) in cash on hand 218,368 581,205
Cash on hand at beginning of period 393,317 --
-------- --------
Cash on hand at end of period 611,685 581,205
======== ========
F-58
<PAGE>
GULL FOODS CC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements of the company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with Article 10 of Regulation S-X.
Accordingly they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position of the company at December 31, 1996 and the
results of operations and cash flows for the periods presented.
Results for interim periods are not necessarily indicative of results to be
expected for the full year.
These financial statements should be read in conjunction with the financial
statements and notes included in the form 10 K for the period ended June 30,
1996 and the form 10 Q for the period ended December 31, 1996.
2. INVENTORY
Inventory for the period ended December 31, consists of the following:
December 31,
1996
$
------------
Raw materials 256,156
Packing materials 365,728
Finished goods 161,142
783,026
=======
3. CONTINGENT LIABILITIES
South African secondary tax on companies at 12.5 percent is payable on all
future dividend declarations.
4. EVENTS SUBSEQUENT TO DECEMBER 31, 1996
Subsequent to December 31, 1996 an agreement was reached to dispose of the
business of Gull Foods CC to First South African Holdings (Proprietary) Limited,
a subsidiary of First South Africa Corp., Ltd.
F-59
<PAGE>
GULL FOODS CC
AUDITED BALANCE SHEET AT FEBRUARY 29, 1996
FEBRUARY 29,
1996
$
----------
ASSETS
CURRENT ASSETS
Cash on hand 393,317
Trade accounts receivable 698,968
Less: Allowances for bad debts --
----------
698,968
Inventories (net) 457,784
Prepaid expenses and other current assets 6,435
----------
1,556,504
Plant and equipment 647,152
Less : Accumulated depreciation (239,457)
----------
407,695
Loans to related companies 354,194
----------
2,318,393
==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long term debt 59,134
Trade accounts payable 578,766
Income taxes payable 414,114
----------
Total current liabilities 1,052,014
Long term debt 349,641
Deferred income taxes 230
----------
Total liabilities 1,401,885
Stockholder's investment
Common stock 7,221
Retained earnings 959,093
Foreign currency translation adjustments (49,806)
----------
2,318,393
==========
F-60
<PAGE>
GULL FOODS CC
AUDITED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
----------- -----------
<S> <C> <C>
Revenues 10,910,302 7,270,767
----------- -----------
Operating expenses
Cost of sales 6,241,299 4,514,074
Selling, general and administrative costs 3,866,133 2,376,329
----------- -----------
10,107,432 6,890,403
----------- -----------
Operating income 802,870 380,364
Other income 36,743 24,014
Interest expense (20,127) (1,872)
----------- -----------
Income before income taxes 819,486 402,506
Provision for taxes on income (274,850) (140,877)
----------- -----------
Net income 544,636 261,629
=========== ===========
</TABLE>
F-61
<PAGE>
GULL FOODS CC
AUDITED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
FOR FOR
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 544,636 261,629
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 85,469 47,353
Deferred income taxes 240 --
Effect of changes in assets and liabilities 44,186 (171,762)
-------- --------
Net cash provided by operating activities 674,531 137,220
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to plant and equipment (309,116) (168,298)
Increase in loans to related companies (212,030) (162,958)
-------- --------
Net cash utilized by investing activities (521,146) (331,256)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments)/borrowings in bank overdraft (169,553) 174,397
Net repayments in loans from related companies -- (180,136)
Net proceeds of long term debt 365,700 --
Net repayments in short term debt 61,850 --
-------- --------
Net cash provided by financing activities 257,997 (5,739)
-------- --------
Effect of exchange rate changes on cash (18,065) (5,156)
Net increase/(decrease) in cash on hand 393,317 (204,931)
Cash on hand at beginning of year -- 204,931
======== ========
Cash on hand at end of year 393,317 --
======== ========
</TABLE>
F-62
<PAGE>
GULL FOODS CC
AUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Foreign
currency
Retained translation
Capital stock earnings adjustments Total
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1994 7,221 152,828 (2,832) 157,217
Net income -- 261,629 -- 261,629
Translation adjustment -- -- 1,283 1,283
-------- -------- -------- --------
Balance at February 28, 1995 7,221 414,457 (1,549) 420,129
Net income -- 544,636 -- 544,636
Translation adjustment -- -- (48,257) (48,257)
-------- -------- -------- --------
Balance at February 29, 1996 7,221 959,093 (49,806) 916,508
======== ======== ======== ========
</TABLE>
F-63
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
1. BUSINESS AND FORMATION OF THE COMPANY
Gull Foods CC was registered in February 1985 and conducts the business of a
multi - disciplinary convenience food manufacturer.
2. SUMMARY OF ACCOUNTING POLICIES
The financial statements have been prepared in conformity with Generally
Accepted Accounting Practices in the United States of America, on the historical
cost basis and incorporate the following significant accounting policies:
FOREIGN CURRENCY TRANSLATION
The functional currency is that of South African Rand. Accordingly the following
rates of exchange have been used for translation purposes:
* Assets and liabilities are translated to United States Dollars using the
exchange rates at the balance sheet date
* Common stock is translated to United States Dollars using the historical
rates at date of acquisition.
* Revenues and expenses, gains and losses are translated to United States
Dollars using the weighted average exchange rates during the year.
The resultant translation adjustments are reported in the component of
Stockholders' investment designated as "Foreign currency translation
adjustments".
FOREIGN ASSETS AND LIABILITIES
Transactions in foreign currencies arise as a result of plant, equipment and raw
materials purchased from foreign countries.
Transactions in foreign currencies are accounted for at the rates ruling at
transaction date. Exchange gains and losses are charged to the income statement
during the period in which they occur. Foreign assets and liabilities of the
company which are not denominated in South African Rand are converted into South
African Rand at the rates ruling at financial year end or the rates of forward
cover purchased.
INVENTORIES
Inventories are valued at the lower of cost and net realizable value. Cost is
determined on the following basis:
* Raw materials and consumables are valued at actual cost.
F-64
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
* Work in progress and finished goods are valued at direct raw material cost
plus labour costs and related manufacturing overhead expenses.
* Redundant and slow moving inventory is identified and written down with
regard to its estimated economic or residual value.
PLANT AND EQUIPMENT
Plant, machinery, vehicles, equipment, furniture and fittings and kitchen
equipment is depreciated on the straight line basis so that the cost of the
assets are written off over their estimated useful lives.
The following periods are considered appropriate:
PERIOD
YEARS
-----
Plant, machinery and equipment 5
Vehicles 5
Furniture and fittings 10
GROSS REVENUE
Gross revenue comprises the gross invoiced value of sales in respect of trading
operations before discounts, and excludes value added taxation. The company
recognizes revenue on the accrual basis upon delivery of the products to the
customers.
INCOME TAXES
Income tax expense is based on reported earnings before income taxes. Deferred
income taxes represent the impact of temporary timing differences between the
amounts of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred taxation is provided on
the comprehensive basis and is measured by applying currently enacted tax laws.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As at the end of February 1996 the carrying value of accounts receivable and
accounts payable approximate their fair value.
F-65
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
3. INVENTORIES
Inventories for the year ended February 29, consist of the following:
FEBRUARY 29,
1996
------------
Raw materials 175,098
Packing materials 235,156
Finished goods 47,530
-------
457,784
-------
4. PLANT AND EQUIPMENT
Plant and equipment consist of the following:
Accumulated Net book
Cost depreciation value
February 29, 1996 February 29, February 29,
$ 1996 1996
----------------- ------------- --------------
Plant and machinery 456,114 (182,149) 273,965
Furniture and fittings 27,554 (7,319) 20,235
Motor vehicles 142,357 (45,764) 96,593
Kitchen equipment 21,127 (4,225) 16,902
-------- -------- --------
647,152 (239,457) 407,695
======== ======== ========
Certain plant and equipment is encumbered as security for the liabilities of the
company (Refer note 5)
F-66
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
5. LONG TERM DEBT
<TABLE>
<CAPTION>
February 29,
1996
$
--------
FINDEVCO (PROPRIETARY) LIMITED - LONG TERM LOAN
<S> <C>
Repayable in 48 monthly in instalments of $ 7 838 at an effective interest rate
varying between 6% and 16.5% per annum commencing on September 1, 1996. Secured
by suretyships by the members of
$376,224 376,784
STANNIC - INSTALLMENT SALE AGREEMENTS
Repayable in 36 monthly instalment of $ 296 at an effective interest rate of
18.5% per annum commencing on December 30, 1995. Secured by
certain plant and equipment 10,019
STANNIC - FINANCE LEASE LIABILITIES
Repayable monthly at effective interest rates of 17.5% per annum
Secured by certain plant and equipment 21,972
--------
408,775
Less: current portion (59,134)
--------
Total long term debt 349,641
========
</TABLE>
6. OPERATING LEASES
Gull foods CC lease factory buildings and certain factory equipment under
operating leases. These leases all expire within the next five years.
In most cases management expects that in the normal course of business, the
leases will be renewed or replaced by other leases.
The following shows the composition of total rental expenses for all operating
leases except those with a term of one month or less:
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
Minimum rentals 141,021 113,846
======= =======
F-67
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
7. OTHER INCOME
Other income includes proceeds from insurance claims, scrap sales, discounts
received, interest received and sundry income.
8. INTEREST EXPENSE
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
Current bank account 16,550 1,872
Lease interest 3,577 --
------ ------
20,127 1,872
====== ======
9. INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting 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 carry forwards, to the extent that realization of such benefit is
more likely than not.
