AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1997
REGISTRATION NO. 333-33561
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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 or Industrial Identification No.)
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(6)
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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.
(6) Previously paid upon filing of the Registration Statement.
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 DECEMBER 8, 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 A CERTAIN OUTSTANDING PLACEMENT WARRANT)
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 a certain warrant issued to the placement agent
with respect to the Private Placement (the "Placement Warrant") 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 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 Company does not
intend to apply for listing of the Debentures on Nasdaq. The conversion price
and other terms of the Debentures and Placement Warrant 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 Warrant 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 December 4, 1997, the closing sales price for Common Stock was $7.563.
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 Warrant
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 8.
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 Warrant 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, (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, and (vii) the conversion of the Increasing Rate
Senior Subordinated Convertible Debentures due October 31, 2001 (the "Increasing
Rate Debentures"). See "Description of Securities." Unless otherwise indicated,
references in this Prospectus to "Rand" or "R" are to South African Rand. On
December 1 ,1997, the market average exchange rate was approximately 4.85 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"), twelve 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 ("Starpak"), which is engaged in the
manufacture of high quality plastic packaging machinery; L.S. Pressing (Pty)
Limited ("L.S. Pressings"), which is engaged in the manufacture of washers for
use in the fastener industry; and Europair Africa (Pty) Ltd. ("Europair"), which
is engaged in the manufacture and supply of air conditioning products. In April
1996, L.S. Pressings acquired the assets and business of Paper & Metal
Industries, a small manufacturer of rough washers for use in the fastener
industry. In April 1996, Europair acquired the assets and business of Universal
Refrigeration, an agent and supplier of refrigeration products. In June 1996,
FSAH acquired Piemans Pantry (Pty) Limited ("Piemans Pantry"), a manufacturer
and distributor of high quality meat pies. In October 1996, FSAH acquired
Astoria Bakery ("Astoria Bakery") and Astoria Bakery Lesotho Proprietary Ltd.
("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. ("Alfapak"), a manufacturer of plastic film and
printed plastic bags. In November 1996, Europair acquired the assets and
business of First Strut (Pty) Ltd. ("First Strut"), a
2
<PAGE>
manufacturer of electrical trunking conduits. 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 March 1997, the Company acquired
Pakmatic Company (Pty), Ltd., a distributor of automatic process and packaging
machinery. In April 1997, FSAH acquired the business and assets of Gull Foods
(Pty) Ltd. ("Gull Foods"), a manufacturer of value-added prepared foods. 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, effected only in South Africa, of 5,000,000
ordinary shares of common stock of FSA Food, which shares are listed on the
Johannesburg Stock Exchange, (ii) an institutional private placement in South
Africa of 20,000,000 ordinary shares of common stock of FSA Food, and (iii) a
private placement of 12,500,000 ordinary shares of common stock to management
and staff. As of December 2, 1997, FSAH owned 70% of the issued and outstanding
shares of FSA Food. In July 1997, the Company acquired Fifers Bakery
(Proprietary) Limited ("Fifers"), a manufacturer of confectionary products.
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 Warrant, 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)............... 5,029,594 shares of Common Stock
(2)(3) 1,822,500 shares of Class B
Common Stock (4)
After the offering (1)(5)............. 6,856,261 shares of Common Stock
(2)(3) 1,822,500 shares of Class B
Common Stock (4)
Nasdaq Symbols........................ Units - FSAUF
Common Stock - FSACF
Class A Warrants - FSAWF
Class B Warrants - FSAZF
Risk Factors.......................... An investment in the securities
offered hereby involves a high degree
of risk. See "Risk Factors."
Use of Proceeds....................... Any net proceeds received from the
exercise of the Placement Warrant and
Purchase Options are intended to be
used for additional acquisitions and
for general corporate purposes. See
"Use of Proceeds."
Description of Debentures:
Maturity Date......................... June 15, 2004
Interest Rate......................... 6 percent per annum, payable
quarterly.
Conversion Price...................... Convertible into Shares of the
Company's Common Stock at $6.00 per
share of Common Stock subject to
adjustment in certain circumstances.
Ranking............................... The Debentures shall be junior to all
senior bank debt owed by the Company
but senior to all Common and Preferred
Shares and any junior debt securities
issued by the Company subsequent to
the issuance of the Debentures. As of
September 30, 1997, the amount of
short-term and long-term debt senior
to the Debenture
4
<PAGE>
was $5,196,509. As of the date of this
Prospectus, the Company has no
indebtedness that ranks pari passu
with the Debentures.
Redemption............................ Non-redeemable for the first two years
following issuance unless after the
first year following issuance the
closing bid price of the Company's
Common Stock is equal to or greater
than 150% of the then applicable
Conversion Price of the Debentures
("Early Redemption").
Redeemable at 109% of the face amount
on or after the second anniversary
following the issuance of the
Debentures, or in the event of an
Early Redemption, and declining to
107% on the third anniversary and
thereafter proratably to par in year
7.
Voting Rights......................... The shares of Common Stock issued upon
conversion of the Debentures shall
have the same voting rights as
existing shares of Common Stock.
The holders of the Debentures shall
have the right to vote as a separate
class to enforce their rights as
Debenture holders or in the event the
Company desires to: (i) amend or
change the terms of the Debentures;
(ii) take any action which would
impair or alter the rights of the
Debentureholders in any way.
Redemption............................ The Debentures are subject to two
equal mandatory sinking fund payments
on June 15, 2002, and June 15, 2003
which will provide for the redemption
of 67% of the issue prior to maturity,
with the balance being redeemed at
maturity.
Anti-Dilution......................... In the event the Company issues either
equity or equity-related securities at
a price per share of Common Stock less
than the then applicable Conversion
Price of the Debentures, then the
Debentures will benefit from a
weighted average ratchet-down
adjustment in the Conversion Price.
This anti-dilution provision, however,
excludes shares issued in certain
circumstances, including shares issued
to employees under the Company's stock
option plans, shares issued in
acquisitions by the Company, and
shares issued upon exercise or
exchange of the Company's outstanding
Class A Warrants or Class B Warrants.
The Debentures will also be subject to
standard antidilution adjustments for
stock dividends, stock splits, reverse
stock splits, etc.
Covenants............................. The Debentures are subject to certain
covenants of the Company as set forth
in the Indenture including dividend
and payment restrictions affecting
subsidiaries, restrictions on payment
of dividends and stock repurchase and
restrictions on transactions with
affiliates. See "Description of
Securities - Debentures."
- - -----------
(footnotes on next page)
5
<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 2,584,962 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 Warrant, (vii) 25,000 shares of Common Stock
issuable upon the exercise of the Purchase Options, and (viii) an aggregate
of 1,578,948 shares of Common Stock (and such additional number of shares
of Common Stock as may be required to be issued pursuant to applicable
adjustment provisions) reserved for issuance with respect to the Increasing
Rate Debentures. See "Management - Executive Compensation", "Management -
Stock Option Plan," "Description of Securities" and "Certain Transactions -
Escrow Agreements." Includes 1,276,588 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 1,175,345 shares of Common Stock issued by the Company subsequent
to the Company's Warrant Exchange offer which expired on November 25, 1997.
(4) 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."
(5) Assumes exercise of all the Debentures, Placement Warrant and Purchase
Options and no exercise or exchange 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 Warrant and Purchase Options which will be converted
or exercised, as the case may be.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
[TABLE 1 OF 2]
PREDECESSOR COMPANY (1)
---------------------------------------
YEARS ENDED FEBRUARY 28,
---------------------------------------
1993 1994 1995
$ $ $
----------- ----------- -----------
STATEMENT OF OPERATIONS
Net sales ........................ 6,256,667 6,851,457 8,826,856
Total operating expenses ......... 5,818,092 6,414,144 8,179,083
Operating income ................. 438,575 437,313 647,773
Interest paid .................... 223,314 180,960 152,163
Net income before tax and
Minority interest ............. 269,251 321,319 536,440
Net income after tax ............. 138,839 207,916 313,882
EARNINGS PER SHARE (6)
Basic ............................ $ .25 $ .38 $ .57
Fully diluted .................... .25 .38 .57
Ratio of Earnings to fixed charges 2.1 1.67 4.0
=========== =========== ===========
<TABLE>
<CAPTION>
[TABLE 2 OF 2]
THE COMPANY
----------------------------------------------------------------------------
MARCH 1, JULY 1,1995 JULY 1,1996 JULY 1, 1996 JULY 1, 1997
1995 TO TO TO TO TO
JUNE JUNE JUNE SEPTEMBER SEPTEMBER
30, 1995 30, 1996 30, 1997 30, 1996 30, 1997
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales ........................ 3,297,507 14,911,097 66,575,931 11,690,884 21,461,433
Total operating expenses ......... 292,806 19,833,942(2) 61,134,362 10,468,001 20,014,736
Operating income ................. 334,701 (4,922,845) 5,441,569 1,222,883 1,446,697
Interest paid .................... 18,801 865,733(3) 858,067 (215,087) (175,741)
Net income before tax and
Minority interest ............. 359,045 (5,248,942) 8,379,511(4) 1,207,706 1,865,520(5)
Net income after tax ............. 213,829 (5,737,560) 6,683,165 829,135 988,626
EARNINGS PER SHARE (6)
Basic ............................ $ .39 ($ 3.03) $ 1.30 $ .18 $ .18
Fully diluted .................... .39 (1.39) 1.22 .18 .17
Ratio of Earnings to fixed charges 14.1 (A) 8.9 4.3
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) THE COMPANY
------------------------------------ ----------------------------------------------------------
FEBRUARY 28, JUNE 30, JUNE 30 JUNE 30 SEPTEMBER 30
------------ -------- ------- -------- ------------
1993 1994 1995 1995 1996 1997 1997
$ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets ........ 3,976,769 3,976,974 5,161,709 5,917,394 23,604,994 64,197,149 66,072,160
Long term liabilities 1,140,244 1,112,391 1,123,665 954,718 2,361,372 13,341,758 13,690,750
Net working capital . 1,177,250 1,194,931 1,366,602 1,524,129 4,624,417 26,196,023 23,792,502
Stockholder's equity 1,527,356 1,580,826 1,828,656 2,017,995 12,792,376 23,220,014 24,872,524
</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.
(4) Includes a net gain of $3,327,478 on the sale of investment in FSA
Food, as well as a minority interest of $135,224.
(5) Includes a minority interest of $430,701.
(6) For periods prior to July 1, 1995, pro forma earnings per share are
presented giving effect to the Company's shares issued in exchange for
the predecessor's previously outstanding shares.
(A) As a result of the loss in the fiscal year ended June 30, 1996, the
Company was not able to cover the fixed charges by $6,253,280.
7
<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 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.
8
<PAGE>
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 December 1, 1997 the Rand was
trading at approximately 4.85 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 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).
9
<PAGE>
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 MANAGING NEWLY ACQUIRED BUSINESSES
Acquisitions may involve difficulties related to the integration of
acquired businesses, some of which may have different cultures, operating
methodologies, margins or business risks. The failure to timely integrate the
Company's business with that of an acquired entity may result in a material
adverse effect on the Company's results of operations and financial condition.
Further, acquisitions may involve a number of special risks, including diversion
of management's attention, failure to retain key acquired personnel and clients,
unanticipated events or circumstances, legal liabilities and amortization of
acquired intangible assets, some or all of which could have a material adverse
effect on the Company's results of operations and financial condition. Client
satisfaction or performance problems at a single acquired firm could have a
material adverse impact on the reputation of the Company as a whole.
10
<PAGE>
HOLDING COMPANY STRUCTURE
The Company is a holding company with no operations or significant
assets other than its ownership of equity interests in direct and indirect
subsidiaries as described in this Prospectus (and cash on hand in the amount of
$3,625,000 as of September 30, 1997). The Company will rely on cash dividends
and other permitted payments from its subsidiaries, as well as its cash
holdings, to make principal and interest payments on outstanding indebtedness of
the Company. See -- "Risks Relating to Operations in South Africa."
RISKS RELATED TO OPERATIONS OF FSA FOODS
Two of the operating subsidiaries of FSA Foods each rely on a single
major customer for a substantial portion of their respective revenues. The loss
of any such major customer may have a material adverse effect on the financial
condition of the Company. There can be no assurance that such major customers
will continue to purchase the products of such FSA Foods subsidiaries.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS
There can be no assurance that the Company's operating subsidiaries
will continue to operate profitably, or that prior trends will be indicative of
future results of operations. Future results of operations may fluctuate
significantly based upon factors such as increases in competition, losses
incurred by new businesses that may be acquired in the future, currency
fluctuations, political changes, macroeconomic factors, the continued
availability of new materials and other circumstances that may not be reasonably
foreseeable at this time.
COMPETITION
The Company competes with a number of companies, from South Africa and
from other countries, offering similar products and services, some of whom may
have substantially greater financial, management, technical and other resources
than the Company. As a result of South Africa's recent political transformation,
some South African businesses may be adversely affected by increased competition
from foreign firms doing business in South Africa. In addition, South Africa has
historically imposed significant tariffs against a number of industrial
products. To the extent such tariffs are reduced or removed to comply with
international treaty requirements or otherwise, the Company would face much
greater pressure from globally competitive firms. There can be no assurance that
the Company will compete effectively with such other companies or that other
companies will not develop products which are superior to the Company's or which
achieve greater market penetration. In addition, the Company may experience
competition from other companies seeking to identify and consummate acquisitions
of South African companies. Such competition may result in the loss of an
acquisition candidate or an increase in the price the Company would be required
to pay for any such acquisition. 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.
11
<PAGE>
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.
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 Warrant 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 are 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.
12
<PAGE>
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. The average bid
price per share of Common Stock for the 30 consecutive trading days ending
December 1, 1997 was $7.7696, and the average bid price per Class A Warrant for
such period was $3.2891 per Warrant. See "Description of Securities - Warrants."
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 WARRANT AND
PURCHASE OPTIONS
Holders of Debentures, Placement Warrant and Purchase Options will only
be able to convert the Debentures and exercise the Placement Warrant 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 Warrant and Purchase Options. The
value of the Debentures, Placement Warrant 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 5,029,594 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 Warrant and Purchase Options). In
addition, an aggregate of 2,584,962 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 5,029,594 shares of Common Stock issued and outstanding as of the
date of this Prospectus, 1,276,588 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
13
<PAGE>
and Class B Common Stock (issued with respect to the FSAC Escrow Agreements and
the FSAH Escrow Agreement) are "restricted securities" which in the future may
be sold in compliance with Rule 144 or pursuant to a registration statement
filed under the Securities Act. All the shares of Common Stock issued pursuant
to the FSAC Escrow Agreements will be eligible for sale under Rule 144 in July
1998. All of the shares of Class B Common Stock are currently eligible for sale
under Rule 144. Rule 144 generally provides that a person holding restricted
securities for a period of one year may sell every three months in brokerage
transactions and/or market-maker transactions an amount not to exceed the
greater of (a) one percent (1%) of the Company's issued and outstanding Common
Stock, or (b) the average weekly trading volume of the Common Stock during the
four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a person
who is not an affiliate of the Company and who has satisfied a two-year holding
period.
As of January 24, 1997, D.H. Blair Investment Banking Corp., the
Company's Underwriter in connection with its Initial Public Offering ("D.H.
Blair")and certain other holders have the right to two demand registrations of
the Units underlying the Unit Purchase Options. The holders of the Unit Purchase
Options also will have certain piggyback registration rights. The exercise of
registration rights may involve substantial expense to the Company and have a
depressive effect on the market price of the Company's securities. See
"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 AND BYE-LAWS OF THE COMPANY
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 Company's bye-laws limit the right of
securityholders to bring an action against officers and directors of the
Company. 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."
14
<PAGE>
USE OF PROCEEDS
The proceeds which may be realized by the Company upon the exercise of
the Placement Warrant and the Purchase Options will be up to an amount equal to
$903,750 less certain expenses with respect to the offering of such securities.
No assurance can be given that any of the Placement Warrant or Purchase Options
will be exercised.
Net proceeds received from the exercise of the Placement Warrant or the
Purchase Options, if any, are intended to be used for further acquisitions (70%
of the net proceeds) and general corporate purposes (30% of the net proceeds).
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.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
September 30, 1997; and (ii) as adjusted to give effect to the proceeds of the
Increasing Rate Debenture offering net of issue costs. This table should be read
in conjunction with the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(IN THOUSANDS)
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Long term debt .................................................................................. 13,691 13,691
------ ------
Increasing Rate Debentures ...................................................................... 14,200
Minority Interest in Subsidiary ................................................................. 13,446 13,446
------ ------
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; 3,780,315 shares issued and
outstanding actual(1) ..................................................................... 38 38
Class B Common Stock, $0.01 par value; 2,000,000 shares authorized; 1,822,500 shares issued
and outstanding; actual and as adjusted(2)(3)(4) .......................................... 19 19
Additional paid-in capital ................................................................ 24,659 24,659
Deficit/Retained Income ................................................................... 3,792 3,792
Foreign currency translation adjustments .................................................. 3,634 3,634
Total Stockholders' Equity ................................................................ 24,874 24,874
------ ------
Total capitalization ............................................................................ 52,011 66,211
====== ======
</TABLE>
- - ------------------
(1) Excludes 1,175,345 shares of Common Stock issued by the Company subsequent
to the Company's Warrant Exchange offer which expired on November 25, 1997.
(2) 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".
(3) Excludes (i) an aggregate of 2,584,962 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 that was effective on January 24,
1996; (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) 1,276,588 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."
(4) 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 sale) and delivery of the
16
<PAGE>
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 $ 8.75 $ 7.13
2nd Quarter (December 2, 1997) $ 8.75 $ 7.50
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 $ 14.00 $ 10.00
2nd Quarter (December 2, 1997) $ 13.50 $ 11.50
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
17
<PAGE>
HIGH BID LOW BID
-------- -------
3rd Quarter $ 2.38 $ 1.25
4th Quarter $ 3.88 $ 1.06
1998
1st Quarter $ 3.625 $ 2.00
2nd Quarter (through December 2, 1997) $ 3.75 $ 3.188
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 $ 1.625 $ 1.00
2nd Quarter (through December 2, 1997) $ 1.75 $ 1.687
As of November 25, 1997, there were approximately 1,730 shareholders
both of record and beneficial, of the Company's Common Stock.