The provision for income tax charged to continuing operations was as follows:
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
------------ ------------
Normal
South African
Current 274,174 140,877
Prior year 436 --
------- -------
Total current taxes 274,610 140,877
------- -------
DEFERRED
South African
Current 240 --
------- -------
Total deferred taxes 240 --
------- -------
Provision for taxes on income 274,850 140,877
======= =======
The provision for taxes on income differs from the amount of income tax
determined by applying the applicable South African statutory tax rate to
pre-tax income from continuing operations as a result of the following
differences:
F-68
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
9. INCOME TAXES (CONTINUED)
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
------------ ------------
South African statutory tax rate 35.0 35.0
Permanent differences - not taxable (2.0) --
Prior year underprovision 0.5 --
------ ------
33.5 35.0
====== ======
10. CASH FLOWS
The changes in assets and liabilities consist of the following:
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
------------ ------------
Decrease/(increase) in receivables 70,678 (538,749)
Increase in inventories (396,242) (51,076)
Increase in prepaid expenses and other current (196) (1,557)
assets
Increase in trade accounts payable 106,568 276,146
Increase in income taxes payable 263,378 143,474
-------- --------
44,186 (171,762)
======== ========
Supplemental disclosures of cash flow information:
Interest paid 20,127 1,872
======== ========
Income taxes paid/ (refunded) 11,472 (2,597)
======== ========
11. EMPLOYMENT BENEFITS
The company participates in a medical aid scheme which provides medical cover
for employees on an annual basis. Neither the company nor the medical aid are
liable for post retirement medical costs. The company has no liability for
employees medical costs in excess of the contributions to the medical fund.
FEBRUARY 29, FEBRUARY 28,
1996 1995
$ $
------------ ------------
Medical aid contributions 4,888 3,868
===== =====
F-69
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
12. CONTINGENT LIABILITIES
South African secondary tax on companies at 12.5 percent is payable on all
future dividends declared.
13. EVENTS SUBSEQUENT TO FEBRUARY 29, 1996
Subsequent to the year end, an agreement was reached to sell the business of
Gull Foods CC to First South African Holdings (Proprietary) Limited, a
subsidiary of First South Africa Corp., Ltd, an entity under common control.
F-70
<PAGE>
====================================== ========================================
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FIRST SOUTH AFRICA CORP., LTD.
COMPANY OR BY THE UNDERWRITER. THIS -----------------------------
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED 10,000 9% SENIOR SUBORDINATED
HEREBY BY ANYONE IN ANY JURISDICTION CONVERTIBLE DEBENTURES
IN WHICH SUCH OFFER OR SOLICITATION IS 1,666,667 SHARES OF COMMON STOCK
NOT AUTHORIZED OR IN WHICH THE PERSON (UNDERLYING THE CONVERSION OF
MAKING SUCH OFFER OR SOLICITATION IS OUTSTANDING 9% SENIOR SUBORDINATED
NOT QUALIFIED TO DO SO OR TO ANYONE TO CONVERTIBLE DEBENTURES)
WHOM IT IS UNLAWFUL TO MAKE SUCH 135,000 SHARES OF COMMON STOCK
OFFER, OR SOLICITATION. (UNDERLYING THE EXERCISE OF OUTSTANDING
PLACEMENT WARRANTS)
----------- 25,000 SHARES OF COMMON STOCK
(UNDERLYING THE EXERCISE OF OUTSTANDING
TABLE OF CONTENTS STOCK PURCHASE OPTIONS)
PAGE
----
Prospectus Summary...................2
Summary Financial Information........6
Cautionary Statement Regarding
Forward Looking Information ........7
Risk Factors.........................7 ===========================
Dividend Policy.....................14 PROSPECTUS
Capitalization......................15
Market for Registrant's Common ===========================
Equity and Related Stockholder
Matters............................16
Selected Historical and Pro
Forma Condensed Combined
Financial Data.....................18
ProForma Financial Information......18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..........20
Business............................29
South Africa........................36 , 1997
Management..........................39
Certain Transactions................47
Principal Shareholders..............51
Description of Securities...........53
Selling Securityholders.............65
Plan of Distribution................66
Certain Tax Considerations..........67
Shares Eligible for Future Sale.....72
Legal Matters.......................73
Experts.............................73
Enforceability of Civil
Liabilities........................73
Additional Information..............74
Index to Consolidated Financial
Statements.........................F-1
-----------
====================================== ========================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the following expenses will be incurred in
connection with the proposed offering hereunder. All of such expenses will be
borne by the registrant.
Registration fee - Securities and Exchange Commission............ $ 6,337.47
Legal fees and expenses.......................................... 25,000.00
Accounting fees and expenses..................................... 5,000.00
Blue sky fees and expense (including counsel fees)............... 5,000.00
Printing expenses................................................ 2,500.00
Miscellaneous.................................................... 1,162.53
-------------
Total............................................. $ 45,000.00
=============
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Bermuda law and the registrant's Memorandum of Association and
bye-laws, the directors, officers, liquidators and auditors of the registrant
and their heirs, executors and administrators are indemnified and held harmless
out of the assets of the Company from and against all actions, costs, charges,
losses and expenses which they or any of them, their heirs, executors or
administrators, shall or may incur or sustain by or by reason of any act done,
concurred in or omitted in or about the execution of their duty, or supposed
duty, or in their respective offices or trusts, and none of them shall be
answerable for the acts, receipts, neglects or defaults of the others of them or
for joining in any receipts for the sake of conformity or for any loss,
misfortune or damage which may happen in the execution of their respective
offices or trusts, or in relation thereto, provided that they are not entitled
to indemnification in respect of any willful negligence, willful default, fraud
or dishonesty which may attach to them.
For information concerning indemnification provisions between the
registrant and the underwriter, reference is made to Section 7 of the
Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In September, 1995, the registrant issued 1,212,521 shares of
Class B Common Stock to Clive Kabatznik in consideration of a set-off against
$12,125.21 of organizational expenses with respect to the Company incurred by
Mr. Kabatznik. The registrant believes that such transaction is exempt from
registration provisions of the Securities Act of 1933, as amended (the "Act") in
reliance upon Section 4(2) of the Act.
(b) In November 1995, the registrant completed the Bridge Financing
of $1,300,000 principal amount of Notes and 650,000 Bridge Warrants. The
registrant believes that such Bridge Financing is exempt from the registration
provisions of the Act in reliance upon Regulation D promulgated under Section
4(2) of the Act. D.H. Blair Investment Banking Corp. earned a commission equal
to $130,000 and a non-accountable expense allowance of $39,000.
(c) In January, 1997, the Registrant entered into a stock option
agreement with Barretto Pacific Corporation ("BPC") pursuant to which the
Registrant granted BPC an option to purchase 25,000 shares of Common Stock at an
exercise private of $3.75 per share. Such option, which shall expire 180 days
after the effectiveness of
II-1
<PAGE>
this Registration Statement, was granted in consideration of certain services
rendered by BPC for the Registrant. The Registrant believes that such
transaction is exempt from the registration provisions of the Act in reliance on
Section 4(2) of the Act.
(d) 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
received 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
1.1 Form of Underwriting Agreement
1.2 Form of Custody Agreement
3.1 Memorandum of Association of the Registrant
3.2 By-Laws of the Registrant
4.1 Form of Bridge Note
4.2 Form of Warrant Agreement
4.3 Form of Unit Purchase Option
Indenture dated April 25, 1997 between the Company
and American Stock Transfer &
4.4 Trust Company (as Trustee)
4.5(1) Form of Debenture
4.6(1) Form of Placement Warrant
4.7(1) Stock Option Agreement
5.1(1) Opinion of Conyers, Dill & Pearman
8.1 Tax Opinion of Webber Wentzel Bowens
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
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
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.16 Form of Addendum to Europair Acquisition Agreement
10.17(2) Pieman's Pantry Acquisition Agreement
10.18(2) Form of Astoria Acquisition Agreement
10.19(3) Form of Seemans Acquisition Agreement
10.20(4) Form of Gull Foods Acquisition Agreement
21.1(1) Subsidiaries of the Registrant
23.1(1) Consent of Price Waterhouse
23.2(1) Consent of Conyers, Dill & Pearman (Included in Exhibit 5.1)
23.3(1) Consent of Parker Chapin Flattau & Klimpl, LLP
23.4(1) Consent of Webber Wentzel Bowens
24.1(1) Power of Attorney of certain officers and directors of the
Company (included on pg. II-4)
- -----------
(1) Filed herewith.
(2) Incorporated by reference is the Registrant's Current Report on Form 8-K
(filed on June 14, 1996) as amended on Form 8-K/A (filed on August 16,
1996).
(3) Incorporated by reference is the Registrant's Current Report on Form 8-K
(filed on November 7, 1996) as amended on Form 8-K/A (filed on March 14,
1997).
(4) Incorporated by reference is the Registrant's Current Report on Form 8-K
(filed on May 8, 1997) as amended on Form 8-K/A (filed on July 3, 1997).
All other Exhibits have been previously filed with the Registrant's
Registration Statement on Form S-1 (No. 33-99180), which is incorporated by
reference.
(b) FINANCIAL STATEMENT SCHEDULES
Pro Forma Financial Statement Schedules included as applicable
related to consolidated financial statements of the registrant.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Coconut
Grove, State of Florida, on the 13th day of August, 1997.
FIRST SOUTH AFRICA CORP., LTD.
By: /S/ CLIVE KABATZNIK
---------------------------------
Clive Kabatznik
President
POWER OF ATTORNEY
Know all men by these presents, that each individual whose signature
appears below constitutes and appoints Michael Levy and Clive Kabatznik and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ MICHEAL LEVY Chairman of the Board of August 13, 1997
- --------------------------- Directors
Michael Levy
/S/ CLIVE KABATZNIK President, Vice Chairman, Chief August 13, 1997
- --------------------------- Executive Officer, Chief Financial
Clive Kabatznik Officer, Director and Controller
/S/ CHARLES S. GOODWIN Director August 13, 1997
- ---------------------------
Charles S. Goodwin
/S/ JOHN MACKEY Director August 13, 1997
- ---------------------------
John Mackey
/S/ CORNELIUS J. ROODT Director August 13, 1997
- ---------------------------
Cornelius J. Roodt
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE NUMBER
<S> <C> <C> <C> <C> <C> <C>
1.1 Form of Underwriting Agreement............................................
1.2 Form of Custody Agreement.................................................
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..............................................
Indenture dated April 25, 1997 between the Company and American
4.4 Stock Transfer & Trust Company (as Trustee)...............................
4.5(1) Form of Debenture.........................................................
4.6(1) Form of Placement Warrant.................................................
4.7(1) Stock Option Agreement....................................................
5.1(1) Opinion of Conyers, Dill & Pearman........................................
8.1 Tax Opinion of Webber Wentzel Bowens......................................
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..............
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(2) Pieman's Pantry Acquisition Agreements....................................
10.19(2) Form of Astoria Escrow Agreement..........................................
10.21(3) Form of Seemans Acquisition Agreement.....................................
10.23(4) Form of Gull Foods Acquisition Agreement..................................
21.1 Subsidiaries of the Registrant............................................
23.1(1) Consent of Price Waterhouse...............................................
23.2(1) Consent of Conyers, Dill & Pearman........................................
23.3(1) Consent of Parker Chapin Flattau & Klimpl, LLP............................
23.4(1) Consent of Webber Wentzel Bowens..........................................
24.1(1) Power of Attorney of certain officers and directors of the Company
(included on page II-5)...................................................
</TABLE>
- -----------
<PAGE>
(1) Filed herewith.
(2) Incorporated by reference is the Registrant's Current Report on Form 8-K
(filed on June 14, 1996)as amended on Form 8-K/A (filed on August 16,
1996).
(3) Incorporated by reference is the Registrant's Current Report on Form 8-K
(filed on November 7, 1996) as amended on Form 8-K/A (filed on March 14,
1997).
(4) Incorporated by reference is the Registrant's Current Report on Form 8-K
(filed on May 8, 1997) as amended on Form 8-K/A (filed on July 3, 1997).
All other Exhibits have been previously filed with the Registrant's
Registration Statement on Form S-1 (No. 33-99180), which is incorporated by
reference.
No.___________ $_________________
FIRST SOUTH AFRICA CORP., LTD.
9% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
DUE JUNE 15, 2004
promises to pay to
or registered assigns the principal sum of ____________ Dollars on June 15, 2004
The provisions set forth on Annex A hereto are incorporated as if set forth on
the face hereof.
Interest Payment Dates:
June 15, September 15, December 15, March 15.
Record Dates:
June 1, September 1, December 1, March 1.
DATED:
Certificate of Authentication
This Security is one of the
Securities described in the
within mentioned Indenture.
AMERICAN STOCK TRANSFER AND FIRST SOUTH AFRICA CORP., LTD.
TRUST COMPANY, as Trustee
By:_____________________________ By:_____________________________
Authorized Signature
By:_____________________________
<PAGE>
ANNEX A
FIRST SOUTH AFRICA CORP., LTD.
9% SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
DUE JUNE 15, 2004
1. INTEREST. First South Africa, Corp., Ltd., a Bermuda corporation
(the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
quarterly commencing June 15, 1997. Securities issued by the Company after April
17, 1997, the initial closing date (the "Initial Closing Date") will bear
interest from the respective subsequent closing date, but in all other respects
will be on the same terms and conditions as the other Securities issued pursuant
to the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Security
(except defaulted interest) to the persons who are registered holders of
Securities at the close of business on the record date for the next interest
payment date even though Securities are canceled after the record date and on or
before the interest payment date. The Company will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. The Company will pay interest by its check
payable in such money mailed to the holder's registered address.
3. PAYING AGENT, REGISTRAR AND CONVERSION AGENT. Initially, American
Stock Transfer & Trust Company (the "Trustee") will act as Paying Agent,
Registrar and Conversion Agent. The Company may change any Paying Agent,
Registrar or Conversion Agent without notice to any Securityholder. The Company
or any of its subsidiaries may act in such capacity.
4. INDENTURE. The Company issued the Securities under an Indenture
dated as of April 25, 1997, (the "Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture for a statement of them. The Securities are limited to the
aggregate principal amount of $10,000,000.
5. REDEMPTION. The Securities may be redeemed by the Company at any
time or from time to time commencing June 15, 1999, at the Company's option, in
whole or in part, upon not less than 30 nor more than 60 days' notice, mailed to
the registered holders thereof at their last registered addresses, at the
redemption prices (expressed as percentages of the principal amount) set forth
below, plus accrued and unpaid interest to the redemption date (and subject to
the right of any record holder to receive the interest payable on the applicable
Interest Payment Date that is on or prior to the redemption date). If redeemed
during the periods indicated below, the applicable redemption percentage would
be:
FROM THROUGH PERCENTAGE
June 15, 1999 June 14, 2000.... 109.0%
June 15, 2000 June 14, 2001... 107.0%
June 15, 2001 June 14, 2002... 105.0%
June 15, 2002 June 14, 2003... 102.5%
June 15, 2003 June 15, 2004... 100.0%
1
<PAGE>
The Company may not redeem the Securities prior to June 15, 1998.
The Company may redeem the Securities after June 15, 1998 but prior to June 15,
1999 if the market price of the Common Stock on any 20 trading days during a
period of 30 consecutive trading days shall have equaled or exceeded 150% of the
then Conversion Price of the Securities. The applicable redemption percentage
would be 109%.
6. SELECTION AND NOTICE OF REDEMPTION. Notice of redemption will be
mailed at least thirty (30) but not more than sixty (60) days before the
redemption date to each holder of Securities to be redeemed at his registered
address. Securities in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. On and after the redemption date,
interest ceases to accrue on Securities or portions thereof called for
redemption.
7. CONVERSION. A holder of a Security may convert it into Common
Stock of the Company at any time, subject to prior redemption and compliance
with the terms of the Indenture. If the Security is called for redemption, the
holder may convert it at any time before the close of business on the fifth
business day prior to the redemption date. The initial conversion price shall be
equal to $6.00 per share of Common Stock, subject to adjustment in certain
events. To determine the number of shares issuable upon conversion of a
Security, divide the principal amount to be converted by the conversion price in
effect on the conversion date and round the result to the nearest 1/100th of a
Share. On conversion, no payment or adjustment for interest will be made. The
Company will deliver a check for any fractional share.
To convert a Security a holder must (1) complete and sign the
conversion notice on the back of the Security, (2) surrender the Security to a
Conversion Agent, (3) furnish appropriate endorsements and transfer documents if
required by the Registrar or Conversion Agent, and (4) pay any transfer or
similar tax if required. A holder may convert a portion of a Security if the
portion is $1,000 or an integral multiple of $1,000.
The conversion price is subject to adjustment as set forth in the
Indenture upon the occurrence of certain events, including: (i) the issuance of
stock of the Company as a dividend or distribution on any shares of the Common
Stock; (ii) subdivisions, combinations and certain reclassifications of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants entitling them to subscribe for or purchase Common Stock at
less than the then current conversion price (as determined in the manner set
forth in the Indenture); (iv) the distribution to all holders of Common Stock of
any shares of capital stock of the Company (other than the Common Stock),
evidences of indebtedness of the Company or other assets (including securities,
but excluding any rights or warrants referred to above, excluding any dividend
or distribution paid in cash out of earned surplus of the Company); (v) the
distribution to all holders of Common Stock of cash in the aggregate amount of
such cash distribution; (vi) the issuance of shares of Common Stock for less
consideration than the then current conversion price; and (vii) the issuance of
securities convertible into or exchangeable for shares of Common Stock (other
than pursuant to transactions described above and with certain exceptions) for a
consideration per share of Common Stock deliverable on such conversion or
exchange that is less than the then current conversion price of the Common Stock
on the date of issuance of such security.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the price then in effect;
but any adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
The Company from time to time may voluntarily reduce the conversion
price for a period of time, provided that the conversion price is not less than
the par value of a share of Common Stock.
2
<PAGE>
If the Company consolidates or merges into or sells, leases,
transfers or otherwise disposes of all or substantially all of its assets, the
Securities will become convertible into the kind and amount of Securities, cash
or other assets which the holders of the Securities would have owned immediately
after the transaction if the holders had converted the Securities immediately
before the effective date of the transaction at the conversion price in effect
immediately prior to such effective date.
8. SINKING FUND. The Securities will be redeemable through the
operation of a mandatory sinking fund in two equal installments totaling 67% of
the issue on June 15, 2002 and June 15, 2003, with the balance of the issue
being retired at maturity on June 15, 2004. Sinking fund redemptions shall be
made upon not less than 30 days' notice mailed to each holder of the Securities
to be redeemed at the holder's registered address, at a sinking fund redemption
price equal to the then redemption price plus accrued and unpaid interest to the
date fixed for redemption (subject to the right of holders of record on the
relevant record date to receive interest due on an Interest Payment Date that is
prior to the date fixed for redemption). Prior to June 15 of each of the years
2002 and 2003, the Company will pay to the Trustee, for a sinking fund payment,
cash sufficient to redeem on such date fixed for redemption, 33.5% of the
aggregate principal amount of the issued Securities, provided that Securities
converted pursuant to the Indenture or reacquired or redeemed by the Company
(other than Securities redeemed through the sinking fund) may be used, at the
principal amount thereof, to reduce the amount of any sinking fund payment. Cash
payments for the sinking fund are to be applied to redeem Securities.