18
<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 results of the interim periods are not
necessarily indicative of the results of a full year. All of the financial data
set forth below should be read in conjunction with the information appearing
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SELECTED FINANCIAL INFORMATION
[TABLE 1 OF 2]
PREDECESSOR COMPANY (1)(2)
---------------------------------------
YEARS ENDED FEBRUARY 28,
---------------------------------------
1993 1994 1995
$ $ $
----------- ----------- -----------
STATEMENT OF OPERATIONS
Net sales ........................ 6,256,667 6,851,457 8,826,856
Total operating expenses ......... 5,818,092 6,414,144 8,179,083
Operating income ................. 438,575 437,313 647,773
Interest paid .................... 223,314 180,960 152,163
Net income before tax and
Minority interest ............. 269,251 321,319 536,440
Net income after tax ............. 138,839 207,916 313,882
EARNINGS PER SHARE(7)
Basic ............................ $ .25 $ .38 $ .57
Fully diluted .................... .25 .38 .57
Ratio of Earnings to fixed charges 2.1 1.67 4.0
=========== =========== ===========
<TABLE>
<CAPTION>
[TABLE 2 OF 2]
THE COMPANY(2)
----------------------------------------------------------------------------
MARCH 1, JULY 1,1995 JULY 1,1996 JULY 1, 1996 JULY 1, 1997
1995 TO TO TO TO TO
JUNE JUNE JUNE SEPTEMBER SEPTEMBER
30, 1995 30, 1996 30, 1997 30, 1996 30, 1997
----------- ----------- ----------- ----------- -----------
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales ........................ 3,297,507 14,911,097 66,575,931 11,690,884 21,461,433
Total operating expenses ......... 292,806 19,833,942(3) 61,134,362 10,468,001 20,014,736
Operating income ................. 334,701 (4,922,845) 5,441,569 1,222,883 1,446,697
Interest paid .................... 18,801 865,733(4) 858,067 (215,087) (175,741)
Net income before tax and
Minority interest ............. 359,045 (5,248,942) 8,379,511(5) 1,207,706 1,865,520(6)
Net income after tax ............. 213,829 (5,737,560) 6,683,165 829,135 988,626
EARNINGS PER SHARE(7)
Basic ............................ $ .39 ($ 3.03) $ 1.30 $ .18 $ .18
Fully diluted .................... .39 (1.39) 1.22 .18 .17
Ratio of Earnings to fixed charges 14.1 (A) 8.9 .43
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1) THE COMPANY
------------------------------------ ----------------------------------------------
FEBRUARY 28, JUNE 30 JUNE 30 SEPTEMBER 30
------------ ------- -------- ------------
1993 1994 1995 1996 1997 1997
$ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets ........ 3,976,769 3,976,974 5,161,709 23,604,994 64,197,149 66,072,160
Long term liabilities 1,140,244 1,112,391 1,123,665 2,361,372 13,341,758 13,690,750
Net working capital . 1,177,250 1,194,931 1,366,602 4,624,417 26,196,023 23,792,502
Stockholder's equity 1,527,356 1,580,826 1,828,656 12,792,376 23,220,014 24,872,524
</TABLE>
- - -----------
(1) Represents the combined results for Starpak and L.S. Pressings, which
are deemed to be the predecessor of the Company due to the Common
ownership and control of such entities. The Company's fiscal year end
is June 30.
(2) No dividends were declared or paid during the periods presented.
(3) Includes a one time non cash escrow shares charge of $6,314,000
related to the release of 1.1 million shares under the terms of an
Earnout Escrow Agreement between the Company, certain shareholders and
the Underwriter of the Company's Initial Public Offering.
(4) Includes a non cash charge of $396,000 relating to costs incurred in
connection with a November 1995 Bridge Note Financing.
(5) Includes a net gain of $3,327,478 on the sale of investment in FSA
Food as well as a minority interest of $135,224.
(6) Includes a minority interest of $430,701.
(7) For periods prior to July 1, 1995, pro forma earnings per share are
presented giving effect to the Company's shares issued in exchange for
the predecessor's previously outstanding shares.
(A) As a result of the loss in the fiscal year ended June 30, 1996, the
Company was not able to cover the fixed charges by $6,253,280.
19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro-forma information has been prepared assuming that the
acquisitions (except for Fifers Bakery (Proprietary) Limited) had taken place
and that operations had commenced on July 1, 1996.
The pro-forma information does not purport to be indicative of the
results that would have been obtained if the acquisitions had occurred at the
beginning of the period, nor is it indicative of future results.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
PROFORMA (UNAUDITED)
--------------------
YEAR ENDED
JUNE 30, 1997
$
-----------
Revenues 78,596,647
-----------
Operating expenses
Cost of sales 46,006,407
Selling, general and administrative costs 26,575,103
Non cash escrow share charge --
-----------
72,581,510
-----------
OPERATING (LOSS)/INCOME 6,015,137
Other income 3,904,884
Interest expense (823,912)
-----------
(Loss)/income before income taxes and minority
interests 9,096,109
Provision for taxes on income (1,834, 833)
-----------
Minority interest in consolidated subsidiary
companies (135,224)
-----------
Net (loss)/income 7,136,979
===========
Ratio of earnings to fixed charges 9.8
20
<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 subsidiaries has acquired twelve South African companies
engaged in the following industry segments.
1. Packaging equipment and materials through Starpak, Alfapak and
Pakmatic.
2. Metal washers used in the fastener industry through LS
Pressings and Paper and Metal.
3. Air conditioning and refrigeration machinery components though
Europair Refrigeration and First Strut.
4. Processed foods through Piemans Pantry, Astoria Bakery,
Seemanns, Gull Foods and Fifers Bakery.
The Company has funded itself since inception primarily through the
proceeds if its initial public offering completed in January 1996, the FSA Foods
initial public offering, as well as the issuance of $25 million of subordinated
convertible debentures.
The annual rate of inflation in South Africa for the periods set forth
below was as follows:
FISCAL YEAR 1996 FISCAL YEAR 1997
---------------- ----------------
6.9% 8.8%
The average annual rate of inflation in South Africa in the period
commencing September 30, 1996 and ending September 30, 1997 was approximately
8.6 %
The average rate for the South African Rand against the U.S. dollar for
the periods under discussion were as follows:
THREE MONTHS THREE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30,
1996 1997
------------------ -------------------
$1=R4.59 $1=R4.66
Depreciation of 1.5%
FISCAL YEAR 1996 FISCAL YEAR 1997
$1 = R3.85 $1 = R4.53
---------------- ----------------
Depreciation of 17.7%
As the Company's results are reported in U.S. dollars, but revenues and
earnings are primarily generated in South African Rand, the local inflation rate
and the depreciation of the South African Rand against the US dollar for the
periods in question are important to further the understanding of the Company's
results. In general, if the rate of depreciation of the South African Rand to
the U.S. dollar for any comparable period is greater than the South
21
<PAGE>
African rate of inflation for that same period then the Company would have had
to generate local revenues and earnings in excess of the South African inflation
rate in order to maintain dollar parity. For the period ended June 30, 1997, the
depreciation of the South African Rand to the dollar equaled 17.7% while the
annual rate of inflation was 8.8%. In order for the Company to report dollar
growth in revenues and earnings it would need to have generated growth of over
8.9% in inflation adjusted numbers through its local South African operations.
The results, therefore, for the period indicated above as reflected in U.S.
dollars, is in excess of inflation adjusted South African Rand for revenue and
earnings growth.
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.
Due to the lack of comparative prior financial periods, and in order to
provide a meaningful reference point in the Management's Discussion and
Analysis, comparative twelve month pro forma results have been added for the
periods ended June 30, 1996 and 1997 respectively. These pro forma results
include the results for all of the Company's acquisitions, including those made
after January 24, 1996. Attention is drawn to the Management's Discussion and
Analysis for the Pro Forma periods mentioned above. This section provides the
most meaningful analysis of the Company's performance on a broader time scale.
<TABLE>
<CAPTION>
PROFORMA (UNAUDITED) (UNAUDITED)
Year Ended Year Ended Three Months Ended
June 30, June 30, September 30, September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Costs of sales .............................................. 59.2% 58.5% 53.1% 59.2%
Gross profit ................................................ 40.8% 41.5% 49.9% 40.8%
Selling, general and administrative expenses ................ 33.1% 33.8% 36.4% 34.1%
Interest expense ............................................ 2.1% 1.0% 1.8% (0.8%)
Operating income (pre non cash escrow charge) ............... 7.7% 7.7% 10.5% 6.8%
Other income (net of other expenses) ........................ 1.2% 5.0% 1.7% 1.1%
Income before income taxes( pre non cash escrow
charge) ................................................. 6.8% 11.4 10.3% 8.7%
Income before income taxes .................................. (2.1%) 11.4% 10.3% 8.7%
</TABLE>
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1997
Sales for the three months ended September 30, 1997 increased 83.6% to
$21,461,433 from $11,690,884 for the comparable period in 1996. In local
currency this reflects a net increase after inflation of 76.5%. This increase is
primarily due to the acquisitions the Company has completed since September 30,
1996. Results for the
22
<PAGE>
three months ended September 30, 1996 reflect the operations of L.S. Pressings,
Starpak, Europair, Piemans Pantry and Astoria Bakery alone.
For the three months ended September 30, 1997, the Company's processed
foods operations contributed approximately 66.9% of the Company's sales versus
56% for the comparable period in 1996. The Company's air conditioning and
refrigeration operations contributed approximately 16.3% of sales for the three
months ended September 30, 1997 versus 21.9% for the comparable period in 1996.
The Company's packaging operations contributed approximately 11.4% of sales for
the three months ended September 30, 1997 versus 12.2% for the comparable period
in 1996. The Company's fastener operations contributed approximately 5.3% of
sales for the three months ended September 30, 1997 versus 10% for the
comparable period in 1996. Sales in all business segments increased. The overall
increase can be explained in some segments by additional acquisitions, but in
general the overall increase can be attributed to increasing demand for the
Company's products as the middle-class base of consumers continues to grow as
South Africa's transition to more broad based economic participation moves
forward. In addition, the Company's subsidiaries have continued to purchase
additional manufacturing capacity to take advantage of this demand.
Cost of goods sold for the three months ended September 30, 1997 were
$12,698,212, or 59.2 % of sales versus $6,213,717 or 53.1%, for the comparable
period in 1996. For the three months ended September 30, 1997 the cost of goods
for the Company's processed food operations were approximately 56.2% versus 48%
in the comparable period in 1996. Cost of sales for the air conditioning and
refrigeration operations were approximately 61.2% versus 60.1% in the comparable
period in 1996. Cost of sales for the packaging operations were approximately
73.1% versus 58% in the comparable period in 1996. Cost of sales for the
fastener operations were approximately 58.8% versus 60.6% in the comparable
period in 1996.The overall increase in the percentage of cost of goods sold can
therefore be primarily explained by increases in the cost of goods ratios in the
processed food and packaging operations. The processed foods cost of goods
percentage is in line with its full fiscal 1997 ratio. The increase in the
packaging operations' cost of goods is due primarily to the poor performance of
one company in this segment as well as a new acquisition that traditionally
generates lower gross margins than those generated by the packaging operations
owned by the Company during the three months ended September 30, 1996.
Sales, general and administrative costs increased to $7,316,524 for the
three months ended September 30, 1997 from $4,254,284 for the comparable period
in 1996 or 34.1% of sales versus 36.4% of sales. For the three months ended
September 30, 1997 SG and A expenses for the Company's processed food operations
were approximately 34.2% versus 40.3% in the comparable period in 1996. SG and A
expenses for the air conditioning and refrigeration operations were
approximately 30% versus 31.3% in the comparable period in 1996. SG and A
expenses for the packaging operations were approximately 33% versus 18% in the
comparable period in 1996. SG and A expenses for the fastener operations were
approximately 19% versus 20.9% in the comparable period in 1996. The Company's
corporate SG and A expenses were approximately $329,000 or 1.5% of sales for the
three months ended September 30, 1997 versus approximately $316,000 or 2.7% of
sales for the comparable period in 1996. The overall decrease in the percentage
SG and A expenses can therefore be primarily explained by decreases in the SG
and A ratios in the Company's processed foods operations.
Interest received was $175,741 for the three months ended September 30,
1997 versus an interest expense of $215,087 for the comparable period in 1996.
The interest income for the 1997 period is primarily attributable to interest
earned on the Company's cash balances in its processed foods businesses. In
addition, during the three months ended September 30, 1997, the Company incurred
a net interest expense of approximately $250,000 for interest on the 9%
convertible debentures issued between April and August 1997.
23
<PAGE>
Other income for the three months ended September 30, 1997 was $243,082
versus $199,909 in the comparable period in 1996. This is primarily made up of
rebates and discounts earned by the Company's operating subsidiaries.
Net profit for the three month period ended September 30, 1997 was
$988,626 or a gain of $.18 a share as compared to a net profit of $829,135 or
$.18 a share in the comparable period in 1996 During the period ended September
30, 1997 the Company's net earnings included a provision of $430,701 for the 30%
minority interests in its publicly traded subsidiary First SA Food Holdings,
Ltd. For purposes of its earning per share calculation for the three months
ended September 30, 1997, the Company had 5,495,119 shares outstanding (
includes 84,751 shares to be issued in fulfilment of acquisition agreements and
contingent acquisition payments entered into during the past three months) as
opposed to 4,679,356 for the comparable period in 1996.
Pro Forma Twelve Months Ended June 30, 1997
Compared to Pro Forma Twelve Months Ended June 30, 1996
Pro-forma sales for the 12 months ended June 30, 1997 increased 10.1%
to $78,596,647 from $71,374,856 for the period ended June 30, 1996. In local
currency, this increase was equal to approximately 28% which reflects a net
growth after inflation of approximately 19%. For the year ended June 30, 1997
the Company's processed foods operations contributed approximately 65.7% of the
Company's sales versus 67.7% for 1996. Air conditioning and refrigeration
segment for 1997 contributed approximately 15.8% of sales versus 12% for 1996.
The packaging equipment segment for 1997 contributed approximately 12.9% of
sales versus 12.8% for 1996. While the fastener segment for 1997 contributed
approximately 5.6% of sales versus 7.5% for 1996. Sales in all business segments
increased, except for the fastener segment. The overall increase can be
attributed to increasing demand for the Company's products as the middle class
base of consumers continues to grow as South Africa continues its transition to
more broad based economic participation. In addition, the Company's subsidiaries
have continued to purchase additional manufacturing capacity to take advantage
of this demand.
Pro-forma cost of goods sold were $46,006,407 and $42,259,173 for the
twelve months ended June 30, 1997 and 1996 respectively. This represented 58.5%
of sales for the twelve months ended June 30, 1997 versus 59.2 % for the
corresponding period in 1996. For the year ended June 30, 1997 the pro-forma
cost of goods for the Company's processed foods operations was approximately 56%
versus 58% for 1996. Air conditioning and refrigeration segment for 1997 was
approximately 66% versus 60% for 1996. The packaging equipment segment for 1997
was approximately 59% versus 56% for 1996. While the fastener segment for 1997
was approximately 62% versus 60% for 1996. The overall decrease can therefore be
primarily explained by improved productivity in the food companies due to
increased automation.
Pro-forma sales, general and administrative costs increased to
$26,575,103 from $23,636,005 for the twelve months ended June 30, 1997 and 1996
respectively. This represented 33.8% of sales for the twelve months ended June
30, 1997 versus 33.1% for the corresponding period a year earlier. For the year
ended June 30, 1997 the SG and A expenses for the Company's processed foods
operations was approximately 34.5% of sales versus 34.4% for 1996. Air
conditioning and refrigeration for 1997 was 30% versus 33.5% in 1996. The
packaging equipment segment for 1997 was 29.2% versus 31.6% in 1996. While the
fastener segment for 1997 was 14.1% versus 13.2% for 1996. This increase is
primarily attributable to the Company's net corporate expenses. The Company was
formed in September 1995 and completed its Initial Public Offering in January of
1996. As a result the pro-forma results for fiscal 1996 do not reflect a full
charge for the Company's corporate overhead. During fiscal 1996, the Company
expended approximately $400,000 in corporate overhead, while in 1997 this number
increased to approximately $1.4 million. In addition, under the terms of certain
executive employment agreements, the Company
24
<PAGE>
recorded approximately $300,000 in bonuses related to the gain on the sale of
30% of First SA Food Holdings, Ltd., as part of its general SG&A expense.
Pro-forma Interest expenses decreased to 823,912 during the twelve
months ended June 30, 1997 from $1,524,827 for the twelve months ended June 30,
1996. Most of this decrease can be attributed to a non-cash charge of $396,000
that the Company took in connection with its November 1995 private placement of
Bridge Notes. In addition some of the Company's operating subsidiaries generated
interest on net cash balances which reduced the Company's consolidated net
interest.
Proforma other income was $3,904,884 and $872,766 for the twelve months
ended June 30, 1997 and 1996, respectively. This increase is primarily
attributable to a net gain of $3,327,478 on the sale of the Company's investment
in First SA Food Holdings Ltd. In June 1997, the Company completed the Initial
Public Offering of 5,000,000 ordinary shares of common stock of its subsidiary
First SA Food Holdings, which shares are listed on the Johannesburg Stock
Exchange; an institutional private placement in South Africa of 20,000,000
ordinary shares of common stock of FSA Food, and a private placement of
12,500,000 ordinary shares of common stock to management and staff. As of
September 30, 1997 the Company owned 70% of FSA Food.
The Company recorded a non-cash escrow share charge of $6,314,000 for
the year ended June 30, 1996. This charge relates to the release of 1,100,000
shares of Class B Common Stock from an Earnout Escrow Agreement that the Company
entered into with the underwriter of its January 24, 1996 Initial Public
Offering. Under the terms of this agreement, 1,100,000 shares were deposited in
escrow subject to the Company achieving certain pre-tax Pro Forma earnings
results. As the pro forma results for June 30, 1996 met the earnout requirements
of this agreement, the Company took this one time non-cash charge which was
calculated by multiplying 1,100,000 shares by the then current bid price of the
Company's Common Stock. The $6,314,000 charge was reflected as additional
Capital in Excess of Par in the June 30, 1996 Balance Sheets.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - PREDECESSOR COMPANY.
The annual rate of inflation in South Africa for the period set forth
below was as follows:
1993 1994 1995
---- ---- ----
13.9% 9.7% 8.6%
The average rate for the South African Rand against the U.S. dollar for
the periods under discussion were as follows:
FISCAL YEAR 1993 FISCAL YEAR 1994 FISCAL YEAR 1995
---------------- ---------------- ----------------
$1 = R2.90 $1 = R3.32 $1 = R3.53
Depreciation of 14.48% 6.3%
Based on these figures, in evaluating the comparable sales and expense
numbers for the companies in question for the period ended February 28, 1995
versus the period ended February 28, 1994, approximately 3.5% of the increase in
sales and expenses can be attributed to the net effect of the rate of inflation
of South Africa. The calendar year figures are provided with the fiscal year
figures as set forth above to provide an effective comparison of inflation
figures for the periods in question.
25
<PAGE>
Results of Operations
This discussion should be read in conjunction with the Selected
Historical and Pro Forma Combined Financial Data and the financial statements
and notes thereto appearing elsewhere in this Prospectus. In this discussion,
"Historical" reflects the combined historical financial data of Starpak and L.S.
Pressings. Prior to the Company's Initial Public Offering, such entities were
each principally owned by FSA Stock Trust, a principal stockholder of the
Company, and are therefore treated as the Company's predecessor. "Pro Forma"
assumes the consummation of this Offering and the acquisition of Europair.
COMBINED RESULTS FOR STARPAK AND L.S. PRESSINGS
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1995
AS PERCENTAGE OF SALES TO JUNE 30, 1995 1995 1994 1993
---------------------- ---------------- ---- ---- ----
FISCAL YEAR ENDED FEBRUARY 28,
------------------------------
<S> <C> <C> <C> <C>
Costs of sales ................................ 57.0% 57.3% 65.9% 66.0%
Gross profit .................................. 43.0% 42.7% 34.1% 34.0%
Selling, general and administrative expenses .. 32.8% 35.4% 27.7% 27.0%
Interest expense .............................. .05% 1.7% 2.6% 3.6%
Operating income .............................. 10.1% 7.3% 6.4% 7.0%
Other income (net of other expenses) .......... 1.3% 0.5% 0.9% 0.9%
Income before income taxes .................... 10.9% 6.1% 4.7% 4.3%
</TABLE>
Twelve Months Ended February 28, 1995 Compared to Twelve Months Ended
February 28, 1994
Historical sales for the twelve months ended February 28, 1995
increased 28.8% to $8,826,856 from $6,851,457 for the period ended February 28,
1994. As adjusted for inflation, historical sales volume increased approximately
25%. The increase included a 48% increase in sales of L.S. Pressings (or
approximately 45% volume increase) and a .05% decrease (a 3% volume increase
adjusting for inflation) in the sales of Starpak. The overall growth in the
volume of sales of the companies can be primarily attributable to the
improvement in macro-economic conditions in South Africa following the April
1994 elections, as described above.