9. SUBORDINATION. The Securities are subordinated and subject in
right of payment to the prior payment in full of all Senior Indebtedness (as
defined in the Indenture). To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company agrees,
and each Securityholder by accepting a Security agrees, to the subordination and
authorizes the Trustee to give it effect. The indebtedness evidenced by the
Securities shall rank senior to all indebtedness evidenced by securities of the
Company issued by the Company after the date of the Indenture, any other
evidence of Indebtedness of the Company except as expressly provided for in the
Indenture, and the Capital Stock of the Company, including any rights or
warrants entitling holders thereof to subscribe for or purchase shares of
Capital Stock of the Company or any securities convertible into or exchangeable
for shares of Capital Stock of the Company issued by the Company after the date
of the Indenture.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A holder may transfer or exchange Securities in accordance
with the Indenture. The Registrar may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
transfer or exchange any Security or portion of a Security selected for
redemption, or transfer or exchange any Security for a period of 15 days before
a selection of Securities to be redeemed.
11. PERSONS DEEMED OWNERS. The registered holder of a Security may
be treated as the owner of it for all purposes.
12. UNCLAIMED MONEY. If money for the payment of principal, premium,
if any, or interest on the Securities remains unclaimed for two years, the
Trustee or Paying Agent will pay the money back to the Company at its request.
After that, holders entitled to any of such money must look to the Company for
payment as general creditors unless an "abandoned property" law designates
another person.
13. AMENDMENT, SUPPLEMENT, WAIVER. Subject to certain exceptions,
the Indenture or the Securities may be amended or supplemented with the consent
of the holders of at least a majority in principal amount of the outstanding
Securities and any past default or compliance with any provision may be waived
with the consent of
3
<PAGE>
the holders of a majority in principal amount of the outstanding Securities.
Without the consent of any Securityholder, the Company may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
omission, defect or inconsistency or to provide for uncertificated Securities in
addition to certificated Securities or to make any change that does not
adversely affect the rights of any Securityholder.
14. SUCCESSOR CORPORATION. When a successor corporation assumes all
the obligations of its predecessor under the Securities and the Indenture and if
immediately thereafter no Default or Event of Default exists, the predecessor
corporation will be released from those obligations.
15. DEFAULTS AND REMEDIES. An Event of Default is:
(i) failure of the Company to pay interest on any
Security for 10 days, (ii) failure of the Company to pay any
principal installment when due and payable for a period of 10 days,
(iii) default in the deposit of any sinking fund payment when and as
due which continues for a period of ten days, (iv) failure by the
Company for 30 days after written notice to the Company by the
Trustee or to the Company and the Trustee by the holders of 25% in
principal amount of the outstanding Securities, to comply with any
of its other agreements and covenants in the Indenture and the
Securities; (v) certain defaults under and accelerations prior to
maturity of other indebtedness; (vi) certain events of bankruptcy,
insolvency or reorganization, and (vii) suspension or termination of
the Company's reporting obligations pursuant to Sections 13 and
15(d) of the Securities Exchange Act of 1934, as amended.
The Indenture provides that the Trustee will, within 30 days after
the occurrence of a Default, give the Securityholders notice of all uncured
Defaults known to it (the term "Default" to include the events specified above,
without grace or notice), provided that, except in the case of default in the
payment of principal of or interest on any of the Securities, or failure to make
a required sinking fund deposit or a redemption payment pursuant to Article III
of the Indenture, the Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interest of the Securityholders.
In case an Event of Default occurs and is continuing, the Trustee or
the holders of not less than 25% in aggregate principal amount of the Securities
then outstanding, by notice in writing to the Company (and to the Trustee if
given by the Securityholders), may declare to be due and payable the principal
amount of the Securities then outstanding plus accrued interest to the date of
acceleration, and upon any such declaration the same shall become and shall be
immediately due and payable. Securityholders may not enforce the Indenture or
the Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Such declaration may be rescinded by holders of a majority in
principal amount of outstanding Securities if all existing Events of Default
have been cured and waived (except nonpayment of principal or interest on
Securities then outstanding that has become due solely because of the
acceleration) and if the rescission would not conflict with any judgment or
decree.
Defaults (except, unless theretofore cured, a default in payment of
principal of or interest on the Securities or a default with respect to a
provision which cannot be modified under the terms of the Indenture without the
consent of each Security affected) may be waived by the holders of a majority in
principal amount of outstanding Securities upon the conditions provided in the
Indenture.
4
<PAGE>
Upon the occurrence of an Event of Default, the holders of a
majority in principal amount of the outstanding Securities may select a person
to serve as director of the Company until the Event of Default is cured.
The Indenture requires the Company to file periodic reports with the
Trustee as to the absence of defaults.
16. DISCHARGE OF INDENTURE. The Indenture will be discharged and
canceled, except for certain Sections thereof, subject to the terms of the
Indenture, upon the payment of all the Securities or upon the irrevocable
deposit with the Trustee or Paying Agent of money sufficient for such payment or
redemption.
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its affiliates, and may otherwise
deal with the Company or its affiliates, as if it were not Trustee.
18. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
19. AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
20. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), J TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= custodian), and U/G/MA (=
Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture. Requests may be made to: President,
First South Africa Corp., Ltd., c/o First South Africa Management Corp., 2665
South Bayshore, Suite 702, Coconut Grove, Florida 33133.
5
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in
the form below and have your signature
guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of Travel Ports of America, Inc.
The agent may substitute another to act for him.
Date: _____________ Your Signature: __________________________
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THIS SECURITY).
Signature Guarantee:*
- --------
1 Needed only if the stock certificate is to be registered in a name
other than that of the record holder.
<PAGE>
CONVERSION NOTICE
To convert this Security into Common Stock of First South Africa
Corp., Ltd., check the line below:
------
To convert only part of this Security, state the principal amount to
be converted:
$__________________
If you want the stock certificate made out in another person's name, fill in the
form below:
(Insert other person's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type other person's name, address and zip code).
Date: _____________ Your Signature: __________________________
(SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THIS SECURITY).
Signature Guarantee:*
- --------
1 Needed only if the stock certificate is to be registered in a name
other than that of the record holder.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY BE OFFERED AND SOLD ONLY IF SO REGISTERED OR IF IN THE OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY AN EXEMPTION FROM REGISTRATION IS
AVAILABLE.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON AUGUST 1, 2007 OR IF NOT A BUSINESS DAY,
AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING BUSINESS
DAY.
WARRANT TO PURCHASE
135,000 Shares of Common
Stock
WARRANT TO PURCHASE
COMMON STOCK
OF
FIRST SOUTH AFRICA CORP., LTD.
This certifies that, for good and valuable consideration, VALUE
INVESTING PARTNERS, INC., a Delaware corporation, having an address at 1853 Post
Road East, Westport, Connecticut 06880, and its registered, permitted assigns
(collectively, the "Warrantholder"), is entitled to purchase from FIRST SOUTH
AFRICA CORP., LTD., a Bermuda corporation (the "Company"), subject to the terms
and conditions hereof, at any time before 5:00 P.M., New York time, on August 1,
2007, (or, if such day is not a Business Day, as defined herein, at or before
5:00 P.M., New York time on the next following Business Day), the number of
fully paid and non-assessable shares of Common Stock, $.01 par value per share,
of the Company (the "Common Stock") stated above at the Exercise Price (as
defined herein). The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Article III hereof.
ARTICLE I
SECTION 1.01: DEFINITION OF TERMS. As used in this Warrant, the
following capitalized terms shall have the following respective meanings:
(a) BUSINESS DAY: A day other than a Saturday, Sunday or other day
on which banks in the State of New York are authorized by law to remain closed.
(b) COMMON STOCK: Common Stock, $.01 par value per share, of the
Company.
(c) COMMON STOCK EQUIVALENTS: Securities that are convertible into
or exercisable for shares of Common Stock.
(d) DEMAND REGISTRATION: See Section 7.02.
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(e) EXCHANGE ACT: Securities Exchange Act of 1934, as amended.
(f) EXERCISE PRICE: $6.00 per share, subject to adjustment.
(g) EXPIRATION DATE: 5:00 P.M., New York time, on August 1, 2007.
(h) HOLDER: A Holder of Registrable Securities.
(i) NASD: National Association of Securities Dealers, Inc.
(j) PERSON: An individual, partnership, joint corporation, trust,
unincorporated organization or government or any department of agency thereof.
(k) PIGGYBACK REGISTRATION: See Section 7.01.
(l) PROSPECTUS: Any prospectus included in a Registration Statement,
as amended or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments and all material incorporated by
reference in such Prospectus.
(m) PUBLIC OFFERING: A public offering of any of the Company's
equity or debt securities pursuant to a registration statement under the
Securities Act.
(n) REGISTRATION EXPENSES: Any and all expenses incident to the
performance of or compliance with Article VII, including, without limitation,
(i) all SEC, stock exchange, NASD and Nasdaq registration and filing fees; (ii)
all fees and expenses of complying with securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities); (iii) all printing,
mailing, messenger and delivery expenses; (iv) the fees and disbursements of
counsel for the Company and of its independent certified public accountants,
including the expenses of any special audits and/or "cold comfort" letters
required by or incident to such performance and compliance; and (v) any
disbursements of underwriters customarily paid by issuers or sellers of
securities including liability insurance if the Company so desires, and the
reasonable fees and expenses of any special experts retained in connection with
the requested registration, but excluding underwriting fees, discounts and
commissions and transfer taxes if any.