The Historical cost of goods sold were $5,058,749 and $4,513,384 for
the twelve months ended February 28, 1995 and 1994, respectively. This
represented 57.3% of sales for the twelve months ended February 28, 1995 versus
65.9% for the corresponding period a year earlier. Decreases in cost of goods
sold were experienced in both Starpak and L.S. Pressings and can be attributed
primarily to more efficient production that resulted from the increase in
revenues, as both companies have relatively fixed manufacturing overhead costs.
In addition, labor costs as a percentage of sales were reduced, as there were a
number of work stoppages in support of political causes prior to the elections
which negatively impacted on the cost of sales for the year ended February 28,
1994.
Historical sales, general and administrative costs increased 64% to
$3,120,334 from $1,900,760 for the twelve months ended February 28, 1995 and
1994, respectively. This represented 35.4% of sales for the twelve months ended
February 28, 1995 versus 27.7% for the corresponding period a year earlier.
These increases were experienced in both companies and can be attributed
primarily to increased expenditures in administrative personnel as well as an
increase of $213,280 in management profit sharing bonuses which resulted from an
increase in operating profits.
Historical interest expenses declined to $152,163 during the twelve
months ended February 28, 1995 from $180,960 for the twelve months ended
February 28, 1994. This decrease can be attributed primarily to a decline in the
average level of borrowings during the year. However, in order to support
expansion, the companies increased their investment in fixed assets during the
last quarter of the fiscal year. As a result, despite the lower average level
26
<PAGE>
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 after all
fees and expenses from its initial public offering. During the period of April
to August 1997, the Company raised approximately $9.2 million in net proceeds
from the issuance of the Debentures. Such Debentures mature on June 15, 2004 and
are convertible any time prior to maturity at $6.00 a share. In June 1997, the
Company's subsidiary First SA Food Holdings raised approximately $16.5 million
in cash through the placement of its shares in South Africa. Of this amount,
approximately $5.5 million was retained by First South African Holdings, while
the remainder was retained by First SA Food Holdings. Proceeds from these
offerings have been and will continue to be primarily utilized to fund the
Company's acquisitions as well as to provide a certain amount of working capital
to its South African subsidiaries.
The Consolidated Balance Sheet as at September 30, 1997, shows cash on
hand of $15.7 million with working capital of $23.8 million. As of September 30,
1997 the Company had a total debt of $15,196.519 of which amount $10 million
related to the Debentures , with the remainder being bank debt. Of the bank
debt, $1,505,759 was classified as current. The Company currently has
approximately $3.4 million available in bank credit lines,
27
<PAGE>
which lines are unsecured and renewable on an annual basis with variable
interest rates (that are generally linked to the South African prime rate).
Cash flows provided by operating activities for the three months ended
September 30, 1997 and September 30, 1996, totaled $256,646 and $2,057,056
respectively. Cash flows used in investing activities for the three months ended
September 30, 1997 and September 30, 1996 totaled $5,935,490 and $2,863,464
respectively. For the three months ended September 30, 1997 $2,238,196 was
utilized for the acquisition of subsidiaries and $2,886,407 for additional
purchase price payments. In the comparable period in 1996 $2,673,865 was used
for the acquisition of subsidiaries. Net cash provided by financing activities
was $1,949,051, during the three months ended September 30, 1997 while
$1,412,196 was provided in the corresponding period in the prior year. This
increase is primarily attributable to proceeds of warrants exercised during the
quarter.
The Company's operating subsidiaries generally collect their
receivables within 65 to 90 days and reserve approximately 5% for doubtful
accounts. Historically, the companies' operating and capital needs have been met
by internal cash flow and outside bank borrowings. It is management's belief
that capital expenditures for the twenty-four month period following the date of
this Prospectus can continue to be met by internal cash flow and outside bank
borrowings. With respect to long term liquidity, the Company's management
believes that each of the Company's operating subsidiaries can continue to fund
itself through internal cash flow and bank loans, as they did before being
acquired by the Company. The Company's management also believes that each
Subsidiary's ability to fund itself has been enhanced since becoming part of the
group of entities owned by the Company.
As of September 30, 1997, the Company had cash of approximately $15.7
million. Under its various acquisition agreements, the Company anticipates
having to spend approximately $2.25 million in cash for its contingent payments
over the next 12 months as well as approximately $1.85 million in stock. The
Company anticipates that its cash and operating cash flows will be sufficient to
fully fund these payments as well as fund the capital expenditures for its
various operations. Excess cash will also be utilized to fund additional
acquisitions.
The Company's operating subsidiaries engage in certain hedging
transactions with respect to certain overseas purchases in order to lock in a
specified exchange rate. In addition, in July 1997, the Company, through Swiss
Bank Corporation, purchased a 12-month option to acquire the equivalent of $10
million in South African rand at the strike price of R5.50 to the dollar. This
option has the effect of hedging $10 million of the Company's fiscal 1998
earnings, in the event the exchange rate of the South African rand falls below
this strike price. The cost of such option was approximately $133,000 and is
being amortized over the length of the option.
The Company intends to continue to pursue an aggressive acquisition
strategy in South Africa and anticipates utilizing a substantial portion of its
cash balances and operating earnings to fund this strategy to the extent that
suitable acquisition candidates can be identified.
The Company may be required to incur additional indebtedness or equity
financing in connection with future acquisitions. There is no assurance that the
Company will be able to incur additional indebtedness or raise additional equity
to finance future acquisitions on terms acceptable to management, if at all.
On October 31, 1997, the Company raised an additional $15 million from
the placement of senior subordinated convertible debentures (see Note 7 of the
Notes to the Unaudited Consolidated Financials Statements for the Three Months
Ended September 30, 1996 and September 30, 1997 - Subsequent Events). The
proceeds from such placement will be used primarily to fund additional
acquisitions.
28
<PAGE>
FIRST SOUTH AFRICA CORP., ACQUISITION SCHEDULE
<TABLE>
<CAPTION>
===========================================================================================================================
Date Total Purchase
Acquired Price(1) Payment on Closing Second Payment Third Payment Fourth Payment
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Starpak 1/24/96 $838,545 167,709 shares N/A N/A N/A
- - ---------------------------------------------------------------------------------------------------------------------------
L.S. Pressing 1/24/96 $1,900,905 380,181 shares N/A N/A N/A
- - ---------------------------------------------------------------------------------------------------------------------------
Europair 1/24/96 $1,029,206 80,000 shares N/A N/A N/A
(= $400,000) and
$629,206
- - ---------------------------------------------------------------------------------------------------------------------------
Paper & Metal 4/29/96 $380,000 $190,000 $85,000 on $85,000 on N/A
10/29/96 04/29/97
- - ---------------------------------------------------------------------------------------------------------------------------
Piemans 6/03/96 $9,200,000 331,579 shares 4X pre-tax 4X pre-tax profits N/A
(approx.) (= $1,658,000) and profits for year for year ended
$3,656,000 ended February February 28,
28, 1997 X by a 1998 X by a
factor of 20% factor of 20%.
62.5% cash and 62.5% cash and
37.5% stock 37.5% stock
- - ---------------------------------------------------------------------------------------------------------------------------
Astoria 7/01/96 $4,400,000 $1,300,000 $1.55 million 4X pre-tax profits 4X pre-tax profits for
(approx.) 186,000 FSAH Class B cash for year ended year ended June 30,
Shares ($930,000, at June 30, 1998 X 1999 X by a factor of
price of $5.00 a share) by a factor of 25%. 100% shares,
25%. 10% cash minus the lesser of
and 90% shares the second and third
installment
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For all acquisitions involving a stock consideration component, the Company
issued FSAH Class B Shares valued at the then current market price of the
Company's shares of Common Stock.
29
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
Date Total Purchase
Acquired Price(1) Payment on Closing Second Payment Third Payment Fourth Payment
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
First Strut 7/01/96 $600,000 19,230 shares $100,000 if pre- $125,000 if pre- $145,000 if pre-tax
(approx.) (= $96,000) and tax profits for tax profits for profits for year ended
$170,000 eight months year ended June June 30, 1999 is
ended June 30, 30, 1998 is greater than $320,000
1997 is greater greater than
than $81,000 $190,000
- - ---------------------------------------------------------------------------------------------------------------------------
Alfapac 11/10/96 $300,000 $300,000 to settle all N/A N/A N/A
(approx.) creditor claims
- - ---------------------------------------------------------------------------------------------------------------------------
Seemanns 11/1/96 $5,300,000 258,065 shares 5.5X pre-tax 4X pre-tax profits N/A
(approx.) (= $1,333,000) and profits for the for year ended
$1,900,000 eight months June 30, 1998 X
ended June 30, by a factor of
1997 X by a 20%. 60% cash
factor of 20%. and 40% shares
60% cash and
40% shares
- - ---------------------------------------------------------------------------------------------------------------------------
Gull Foods 1/1/97 $9,000,000 $3,110,000 and 245,000 4X pre-tax 4X pre-tax profits 4X pre-tax profits for
(approx.) shares (= $1,347,500). profits for year for year ended year ended June 30,
$890,000 (approx.) by ended June 30, June 30, 1999 X 2000 X by a factor of
September 30, 1997 1998 X by a by a factor of 16%. 50% cash and
factor of 16%. 16%. 50% cash 50% shares
50% cash and and 50% shares
50% shares
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================================
Date Total Purchase
Acquired Price(1) Payment on Closing Second Payment Third Payment Fourth Payment
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Pakmatic(2) 4/1/97 $1,228,000 $962,000 $88,666 $88,666 $88,666
(approx.)
- - ---------------------------------------------------------------------------------------------------------------------------
Fifers
Bakery(2) 7/1/97(3) $2.1 million $1.6 million in cash $106,000 $106,000 $106,000 (escalated
includes and 26,000 shares (escalated if (escalated if if profits exceed
assumption of (= $220,000) profits exceed profits exceed certain goals)
$425,000 debt certain goals) certain goals)
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Each of the payments following the applicable Closing are due on the
anniversary of the closing during each of 1998, 1999 and 2000.
(3) Effective Closing Date.
31
<PAGE>
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 June 30, 1998. 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, 1996 .................... $ (0.68)
Year ended June 30, 1997 .................... 1.38
Three months ended September 30, 1996 .... .... 0.19
Three months ended September 30, 1997 ..... ... 0.18
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 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 June 30, 1998.
32
<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, twelve 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, which is engaged in the manufacture of high quality
plastic packaging machinery; L.S. Pressings, which is engaged in the manufacture
of washers for use in the fastener industry; and Europair Africa, which is
engaged in the manufacture and supply of air conditioning products. Starpak and
LS Pressings are considered the Company's predecessor and from 1992 to their
acquisition in January of 1996, had concentrated solely on the manufacture and
sale of their respective products. Management of the predecessor company did not
change during this period, sales grew generally in line with the South African
inflation rate and no significant changes were made in the businesses during
that time. Since their acquisition, these companies have continued to operate in
a manner substantially similar to these past practices. 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, a manufacturer of plastic film
and printed plastic bags. In November 1996, Europair acquired the assets and
business of First Strut, a manufacturer of electrical trunking conduits. In
January 1997, FSAH acquired Seemann's, a manufacturer and distributor of a wide
range of processed meat products. In March 1997, the Company acquired Pakmatic,
a distributor of automatic process and packaging machinery. In April 1997, FSAH
acquired the business and assets of Gull Foods, a manufacturer of value-added
prepared foods. 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, effected only in South Africa, of 5,000,000 ordinary
shares of common stock of FSA Food, which shares are listed on the Johannesburg
Stock Exchange, (ii) an institutional private placement in South Africa of
20,000,000 ordinary shares of common stock of FSA Food, and (iii) a private
placement of 12,500,000 ordinary shares of common stock to management and staff.
As of December 2, 1997, FSAH owned 70% of the issued and outstanding shares of
FSA Food. In July 1997, the Company acquired Fifers, a manufacturer of
confectionary products.
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.
33
<PAGE>
HISTORY
The Company was founded in September 1995 in response to management's
perception of a growing global interest in South Africa as an emerging market.
The Company believes that the recent relaxation of trade and financial sanctions
and the reintegration of South Africa into the world economic community may
increase the opportunity for improved growth in the South African economy in
general and more particularly in the industry segments in which the Company is
engaged. See Note 18 of the Notes to the Consolidated Financial Statements with
respect to certain financial information relating to industry segments of the
Company.
The following chart sets forth the corporate structure of the Company
and its subsidiaries:
34
<PAGE>
<TABLE>
<CAPTION>
FIRST SOUTH AFRICA CORPORATION, LTD.
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST SOUTH | |
AFRICA | FIRST SOUTH AFRICAN HOLDINGS |
MANAGEMENT | SOUTH AFRICA |
CORP. DELAWARE | |
- - -----------------------------------------------------------------------------------------------------------------------------------
| | FIRST SA FOOD HOLDINGS |
- - -----------------------------------------------------------------------------------------------------------------------------------
| | SPECIALTY FOOD | | AIR CONDITIONING AND |
| FASTENERS GROUP | MANUFACTURING GROUP | PACKAGING GROUP | REFRIGERATION GROUP |
- - -----------------------------------------------------------------------------------------------------------------------------------
| L.S. PRESSINGS | PIEMANS PANTRY* | STARPAK | EUROPAIR |
| Acquired January 1996 | Acquired June 1996 | Acquired January 1996 | Acquired January 1996 |
| Purchase price: $1,900,905 | Purchase price: $9,200,000 | Purchase price: $838,545 | Purchase price: $1,029,206|
- - -----------------------------------------------------------------------------------------------------------------------------------
| PAPER & METAL | ASTORIA BAKERY* | ALFAPAK | EUROPAIR REFRIGERATION |
| Acquired April 1996 | Acquired July 1996 | Acquired November 1996 | Acquired April 1996 |
| Purchase price: $380,000 | Purchase price: $4,400,000 | Purchase price: $300,000 | Purchase price: less than |
| | | | $100,000 |
- - -----------------------------------------------------------------------------------------------------------------------------------
| | SEEMANNS MEAT PRODUCTS* | PAKMATIC | FIRST STRUT |
| | Acquired November 1996 | Acquired April 1997 | Acquired July 1996 |
| | Purchase price: $5,300,000 | Purchase price: $1,228,000 | Purchase price: $600,000 |
- - -----------------------------------------------------------------------------------------------------------------------------------
| | GULL FOODS* | | |
| | Acquired January 1997 | | |
| | Purchase price: $9,000,000 | | |
- - -----------------------------------------------------------------------------------------------------------------------------------
| | FIFERS BAKERY | | |
| | Acquired July 1997 | | |
| | Purchase price: $2,100,000 | | |
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* These acquisitions include contingent payments based on a multiple of
future earnings. The purchase prices reflected for these acquisitions
include the Company's current estimate of the total price to be paid
after all contingent payments are made. Except as otherwise stated, all
subsidiaries are incorporated in South Africa.
35
<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.
DESCRIPTION OF BUSINESSES IN EACH OF THE COMPANY'S INDUSTRY SEGMENTS
VALUE ADDED SPECIALTY FOODS
PIEMANS PANTRY
Piemans Pantry was acquired by the Company in June 1996. Piemans Pantry
manufactures, sells and distributes quality meat, vegetarian and fruit pies,
both in the baked and frozen, unbaked form. The business manufactures, markets
and distributes from its headquarters in Krugerdorp, Gauteng and has a regional
sales office in KwaZulu-Natal. Piemans Pantry strives to emphasize the highest
standards of quality control and consistency of product. It's major customers
are independent retail baker shops, pie shop franchises, in-store bakeries,
national bread bakery groups, institutional cafeterias and convenience stores.
Piemans Pantry's sales are conducted through its own employees, as well as
through distributors/agents. Approximately 60% of Piemans' sales are internally
generated with the remainder through agents. During the last fiscal year the
Spar Group (a cooperative of independent supermarkets) accounted for 19% of the
Piemans Pantry's sales, while the London Pie Company (a pie store franchise
chain) contributed 15% of Piemans Pantry's sales. In the previous two fiscal
years, no customer accounted for more than 20% of Piemans Pantry's sales.
Piemans Pantry competes on the basis of quality. It faces competition
from a number of manufacturers, primarily those supplying to the lower end of
the market. Piemans Pantry believes that it has only one significant competitor
and that its market share is currently around 20%. Piemans Pantry's business is
slightly stronger in the months of July through October as well as in December.
However, these increases are not significant to make this a seasonal business.
Piemans Pantry manufactures to order on a daily basis. Backlog is therefore not
counted, nor is it relevant in the analysis of Piemans Pantry's business.
Piemans Pantry's principal suppliers for its pastry and filling
ingredients are both local and foreign companies. All suppliers except one have
immediate alternative sources. Piemans Pantry selects its suppliers on the basis
of quality and price and to date it has had no difficulty in obtaining
sufficient supplies.
36
<PAGE>
ASTORIA BAKERY
Astoria Bakery manufactures, sells and distributes high margin
specialty breads such as special rye breads in the Republic of South Africa from
its bakery in Randburg. Its major customer is Woolworths, a leading South
African high-end retail chain, accounting for approximately 65% of sales. In the
previous two fiscal years, Woolworths accounted for approximately 57% of
Astoria's sales. Astoria strives to emphasize the highest standards of quality
as well as uniqueness of product in its specialty lines. It faces competition
from a number of manufacturers, however, Astoria believes that it dominates the
market for specialty breads in Gauteng.
In addition, Astoria Bakers Lesotho manufactures, sells and distributes
staple bread to the Lesotho market, from its bakers in Maseru, the capital of
Lesotho. In Lesotho, Astoria has one major competitor who has 40% of the Lesotho
bread market. Astoria also has approximately 40% of this market and the balance
is controlled by in-store bakeries.
GULL FOODS
Gull Foods manufactures and sells a wide range of prepared food
products. Gull's product line includes over 150 products ranging from hamburger
patties, prepared sandwiches, salads, prepared pastas, pizzas, and flavored
breads. Gull manufactures and markets from its headquarters in Bronkhorstpruit,
a small town east of Pretoria. It strives to emphasize the highest standard of
quality in all its product lines. Its major customer is Woolworths, (a large
South African department store chain) which in Gull's last three fiscal years
has accounted for approximately 86% of Gull's revenues. Gull's remaining
business is derived from sales to the airline and institutional catering
industries.
Gull competes on the basis of quality and range of product. It believes
that it does not face direct competition in the Gauteng area of South Africa and
has a number of smaller competitors who supply to Woolworths in the South
African Cape. All of the products sold to Woolworths are marketed under the
Woolworths label. Gull generally sees an increase in its business during
November and December, as well as a seasonal increase during the Easter period.
However, these increases are not significant enough to make Gull a seasonable
business.
Gull sells its products to order and therefore does not carry a
backlog. Gull's suppliers are all located in South Africa. All of Gull's
suppliers have immediate alternative sources. Gull selects its suppliers on the
basis of quality and price and to date has had no difficulty obtaining adequate
supplies.