(o) REGISTRABLE SECURITIES: Any Warrant Shares and/or other
securities that may be or are issued by the Company upon exercise of this
Warrant (and upon exercise of other Warrants as defined below), including those
which may thereafter be issued by the Company in respect of any such securities
by means of any stock splits, stock dividends, recapitalization or the like, and
as adjusted pursuant to Article III hereof; PROVIDED, HOWEVER, that as to any
particular security contained in Registrable Securities, such securities shall
cease to be Registrable Securities when (i) a Registration Statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such Registration Statement; or (ii) they shall have been sold pursuant to
Rule 144 (or any successor provision) under the Securities Act.
(p) REGISTRATION STATEMENT: Any registration statement of the
Company filed or to be filed with the SEC which covers any of the Registrable
Securities pursuant to the provisions of this Agreement,
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including the Prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference by such registration statement.
(q) SEC: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
(r) SECURITIES ACT: Securities Act of 1933, as amended.
(s) WARRANTS: This Warrant and all other warrants that have been or
may be issued to Value Investing Partners, Inc., or its assignees or
transferees, as additional compensation as placement agent for a 1997 private
placement of the Company's 9% Senior Subordinated Convertible Debentures, in its
or their place.
(t) WARRANTHOLDER: The person(s) or entity(ies) to whom this Warrant
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(u) WARRANT SHARES: Common Stock purchasable upon exercise of the
Warrants.
ARTICLE II
DURATION AND EXERCISE OF WARRANT
SECTION 2.01: DURATION OF WARRANT. Subject to the terms contained
herein, this Warrant may be exercised at any time before 5:00 P.M., New York
time, on the Expiration Date (or, if such day is not a Business Day, at or
before 5:00 P.M., New York time, on the next following Business Day). If this
Warrant is not exercised at or before 5:00 P.M., New York time, on the
Expiration Date, it shall become void, and all rights hereunder shall thereupon
cease.
SECTION 2.02: EXERCISE OF WARRANT.
(a) The Warrantholder may exercise this Warrant, in whole or in
part, upon surrender of this Warrant with the Subscription Form hereon duly
executed, to the Company at its principal executive office, or to such other
office as the Company has given due notice thereof to the Warrantholder,
together with the full Exercise Price for each Warrant Share to be purchased by
wire transfer, certified check or bank draft payable in United States Dollars to
the order of the Company or by delivering to the Company the number of shares of
the Company's Common Stock having a value on the date of exercise equal to such
Exercise Price. In lieu of a monetary payment or delivery of shares for the
applicable Exercise Price, a Warrantholder may elect to receive, without the
payment of any additional consideration, shares equal to the value of its
Warrant Shares or portion thereof by the surrender of such Warrant to the
Company with the net issuance election marked in the Exercise Form. Thereupon,
the Company shall issue to the Holder, such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y(A-B)
-----
A
where X = the number of shares to be issued to the Warrantholder pursuant to
this Section 2.02.
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Y = the number of Warrant Shares in respect of which the
net issuance election is made pursuant to this Section
2.02.
A = the closing price of one share of Common Stock for the
last trading day immediately preceding the date of the
notice of election is given pursuant to this Section
2.02, which closing price shall be the last sale price
regular way or if no reported last sale price regular
way for such, the last high bid price, in either case on
the principals national securities or stock quotation
system on which the Common Stock is listed.
B = the applicable Exercise Price in effect at the time
the net issuance election is made pursuant to this
Section 2.02.
(b) Within seven (7) Business Days after receipt of this Warrant
with the Exercise Form duly executed and accompanied by payment of the aggregate
Exercise Price for the Warrant Shares for which this Warrant is then being
exercised, the Company shall cause to be issued and delivered to the
Warrantholder (or its designee) certificates for the total number of whole
shares of Common Stock for which this Warrant is being exercised (adjusted to
reflect the effect of the anti-dilution provisions contained in Article III
hereof, if any, and as provided in Section 4.04 hereof) in such denominations in
multiples as are requested by the Warrantholder. If at the time this Warrant is
exercised, a Registration Statement is not in effect to register under the
Securities Act the Warrant Shares issuable upon exercise of this Warrant, the
Company may require the Warrantholder to make such investment intent
representations, and may place such legends on certificates representing the
Warrant Shares, as may be reasonably required in the opinion of counsel to the
Company to permit the Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company will execute a warrant in the form and on the terms of this
Warrant for the balance of such Warrant Shares and deliver such new warrant to
the Warrantholder.
(d) The Company covenants and agrees that it will pay when due and
payable any and all stock transfer and similar taxes which may be payable in
respect of the issue of this Warrant or in respect of the issue of any Warrant
Shares. The Company shall not, however, be required to pay any tax imposed on
income or gross receipts or any tax which may be payable in respect of any
transfer involved in the issuance or delivery of this Warrant or at the time of
surrender.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF EXERCISE PRICE
The Exercise Price and the number and kind of Warrant Shares shall
be subject to adjustment from time to time upon the happening of certain events
as provided in this Article III.
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SECTION 3.01: MECHANICAL ADJUSTMENTS.
(a) If at any time prior to the full exercise of this Warrant, the
Company shall (i) pay a dividend or make a distribution on its shares of Common
Stock in shares of Common Stock (other than cash dividends or distributions out
of surplus or earnings); (ii) subdivide, reclassify or recapitalize its
outstanding Common Stock into a greater number of shares; or (iii) combine,
reclassify or recapitalize its outstanding Common Stock into a smaller number of
shares, the Exercise Price in effect at the time of the record date of such
subdivision, combination, reclassification or recapitalization shall be
proportionately adjusted so that the Warrantholder shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised in full immediately prior to such time, he would have owned upon such
exercise and been entitled to receive upon such dividend, subdivision,
combination, reclassification or recapitalization. Such adjustment shall be made
successively whenever any event listed in this paragraph 3.01(a) shall occur.
(b) If the Company shall hereafter issue rights, options or warrants
(the "Rights") to all holders of its outstanding Common Stock, without charge to
such holders, entitling them to subscribe for or purchase shares of Common Stock
(or Common Stock Equivalents) at a price (or having a conversion price per
share) (such price being the "Rights Price") less than the Exercise Price on the
record date described below, the Exercise Price shall be adjusted so that the
Exercise Price shall equal the price determined by multiplying the Exercise
Price in effect immediately prior to the date of such sale or issuance (which
date in the event of distribution to shareholders shall be deemed to be the
record date set by the Company to determine shareholders entitled to participate
in such distribution) by a fraction, the numerator of which shall be (i) the
number of shares of Common Stock outstanding on the date of such sale or
issuance, plus (ii) the number of additional shares of Common Stock which the
aggregate consideration received by the Company upon such issuance or sale (plus
the aggregate of any additional amount to be received by the Company upon the
exercise of such Rights) would purchase at such current Exercise Price; and the
denominator of which shall be (i) the number of shares of Common Stock
outstanding on the date of such issuance or sale, plus (ii) the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the Common Stock Equivalents so offered are convertible). Such adjustments
shall be made successively whenever such Rights are issued; provided that if
Rights Price is greater than $4.00 per share (or as adjusted pursuant to
paragraph 3.01(a) hereof) the adjustment shall be made upon exercise of such
Rights. To the extent that shares of Common Stock are not delivered (or Common
Stock Equivalents are not delivered) after the expiration of such Rights which
caused an adjustment at the time of issuance thereof, the Exercise Price shall
be readjusted to the Exercise Price which would then be in effect had the
adjustments been made upon the issuance of such Rights been made upon the basis
of delivery of only the number of shares of Common Stock (or Common Stock
Equivalents) actually delivered.
(c) In case the Company shall hereafter fix a record date for making
a distribution to the holders of Common Stock of assets or evidences of its
indebtedness (excluding cash dividends or distributions out of earnings and
dividends or distributions referred to in paragraph (a) of this Section 3.01) or
Common Stock subscription rights, options or warrants for Common Stock or Common
Stock Equivalents (excluding those referred to in paragraph (b) of this Section
3.01), then in each such case the Exercise Price in effect after such record
date shall be adjusted to the price determined by multiplying the Exercise Price
in effect immediately prior thereto by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in paragraph (e) of
this Section 3.01), less the fair market value (as determined by the Company's
Board of Directors) of said assets or evidences of indebtedness so distributed
or of such Common Stock subscription rights, option and warrants or of such
Common Stock Equivalents applicable to one share of Common Stock, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of
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Common Stock. Such adjustment shall be made successively whenever the record
date for such distribution is fixed and shall become effective immediately after
such record date.
(d) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to paragraphs (a), (b) or (c) of this Section 3.01,
the adjustment shall be effective upon the record date as to paragraphs (a) and
(c) or the issue date as to paragraph (b) giving rise to the adjustment and the
Warrant Shares shall simultaneously be adjusted by multiplying the number of
Warrant Shares initially issuable upon exercise of each Warrant by the Exercise
Price in effect on the date thereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section 3.01, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing price for 30 consecutive Business Days
commencing 45 Business Days before such date. The closing price for each day
shall be the last sale price or, in case no such reported sales take place on
such day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the representative closing bid price as reported by Nasdaq (or
any stock quotation system on which the Company's Common Stock is then primarily
traded), or if not so available, the fair market price as determined by a party
mutually agreed to by the Company and the Warrantholders.
(f) No adjustments in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least three (3%)
percent in such price; provided, however, that any adjustments which by reason
of this paragraph (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 3.01 shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be. Notwithstanding anything in this Section 3.01 to
the contrary, the Exercise Price shall not be reduced to less than the then
existing par value of the Common Stock as a result of any adjustment made
hereunder.
(g) In the event that at any time, as a result of any adjustment
made pursuant to paragraph (a) of this Section 3.01, the Warrantholder
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in paragraphs (a) to (f), inclusive, of
this Section 3.01.
SECTION 3.02: NOTICE OF ADJUSTMENT. Whenever the number of Warrant
Shares or the Exercise Price is adjusted as herein provided, the Company shall
prepare and deliver to the Warrantholder a certificate signed by its President,
any Vice President, Treasurer or Secretary, setting forth the adjusted number of
shares purchasable upon the exercise of this Warrant and the Exercise Price of
such shares after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which adjustment
was made.
SECTION 3.03: NO ADJUSTMENTS. Except as provided in Section 3.01 of
this Agreement, no adjustment in respect of any cash dividends shall be made
during the term of this Warrant or upon the exercise of this Warrant.
Notwithstanding anything to the contrary in Section 3.01 of this Agreement, no
adjustment shall be made with respect to (i) options granted under the Company's
stock option plans or otherwise to employees for services or (ii) warrants
outstanding on August 1, 1997.
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SECTION 3.04: FORM OF WARRANT AFTER ADJUSTMENTS. The form of this
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
SECTION 3.05: PRESERVATION OF PURCHASE RIGHTS IN CERTAIN
TRANSACTIONS.
(a) In case of any consolidation of the Company with or a merger of
the Company into another corporation or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, upon any such consolidation, merger, sale or
conveyance and the surviving entity is a publicly traded company, the Company
agrees that a condition of such transaction will be that the Company or such
successor or purchasing corporation, as the case may be, shall assume the
obligations of the Company hereunder in writing. In the case of any such
consolidation, merger or sale or conveyance, the Warrantholder shall have the
right until the expiration date upon payment of the Exercise Price in effect
immediately prior to such action, to receive the kind and amount of shares and
other securities and/or property which it would have owned or have been entitled
to receive after the happening of such consolidation, merger, sale or conveyance
had this Warrant been exercised immediately prior to such action, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article III. The provisions of this Section
3.05 shall similarly apply to successive consolidations, mergers, sales or
conveyances.
(b) In case of any consolidation of the Company with or a merger of
the Company into another corporation or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, upon any such consolidation, merger, sale or
conveyance and the surviving entity is a non-publicly traded company, the
Company agrees that a condition of such transaction will be that the Company
shall mail to the Warrantholder at the earliest applicable time (and, in any
event not less than 20 days before any record date for determining the persons
entitled to receive the consideration payable in such transaction) written
notice of such record date. Such notice shall also set forth facts as shall
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Exercise Price of and the kind and amount of the
shares of stock and other securities and property deliverable upon exercise of
this Warrant.
ARTICLE IV
OTHER PROVISIONS RELATING
TO RIGHTS OF WARRANTHOLDERS
SECTION 4.01: NO RIGHTS AS SHAREHOLDERS: NOTICE TO WARRANTHOLDERS.
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or its transferees the right to vote or to receive dividends or to
consent or to receive notice as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or of any other matter
or any rights whatsoever as shareholders of the Company, except to the extent
specifically provided for herein.
SECTION 4.02: LOST, STOLEN MUTILATED OR DESTROYED WARRANTS. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as, and in substitution for, this
Warrant.
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SECTION 4.03: RESERVATION OF SHARES.
(a) The Company covenants and agrees that at all times it shall
reserve and keep available for the exercise of this Warrant such number of
authorized shares of Common Stock as are sufficient to permit the exercise in
full of this Warrant.
(b) Prior to the issuance of any shares of Common Stock upon
exercise of this Warrant, the Company shall use its best efforts to secure the
listing of such shares of Common Stock upon the securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed.
(c) The Company covenants that all shares of Common Stock issued on
exercise of this Warrant will be validly issued, fully paid, non-assessable and
free of preemptive rights.
SECTION 4.04: NO FRACTIONAL SHARES. Anything contained herein to the
contrary notwithstanding, the Company shall not be required to issue any
fraction of a share in connection with the exercise of this Warrant, and in any
case where the Warrantholder would, except for the provisions of this Section
4.04, be entitled under the terms of this Warrant to receive a fraction of a
share upon exercise of this Warrant and receipt of the Exercise Price, issue the
larger number of whole shares purchasable upon exercise of this Warrant. The
Company shall not be required to make any cash or other adjustment in respect of
such fraction of a share to which the Warrantholder would otherwise be entitled.
ARTICLE V
TREATMENT OF WARRANTHOLDER
Prior to due presentment for registration or transfer of this
Warrant, the Company may deem and treat the Warrantholder as the absolute owner
of this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes of the
Company shall not be affected by any notice to the contrary.
ARTICLE VI
SPLIT-UP, COMBINATION
EXCHANGE AND TRANSFER OF WARRANTS
SECTION 6.01: SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF
WARRANTS. Subject to and limited by the provisions of Section 6.02 hereof, this
Warrant may be split up, combined or exchanged for another Warrant or Warrants
containing the same terms to purchase a like aggregate number of Warrant Shares.
If the Warrantholder desires to split up, combine or exchange this Warrant, it
shall make such request in writing delivered to the Company and shall surrender
to the Company this Warrant and any other Warrants to be so split up, combined
or exchanged. Upon any such surrender for a split-up, combination or exchange,
the Company shall execute and deliver to the person entitled thereto a Warrant
or Warrants, as the case may be, as so requested. The Company shall not be
required to effect any split-up, combination or exchange which will result in
the issuance of a Warrant entitling the Warrantholder to purchase upon exercise
a fraction of a share of Common Stock or a fractional Warrant. The Company may
require such Warrantholder to pay a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any split-up,
combination or exchange of Warrants.
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SECTION 6.02: RESTRICTIONS ON TRANSFER. This Warrant may be sold,
hypothecated exercised, assigned or transferred (a "Transfer") only in
accordance with and subject to the provisions of the Securities Act and the
rules and regulations promulgated thereunder. At the time of a Transfer, the
Company may require the Warrantholder and its transferee to make such
representations, and may place such legends on certificates representing this
Warrant, as may be reasonably required in the opinion of counsel to the Company
to permit such a Transfer without such registration.
ARTICLE VII
REGISTRATION UNDER THE SECURITIES ACT OF 1933
SECTION 7.01: PIGGYBACK REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time prior to
the Expiration Date the Company proposes to register any class of debt or equity
security or any Common Stock Equivalent under the Securities Act on any form for
the registration of securities under such Act, whether or not for its own
account (other than a registration form relating to (i) a registration of a
stock option, stock purchase or compensation or incentive plan or of stock
issued or issuable pursuant to any such plan, or a dividend investment plan;
(ii) a registration of securities proposed to be issued in exchange for
securities or assets of, or in connection with a merger or consolidation with,
another corporation; or (iii) a registration of securities proposed to be issued
in exchange for other securities of the Company) in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act (a "Piggyback Registration"), it will at such time give prompt
written notice to all Holders of Registrable Securities of its intention to do
so and of such Holders' rights under this Section 7.01. Such rights are referred
to hereinafter as "Piggyback Registration Rights". Upon the written request of
any such Holder made within 20 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder and the intended method of disposition thereof), the Company will
include in the Registration Statement the Registrable Securities which the
Company has been so requested to register by the Holders thereof provided that
the Company need not include any such Registrable Securities in Registration
Statements filed after the Expiration Date.
(b) WITHDRAWAL OF PIGGYBACK REGISTRATION BY COMPANY. If, any time
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement filed in connection with such Piggyback Registration, the
Company shall determine for any reason not to register such securities, the
Company will give written notice of such determination to each Holder and
thereupon shall be relieved of its obligation to register any Registrable
Securities in connection with such Piggyback Registration. All best efforts
obligations of the Company pursuant to Section 7.02 shall cease if the Company
determines to terminate any registration where Registrable Securities are being
registered pursuant to this Section 7.01.
(c) PIGGYBACK REGISTRATION OF UNDERWRITTEN PUBLIC OFFERINGS. If a
Piggyback Registration requested pursuant to this Section 7.01 involves an
underwritten offering, then, (i) all Holders requesting to have their
Registrable Securities included in the Company's registration must sell their
Registrable Securities to the underwriters selected by the Company on the same
terms and conditions as apply to other selling shareholders; and (ii) any Holder
requesting to have its Registrable Securities included in such registration may
elect in writing, not later than three (3) Business Days prior to the
effectiveness of the Registration Statement filed in connection with such
registration, not to have its Registrable Securities so included in connection
with such registration.
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(d) PAYMENT OF REGISTRATION EXPENSES FOR PIGGYBACK REGISTRATION. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 7.01, except for the fees and disbursements of any
counsel retained by the Holders of the Registrable Securities being so
registered.
(e) PRIORITY IN PIGGYBACK REGISTRATION. If a Piggyback Registration
involves an underwritten offering and the managing underwriter, in its sole
judgment, advises the Company in writing that the number or kind of Registrable
Securities requested to be included in such Piggyback Registration would have a
material adverse effect on the price or distribution of any securities to be
offered solely for the account of the Company, then the Registrable Securities
to be offered for the accounts of Holders pursuant to a Piggyback Registration
Right shall be eliminated entirely or reduced pro rata as to all requesting
Holders on the basis of the relative number of Registrable Securities to be
included in such offering to the amount recommended by such managing
underwriter; provided, however, that no securities may be offered in such
registration for the account of persons other than the Company by virtue of
their also having "piggyback" registration rights, or otherwise, unless the
Registrable Securities requested to be included in such registration are so
included on a pro rata basis (by percentage of each class of securities) as to
such other persons holding "piggyback" rights and the Holders requesting
registration.
(f) EXPIRATION OF PIGGYBACK REGISTRATION RIGHTS. The Piggyback
Registration Rights shall survive the exercise of the Warrant or the
transactions or events pursuant to which such Registrable Securities were
issued, but all such rights will terminate in all events on the Expiration Date.