SEEMANNS
Seemanns manufactures, sells, and distributes a wide range of processed
meat products including products typically found in retail butcheries, as well
as high margin processed and smoked meat products. Seemanns manufactures,
markets and distributes from its headquarters in Randburg. It strives to
emphasize the highest standard of quality in all its product lines and has
become a well known brand name in its specialty areas. Its major customers are
its own retail outlets, accounting for approximately 35% of its revenues, as
well as the Pick n' Pay Group, one of South Africa's largest supermarket chains,
which accounted for approximately 35% of Seemanns' sales in Seemanns fiscal year
ending February 28, 1997. In the previous two years, Pick n' Pay accounted for
more than 10% but less than 20% of Seemanns' sales. In addition, Seemanns sells
to a number of institutional catering organizations, restaurant chains, and
other institutional customers. Seemanns competes on the basis of quality and
range of product. It faces competition from retail butchery chains, as well as
supermarket groups. As a manufacturer, Seemanns believes that it has established
a strong niche in the market for high quality smoked and processed meat products
in the Johannesburg area. Seemanns generally sees an increase in its business
during November and
37
<PAGE>
December, as well as a seasonal increase during the Easter period. However,
these increases are not significant enough to make Seemanns a seasonable
business.
Seemanns carries significant amounts of raw meat inventory, as it
purchases supplies on a market related basis. When raw materials are cheap,
Seemanns typically uses its strong cash resources, to stock pile meat at
favorable prices. On the manufacturing side however, Seemanns sells its
processed meats on a daily basis and therefore does not carry a significant
backlog of orders. Seemanns' principal suppliers are mostly local. All suppliers
have immediate alternative sources. Seemanns selects its suppliers on the basis
of quality and price and to date has had no difficulty obtaining adequate
supplies.
PLASTIC PACKAGING MACHINERY
STARPAK
Starpak manufactures high quality plastic packaging machinery and does
business under the name of Levy and Smith. Starpak's operations are located in
Johannesburg with service offices in Durban and Cape Town. Machinery
manufactured by Starpak is generally used by manufacturers to provide low cost
and high quality packaging for a broad spectrum of consumer goods. Its machines
are used in industries such as food, baking, beverages, cosmetics,
pharmaceuticals, chemicals, motor oils, printing, hardware and general trade.
Starpak markets its products directly and through independent sales agents. Over
96% of Starpak's sales are generated through its in-house sales force. During
the last fiscal year, no one customer accounted for more than 10% of Starpak's
annual sales. Prior to such time, Albany Bakeries, which developed a new bread
packaging product, and the Premier Group, which purchased a wide range of bakery
packaging equipment, accounted for more than 10% of Starpak's annual sales in
the previous two fiscal years.
Starpak competes on the basis of quality. Starpak faces competition
from major competitors whose machines are frequently less expensive, although
Starpak believes that they are of lower quality than machines produced by
Starpak. To the best of its knowledge, management estimates that the total
market for shrink packaging machinery in South Africa in 1996 was approximately
$11,100,000. Of this total market, Starpak has an estimated 46% share, with the
remainder of the market being serviced by a number of small packaging machine
manufacturing companies. In the past, Starpak has experienced a seasonal
down-turn in its business during the period commencing mid-December and ending
at the end of February. This down-turn appears to be due to the main summer
holidays in South Africa that occur during such period. The most active period
for receipt of orders has historically been from July to the beginning of
December. As of October 31, 1997, Starpak's backlog of firm orders was 4,758,719
Rand (approximately $991,400) compared to approximately 3,775,132 Rand
(approximately $815,365) as of October 31, 1996.
Although Starpak's principal suppliers are foreign companies, each
principal supplier is represented locally in South Africa and to date, Starpak
has not experienced material difficulties or delays in obtaining products or
supplies. Almost all local suppliers are on thirty-day terms, while items
purchased directly from overseas suppliers require irrevocable letters of
credit. Motors, which comprise approximately 5% of the cost of the machines, are
imported directly from non-African sources. Other products obtained by Starpak
from its suppliers include electronic controllers, pneumatics, overloads,
contractors, switches and Teflon tape.
AIR CONDITIONING AND REFRIGERATION
EUROPAIR
Europair manufactures and supplies products, parts and accessories to
the heating, ventilation and air conditioning industry ("HVAC") in South Africa.
Europair's operations are located in Johannesburg with branch offices in Durban,
Cape Town, Port Elizabeth, East London, Nelspruit and Petersburg. Europair seeks
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
38
<PAGE>
ducting, flanging, insulation, humidifiers, fire dampers and other accessory
products for the air conditioning industry. Europair markets its products
primarily through its sales personnel directly to air conditioning and building
contractors as well as to other agents.
Europair believes it is unique in South Africa in its increasing
capacity as a full-range supplier to the HVAC industry and believes it does not
currently compete directly with any supplier that offers as comprehensive a
range of products. Europair does, however, have a number of competitors in each
of its product groups. Increasingly, the threat of competition is presented by
less expensive imports, although such imports are sometimes lower quality and
the importers are generally unable to stock a broad range of products. As
Europair is in the air conditioning and refrigeration business it experiences a
seasonality that corresponds with the summer months in the Southern hemisphere.
Typically, sales are higher in the months of October through February.
Europair's firm order backlog does not represent a material portion of its
annual sales.
Europair relies on local suppliers to provide it with aluminum
extrusions, aluminum foil, fiberglass and other insulation material, fire
dampers, steel and wire in the manufacturing of Europair's products and for
inclusion in other products sold by Europair. The principal foreign suppliers of
Europair provide it with humidifiers, glue, air valves, vinyl, polyester, access
doors and fans. Ordinarily, Europair does not experience material difficulty in
procuring the raw materials required for its production processes. Aluminum
prices are, however, commodity driven and change frequently. The Durban factory
experienced a substantial inventory shortage with respect to its aluminum
requirements in October and November 1994 due to a countrywide shortage of
aluminum. In response to such shortage Europair has accumulated and maintains a
substantial stockpile of aluminum.
UNIVERSAL REFRIGERATION
Universal Refrigeration has been renamed Europair Refrigeration, it is
a wholly owned subsidiary of Europair engaged as an agent in the distribution
and supply of various refrigeration related products. Its sales are generated
through Europair's existing national sales network.
FASTENER INDUSTRY
L.S. PRESSINGS
L.S. Pressings and its subsidiary, Paper & Metal Industries,
manufacture washers for supply to distributors of nuts and bolts who in turn
distribute L. S. Pressing products to end users in various industries and
markets. L.S. Pressings' operations are located in Johannesburg. L.S Pressings
manufactures a full range of washers to metric, capital imperial as well as U.S.
specifications. In addition, it manufactures special size washers to suit
customers specific requirements. Washers are manufactured from mild steel, black
(heat tempered) steel, copper, brass, fiber and various plastics. Washers are
used in numerous industries, including automotive, electrical, furniture and
construction industries. They are also used for sealing purposes, water piping
and as a non-conductive element. L.S. Pressings has no sales representatives
with orders being placed directly by customers. Substantially all of the
customers are distributors who resell the washers to end users.
L.S. Pressings believes that it is the single largest supplier of
washers in the South African market, although a number of competitors compete
with L.S. Pressings in particular niches. L.S. Pressings' strongest competition
is from importers of standard size washers manufactured in Taiwan. However,
importers of Taiwanese washers generally do not offer a "one-stop" source of
supply and L.S. Pressings believes it competes successfully with respect to
pricing. As a result, the importers have not had a substantial impact on 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
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therefore not significant for L.S. Pressings and tend to vary widely. However,
as of October 31, 1997, L.S. Pressings' firm order backlog was 203,747 Rand
(approximately $42,450) as compared with 458,612 Rand (approximately $99,000) on
October 31, 1996.
All of L.S. Pressings' suppliers are local companies. In the last year
there has been a shortage of scrap metal in South Africa, although L.S.
Pressings has had no material problems obtaining scrap required for its
operations. Spring washers, which comprise approximately 10% of L.S. Pressings'
annual sales, are manufactured using a different process to that adopted by L.S.
Pressings. As a result, L.S. Pressings purchases spring washers from
locally-represented suppliers. Apart from the month of December when its
factories are closed, there is no particular seasonality to these businesses.
REGULATION
The Company's South African business operation is subject to a number
of laws and regulations governing the use and disposition of hazardous
substances, air and water pollution and other activities that effect the
environment. The Company's management believes that each of its subsidiaries is
in substantial compliance with applicable South African law and the regulations
promulgated under such law and that no violation of any such law or regulation
by any such company has occurred which would have a material adverse effect on
the financial condition of the Company.
EMPLOYEES
As of December 2, 1997, in addition to its President who devotes
substantially all of his business time to the Company, the Company had only one
full-time salaried employee. "See Management - Employment Agreements". As of
such date, FSAH had only four full-time salaried employees. The Company intends
to add employees as necessary to meet management and other requirements from
time to time. On July 1, 1996, FSAH entered into an employment agreement with
Cornelius J. Roodt to act as its Managing Director. See "Management- Employment
Agreements". As of December 2, 1997, the Company's operating subsidiaries
employed approximately 2,500 people.
PROPERTIES
The Company's principal executive offices are located at Clarendon
House, Church Street, Hamilton, HM 11, Bermuda, which space is made available to
the Company pursuant to a corporate services agreement entered into with a
corporate services company in Bermuda.. The Company's U.S. subsidiary, First
South African Management Corp. (FSAM) has its principal executive offices at
2665 South Bayshore Drive, Suite 702, Coconut Grove, Florida 33133. FSAM's
offices consist of approximately 2,000 square feet of office space in an office
section of Coconut Grove, Florida, which FSAM occupies pursuant to a three-year
lease agreement (expiring in 1999) with a monthly rental of $2,600. FSAH's
principal executive offices are located in the facilities of Europair in South
Africa.
Starpak and L.S. Pressings operate out of a facility made up of
adjacent buildings owned by Levy & Smith Properties (Proprietary) Limited, a
wholly-owned subsidiary of Starpak. The facility has a total lot size of
approximately 30,000 square feet. The facility has three floors at 85% coverage
equal to a total of 76,500 square feet. The Company anticipates that it will
require additional space and is considering the rental of additional space at a
nearby location. Starpak also has branches in Durban and Cape Town, South
Africa.
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
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entered into a ten year lease (expiring in 2006) with Europair with respect to
such premises for an initial rental rate of $110,111 per annum. Europair
believes this property is well suited to Europair's operations and can
accommodate relatively large increases in manufacturing and storage. Europair's
other leased properties are located in Durban, Cape Town and Port Elizabeth.
Piemans Pantry operates from premises and facilities that it owns in
Krugersdorp. The facility has two floors with a total size of 38,000 square
feet. In addition, Piemans Pantry rents a retail facility in Krugersdorp, as
well as an office space in KwaZulu-Natal.
Paper & Metal Industries rents two adjacent industrial properties in
Germiston, Gauteng. The total size of the facility is 8,975 square feet. Paper &
Metal have a two year lease (expiring in 1998) at approximately $34,744 per
annum.
Astoria leases approximately 20,000 square feet of space in Randberg
for which it pays an annual rental amount of approximately $100,000 (pursuant to
a lease expiring in 2006). Astoria also leases approximately 6,000 square feet
in Lesotho for which it pays an annual rental amount of approximately $7,000
(pursuant to a lease expiring in 2006).
Gull operates from premises and facilities that it rents in
Bronkhorstspruit. Such premises include approximately 52,000 square feet of
space. Rental cost is approximately $44,000 per annum with a lease term of five
years. In addition, Gull rents a small manufacturing and retail facility of
approximately 4,000 square feet in downtown Johannesburg. Rental cost of these
premises is approximately $8,000 per annum with a lease term of five years.
Seemanns operates from premises and facilities that it owns in
Randburg. These premises include the retail outlet and comprises approximately
44,000 square feet.
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
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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 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
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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 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 41 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 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
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of the Syracuse University Business School since 1990. Mr. Mackey played
football for 10 seasons in the National Football League and was elected to the
Pro Football Hall of Fame in 1992. Mr. Mackey has been a director of the Company
since January 1996.
CORNELIUS J. ROODT has been a director of the Company since December
1996. Mr. Roodt was appointed Managing Director and Chief Financial Officer of
FSAH, on July 1, 996. Mr. Roodt is responsible for overseeing all the activities
of FSAH's operations in South Africa. From 1994 to 1996 Mr. Roodt was a senior
partner at Price Waterhouse Corporate Finance, South Africa. From 1991 to 1994
he was an audit partner at Price Waterhouse, South Africa. Prior to that he was
a partner at the accounting firm of Wichahn Meyernel in South Africa.
OTHER KEY EMPLOYEES
Samuel S. Smith, 41. Mr. Smith is a joint Managing Director of Starpak.
Mr. Smith has been employed by Starpak and its predecessor since 1976. Mr. Smith
is responsible for the technical operations of Starpak which include conceptual
design of machinery, management of the factory and production processes,
commissioning and installation of machinery at customers' premises.
Rhona L. Kabatznik, 61. Ms. Kabatznik is a General Manager and Director
of L.S. Pressings. Ms. Kabatznik's responsibilities include production and sales
administration. Ms. Kabatznik is the mother of Clive Kabatznik, the Vice
Chairman, President and Chief Executive Officer of the Company, and a first
cousin of Michael Levy, the Chairman of the Company's Board of Directors.
Raymond Shaftoe, 45. Mr. Shaftoe has been a joint Managing Director of
Starpak since 1986 and has been employed by Starpak since 1980. Mr. Shaftoe has
also served on the Board of Directors of Starpak since 1986. His current
responsibilities include supervision of the sales and marketing of Starpak's
products, administration and product development.
Bruce Thomas, 44. Mr. Thomas is the Chief Executive Officer of
Europair. He has held this position since 1991 and was the principal shareholder
of Europair until its sale to the Company. Prior to that he was the Chief
Financial Officer for Europair and held that position from 1976. His
responsibilities include the management of Europair, product development, sales
and financial oversight.
John Welch, 48. Mr. Welch is the founder and Managing Director of
Piemans Pantry, a company he established in 1982. His responsibilities include
overall supervision of all aspects of the business.
Wolfgang Burre, 55. Mr. Burre is the founder of Astoria. He is a fifth
generation master baker and is responsible for overall corporate strategy,
product development and quality control. Mr. Burre traditionally has devoted 50%
of his time to Astoria and will continue to do so.
Each of the above key employees, other than Bruce Thomas, John Welch,
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.
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Matthew Jericevich, 27. Matthew Jericevich has been a Managing Director
of Seemanns since November 1996. For the past five years Mr. Jericevich has held
a number of marketing and production positions at Seemanns. Mark Jericevich and
Matthew Jericevich are jointly responsible for overall corporate strategy, as
well as all financial and operational issues at Seemanns.
Mark Jericevich and Matthew Jericevich have entered into three year
service contracts with Seemanns, commencing November 1, 1996.
Ian Store, 44. Mr. Store is a Managing Director and founder of Gull
Foods. Mr. Store is responsible for all production and operational management at
Gull, and together with Alan James, is jointly responsible for overall corporate
strategy.
Alan James, 45. Mr. James is a Managing Director and founder of Gull.
Mr. James is responsible for Gull's marketing and sales efforts.
Ian Store and Alan James have entered into three year service contracts
with Gull Foods, commencing January 1, 1997.
Eddie Hind, 48, is a founding and Managing Director of Fifers Bakery
(Proprietary) Limited ("Fifers"). In July, 1997, the Company acquired Fifers, a
manufacturer of confectionary baked products. Mr. Hind is responsible for Fifers
production, marketing and sales activities. Mr. Hind has entered into a three
year employment agreement with Fifers, commencing July 1997.
All directors of the Company hold office until the next annual meeting
of shareholders or until their successors are elected and qualified. The
officers of the Company are elected by the Board of Directors at the first
meeting after each annual meeting of the Company's shareholders, and hold office
until their death, until they resign or until they have been removed from
office. The Company has no executive committee. Pursuant to the Underwriting
Agreement, dated January 24, 1996 by and among the Company, FSA Stock Trust and
D.H. Blair and executed with respect to certain provisions thereof by Messrs
Clive Kabatznik and Michael Levy, the Company is required to nominate a designee
of D.H. Blair of its initial public offering to the Board of Directors for a
period of five years from the date of the completion of the Offering. D.H. Blair
has not yet selected such a designee.
COMMITTEES OF THE BOARD
The Board has an Audit Committee (the "Audit Committee") and a
Compensation Committee (the "Compensation Committee"). The Audit Committee is
composed of Clive Kabatznik, Charles Goodwin and John Mackey. The Audit
Committee is responsible for recommending annually to the Board of Directors the
independent auditors to be retained by the Company, reviewing with the
independent auditors the scope and results of the audit engagement and
establishing and monitoring the Company's financial policies and control
procedures. The Compensation Committee is composed of Charles Goodwin and John
Mackey. These persons are intended to be Non-Employee Directors within the
meaning of Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of
1934 (the Securities Exchange Act). The responsibilities of the Compensation
Committee are described below under the heading Stock Option Plan.
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EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to its Chief Executive Officer and
to the Managing Director and Chief Financial Officer of the Company's
subsidiary, FSAH, during the period from July 1, 1996 through June 30, 1997.
Apart from Mr. Kabatznik, whose annual salary is $180,000 and Mr. Roodt, whose
annual salary is $150,000, no other executive officer of the Company or any
subsidiary received compensation in excess of $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM AWARDS
----------------------------------------- -------------------------
SECURITIES RESTRICTED
NAME AND OTHER ANNUAL UNDERLYING STOCK
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS AWARDS
- - ------------------- ---- --------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Clive Kabatznik, 1997 $180,000 $195,142 255,000(1)
President and Chief 1996 $135,000 -- 205,000(2)
Executive
Officer
of the Company
Cornelius J. Roodt, 1997 $150,000 $195,142 255,000(3)
Managing Director
and Chief Financial
Officer of FSAH
</TABLE>
(1) Includes (i) options granted under the Stock Option Plan to purchase 5,000
shares of Common Stock at an exercise price of $3.75 per share, and (ii)
options granted by the Board of Directors to purchase 250,000 shares of
Common Stock at an exercise price of $4.75 per share (of which 125,000 were
immediately exercisable and 125,000 would become exercisable on June 24,
1999, if Mr. Kabatznik is still employed by the Company on such date).
(2) See "-Stock Option Plan."
(3) 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. Roodt is still employed by the Company on such date).
Except for Mr. Levy, non-employee 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. The Board of
Directors has approved the increase of such amount of shares to 10,000, subject
to shareholder approval. Mr. Levy receives an annual service fee of $60,000 and
options to purchase 5,000 shares of the Company's Common Stock (subject to
increase as described above) 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.
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EMPLOYMENT AGREEMENTS
First South Africa Management ("FSAM"), the Company's management
subsidiary, has entered into an Employment Agreement with Clive Kabatznik, the
Vice Chairman, President and Chief Executive Officer of the Company and of FSAM.
Under the terms of such agreement, Mr. Kabatznik shall devote substantially all
of his business time, energies and abilities to the Company and its subsidiaries
and shall receive an annual salary of $180,000 and options to purchase 55,000
shares of Common Stock at an exercise price of $5.00 per share. In addition, Mr.
Kabatznik has been granted additional options to purchase 150,000 shares of
Common Stock of the Company at the exercise price of $5.00 per share,
exercisable after the seventh anniversary following the grant date, provided
that vesting of such options will be accelerated as follows: (i) 50,000 options
will be exercisable on such earlier date that the Company realizes earnings per
share of $.75 or more on a fiscal year basis, (ii) an additional 50,000 options
will be exercisable on such earlier date that the Company realizes earnings per
share of $1.00 or more on a fiscal year basis and (iii) an additional 50,000
options will be exercisable on such earlier date that the Company realizes
earnings per share of $1.50 or more on a fiscal year basis. The options referred
to in (i) and (ii) above have vested as a result of the Company's realization of
the applicable earnings per share requirements. The Company is obligated, 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 Mr. 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) 30,000 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, (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 options referred to in (i) and (ii) above have
vested as a result of the Company's realization of the applicable earnings per
share requirements. The Company is obligated, 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)
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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 Board of Directors of the Company has approved an increase
of the number of shares reserved for issuance and issuable under the Plan by
500,000 shares, subject to shareholder approval.
The Stock Option Plan is to be administered by the Compensation
Committee of the Board of Directors. The Committee shall determine the terms of
options exercised, including the exercise price, the number of shares subject to
the option and the terms and conditions of exercise. No option granted under the
Stock Option Plan is transferable by the optionee other than by will or the laws
of descent and distribution and each option is exercisable during the lifetime
of the optionee only by such optionee or his legal representatives.
The exercise price of Incentive Stock Options granted under the Stock
Option Plan must be at least equal to the fair market value of such shares on
the date of grant (110% of fair market value in the case of an optionee who owns
or is deemed to own stock possessing more than 10% of the voting rights of the
outstanding capital stock of the Company (or any of its subsidiaries). The term
of each option granted pursuant to the Stock Option Plan shall be established by
the Committee, in its sole discretion; provided, however, that the maximum term
for each Incentive Stock Option granted pursuant to the Stock Option Plan is ten
years (five years in the case of an optionee who owns or is deemed to own stock
possessing more than 10% of the total combined voting power of the outstanding
capital stock of the Company (or any of its subsidiaries). Options shall become
exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option. The maximum number of shares for
which options may be granted to any individual in any fiscal year is 210,000.
The Stock Option Plan also contains an automatic option grant program
for the non-employee directors. Each non-employee director of the Company is
automatically granted an option for 5,000 shares of Common Stock. Thereafter,
each person who is a non-employee director of the Company following an annual
meeting of shareholders will be automatically granted an option for an
additional 5,000 shares of Common Stock. The Board of Directors of the Company
has approved the increase of such amount of shares to 10,000, subject to
shareholder approval. 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.
As of the date of this Prospectus, the Company has granted options to
purchase 250,000 shares of Common Stock under the Stock Option Plan, 10,000 of
which have been exercised.
OPTIONS GRANTED
The Company has granted options to management to purchase 250,000
shares of Common Stock under the Plan and additional non-plan options to
purchase 500,000 shares of Common Stock as described in the table set forth
below:
49
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENT OF TOTAL PER RATE OF STOCK PRICE
OPTIONS GRANTED TO SHARE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION TERM
GRANTED FISCAL YEAR (1) PRICE DATE 5% 10%
------- --------------- ----- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Michael Levy.......... 5,000 .66% $5.00 (2) $ 6,900 $ 15,273
5,000 .66% 3.75 (2) 5,200 11,500
Clive Kabatznik....... 205,000 27.33% 5.00 (3) 283,188 625,773
5,000 .66% 3.75 (2) 5,200 11,500
250,000 33.33% 4.75 (4) 328,084 724,981
Laurence M. Nestadt... 5,000 .66% 5.00 (2) 6,900 15,273
Charles S. Goodwin.... 5,000 .66% 5.00 (2) 6,900 15,273
5,000 .66% 3.75 (2) 5,200 11,500
John Mackey........... 5,000 .66% 5.00 (2) 6,900 15,273
5,000 .66% 3.75 (2) 5,200 11,500
Cornelius J. Roodt.... 5,000 .66% 3.75 (2) 5,200 11,500
250,000 33.33% 4.75 (4) 328,084 724,981
</TABLE>
- - --------------------
(1) The numbers have been rounded for the purpose of this table.
(2) Options granted will expire five years from the date granted and are
immediately exercisable.
(3) 55,000 options granted will expire five years from the date granted;
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; 100,000 additional options are currently
exercisable until the tenth anniversary of the date of the grant.
(4) Non-plan options to purchase 250,000 shares of Common Stock at an exercise
price of $4.75 granted by the Board of Directors to each of Mr. Kabatznik
and Mr. Roodt in the fourth quarter of fiscal year 1997 (of which 125,000
were immediately exercisable and 125,000 will become exercisable on June
24, 1999, if the optionee is still employed by the Company on such date).
50
<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 $.0l per share for each of such shares.
FSAM MANAGEMENT AGREEMENT
The Company and FSAM have entered into a Management Agreement pursuant
to which FSAM will provide certain management and administrative services to the
Company for an annual fee of $48,000 and reimbursement of FSAM's costs, other
than out-of-pocket expenses, at an amount equal to cost plus 10% (including the
costs of employees) incurred in providing such management and administrative
services to the Company. The costs of such services that may be requested from
time to time by the Company pursuant to the Management Agreement are at a rate
that could reasonably be expected to be charged by an unaffiliated third party.
The services to be provided by FSAM to the company under the FSAM Management
Agreement include general business management and administrative services,
shareholder relation services, financial services and accounting services. The
Management Agreement will expire on December 31, 2005, unless sooner terminated
on 90 days advance notice by either party. The Company paid FSAM a total of
$53,020 in the year ended June 30, 1997.
FSAH ESCROW AGREEMENT
The FSAH Escrow Agreement, executed in January 1996, provided for the
concurrent issuance and delivery by the Company of 729,979 shares of Class B
Common Stock to the FSAH Escrow Agent. The FSAH 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
51
<PAGE>
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 a number of escrow agreements (the "FSAC Escrow
Agreements") which are comprised of a number of additional agreements with the
FSAH Escrow Agent, FSAH and certain principal shareholders of the Company's
subsidiaries which were acquired since January 1996. The terms of the FSAC
Escrow Agreements are substantially similar to the terms of the FSAH Escrow
Agreement, except that only the FSAH Escrow Agreement provided for the issuance
of shares of Class B Common stock to the FSAH Escrow Agent while each of the
FSAC Escrow Agreements provided for the issuance of shares of Common stock to
the FSAH Escrow Agent which correspond to the following issuances of FSAH Class
B Stock by FSAH:
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE PIEMANS 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 SEEMANNS ACQUISITION(3)
- - -----------------------------------------------------------------------
Mark Jericevich 157,596 shares
Ivan Jericevich 157,597 shares
--------------
Total: 315,193 shares
ADDITIONAL SHARES ISSUED IN CONNECTION WITH GULL FOODS ACQUISITION(4)
- - ---------------------------------------------------------------------
Trek Biltong 238,660 shares
52
<PAGE>
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE ACQUISITION OF FIRST STRUT
- - --------------------------------------------------------------------------
(PTY) LTD.(5)
- - -------------
The Coch Family Trust 19,230 shares
ADDITIONAL SHARES ISSUED IN CONNECTION WITH THE ACQUISITION OF FIFERS BAKERY
- - ----------------------------------------------------------------------------
(PROPRIETARY) LIMITED(6)
- - ------------------------
Eddie Hinde 27,624 shares
____________________
(1) The Company has issued an additional 489,474 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. Andreas,
Mr. Morgan and Mr. Welch respectively, in connection with the Piemans
acquisition.
(2) The Company has issued an additional 186,407 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 Mr. Burre in connection
with the Astoria acquisition.
(3) The Company has issued an additional 315,194 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. Ivan Jericevich respectively, in connection with the
Seemanns acquisition.
(4) 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 Mr. Biltong in
connection with the Gull acquisition.
(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 FSAC Escrow Agreement
by and among the Company, the FSAH Escrow Agent and The Coch Family Trust
in connection with the First Strut acquisition.
(6) The Company has issued an additional 27,624 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 Mr. Hinde in connection
with the Fifers acquisition.
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 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),
53
<PAGE>
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. The terms of the loan were amended in January 1996 as follows: the
loan will bear interest at 1% below the prime bank overdraft rate (currently
19.25% per annum) and will be repayable over a period of 30 months. The first
twenty four monthly installments of $5,563 each, inclusive of principal and
interest, were paid commencing October 30, 1995. The outstanding balance is
expected to be repaid on or prior to April 30, 1998.
54
<PAGE>
PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 3, 1997, certain
information as to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own more than five percent (5%) of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table herein
under "Executive Compensation" and (iv) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (1)
---------------------------------------------
CLASS B PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF COMMON PERCENTAGE OF OF VOTING PERCENTAGE OF OF VOTING
BENEFICIAL SHAREHOLDER COMMON STOCK STOCK (2)(3) OWNERSHIP (3) POWER (3) OWNERSHIP (3) POWER(3)
- - ---------------------- ------------ ------------ ------------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Levy.................... 1,286,588(4) 1,300,116(5)(6) 36.5% 54.5% 29.8% 48.7%
9511 West River Street
Shiller Park, IL 60176
Clive Kabatznik................. 335,000(7) 190,000 7.7% 9.1% 5.8% 7.9%
2665 S. Bayshore
Suite 702
Coconut Grove, FL 37137
FSA Stock Trust................. 0 383,523(5)(8) 5.6% 13.6% 4.4% 12.0%
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 1.9% * 1.5% *
Grader Road
Spartan EXT 3
Kempton Park 1620
South Africa
BT Global Credit Limited . . . 1,949,754(10) 0 26.7% 13.4% 16.3% 11.1%
c/o Bankers Trust Luxembourg
S.A.
P.O. Box 807
14 Boulevard F.D. Roosevelt
L-2540 Luxembourg
Luxembourg
All executive officers and 1,771,588(11) 1,490,116 46.4% 64.6% 35.5% 56.0%
directors as a group
(5 persons)
</TABLE>
- - ---------------
* Less than 1%
55
<PAGE>
(1) Beneficial ownership is calculated in accordance with Rule 13d-3 under the
1934 Act.
(2) Except as otherwise indicated, each of the parties listed has sole voting
and investment power with respect to all shares of Class B Common Stock
indicated below.
(3) For the purposes of this calculation, the Common Stock and the Class B
Common Stock are treated as a single class of Common Stock. The Class B
Common Stock is entitled to five votes per share, whereas the Common Stock
is entitled to one vote per share.
(4) Includes 10,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable, and 1,276,588 shares of Common Stock
issued to the American Stock Transfer & Trust Company (the "FSAH Escrow
Agent") for which Mr. Levy has been granted a voting proxy.
(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 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 Initial Public Offering ("IPO") consummated in January,
1996 (the "FSAH Escrow Agreement"), although such individual or entity
disclaims ownership of such shares under South African law.
(6) Includes (i) 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 (ii) 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 purchased by Mr. Levy upon the closing of the
Europair acquisition. Also includes 310,004 additional shares of Class B
Common Stock issued to the FSAH Escrow Agent, for which Mr. Levy has been
granted a voting proxy. Mr. Levy disclaims beneficial ownership of all
shares held by the FSAH Escrow Agent for which he has been given a voting
proxy. Mr. Levy's wife is the trustee, and his wife and their children are
the beneficiaries, of the FSA Stock Trust. Mr. Levy disclaims ownership of
all shares held by the FSA Stock Trust, as well as the additional shares
held by the FSAH Escrow Agent for which he has been given a voting proxy.
(7) Includes 335,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
(8) Includes 383,523 shares of Class B Common Stock issued to the FSAH Escrow
Agent pursuant to the terms of the FSAH Escrow Agreement.
(9) Includes 130,000 shares of Common Stock issuable upon exercise of options
that are immediately exercisable.
(10) Includes (i) 1,368,421 shares of Common Stock issuable upon conversion of
certain Increasing Rate Senior Subordinated Convertible Debentures', (ii)
258,333 shares of Common Stock issuable upon conversion of certain 9%
Senior Subordinated Convertible Debentures, and (iii) 163,000 shares of
Common Stock owned by a fund that is managed by an affiliate of BT Global
Credit Limited.
(11) Represents shares issuable upon exercise of options that are immediately
exercisable. Does not include 250,000 shares issuable upon exercise of
options not exercisable within 60 days.
56
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of an aggregate of
23,000,000 shares of Common Stock, par value $.01 per share, 2,000,000 shares of
Class B Common Stock, par value $.01 per share, and 5,000,000 shares of
Preferred Stock, par value $.01 per share. As of the date hereof, 1,822,500
shares of Class B Common Stock are outstanding. The following statements
describe the material provisions of the securities being registered hereby and
certain other securities of the Company. See "Antitakeover Protections" and
"Differences in Corporate Law" for a description of the Company's Memorandum of
Association, bye-laws and The Companies Act 1981 of Bermuda, regarding
anti-takeover provisions and related matters affecting the Company. Such
statements and disclosure do not purport to be complete and are qualified in
their entirety by reference to the full Memorandum of Association and bye-laws
which are exhibits to the Company's Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Holders of Common Stock have one vote per share on each matter
submitted to a vote of the shareholders and a ratable right to the net assets of
the Company upon liquidation. Holders of the Common Stock do not have preemptive
rights to purchase additional shares of Common Stock or other subscription
rights. The Common Stock carries no conversion rights and is not subject to
redemption or to any sinking fund provisions. All shares of Common Stock are
entitled to share equally in dividends from legally available sources as
determined by the Board of Directors, subject to any preferential dividend
rights of the Preferred Stock (described below). Upon dissolution or liquidation
of the Company, whether voluntary or involuntary, holders of the Common Stock
are entitled to receive assets of the Company available for distribution to the
shareholders, subject to the preferential rights of the Preferred Stock. All of
the shares of Common Stock offered hereby are validly authorized and will be,
when issued, fully paid and non-assessable.
CLASS B COMMON STOCK
The Class B Common Stock and the Common Stock are substantially
identical on a share-for-share basis, except that the holders of Class B Common
Stock have five votes per share on each matter considered by shareholders and
the holders of the Common Stock have one vote per share on each matter
considered by shareholders, and except that the holders of each class will vote
as a separate class with respect to any matter requiring class voting by The
Companies Act 1981 of Bermuda.
Each share of Class B Common Stock is automatically converted into one
share of Common Stock upon (i) the death of the original holder thereof, or, if
such shares are subject to a shareholders agreement or voting trust granting the
power to vote such shares to another original holder of Class B Common Stock,
then upon the death of such other original holder, or (ii) the sale or transfer
to any person other than the following transferees: (a) the spouse of a holder
of Class B Common Stock; (b) any lineal descendants of a holder of Class B
Common Stock, including adopted children (said descendants, together with the
holder of Class B Common Stock and his or her spouse are hereinafter referred to
as "Family Members"); (c) a trust for the sole benefit of a Class B Common
shareholder's Family Members; (d) a partnership made up exclusively of Class B
Common shareholders and their Family Members or a corporation wholly-owned by a
holder of Class B Common Stock and their Family Members, and (e) any other
holder of Class B Common Stock thereof. Presently, there are 1,822,500 shares of
Class B Common Stock issued and outstanding. The difference in voting rights
increases the voting power of the holders of
57
<PAGE>
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.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue this Preferred Stock in
one or more series and to fix the number of shares and the relative rights,
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences, without further vote or action by the
stockholders. If shares of Preferred Stock with voting rights are issued, such
issuance could affect the voting rights of the holders of the Company's Common
Stock by increasing the number of outstanding shares having voting rights, and
by the creation of class or series voting rights. If the Board of Directors
authorizes the issuance of shares of Preferred Stock with conversion rights, the
number of shares of Common Stock outstanding could potentially be increased by
up to the authorized amount. Issuance of Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, Preferred Stock could have preferences over the Common Stock (and other
series of preferred stock) with respect to dividend and liquidation rights. The
Company currently has no plans to issue any Preferred Stock.
DEBENTURES
The Debentures were issued by the Company under an indenture (the
"Indenture"), dated April 25, 1997 between the Company, as issuer, and American
Stock Transfer & Trust Company, as Trustee ("the Trustee"). The following
summaries of the material 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
58
<PAGE>
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. On Conversion, no payment or adjustment for interest will be
made. The Company will deliver a check for any fractional share.
The Conversion Price will be subject to adjustment upon the occurrence
of certain events, including, (i) the issuance of stock of the Company as a
divided or distribution on any shares of Common Stock, (ii) subdivisions,
combinations and certain reclassifications of Common Stock, (iii) the issuance
to all holders of Common Stock of certain rights or warrants entitling them to
subscribe for or purchase shares of common Stock at less than the then current
market price per share (as determined in the manner set forth in the Indenture),
and (iv) the distribution to all holders of Common Stock of any shares of
capital stock of the Company (other than Common Stock), evidences of
indebtedness of the Company or other assets (including securities, but excluding
any rights or warrants referred to above, excluding any dividend or distribution
paid in cash out of the earned surplus of the Company). In addition the
Conversion Price will be adjusted upon the issuance of Common Stock or of rights
or warrants entitling holders thereof to subscribe for or purchase shares of
Common Stock, or the issuance of securities convertible into or exchangeable for
shares of Common Stock, at less than the then current market price of the Common
Stock to equal the price offered by the Company to such holders if such
subscription or purchase price is less than the then Conversion Price.
No adjustment in the Conversion Price will be required unless such
adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect; provided, however, that any adjustment that
would otherwise be required to be made will be carried forward and taken into
account in any subsequent adjustment.
If the Company consolidates or merges into or sells, leases, conveys or
otherwise disposes of all or substantially all of its assets to any person, and
the Debentures are assumed by the successor, the Debentures will become
convertible into the kind and amount of securities, cash or other assets which
the Holders of the Debentures would have owned immediately after the transaction
if the Holders and converted the Debentures immediately before the effective
date of the transaction at the Conversion Price in effect immediately prior to
such effective date.
Redemption. The Debentures may be redeemed by the Company at any time
or from time to time commencing June 15, 1999, at the Company's option, in whole
or in part, upon not less than 30 nor more than 60 days' notice, mailed 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:
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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% (initially $9.00 per
share) of the then Conversion Price of the Debentures (initially $6.00 per
share). The applicable redemption percentage would be 109%. On and after the
Redemption Date, unless the company defaults on the payment of the redemption
price or on interest accrued and unpaid to the Redemption Date, interest will
cease to accrue on Debentures called for redemption and all rights of Holders of
the Debentures will cease except the right to receive the applicable redemption
price, plus interest accrued and unpaid to the Redemption Date.
Sinking Fund. The Debentures are redeemable, subject to the terms of
the Indenture, through the operation of a mandatory sinking fund in two equal
installments totaling 67% of the issue on June 15, 2002 and June 15, 2003, with
the balance of the issue being retired at maturity on June 15, 2004.
SUBORDINATION OF DEBENTURES
The payment of principal of, premium, if any, and interest on the
Debentures are, to the extent set forth in the Indenture, subordinated and
subject to right of payment to the prior payment in full of all Senior
Indebtedness (as defined below) of the Company, whether outstanding at the date
of the Indenture or later incurred. In the event and during the continuation of
any default in the payment of the principal of, or interest on, any Senior
Indebtedness of the Company or any event of default under any Senior
Indebtedness of the Company, no payment with the respect to the principal or
interest on the Debentures will be made by the Company unless and until such
default has been cured or waived. Upon any payment or distribution of the
Company's assets to creditors upon any dissolution, winding up, liquidation,
reorganization, bankruptcy, insolvency, receivership or other proceedings
relating to the Company, whether voluntary or involuntary, the holders of all
Senior Indebtedness of the Company will first be entitled to receive payment in
full prior to any payment upon the principal of, premium, if any, or interest on
the Debentures.