The Holders, as a group, shall be limited to three Piggyback Registrations under
this Section 7.01.
SECTION 7.02: DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. Subject to the limitations set forth
below in this Section 7.02, if a Piggyback Registration covering Registrable
Securities has not been declared effective prior to February 1, 1998, any Holder
or Holders may from time to time make written requests for the registration
under the Securities Act of their Registrable Securities (a "Demand
Registration") provided the number of Warrant Shares subject to the request is
at least forty (40%) percent of the Warrant Shares issuable under this Warrant
and any other outstanding Warrants. The Company shall use its best efforts to
file and cause to be declared effective under the Securities Act such Demand
Registration. The Holders, as a group, shall be limited to two Demand
Registrations which are declared effective under the Securities Act, and
thereafter may not make any further written requests for registration under this
Section 7.02.
(b) LIMITATIONS ON DEMAND REGISTRATION. The Company shall not be
required to effect a Demand Registration sooner than (i) for a sixty (60) day
period following the effective date of a registration statement pertaining to an
underwritten Public Offering for the account of the Company; (ii) if the
Company, in its reasonable judgment, determines that registration at the time
requested by the Holders would materially adversely affect the Company, by,
among other things, requiring disclosure of, any litigation or transactions at
an inopportune time, in which case the obligation of the Company to register any
Registrable Securities shall be delayed until the reason for such adverse affect
has ceased to exist, provided that the Company may apply this limitation not
more than once in any period of twelve (12) months; or (iii) if the timing of
the Demand Registration is such that a special audit of the Company would be
required in connection with the preparation of financial statements for the
registration.
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<PAGE>
SECTION 7.03: REGISTRATION PROCEDURES. If and whenever the Company
is required to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Article VII,
the Company will, as expeditiously as practicable:
(a) notify the selling Holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any proceedings for that
purpose; (iv) if at any time the representations and warranties of the Company
contemplated by paragraph (h) below ceases to be true and correct; (v) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, and (vi) of
the happening of any event that makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration Statement
or Prospectus so that they will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(b) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(c) if reasonably requested by the managing underwriters,
immediately incorporate in a Prospectus supplement or post-effective amendment
such information as the managing underwriters believe (on advice of counsel)
should be included therein as required by applicable law relating to such sale
of Registrable Securities, including, without limitation, information with
respect to the purchase price being paid for the Registrable Securities by such
underwriters and with respect to any other terms of the underwritten (or
"best-efforts" underwritten) offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(d) furnish to each selling Holder of Registrable Securities and
each managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by all
exhibits (including those incorporated by reference);
(e) deliver to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each preliminary Prospectus) and any amendment or
supplement thereto as such Persons may reasonably request; the Company consents
to the use of such Prospectus or any amendment or supplement thereto by each of
the selling Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto;
(f) prior to any public offering of Registrable Securities,
cooperate with the selling Holders of Registrable Securities, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any seller or underwriter reasonably requests in writing, use its
11
<PAGE>
reasonable efforts to keep each such registration or qualification effective
during the period such Registration Statement is required to be kept effective
and any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
applicable Registration Statement; PROVIDED that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action which would subject the Company to
general service of process in any jurisdiction where it is not at the time so
subject or would subject the principal stockholders of the Company to any
restrictions on the resale or transfer of their shares of the Company's Common
Stock;
(g) cooperate with the selling Holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two Business Days prior to any sale of Registrable Securities
to the underwriters;
(h) upon the occurrence of any event contemplated by paragraph
(a)(vi) above, promptly prepare a supplement or post-effective amendment to the
applicable Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold thereunder, such Prospectus will not contain an untrue statement or a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(i) with respect to each issue or class of Registrable Securities,
use its best efforts to cause all Registrable Securities covered by the
Registration Statements to be listed on each securities exchange on which
similar securities issued by the Company are listed, if so requested by the
Holders of a majority of such Registrable Securities; and
(j) except as otherwise provided in this Agreement, the Company
shall have sole control in connection with the preparation, filing, withdrawal,
amendment or supplementing of each Registration Statement, the selection of
underwriters, and the distribution of any preliminary prospectus included in the
Registration Statement, and may include within the coverage thereof additional
shares of Common Stock or other securities for its own account or for the
account of one or more of its other security holders.
SECTION 7.04: AGREEMENTS BY SELLING HOLDERS.
(a) The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities and such other
information as may otherwise be required by the Securities Act to be included in
such Registration Statement, as the Company may from time to time reasonably
request in writing.
(b) Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 7.03(a) or (b)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 7.03(h) hereof, or until it is advised in writing by the
Company that the use of the applicable Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in such Prospectus, and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent
12
<PAGE>
file copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. Each
Holder of Registrable Securities agrees to notify the Company upon completion of
its distribution of such Registrable Securities.
(c) Each holder of Registrable Securities whose Registrable
Securities are covered by a Registration Statement filed pursuant to Article VII
hereof agrees, if requested by the managing underwriters in any underwritten
offering, not to effect any public sale or distribution of any securities of the
Company of the same class as the securities included in such Registration
Statement, including a sale pursuant to rule 144 under the Securities Act
(except as part of such underwritten registration), during any period during
which the officers and directors of the Company and any other selling
shareholders included in such Registration Statement are similarly restricted in
the sale or distribution of any securities of the Company pursuant to such
Registration Statement, to the extent timely notified in writing by the managing
underwriters.
SECTION 7.05: INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless, to the full extent permitted by the law, each Holder, its
officers, directors and agents and each Person who controls such Holder or
agents (within the meaning of the Securities Act) against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are contained in any
information furnished in writing to the Company by such Holder expressly for use
therein; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or in based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any preliminary prospectus if (i) such
Holder failed to send or deliver a copy of the Prospectus with or prior to the
delivery of written confirmation of the sale of Registrable Securities and (ii)
the Prospectus would have corrected such untrue statement or omission; and
provided, further, that the Company shall not be liable in any such case to the
extent that any such loss claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or untrue
statement, omission or alleged omission is corrected in an amendment or
supplement to the Prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, such Holder thereafter fails to deliver or cause to be delivered
such Prospectus as so amended or supplemented, prior to or concurrently with the
sale of a Registrable Security to the person asserting such loss, claim, damage,
liability or expense who purchased such Registrable Security from such Holder.
The Company will also indemnify underwriters, selling brokers, dealer managers,
and similar securities industry professionals participating in the distribution
their officers and directors and each person who controls such Persons (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities, if
requested.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with any registration, each Holder will furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any Registration Statement or Prospectus and agrees to
indemnify, to the same extent as the indemnification provided by the Company in
Section 7.05(a), the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) and any other
selling Holder against all losses, claims, damages, liabilities and expenses
caused by any untrue statement of a material fact or any omission of a material
fact required to be stated in any Registration Statement or Prospectus or
preliminary prospectus or necessary to make the statements therein not
misleading, to the extent, but only to the
13
<PAGE>
extent, that such untrue statement or omission is contained in or based upon any
information or affidavit so furnished in writing by such Holder to the Company
specifically for inclusion in such Registration Statement or Prospectus. In no
event shall the liability of any selling Holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers, and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any prospectus or Registration
Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEDURE. Any party that proposes to
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit or proceeding, enclosing a copy of all papers served, No
indemnification provided for hereunder shall be available to any party who shall
fail to give notice as provided in this Section 7.05(c) if the party to whom
notice was not given was unaware of the proceeding to which such notice would
have related and was prejudiced by the failure to give such notice but the
omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this Section. In case
any such action, suit or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnifying party to such indemnified party of its election so
to assume the defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses, except as provided below and except for the
reasonable costs of investigation subsequently incurred by such indemnified
party in connection with the defense thereof. The indemnified party shall have
the right to employ its counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in writing
by the indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the expense
of the indemnifying parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its written
consent.
ARTICLE VIII
OTHER MATTERS
SECTION 8.01: EXPENSES OF TRANSFER. The Company will from time to
time promptly pay, subject to the provisions of Section 6.01 and paragraph (d)
of Section 2.02, all taxes and charges that may be imposed upon the Company in
respect to the issuance or delivery of Warrant Shares upon the exercise of this
Warrant by the Warrantholder.
14
<PAGE>
SECTION 8.02: SUCCESSORS AND ASSIGNS. All the covenants and
provisions of this Warrant by or for the benefit of the Company shall bind and
inure to the benefit of its successors and assigns hereunder.
SECTION 8.03: AMENDMENTS AND WAIVERS. The provisions of this
Warrant, including the provisions of this sentence, may not be amended, modified
or supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a majority of the outstanding Warrants. Holders shall be bound by
any consent authorized by this Section whether or not certificates representing
such Warrants have been marked to indicate such consent.
SECTION 8.04: COUNTERPARTS. This Warrant may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 8.05: GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 8.06: SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
SECTION 8.07: INTEGRATION/ENTIRE AGREEMENT. This Warrant is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This Warrant
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
SECTION 8.08: NOTICES. Notice or demand pursuant to this Warrant to
be given or made by the Warrantholder to or on the Company shall be sufficiently
given or made if sent by first class mail, postage prepaid, to the Warrantholder
or the Holder of Registrable Securities at its last known address as it shall
appear on the books of the Company, and to the Company at c/o First South Africa
Management Corp., 2665 South Bayshore, Suite 702, Coconut Grove, Florida 33133,
or to such other address as may be duly given to such Holder.
SECTION 8.09: HEADINGS. The Article headings herein are for
convenience only and are not part of this Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the
Company under its corporate seal as of the 1st day of August, 1997.
FIRST SOUTH AFRICA CORP., LTD.