"Senior Indebtedness" means Indebtedness of the Company outstanding at
any time for money borrowed from a bank, financial company or other lending
institution and Indebtedness which is at least 50% secured by assets of the
Company or any subsidiary. "Indebtedness" means any debt of the Company for
borrowed money, capitalized leases and 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
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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 September 30, 1997, the principal amount of Senior Indebtedness of
the Company on a consolidated basis was approximately $5,196,509 consisting
primarily of bank and other long term debt.
Events of Default, Notice of Waiver. The Indenture provides that, if an
Event of Default specified therein shall have happened and be continuing, either
the Trustee or the Holders of 25% in principal amount of the Debentures then
outstanding may declare the principal of all such Debentures to be due and
payable; provided, however, that if any and all defaults (other than the
non-payment of principal and interest on Debentures then outstanding) shall have
been remedied, the Holders of a majority in aggregate principal amount of
Debentures then outstanding may waive such defaults and rescind and annul such
declaration and its consequences.
"Events of Default" are defined in the Indenture as being (i) a default
for ten (10) days in payment of any interest installment; (ii) a default for ten
(10) days in payment of principal and premium, if any, when due and payable;
(iii) a default for ten (10) days in the deposit of any sinking fund payment
when and as due; (iv) a default for thirty (30) days after written notice to the
company by the Trustee or to the Company and the Trustee by the Holders of 25%
in principal amount of the outstanding Debentures, in the performance of any
other covenant or agreement in the Indenture; (v) a default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Company or under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company, which default shall constitute a failure to pay any
portion of interest or principal when due after any applicable grace period or
shall have resulted in such indebtedness becoming or being declared due and
payable without such indebtedness having been discharged or such acceleration
having been rescinded or annulled; (vi) certain events of bankruptcy, insolvency
and reorganization; and (vii) in the event that the Company's reporting
obligations pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 are suspended or terminated.
The Indenture provides that the Trustee shall, within thirty (30) days
after learning of the occurrence of a default give to the Holders of the
Debentures notice of all uncured defaults known to it; provided that except in
the case of default in the payment of principal and premium, if any, or interest
on any of the Debentures, or failure to make a required sinking fund deposit or
redemption payment, the Trustee shall be protected in withholding such notice if
it in good faith determines that the withholding of such notice is in the
interest of the Holders. The term "default" for the purposes of this provision
only shall mean the happening of any of the Events of Default specified above,
not including any grace period or any requirement for the giving of written
notice.
Merger and Consolidation. The Indenture provides that the Company may
not be consolidated with or merged into another entity, or have transferred all
or substantially all of its assets in one or more related transactions, unless
(i) the Company shall be the surviving entity, or the successor shall expressly
assume by supplemental indenture all of the obligations of the Company under the
Debentures and the Indenture, (ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing, (iii)
the assuming corporation has a net worth not less than the consolidated net
worth of the Company, and (iv) certain other conditions are met.
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Covenants.
(i) Dividend and Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company may not, and may not permit any of its
subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction, unless such
encumbrance or restriction relates to presently existing Senior Indebtedness, on
the ability of any subsidiary to (i) pay dividends or make any other
distributions on its capital stock or any other interest or participation in, or
measured by, its profits, owned by the Company or any of its subsidiaries or pay
any Indebtedness owed to the Company or any of its subsidiaries, (ii) make loans
or advances to the Company or any of its subsidiaries, or (iii) transfer any of
its properties or assets to the Company or any of its subsidiaries, except for
such encumbrances or restrictions in existence on the date of the Indenture and
encumbrances or restrictions existing under or by reason of (A) the Indenture
and the Debentures, (B) applicable law, (C) any instrument governing
Indebtedness or capital stock of a person acquired by the Company, or any of its
subsidiaries, in existence at the time of such acquisition (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 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.
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"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.
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.
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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.
PLACEMENT WARRANTS
The Company issued to Value Investing Partners, Inc. (the "Placement
Agent") a Placement Warrant to purchase up to 135,000 shares of Common Stock at
any time up to the close of business on August 1, 2007 at an exercise price of
$6.00 per share. The Placement Warrant provides for demand and Piggyback
registration rights of the securities underlying such warrant. The exercise
price and the number and kind of shares to be issued on exercise of the
Placement Warrant is subject to adjustment in certain events including (i)
payment of dividends or making of distributions in shares of Common Stock; (ii)
subdivision, reclassification or recapitalization of outstanding Common Stock
into a greater number of shares; (iii) combination, reclassification or
recapitalization of outstanding Common Stock into a smaller number of shares;
and (iv) certain issuances of rights, options or warrants. The foregoing
description is subject to the provisions of the Placement Warrant 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.
PURCHASE OPTIONS
The Company granted to Barretto Pacific Corporation (the "Option
Holder") an option to purchase 25,000 shares of Common Stock at the purchase
price of $3.75 per share which option shall expire 180 days after the date of
this Prospectus. Subject to the terms of the applicable Stock Option Agreement,
if the Company 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 conditions as the Purchase
Options. The foregoing description is subject to the provisions of the Stock
Option 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.
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
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management of the Company, and the Board of Directors' ability to issue
Preferred Stock could also be utilized to change the economic and control
structure of the Company. As a result, such provisions, together with certain
other provisions of the bye-laws summarized in the succeeding paragraph, may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider in such
shareholder's best interest, including attempts that might result in a premium
over the market price for the Common Stock held by shareholders.
The bye-laws establish an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors at annual general meetings of shareholders. In general,
notice of intent to nominate a director at such meeting must be received by the
Company not less than 90 days prior to the meeting and must contain certain
specified information concerning the person to be nominated or the matter to be
brought before the meeting and concerning the shareholder submitting the
proposal.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda differs in certain material respects
from laws generally applicable to United States corporations and their
shareholders. Set forth below is a summary of certain significant provisions of
The Companies Act (including any modifications adopted pursuant to the Company's
bye-laws) applicable to the Company, which differ in certain respects from
provisions of Delaware corporate law. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be relevant
to the Company and its shareholders.
Interested Directors. The bye-laws provide that any transaction entered
into by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction provided the nature of the interest is disclosed at
the first opportunity at a meeting of directors, or in writing to the directors.
Under Delaware law no such transaction would be voidable if (i) the material
facts as to such interested directors' relationship or interests are disclosed
or are known to the board of directors and the board in good faith authorizes
the transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed or are known to the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of 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
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issuance of its stock or other consideration (i) in exchange for the assets of
the business to be acquired, (ii) in exchange for the outstanding stock of the
corporation to be acquired or (iii) in a merger of the corporation to be
acquired with a subsidiary of the acquiring corporation. Under Bermuda law, the
Company's shareholders have the right to vote on (i) any compromise or
arrangement between the Company and its shareholders, (ii) a take-over scheme
for 100% of the Company's shares enabling the compulsory acquisition of a 10%
minority interest (iii) an amalgamation (merger) of the Company and (iv) the
discontinuance of the Company from Bermuda.
Takeover. Bermuda law provides that where an offer is made for shares
of another Company and, within four months of the offer the holders of not less
than 90% of the shares which are the subject of the offer accept, the offeror
may by notice require the nontendering shareholders to transfer their shares on
the terms of the offer. Dissenting shareholders may apply to the court within
one month of the notice objecting to the transfer. The burden is on the
dissenting shareholders to show that the court should exercise its discretion to
enjoin the required transfer, which the court will be unlikely to do unless
there is evidence of fraud or bad faith or collusion as between the offeror and
the holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any shareholder
vote, may merge with any 90% or more owned subsidiary. Upon any such merger,
dissenting stockholders of the subsidiary would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are
not as extensive as the right of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association and
bye-laws. (The Company's bye-laws limit the right of securityholders to bring an
action against officers and directors of the Company.) 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.
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Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to an increase, reduction or
other alteration of the Company's share capital. The shareholders have the
additional right to inspect the bye-laws, minutes of general meetings and
audited financial statements of the Company, which must be presented to the
annual general meeting of shareholders. The register of shareholders of the
Company is also open to inspection by shareholders without charge, and to
members of the public for a fee. The Company is required to maintain its share
register in Bermuda but may establish a branch register outside Bermuda. The
Company is required to keep at its registered office a register of its directors
and officers which is open for inspection by members of the public without
charge. Bermuda law does not, however, provide a general right for shareholders
to inspect or obtain copies of any other corporate records. Delaware law permits
any shareholder to inspect or obtain copies of a corporation's shareholder list
and its other books and records for any purpose reasonably related to such
person's interest as a shareholder.
CERTAIN PROVISIONS OF BERMUDA LAW
In a September 1, 1995 letter to the Company's Bermuda counsel, the
Bermuda Monetary Authority approved the Company's application for "non-resident"
status in Bermuda for exchange control purposes. The Bermuda Monetary Authority
has granted permission for the issuance of the 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.
Consequently, 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.
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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 Warrant 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
Beneficially Owned Number of Shares of Common Stock
and Maximum Number Beneficially Owned and Maximum
Selling Securityholders to be Sold (1) Number 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 Partners 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 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, Regulation
M, which provisions may limit the timing of the purchases and sales of shares of
the Company's securities by such Selling Securityholders.
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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 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.
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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 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
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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 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.
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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 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
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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.
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
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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 5,029,594 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 2,584,962 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. 1,276,588 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 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.
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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
1997, the Consolidated Statements of Income and Cash Flows for the year ended
February 28, 1995, the period March 1 to June 30, 1995, and the years ended June
30, 1996 and 1997, and the Consolidated Statements of Changes in Stockholders'
Investment for the period February 28, 1994 to June 30, 1997, appearing in this
Prospectus and Registration Statement have been audited by Price Waterhouse,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is organized under the laws of Bermuda. Certain of the
directors and officers of the Company, and the South African experts named
herein, are or may be residents of Bermuda or South Africa and all or a
substantial portion of the assets of the Company and such persons are or may be
located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States upon such
persons, or to enforce against them judgments obtained in United States courts,
including judgments predicated upon the civil liability provisions of the United
States federal securities laws. The Company understands that the United States
does not currently have a treaty providing for reciprocal recognition and
enforcement of judgments in civil and commercial matters with Bermuda or South
Africa and that there is doubt (i) whether a final judgment for the payment of
money rendered by a federal or state court in the United States based on civil
liability, whether or not predicated upon the civil liability provisions of the
United States federal securities laws, would be enforceable in Bermuda or South
Africa against the Company or certain of the Company's officers and directors,
and (ii) whether an action could be brought in Bermuda or South Africa against
the Company or certain of the Company's officers and directors in the first
instance on the basis of liability predicated solely upon the provisions of the
United States federal securities laws.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a
Registration Statement on Form S-1 under the Securities Act of 1933, as amended,
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in such Registration Statement and the exhibits
thereto. For further information with respect to the Company, 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.
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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.).
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended and, in accordance therewith, file
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained at prescribed
rates from the Commission at such address.
78
<PAGE>
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 1997 F-5
Consolidated Statements of Income for the year ended February 28,
1995, the period March 1 to June 30, 1995, and the years ended
June 30, 1996 and 1997 F-7
Pro-forma Consolidated Statements of Income for the years ended
June 30, 1996 and 1997 - Unaudited F-8
Consolidated Statements of Cash Flows for the year ended February
28, 1995, the period March 1 to June 30, 1995, and the years
ended June 30, 1996 and 1997 F-9
Consolidated Statement of Changes in Stockholders' Investment
for the period February 28, 1994 to June 30, 1997 F-11
Notes to the Consolidated Financial Statements for the year ended
February 28, 1995, the period March 1 to June 30, 1995, and the
years ended June 30, 1996 and 1997 F-12
B. Interim Financial Statements
First South Africa Corp., Ltd.
Consolidated Balance Sheets at June 30 and
September 30, 1997 - Unaudited F-33
Consolidated Statements of Income for the three months ended
September 30, 1996 and 1997 - Unaudited F-35
Consolidated Statements of Cash Flows for the three months ended
September 30, 1996 and 1997 - Unaudited F-36
Consolidated Statement of Changes in Stockholder's Investment for
the period June 30, 1997 to September 30, 1997 F-37
Notes to the Consolidated Financial Statements for the three
months ended September 30, 1996 and 1997 F-38
F-1
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
C. Pro Forma Financial Information
Pro Forma Consolidated Statements of Income for the year ended
June 30, 1997 Unaudited F-43
Notes to the Pro Forma Consolidated Financial Statements for
the year ended June 30, 1997 - Unaudited F-45
II. ASTORIA BAKERY CC AND ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
A. Interim Financial Statements
Combined Balance Sheet at June 30, 1996 - Unaudited F-46
Combined Statements of Income for the four months ended June 30,
1995 and 1996 - Unaudited F-47
Combined Statements of Cash Flows for the four months ended June
30, 1995 and 1996 - Unaudited F-48
Notes to the unaudited Combined Financial Statements for the
four months ended June 30, 1995 and 1996 F-49
B. Annual Financial Statements
Audited Combined Balance Sheet at February 29, 1996 F-50
Audited Combined Statements of Income for the years ended
February 28, 1995 and February 29, 1996 F-51
Audited Combined Statements of Cash Flows for the years ended
February 28, 1995 and February 29, 1996 F-52
Audited Combined Statements of Changes in Stockholders'
Investment for the years ended February 28, 1995 and February 29,
1996 F-53
Notes to the Audited Combined Financial Statements for the years
ended February 28, 1995 and February 29, 1996 F-54
III. GULL FOODS CC
A. Interim Financial Statements
Unaudited Balance Sheet at December 31, 1996 F-61
F-2
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
INDEX TO FINANCIAL STATEMENTS
Unaudited Statements of Income for the ten months ended December
31, 1995 and 1996 F-62
Unaudited Statements of Cash Flows for the ten months ended
December 31, 1995 and 1996 F-63
Notes to the Unaudited Financial Statements for the ten months
ended December 31, 1995 and 1996 F-64
B. Annual Financial Statements
Report of Independent Auditor F-65
Audited Balance Sheet at February 29, 1996 F-66
Audited Statements of Income for the years ended February 28,
1995 and February 29, 1996 F-67
Audited Statement of Cash Flows for the years ended February 28,
1995 and February 29, 1996 F-68
Audited Statements of Change in Stockholders' Investment for the
years ended February 28, 1995 and February 29, 1996 F-69
Notes to the Audited Financial Statements for the years ended
February 28, 1995 and February 29, 1996 F-70
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 sheet and the related
consolidated statement of income, of cash flow and of changes in stockholders'
investment present fairly, in all material respects, the financial position of
First South Africa Corp., Ltd. and its subsidiaries at June 30, 1997 and 1996,
and the results of their operations and their cash flows for the years ended
June 30, 1997 and 1996, the period March 1 to June 30, 1995 and the year ended
February 28, 1995 in conformity with generally accepted accounting principles in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse
Price Waterhouse
Sandton, South Africa
September 19, 1997
F-4
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 AND 1997
ASSETS
June 30, June 30,
1996 1997
$ $
----------- -----------
Current assets
Cash on hand 4,682,035 19,889,111
Trade accounts receivable 5,833,542 12,000,224
Less: Allowances for bad debts (402,333) (696,279)
----------- -----------
5,431,209 11,303,945
Inventories (net) 2,510,868 7,219,960
Prepaid expenses and other current assets 451, 551 934,263
Deferred charges (net) -- 838,439
----------- -----------
TOTAL CURRENT ASSETS 13,075,663 40,185,718
Property, plant and equipment 9,000,334 16,197,605
Less: Accumulated depreciation (2,119,912) (4,849,396)
----------- -----------
6,880,422 11,348,209
Intangible assets (net) 3,363,923 12,620,822
Other assets 84,768 42,730
Loan to shareholder 126,668 --
Deferred income taxes 73,550 --
----------- -----------
23,604,994 64,197,479
=========== ===========
F-5
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
JUNE 30, JUNE 30,
1996 1997
$ $
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft payable 745,724 --
Current portion of long term debt 2,101,799 1,673,712
Trade accounts payable 2,162,257 6,755,823
Other provisions and accruals 1,923,371 3,184,428
Other taxes payable -- 654,653
Income tax payable 1,518,095 1,721,079
----------- -----------
TOTAL CURRENT LIABILITIES 8,451,246 13,989,695
Long term debt 2,361,372 13,341,758
Deferred income taxes -- 358,446
----------- -----------
10,812,618 27,689,899
----------- -----------
Minority shareholders' investment -- 13,287,566
STOCKHOLDERS' INVESTMENT
Capital stock:
Common Stock, $0.01 par value - authorized
23,000,000 shares, issued and outstanding in 1996
2,200,000 shares and in 1997 3,516,115 shares 22,000 35,161
Class B Common Stock, $0.01 par value - authorized
2,000,000 shares, issued and outstanding in 1996
1,942,500 shares and in 1997 1,842,500 shares 19,701 18,891
Preferred stock, $0.01 par value, - authorized
5,000,000 shares, issued and outstanding nil shares -- --
Capital in excess of par 18,518,986 22,891,093
Retained earnings (3,880,100) 2,803,065
Foreign currency translation adjustments (1,888,211) (2,528,196)
----------- -----------
23,604,994 64,197,479
=========== ===========
</TABLE>
F-6
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED
FEBRUARY 28, 1995, FOUR MONTHS ENDED JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 8,826,856 3,297,507 14,911,097 66,575,931
----------- ----------- ----------- -----------
Operating expenses
Cost of sales 5,058,749 1,881,686 8,385,511 37,869,755
Selling, general and administrative costs 3,120,334 1,081,120 5,134,431 23,264,607
Non cash compensation charge -- -- 6,314,000 --
----------- ----------- ----------- -----------
8,179,083 2,962,806 19,833,942 61,134,362
----------- ----------- ----------- -----------
Operating income/(loss) 647,773 334,701 (4,922,845) 5,441,569
Gain on disposal of subsidiary stock -- -- -- 3,327,478
Other income 40,830 43,145 539,636 468,531
Interest expense (152,163) (18,801) (865,733) (858,067)
----------- ----------- ----------- -----------
Income/(loss) from consolidated companies
Before income taxes and minority interests 536,440 359,045 (5,248,942) 8,379,511
Provision for taxes on income (222,558) (145,216) (488,618) (1,572,049)
----------- ----------- ----------- -----------
313,882 213,829 (5,737,560) 6,807,462
Minority interest in consolidated subsidiary
companies -- -- -- (135,224)
----------- ----------- ----------- -----------
Net income/(loss) from consolidated companies 313,882 213,829 (5,737,560) 6,672,238
Equity in net earnings of affiliated companies -- -- -- 10,927
----------- ----------- ----------- -----------
Net income/(loss) 313,882 213,829 (5,737,560) 6,683,165
=========== =========== =========== ===========
Basic earnings/(loss) per share $ .57 $ .39 ($ 3.03) $ 1.30
Fully diluted earnings per share $ .57 $ .39 ($ 1.39) $ 1.22
Weighted average number of shares outstanding
Basic earnings per share 547,890 547,890 1,893,463 5,139,855
Fully diluted earnings per share 547,890 547,890 4,142,500 5,594,912
</TABLE>
F-7
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PRO-FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Year ended Year ended
June 30, June 30,
1996 1997
$ $
----------- -----------
<S> <C> <C>
Revenues 71,374,856 78,596,647
----------- -----------
Operating expenses
Cost of sales 42,259,173 46,006,407
Selling, general and administrative costs 23,636,005 26,575,103
Non cash compensation charge 6,314,000 --
----------- -----------
72,209,178 72,581,510
----------- -----------
Operating income/(loss) (834,322) 6,015,137
Gain on disposal of subsidiary stock -- 3,327,478
Other income 872,766 577,406
Interest expense (1,524,287) (823,912)
----------- -----------
Income/(loss) from consolidated companies before
income taxes and minority interests (1,485,843) 9,096,109
Provision for taxes on income (2,049,047) (1,834,833)
----------- -----------
(3,534,890) 7,261,276
Minority interest in consolidated subsidiary companies -- (135,224)
----------- -----------
Net income/(loss) from consolidated companies (3,534,890) 7,126,052
Equity in net earnings of affiliated companies -- 10,927
----------- -----------
Net income/(loss) (3,534,890) 7,136,979
=========== ===========
Basic earnings/(loss) per share ($ 0.66) $ 1.34
Fully diluted earnings per share -- $ 1.25
Weighted average number of shares outstanding
Basic earnings per share 5,345,208 5,345,208
Fully diluted earnings per share -- 5,800,266
</TABLE>
The pro-forma information has been prepared assuming that all acquisitions
had taken place on July 1, 1995.
The pro-forma information does not purport to be indicative of the results
that would have been obtained if the acquisitions had occurred at the
beginning of the period, nor is it indicative of future results.
F-8
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED FEBRUARY 28, 1995, FOUR MONTHS ENDED JUNE 30, 1995
AND THE TWO YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
Year ended March 1, Year ended Year ended
February 28, to June 30, June 30, June 30,
1995 1995 1996 1997
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) 313,882 213,829 (5,737,560) 6,683,165
Adjustments to reconcile net income/(loss) to net
cash provided by operating activities:
Non-cash compensation charge -- -- 6,314,000 --
Depreciation and amortization 92,746 50,678 395,757 2,011,354
Deferred income taxes (69,295) -- (90,559) 349,543
Net (gain)/loss on sale of assets 19,636 1,320 (22,523) (198,473)
Net gain on sale of investment in
First SA Food Holdings Limited -- -- -- (3,327,478)
Effect of changes in current assets
and current liabilities (23,012) (94,090) 10,185 (2,922,764)
Minority interest in consolidated
subsidiary companies -- -- -- 135,224
Assets acquired at a discount -- -- 7,307 --
----------- ----------- ----------- -----------
Net cash provided by operating activities 333,957 171,737 876,607 2,730,571
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds on disposal of investment in First
SA Food Holdings Limited -- -- -- 16,479,827
Additions to property, plant and equipment (327,039) (166,124) (453,768) (3,325,153)
Proceeds on disposal of property, plant and
equipment -- -- -- 1,182,199
Additional purchase price payments -- -- -- (2,023,835)
Other assets acquired 22,053 (16,502) (704,117) (42,676)
Decrease in loans to related companies 45,241 (280) 145,823 80,969
Acquisitions of subsidiaries (net of cash
of $985,410) -- -- (4,498,043) (11,431,059)
----------- ----------- ----------- -----------
Net cash used in investing activities (259,745) (182,906) (5,510,105) 920,272
----------- ----------- ----------- -----------
</TABLE>
F-9
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED FEBRUARY 28, 1995, FOUR MONTHS ENDED JUNE 30, 1995
AND THE TWO YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net (repayments)/borrowings in bank
overdrafts (26,269) 119,473 135,941 (1,155,094)
Borrowings of long term debt 93,618 93,202 -- 10,601,298
Repayments of long term debt -- -- (1,525,613) (985,630)
Increase in deferred debt issue costs -- -- -- (853,683)
Repayments in loans from related parties -- -- (880,034) --
Borrowings in loans from related parties 30,473 -- -- --
Borrowings in loans from stockholders -- -- 137,656 --
Borrowings in short term debt 81,972 -- 1,954,673 689,682
Repayments in short term debt -- -- -- (921,810)
Proceeds on stock issues -- -- 9,197,446 4,384,458
----------- ----------- ----------- -----------
Net cash provided in financing activities 179,794 212,675 9,020,069 11,759,221
----------- ----------- ----------- -----------
Effect of exchange rate changes on cash (16,573) (9,783) (448,787) (202,988)
----------- ----------- ----------- -----------
Cash generated by operations 237,433 191,723 3,937, 784 15,207,076
Cash on hand at beginning of period 315,095 552,528 744,251 4,682,035
----------- ----------- ----------- -----------
Cash on hand at end of period 552,528 744,251 4,682,035 19,889,111
=========== =========== =========== ===========
</TABLE>
F-10
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS INVESTMENT
FOR THE PERIOD FEBRUARY 28, 1994 TO JUNE 30, 1997
[TABLE 1 OF 2]
<TABLE>
<CAPTION>
FIRST SOUTH FIRST SOUTH CAPITAL STOCK CAPITAL STOCK
AFRICA CORP., AFRICA CORP., CAPITAL IN LS PRESSINGS STARPAK
LTD. COMMON LTD. CLASS B EXCESS OF (PTY) (PTY)
STOCK COMMON STOCK PAR LTD. LTD.
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1994 -- -- -- 460,978 1,010
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at February 28, 1995 -- -- -- 460,978 1,010
Net income -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 -- -- -- 460,978 1,010
Issuance of stock to acquire predecessor
Starpak and LS Pressings -- 150 1,208,628 (460,978) (1,010)
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 22,000 19,425 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 22,000 19,701 18,518,986 -- --
Issuance of stock to FSAH escrow agent 11,915 -- -- -- --
Issuance of stock to acquire subsidiaries 190 (1,010) 4,357,228 -- --
Proceeds on warrants exercised 246 -- 159,879 -- --
Stock issue expenses written off -- -- (145,000) -- --
Net income for the year -- -- -- -- --
Translation adjustment -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 35,361 18,691 22,891,093 -- --
=========== =========== =========== =========== ===========
</TABLE>
[TABLE 2 OF 2]
<TABLE>
<CAPTION>
CAPITAL IN FOREIGN
A EXCESS OF PAR CURRENCY
STARPAK (PTY) RETAINED TRANSLATION
LTD. EARNINGS ADJUSTMENTS TOTAL
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at February 28, 1994 746,790 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 746,790 1,636,324 (1,016,446) 1,828,656
Net income -- 213,829 -- 213,829
Translation adjustment -- -- (24,488) (24,488)
----------- ----------- ----------- -----------
Balance at June 30, 1995 746,790 1,850,153 (1,040,934) 2,017,997
Issuance of stock to acquire predecessor
Starpak and LS Pressings (746,790) -- -- --
Issuance of stock to acquire subsidiary
companies -- -- -- 1,840,463
Other stock issues -- -- -- 260,052
Proceeds on First South Africa Corp, Ltd.
stock issues -- -- -- 9,938,071
Share issue expenses written off -- -- -- (1,000,677)
Escrow stock released -- -- -- 6,314,000
Subsidiary assets acquired at a discount -- 7,307 -- 7,307
Net loss -- (5,737,560) -- (5,737,560)
Translation adjustment -- -- (847,277) (847,277)
----------- ----------- ----------- -----------
Balance at June 30, 1996 -- (3,880,100) (1,888,211) 12,792,376
Issuance of stock to FSAH escrow agent -- -- -- 11,915
Issuance of stock to acquire subsidiaries -- -- -- 4,357,418
Proceeds on warrants exercised -- -- -- 160,125
Stock issue expenses written off -- -- -- (145,000)
Net income for the year -- 6,683,165 -- 6,683,165
-----------
Translation adjustment -- -- (639,985) (639,985)
----------- ----------- ----------- -----------
Balance at June 30, 1997 -- 2,803,065 (2,528,196) 23,220,014
=========== =========== =========== ===========
</TABLE>
F-11
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
1. PRINCIPAL ACTIVITIES OF THE GROUP
The principal activities of the group include the following:
ENGINEERING INTERESTS
The business of manufacturing, servicing and selling packaging machines,
receiving commission income, receiving rental income, manufacture of
washers for use in the fastener industry, manufacture and supply of
air-conditioning products.
FOOD INTERESTS
The manufacture, sale and distribution of both ready to eat and ready for
bake off pastry related food products, the manufacture, sale and
distribution of high margin speciality breads and staple breads, the
manufacture and sale of a wide range of prepared food products and the
manufacture, sale and distribution of a wide range of processed meat
products.
2. ORGANIZATION
First South Africa Corp., Ltd. (the "Company") was founded on September 6,
1995. The purpose of the Company is to acquire and operate in South African
companies. Prior to an initial public offering completed on January 24,
1996, the predecessor company consisted of two companies, Starpak
(Proprietary) Limited and L.S. Pressings (Proprietary) Limited, under
common control. Prior to the initial public offering the financial
statements reflect the combined results for Starpak and L.S. Pressings
which had a February 28 year end. Subsequent to the initial public
offering, the Company changed its fiscal year end to June 30.
The following subsidiaries/businesses acquired, were accounted for using
the purchase method of accounting. The assets and liabilities were recorded
at fair market value as determined by management:
PURCHASE
PRICE
CONSIDERATION
SUBSIDIARY/BUSINESS DATE ACQUIRED $
Astoria Bakery CC and Astoria
Bakery Lesotho (Pty) Ltd. July 1, 1996 2,344,123
First Strut (Pty) Ltd. July 1, 1996 175,836
Seemann's Quality Meat Products (Pty) Ltd.
and Hammer Street Investments CC November 1, 1996 2,989,077
Gull Foods CC and Trek Biltong CC January 1, 1997 5,288,629
Pakmatic Company (Pty) Ltd. and
Pakmatic Spares and Service (Pty) Ltd. March 1, 1997 924,379
----------
11,722,044
F-12
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
The purchase consideration has been decreased to give effect to the debt
ceded to the holding company in the acquisition of all
subsidiaries/businesses with the exception of Gull Foods CC and Trek
Biltong CC, which has no debt ceded to the holding company.
F-13
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
2. ORGANIZATION (CONTINUED)
COMBINED
PURCHASE
CONSIDERATION
AND ALLOCATION
$
----------
Acquisition costs
Stock issued in lieu of cash 3,685,866
Cash consideration (net of debt ceded to holding company) 7,897,235
Other direct expenses 138,943
----------
PURCHASE PRICE TO BE ALLOCATED 11,722,044
Summary allocation of purchase price
Current assets 6,138,945
Property, plant and equipment 3,974,294
Recipes and other intellectual property 7,131,434
Goodwill 694,108
----------
TOTAL ASSETS ACQUIRED 17,938,781
Current liabilities 4,055,918
Long term debt 1,387,301
Deferred income taxes 79,093
Debt ceded to holding company 694,425
TOTAL LIABILITIES ASSUMED 6,216,737
----------
EXCESS OF ASSETS OVER LIABILITIES ASSUMED 11,722,044
==========
The Company may be required to make additional purchase price payments to
the former owners based on a multiple of pre-tax earnings. These payments
are to be made by the issue of stock and cash over the next two to three
years. In fiscal 1997, the Company paid $2,023,835 in cash and stock under
these contingent consideration arrangements.
F-14
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
3. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles and incorporate the following
significant accounting policies.
Consolidation
First South Africa Corp., Ltd., consolidates its majority owned
subsidiaries. The consolidated financial statements include the accounts of
the company, First South Africa Corp., Ltd. and its subsidiaries. Minority
interests have been taken into account when determining the net income due
to the Company. Material intercompany transactions have been eliminated on
consolidation.
Accounting estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements, disclosure of contingent liabilities at the
financial statement date and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Earnings per share
Earnings per share on common shares is based on net income and reflects
dilutive effects of any stock options and warrants which exist at year end.
Intangible assets
Goodwill resulting from acquisitions, recipes and trademarks are 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 the six year term of the agreements.
The company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". No impairments in long-lived assets
has taken place.
Foreign currency translation
The functional currency of the underlying companies is that of South
African Rands. Accordingly, the following rates of exchange have been used
for translation purposes:
o Assets and liabilities are translated into United States Dollars using
the exchange rates at the balance sheet date.
o Common stock and capital in excess of par are translated into United
States Dollars using historical rates at date of issuance.
F-15
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
o Revenue, expenses, gains and losses are translated into United States
Dollars using the weighted average exchange rates for each year.
The resultant translation adjustments are reported in the component of
shareholders' investment designated as "Foreign currency translation
adjustment".
Foreign assets and liabilities
Transactions in foreign currencies arise as a result of inventory purchases
from foreign countries and intercompany funding transactions between the
subsidiaries and First South Africa Corp., Ltd. Transactions in foreign
currencies are accounted for at the rates ruling on transaction dates.
Exchange gains and losses are charged to the income statement during the
period in which they are incurred. Foreign assets and liabilities of the
group which are not denominated in United States Dollars are converted into
United States Dollars at the exchange rates ruling at the financial year
end or at the rates of forward cover purchased. Forward cover is purchased
to hedge the currency exposure on foreign liabilities.
Inventories
Inventories are valued at the lower of cost and net realizable value, using
both the first-in, first-out and the weighted average methods. The value of
work-in-progress and finished goods includes an appropriate portion of
manufacturing overheads. A valuation reserve has been established to reduce
the values of certain identified inventories (determined to be obsolete or
otherwise impaired) to their estimated net realizable values (market or
selling price less costs to dispose).
Property, plant and equipment
Land is stated at cost and is not depreciated. Buildings are depreciated on
the straight line basis over estimated useful lives of 20 years.
Plant and equipment, and motor vehicles are written off over their
estimated useful lives of 5 to 10 years.
Income taxes
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes represent the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes. Deferred taxes are
measured by applying currently enacted tax laws.
Fair value of financial instruments
As at June 30 1997, the carrying value of accounts receivable, accounts
payable and investments approximate their fair value. The carrying value of
long term debt approximates fair value, as the debt, other than convertible
debentures, interest rates are keyed to the prime lending rate. The
convertible debentures are believed to approximate fair market due to their
recent issuance in June 1997.
F-16
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Revenues
Revenues comprise net invoiced sales of washers, manufactured packaging
machines, spares and service charges, food products, air conditioning
systems, fans and related accessories, and rental income. Combined revenues
exclude sales to group companies. The company recognizes revenues on an
accrual basis.
Revenues are stated net of allowances granted to customers and trade
discounts. Returns of defective products are offset against revenues. Due
to the low incidence of warranty returns, where warranties are provided to
customers, the warranty costs are charged to cost of goods sold as and when
incurred.
Gain on disposal of subsidiary stock
Subsidiary stock disposed of during the period is recognized as a gain in
the statement of income and is separately disclosed as a non operating
gain.
4. INVENTORIES
Inventories consist of the following:
JUNE 30, JUNE 30,
1996 1997
$ $
---------- ----------
Finished goods 2,077,679 4,032,523
Work in progress 272,377 532,144
Raw materials and ingredients 501,562 2,365,213
Supplies 93,055 716,081
---------- ----------
Inventories (Gross) 2,944,673 7,645,961
Less: Valuation allowances (433,805) (426,001)
---------- ----------
Inventories (Net) 2,510,868 7,219,960
========== ==========
5. DEFERRED CHARGES
Represents the debt issue costs of the 9% convertible debentures amounting
to $853,683. This charge is being amortized over the tenure of the
debenture issue (Refer note 9). The charge for the current year is $15,244.
F-17
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
JUNE 30, JUNE 30,
1996 1997
$ $
----------- -----------
Land and buildings 2,713,473 2,650,410
Plant and equipment 3,463,121 10,376,002
Vehicles 1,789,905 3,153,985
Capital work in progress 1,033,835 17,208
----------- -----------
Total cost 9,000,334 16,197,605
Accumulated depreciation (2,119,912) (4,849,396)
----------- -----------
Net book value 6,880,422 11,348,209
=========== ===========
Depreciation charge 345,884 1,481,824
=========== ===========
Certain assets of the company are encumbered as security for the
liabilities of the group (Refer note 9).
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
JUNE 30, JUNE 30,
1996 1997
$ $
----------- -----------
Recipes 2,858,011 11,264,035
Trademarks -- 359,521
Goodwill arising from acquisitions 414,610 1,099,475
Non competition agreements 115,842 331,575
----------- -----------
Total cost 3,388,463 13,054,606
Accumulated amortization (24,540) (433,784)
----------- -----------
3,363,923 12,620,822
=========== ===========
F-18
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
8. BANK OVERDRAFT FACILITIES
The group has general short term banking facilities of $3,537,000
available. These facilities bear interest at the prime lending rate, which
is currently 20,25%, and are repayable on demand. The terms of these
facilities are generally less than twelve months, the facilities are
secured by a cession over book debts, and have no covenants, renewable
annually.
9. SHORT AND LONG TERM DEBT
JUNE 30, JUNE 30,
1996 1997
$ $
----------- -----------
LONG TERM DEBT
9% Convertible debentures -- 10,000,000
Mortgage loans 1,508,870 1,025,406
Equipment notes 1,904,980 3,990,064
Unsecured notes 125,214 --
----------- -----------
3,539,064 15,015,470
Less: Current portion (1,177,692) (1,673,712)
----------- -----------
TOTAL LONG TERM DEBT 2,361,372 13,341,758
=========== ===========
SHORT TERM DEBT
Current portion of long term debt 1,177,692 1,673,712
Trade finance loan 924,107 --
----------- -----------
2,101,799 1,673,712
=========== ===========
9% Convertible debentures
Convertible debentures issued in June 1997 are unsecured, senior, and
subordinated, bearing interest at 9% per annum, payable quarterly. The
debentures are convertible into shares of common stock at any time prior to
maturity at a price of $6,00 per share (fair market value at debenture
issue date). The debentures may be redeemed at the option of the Company
from June 15, 1999 through June 14, 2003 at a redemption premium ranging
from 109% to 102.5% of face value, depending on the redemption date.
The debentures have mandatory sinking fund payments due in two equal
installments totaling 67% of the outstanding fair value on June 15, 2002
and June 15, 2003, with the balance of the issue due at maturity on June
15, 2004.
The Company has filed an S-1 Registration Statement for the shares issuable
upon conversion.
F-19
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
9. SHORT AND LONG TERM DEBT (CONTINUED)
The following covenants are in existence:
o A restriction has been placed on the ability of the Company to pay any
dividends and to repurchase stock.
o A restriction has been placed on transactions with affiliates, whereby
all transactions must be no less favorable than those on normal
commercial terms.
o The Company may not adopt any plan of liquidation (bankruptcy).
Mortgage loans
Mortgage loans are collateralized by first and second mortgage bonds over
property with a net book value of $2,504,855. These loans are repayable in equal
monthly instalments of $18,909 and equal annual instalments of $17,684 over
periods ranging from five to twenty years and bear interest at rates ranging
from 14,5% to 18,59%. Generally these interest rates are linked to the prime
lending rate which is currently at 20,25%.
Equipment notes
Equipment notes are collateralized over movable assets with a net book
value of $3,611,203. These loans are generally repayable in equal monthly
instalments over a maximum period of five years. These loans bear interest at
rates ranging from 7% to 1,75% above the prime lending rate, which is currently
20,25%.