By:_________________________
Name: Clive Kabatznik
Title: President
(Corporate Seal)
15
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, _____________________________ hereby sells, assigns and
transfers unto ______________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ______________________ attorney, to transfer said Warrant
Certificate on the books of FIRST SOUTH AFRICA CORP., LTD. with respect to the
number of Warrants set forth below, with full power of substitution in the
premises:
Name(s) of
ASSIGNEE(S) ADDRESS NO. OF WARRANTS
----------- ------- ---------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants represented by said
Warrant Certificate.
The Assignor agrees on behalf of himself and his assignee that the requested
assignment shall be in accordance with Section 6.02 of the Warrant Agreement
pursuant to which the Warrant Certificate was issued.
Dated: ______________ ___, 19__.
-----------------------------------
Note: The above signature should
correspond exactly with the
name on the face of this
Warrant Certificate.
<PAGE>
EXERCISE FORM
(To be executed upon exercise of Warrant)
FIRST SOUTH AFRICA CORP., LTD.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _________ shares of Common Stock, as provided for therein, at an
aggregate exercise price of $_____, and tenders herewith payment of the purchase
price in full in the form of (i) a wire transfer, a certified or bank draft in
the amount of $_______, and/or (ii) _____ shares of Common Stock of FIRST SOUTH
AFRICA CORP., LTD. having a fair market value of $_____ and/or (iii) _____
shares as determined by the formula set forth in Section 2.02 of the Warrant
Certificate.
Please issue a certificate or certificates for such Common Shares in
the name of
Name__________________________
(Please Print)
--------------------------
Address
--------------------------
--------------------------
Tax Identification No.
Signature______________________
Note:The above signature should correspond
exactly with the name on the first
page of this Warrant Certificate.
Dated: _______________ ___, 19__.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of the undersigned for the balance remaining of the number of whole
shares purchasable thereunder.
FIRST SOUTH AFRICA CORP.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made this 17th day of January, 1997 by and between
First South Africa Corp., Ltd., a Bermuda corporation ("Corporation"), and
Barretto Pacific Corporation, a Nevada corporation ("Option Holder").
1. GRANT OF OPTION. The Corporation has granted to the option Holder
an option to purchase 25,000 shares of its common stock (the "Stock") at the
purchase price of $3.75 in the manner and subject to the conditions hereinafter
provided. The Corporation will undertake to register such shares immediately
upon execution of this agreement. Subject to the provisions of section 4, the
option will expire 180 days after the shares are registered.
Consulting agreement with Barretto Pacific Corporation dated January
17, 1997.
A copy of the plan as described above is attached herewith. To the extent
applicable, the provisions of the plan shall be deemed as part of this
Agreement.
2. TIME OF EXERCISE OPTION. Subject to the provisions of Section 4
regarding termination of the option, the options granted may be exercised at any
time after the date indicated:
DATE SHARES WHICH MAY BE EXERCISED
January 17, 1997 25,000
3. METHOD OF EXERCISE. The option shall be exercised by written
notice directed to the CEO, or other senior officer of the Corporation,
accompanied by a check in payment of the option price for a fraction or in whole
for the number of shares specified, up to 25,000 shares. The transfer agent
shall make immediate delivery of such shares, provided that if any law or
regulation requires the Corporation to take any action with respect to the
shares specified in such notice before the issuance thereof, then the date of
delivery of such shares shall be extended for the period necessary to take such
action. The price of an exercised option, or portion thereof, may be paid:
a. In the form of cashiers check, money order, brokerage
draft made payable to the Corporation; or
b. bank wire transfer
4. TERMINATION OF OPTION. Except as herein otherwise stated, the
option to the extent not previously exercised, shall terminate upon the
expiration of the option as provided in Section 1. In the event that the Company
cancels its agreement with you pursuant to the terms of its consulting agreement
with you, any shares that you are due prior to termination will be valid and
available for exercise.
5. RECLASSIFICATION, CONSOLIDATION OR MERGER. If the Corporation is
reorganized or consolidated or merged with another corporation, the Option
Holder shall be entitled to receive options covering shares of such reorganized,
consolidated or merged company in the same portion, at an equivalent price, and
subject to the same
<PAGE>
conditions as the options granted pursuant to this Agreement. For purposes of
the preceding sentence, the excess of the aggregate Fair Market Value of the
shares subject to the option over the aggregate option price of such shares
immediately after the reorganization, consolidation or merger shall not be more
than the option price of such shares immediately before such reorganization,
consolidation or merger, and the new option or assumption of the old option
shall not give the Option Holder additional benefits which were not provided
under the old option, or deprive the Option Holder of benefits which were
available under the old option.
6. BINDING EFFECT. This agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
First South Africa Corp., Ltd.
/S/ By /S/ CLIVE KABATZNIK
- -------------------------- -----------------------------
Witness Clive Kabatznik
Chief Executive Officer
/S/ By /S/ LANDON BARRETTO
- -------------------------- -----------------------------
Witness Landon Barretto
Barretto Pacific Corporation
2
CONYERS DILL & PEARMAN
Barristers & Attorneys
Clarendon House, 2 Church Street, P.O. Box HM 666, Hamilton HM CX, Bermuda
Telephone: (441) 295 1422 Facsimile: (441) 292-4720 E-Mail: [email protected]
[Letterhead]
5 August 1997
First South Africa Corp., Ltd.
Clarendon House
Church Street
Hamilton HM CX
Dear Sirs:
We have acted as special legal counsel to First South Africa Corp., Ltd., (the
"Company") in connection with its filing of a registration statement on Form
S-1, (the "Registration Statement") covering (i) 10,000 9% Senior Subordinated
Convertible Debentures due June 15, 2004, (the "Debentures"), (ii) 1,666,667
shares of Common Stock, par value $0.01 per share ("Common Stock") underlying
the conversation of the Debentures, (iii) 135,000 shares of Common Stock
underlying the exercise of a certain warrant to be issued to the placement agent
with respect to the private placement of the Debentures (the "Placement
Warrant") and (iv) 25,000 shares of Common Stock underlying the exercise of
certain Stock Purchase Options (the "Options"), all as more particularly
described in the Registration Statement.
As such counsel, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Memorandum of Association and By-Laws of
the Company as well as resolutions of the Company's Board of Directors. We have
also examined originals, or copies certified to our satisfaction, of such
corporate records of the Company and other instruments, certificates of
appropriate public officials and certificates of officers and representatives of
the Company and other documents as we have deemed necessary as a basis for the
opinions hereinafter expressed. In such examination, we have assumed the
authenticity of all documents submitted to us as originals, the conformity with
the originals of all documents submitted to us as copies, the genuineness of all
signatures and the legal capacity of natural persons.
On the basis of the foregoing, we are of the opinion that:
(i) the Debentures have been duly authorized and constitute legal, valid
and binding obligations of the Company;
(ii) the shares of Common Stock issuable upon the exercise of the
Debentures, the Placement Warrant and the Options will, upon
issuance and payment in accordance with the terms of the Debentures,
the Placement Warrant and the Options respectively, be validly
issued, fully paid and non-assessable.
We are members of the bar of Bermuda and we have made no investigation of and
express no opinion in relation to the laws of any jurisdiction other than
Bermuda. This opinion is to be governed by and construed in accordance with the
laws of Bermuda and is limited to and is given on the basis of the current law
and practice in Bermuda.
<PAGE>
Page 2
5 August 1997
First South Africa Corp., Ltd.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. We also consent to the reference made to us under the caption "Legal
Matters" in the prospectus contained in the Registration Statement.
Yours faithfully
/s/ Conyers Dill & Pearman
CONYERS DILL & PEARMAN
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts" and
to the use of our report dated September 27, 1996, in the Registration Statement
on Form S-1 of First South Africa Corp., Ltd. (the "Company") and the related
Prospectus contained therein with respect to the registration of certain
debentures and shares of Common Stock underlying such debentures, certain
placement warrants and purchase options of the Company.
/s/ Price Waterhouse
PRICE WATERHOUSE
SANDTON, SOUTH AFRICA
August 12, 1997
PARKER CHAPIN FLATTAU & KLIMPL, LLP
[LETTERHEAD]
August 11, 1997
First South Africa Corp., Ltd.
Clarendon House
Church Street
Hamilton HM C11, BERMUDA
Re: FIRST SOUTH AFRICA CORP., LTD. - REGISTRATION STATEMENT
ON FORM S-1
Gentlemen:
We hereby consent to the reference made to us under the caption
"Legal Matters" in the prospectus constituting part of the Registration
Statement on Form S-1 of First South Africa Corp., Ltd. (the "Company") with
respect to the registration of certain Debentures and shares of Common Stock
underlying such Debentures, certain Placement Warrants and Purchase Options of
the Company.
Very truly yours,
/S/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
Parker Chapin Flattau & Klimpl, LLP
WEBBER WENTZEL BOWENS
Attorneys Notaries & Conveyancers
Trade Mark Agents
60 Main Street Johannesburg
P.O. Box 61771 Marshalltown 2107
South Africa
Phone (011) 240 6000
[Letterhead]
August 13, 1997
First South Africa Corp. Ltd.
Clarendon House
Church Street
Hamilton HM II
Bermuda
Re: Our Reference
Mr. J.M. Bellew
M587057 - F93
Dear Sirs:
First South Africa Corp., Ltd. - Registration Statement on Form S-1
We hereby consent to the reference made to us under the caption "Legal Matters"
in the prospectus constituting part of to the above Registration Statement on
form S-1 of First South Africa Corp., Ltd. (the "Company") with respect to the
registration of certain debentures and shares of Common Stock underlying such
debentures, certain Placement Warrants and Purchase Options of the Company.
Yours faithfully
/s/ J. Bellew
WEBBER WENTZEL BOWENS