The following is a schedule of repayments of long term debt by year of
repayment:
YEAR ENDED JUNE 30, $
----------
1998 1,673,712
1999 1,903,670
2000 646,655
2001 329,237
Thereafter 10,462,196
----------
10. RETAINED EARNINGS
Included in retained earnings is an amount of $7,307 which represents the
excess of assets acquired over liabilities assumed in the purchase of the
assets and liabilities of operating entities. This amount is not
distributable until such time as the assets so acquired are disposed.
11. OPERATING LEASES
The group has several operating leases over land and buildings. These
leases generally expire within the next five years. These leases generally
contain renewal options at the fair market value at the date of renewal.
F-20
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
In most cases, management expects that in the normal course of business,
leases will be renewed or replaced by other leases.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancellable lease
terms in excess of one year as of June 30, 1997:
YEAR ENDED JUNE 30, $
-------
1998 634,295
1999 685,880
2000 614,060
2001 573,914
Thereafter 631,270
The following schedule shows the composition of total rental expense for
all operating leases except those with terms of a month or less:
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
------- ------- ------- -------
Minimum rentals 78,730 25,562 415,815 614,450
======= ======= ======= =======
12. GAIN ON DISPOSAL OF SUBSIDIARY STOCK
During 1997, the Company formed First SA Food Holdings Limited ("FSA Food")
to own all of its food interest companies.
In June 1997, the Company sold an effective 30% interest in FSA Food
through a private placement and subsequent public listing on The
Johannesburg Stock Exchange.
The gain on disposal recognized in the Statement of Income is made up as
follows:
YEAR ENDED
JUNE 30,
1997
$
-----------
Proceeds received 16,479,827
Less: Net carrying value of shares of FSA Food (13,152,349)
-----------
Net gain on sale of investment in subsidiary company 3,327,478
===========
F-21
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
13. OTHER INCOME
Other income includes profit on disposal of assets, proceeds from insurance
claims and commissions received.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Profit on disposal of assets -- -- -- 198,473
Insurance claims and
commissions received 40,830 43,145 539,696 270,058
---------- ---------- ---------- ----------
40,830 43,145 539,696 468,531
========== ========== ========== ==========
</TABLE>
14. INCOME TAXES
Income taxes are accounted for under Statement of Financial Standards No.
109 "Accounting for Income Tax" ("SFAS 109"), an asset and liability
method. SFAS 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the tax bases and financial reporting bases of the
company's assets and liabilities. In addition, SFAS 109 requires the
recognition of future tax benefits such as net operating loss
carryforwards, to the extent realization of such benefit is more likely
than not.
The provision for income taxes charged to continuing operations was as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
South African normal taxation 291,858 145,216 848,006 1,161,998
Foreign normal taxation -- -- -- 62,345
--------- --------- --------- ---------
TOTAL CURRENT TAXES 291,858 145,216 848,006 1,224,343
--------- ---------
Deferred:
South African normal taxation (69,300) -- (359,388) 347,706
--------- --------- --------- ---------
TOTAL DEFERRED TAXES (69,300) -- (359,388) 347,706
--------- --------- --------- ---------
PROVISION FOR TAXES ON INCOME 222,558 145,216 488,618 1,572,049
========= ========= ========= =========
</TABLE>
F-22
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
14. INCOME TAXES (CONTINUED)
Deferred tax liability/(asset) at June 30, is comprised of the following:
JUNE 30, JUNE 30,
1996 1997
$ $
-------- --------
Property, plant and equipment 346,961 765,624
Prepaid expenditure 12,245 7,036
-------- --------
Gross deferred tax liabilities 359,206 772,660
-------- --------
Accruals (372,447) (371,148)
Deposits received on equipment sales (60,309) (42,813)
Assessable losses -- (253)
-------- --------
Gross deferred tax assets (432,756) (414,214)
-------- --------
NET DEFERRED TAX LIABILITY/(ASSET) (73,550) 358,446
======== ========
The provision for taxes on income differs from the amount of income tax
determined by applying the applicable South African statutory income tax
rate to pre-tax income from continuing operations as a result of the
following differences:
The Company reflects a taxable income of $8,892,317 after eliminating
expenditure of $512,806 which is not allowable for tax purposes as this
represents expenditure incurred in Bermuda, where no taxation laws are in
existence. After eliminating the disallowable expenditure incurred in
Bermuda, the tax rate reconciliation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
% % % %
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
South African statutory tax rate 35 35.0 35.0 35.0
Disallowable expenditures 1.0 5.0 0.7 1.3
Creation/utilization of assessable losses -- -- (1.0) 3.2
Non taxable income - profit on sale of
investment -- -- -- (12.9)
Non taxable income -- -- -- (1.1)
Foreign tax rate differential -- -- -- (0.9)
Tax rate adjustment 1.0 -- -- --
Transitional levy (2.0) -- -- --
Capital allowances -- -- (2.0) (6.5)
Other 6.0 -- -- (0.4)
---------- ---------- ---------- ----------
41.0 40.0 32.7 17.7
========== ========== ========== ==========
</TABLE>
F-23
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
15. CASH FLOWS
The changes in assets and liabilities consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Increase)/decrease in trade accounts (989,374) 36,382 (756,684) (2,788,051)
receivable 13,759 (357,614) 146,179 (3,158,181)
(Increase)/decrease in inventories
(Increase)/decrease in prepaid expenses 15,906 (146,445) (134,650) (368,252)
and -- -- -- (9,990)
other current assets 97,479 91,094 360,265 1,872,035
Increase in income taxes prepaid
Increase in trade accounts payable 659,078 127,573 (38,785) 1,096,189
Increase/(decrease) in other provisions and -- -- -- 656,088
accruals 180,140 154,920 433,860 (222,602)
----------- ----------- ----------- -----------
Increase in other taxes payable
(Decrease)/increase in income taxes
payable
(23,012) (94,090) 10,185 (2,922,764)
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Acquisition of subsidiaries is reconciled to
the purchase consideration of the
subsidiaries/businesses as follow:
Purchase consideration of subsidiaries/
businesses -- -- (4,502,789) (11,722,044)
Add: Debts assumed -- -- -- (694,425)
Less: Cash acquired -- -- 4,746 985,410
----------- ----------- ----------- -----------
-- -- (4,498,043) (11,431,059)
=========== =========== =========== ===========
Interest paid 152,163 18,801 865,733 858,067
=========== =========== =========== ===========
Taxes paid/(refunded) 118,834 (9,704) (239,962) 1,513,166
=========== =========== =========== ===========
</TABLE>
F-24
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
16. EMPLOYMENT BENEFITS
The group participates in various retirement benefit funding plans and
health plans for the benefit of its employees.
All of the retirement benefit funds are defined contribution plans and by
nature of the funds there can be no unfunded obligations or responsibility
on the employer. The only obligation of the group is the contribution to
these plans which generally ranges from 6% to 9% of the employees' annual
earnings.
Amounts charged to pension costs and contributed by the Company to the
funds were as follows:
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
Pension costs 84,438 37,440 99,028 497,788
======= ======= ======= =======
The group and employees participate in various health plans which provide
medical cover for employees on an annual basis. Neither the health plan nor
the group are liable for post retirement medical costs. The contributions
to the health plan are borne equally by the employee and the group except
for a few salaried employees where the Company is responsible for 100% of
the contribution. The Company has no liability for employees' medical costs
in excess of the contributions to the health plan.
Amounts charged to health plan costs and contributed by the Company were as
follows:
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
Health plan costs 123,233 42,366 242,186 336,706
======= ======= ======= =======
F-25
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
17. PROFIT SHARE
Management receive an annual bonus, determined at the discretion of the
board of directors. The amounts paid to management were as follows:
YEAR ENDED MARCH 1, YEAR ENDED YEAR ENDED
FEBRUARY 28, TO JUNE 30, JUNE 30, JUNE 30,
1995 1995 1996 1997
$ $ $ $
Profit share bonus 294,307 -- 140,828 390,284
======= ======= ======= =======
18. BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into four business segments:
packaging machinery, fastener industry, air conditioning and refrigeration
components and processed foods. The packaging machinery segment includes
the manufacture, import and distribution of packaging machinery. The
fastener industry includes the manufacture and distribution of fasteners.
The air conditioning and refrigeration components segment includes the
manufacture, import and distribution of air conditioning and refrigeration
related products. The processed foods segment includes the manufacture,
processing and distribution of food related products for resale to
wholesalers and retailers.
Summarized financial information by business segment for the years ending
June 30, 1997 and 1996 is presented. (Information prior to this date if not
available)
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1997
$ $
- - --------------------------------------------------------------------------------
Net sales:
Packaging machinery 5,102,597 7,838,872
Fastener industry 4,458,636 4,399,591
Air conditioning and refrigeration components 3,778,976 12,409,404
Processed foods 1,570,888 41,928,064
----------- -----------
14,911,097 66,575,931
----------- -----------
- - --------------------------------------------------------------------------------
Operating income:
Packaging machinery 364,695 605,948
Fastener industry 826,086 685,873
Air conditioning and refrigeration components 297,049 355,408
Processed foods 137,483 4,782,675
Corporate (6,548,158) (988,335)
----------- -----------
(4,922,845) 5,441,569
----------- -----------
- - --------------------------------------------------------------------------------
F-26
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1997
$ $
- - --------------------------------------------------------------------------------
Total assets:
Packaging machinery 2,660,370 4,979,316
Fastener industry 2,649,505 2,846,135
Air conditioning and refrigeration components 3,491,366 4,041,505
Processed foods 6,085,800 41,037,271
Corporate 8,717,953 11,293,252
---------- ----------
23,604,996 64,197,479
---------- ----------
- - --------------------------------------------------------------------------------
Depreciation and amortization:
Packaging machinery 150,797 183,376
Fastener industry 65,440 76,223
Air conditioning and refrigeration components 95,371 282,276
Processed foods 56,692 1,311,669
Corporate 27,457 157,810
---------- ----------
395,757 2,011,654
---------- ----------
- - --------------------------------------------------------------------------------
Capital expenditure:
Packaging machinery 96,617 1,103,386
Fastener industry 89,532 43,362
Air conditioning and refrigeration components 133,217 508,018
Processed foods 45,201 1,652,677
Corporate 9,396 17,710
---------- ----------
453,768 3,325,153
---------- ----------
- - --------------------------------------------------------------------------------
19. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two key employees.
In terms of the agreements the two employees will devote substantially all
of their business time to the group and receive annual salaries of $180,000
and $150,000 per annum. The salaries payable will not increase until
thirteen months after the closing of the offering. The Company intends to
pay the key employees an annual incentive bonus based on pre-tax profits.
The option prices of $5.00 per share of Common Stock of the Company and
13.05 Rand per share of First South Africa Holdings (Proprietary) Limited
Class B Common Stock granted in connection with various employment
agreements represent the price of the respective shares of stock on the
grant dates.
F-27
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
20. STOCK OPTION PLAN
The board of directors have adopted the Company's 1995 Stock Option Plan.
The Stock Option Plan provides for the grant of i) options that are
intended to qualify as incentive stock options ("Incentive Stock Options")
within the meaning of Section 422 of the code to key employees and ii)
options not so intended to qualify ("Nonqualified Stock Options") to key
employees (including directors and officers who are employees of the
Company, and to directors and consultants who are not employees). The total
number of shares of common stock for which options may be granted under the
Stock Option Plan is 350,000 shares.
The Stock Option Plan is to be administered by the Compensation Committee
of the board of directors. The committee shall determine the terms of the
options exercised, including the exercise price, the number of shares
subject to the option and the terms and conditions of exercise. No options
granted under the Stock Option Plan are transferable by the optionee other
than by the will or the laws of descent and distribution and each option is
exercisable during the lifetime of the optionee only by such optionee or
his legal representatives.
The exercise price of Incentive Stock Options granted under the plan must
be at least equal to the fair market value of such shares on the date of
the grant (110% of fair market value in the case of an optionee who owns or
is deemed to own more than 10% of the voting rights of the outstanding
capital stock of the Company or any of its subsidiaries). The maximum term
for each Incentive Stock Option granted is ten years (five years in the
case of an optionee who owns or is deemed to own more than 10% of the
voting rights of the outstanding capital stock of the Company or any of its
subsidiaries). Options shall be exercisable at such times and in such
instalments as the committee shall provide in the terms of each individual
option. The maximum number of shares for which options may be granted to
any individual in any fiscal year is 210,000.
The Stock Option Plan also contains an automatic option grant program for
the non-employee directors. Each person who is a non-employee director of
the Company following an annual meeting of shareholders will automatically
be granted an option for an additional 5,000 shares of common stock. Each
grant will have an exercise price per share equal to the fair market value
of the common stock on the grant date and will have a term of five years
measured from the grant date, subject to earlier termination if an
optionee's service as a board member is terminated for cause.
F-28
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
20. STOCK OPTION PLAN (CONTINUED)
The company has granted options to purchase 750,000 shares of common stock
under the Plan as described in the table set forth below:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
PER SHARE
OPTIONS EXERCISE
GRANTED PRICE EXPIRATION DATE EXERCISABLE
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock options granted during 1996 (1) 75,000 $5.00 January 24, 2001 Immediately
150,000 $5.00 100,000
immediately and
50,000 on the
seventh anniversary
subject to earlier
vesting
- - -------------------------------------------------------------------------------------------------
Stock options granted during 1997 25,000 $3.75 Immediately
500,000 $4.75 250,000
Immediately,
250,000 on June 24,
1999.
750,000
- - -------------------------------------------------------------------------------------------------
</TABLE>
Options exercisable at June 30, 1997 totalled 450,000.
(1) Does not include options to purchase 150,000 shares of FSAH Class B Shares
granted to a Director of the Company (75,000 of which are immediately
exercisable and 75,000 of which are exercisable on the seventh anniversary
of grant (subject to earlier vesting conditions). The Company intends to
issue up to 150,000 shares of Common Stock in the FSAH Escrow Agent upon
the exercise of such options. Subject to the terms of escrow agreement to
be negotiated by and among the Company, the FSAH Escrow Agent and the
director.
F-29
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
21. WARRANTS OUTSTANDING
In connection with the initial public offering, consummated in January
1996, the Company issued 2,300,000 units. Each unit issued consisted of one
share of common stock, one redeemable Class A warrant and one redeemable
Class B warrant. In addition, an additional 100,000 warrants were issued to
the underwriter pursuant to the underwriting agreement. Concurrently with
the initial public offering the selling security holder offered 650,000
selling security holder warrants, 650,000 selling security holder Class B
warrants issuable upon exercise of the selling security holder warrants and
1,300,000 shares of common stock issuable upon exercise of these selling
security holder warrants and selling security holder Class B warrants.
These selling security holder warrants are identical to the Class A
warrants, except that there are certain restrictions imposed upon the
transferability of these warrants.
In consideration for the debenture offering the Company issued warrants
over 135,000 shares of common stock at an exercise price of $6.00 per
share, the fair market price at date of issuance.
Class A warrants over 24,635 shares were exercised during the fiscal year
resulting in proceeds to the Company of $160,125.
Warrants outstanding at June 30, 1997 were as follows:
NUMBER OF EXERCISE EXPIRY
WARRANT WARRANTS PRICE DATE ENTITLEMENT
- - ------- -------- -------- ------ -----------
Class A Redeemable 2,925,365 $6.50 January 24, 2001 One share of common
warrants stock and one Class
B warrant
Class B Redeemable 5,250,000 $8.75 January 24, 2001 One share of common
warrants stock
Debenture warrants 135,000 $6.00 July 31, 2007 One share of common
stock
The Class A Warrants are redeemable beginning January 24, 1997, or earlier
at the option of the Company with the underwriters consent, at a redemption
price of $0.05 per Class A Warrant, if the "closing price" of the Company's
common stock trades at an average price in excess of $9.10 per share for
any consecutive 30 trading day period, ending within 15 days of the notice
of redemption. All Class A Warrants are to be redeemed if any are to be
redeemed.
The Class B Warrants are redeemable beginning January 24, 1997, or earlier
at the option of the Company with the underwriters consent, at a redemption
price of $0.05 per Class A Warrant, if the "closing price" of the Company's
common stock trades at an average price in excess of $12.25 per share for
any consecutive 30 trading day period, ending within 15 days of the notice
of redemption. All Class B Warrants are to be redeemed if any are to be
redeemed.
The Company subsequent to year end, has indicated that it will make an
offer to its warrant holders to redeem all Class A Warrants and Class B
Warrants under the following terms and conditions:
F-30
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
21. WARRANTS OUTSTANDING (CONTINUED)
o Two shares of common stock for three Class A and Class B Warrants
surrendered
o Two shares of common stock in exchange for five Class A Warrants
o Two shares of common stock in exchange for ten Class B Warrants
22. FIRST SOUTH AFRICAN HOLDINGS ESCROW AGREEMENT
The FSAH Escrow Agreement was executed prior to the closing of the offering
and provided for the concurrent issuance and delivery of 729,979 shares of
Class B common stock to the FSAH Escrow Agent. The FSAH Escrow Agreement is
intended to provide security for certain holders of FSAH Class B common
stock, who are residents in South Africa and who are subject to exchange
controls which prevent them from holding shares in a foreign company. The
FSAH Escrow Agreement provides that the parties to this agreement that are
holders of FSAH Class B common stock will not sell such shares of stock,
but may tender the shares to the FSAH Escrow Agent against payment
therefore by the escrow agent, which payment may consist of the proceeds
obtained from the sale of an equal number of Class B common stock of the
company, provided that the proceeds of the sale will be delivered to the
holder of the Class B common stock in exchange for the shares in FSAH.
These shares will be tendered to the company and they will be immediately
converted to FSAH Class A common stock.
Since the consummation of the Company's initial public offering in January
1996, the Company has entered into FSAC Escrow Agreements with the FSAH
escrow agent, FSAH and certain principal shareholders of the Company's
subsidiaries which were acquired since January 1996. The terms of the FSAC
Escrow Agreement are substantially similar to the terms of the FSAH Escrow
Agreement, except that only the FSAH Escrow Agreement provided for the
issue of shares of Class B common stock to the FSAH escrow agent while the
FSAC Escrow Agreements provide for the issue of shares of common stock to
the FSAH escrow agent which correspond to the issuances of FSAH Class B
common stock by FSAH.
A further 1,191,840 shares of common stock were issued to the FSAH escrow
agent in terms of FSAC Escrow Agreements entered into during the fiscal
year in connection with the acquisitions of Piemans Pantry, Astoria Bakery,
Seemanns' Quality Meat Products, Gull Foods and First Strut.
The FSAC Escrow Agreements are intended to provide security for certain
holders of FSAH Class B stock who are residents of South Africa and who are
subject to exchange controls which prevent them from holding shares in a
foreign company. in closing acquisitions of South African entities it
follows that the South African residents are not entitled to FSAC common
stock in lieu of cash consideration paid for the business. Therefore a
vehicle has been created where the South African residents are issued FSAH
Class B common stock, FSAH being a registered South African entity, in lieu
of FSAC common stock. The disposal of FSAH Class B common stock by these
South African residents may only be made to the FSAC escrow agent who in
turn will dispose of the FSAC common stock held by it in escrow, who will
then pass the disposal proceeds on to the holders of the FSAH Class B
common stock in exchange for their FSAH B Class Shares.
F-31
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED FEBRUARY 28, 1995,
THE PERIOD MARCH 1, TO JUNE 30, 1995
AND THE YEARS ENDED JUNE 30, 1996 AND 1997
23. CONTINGENT LIABILITIES
South African Secondary Tax on companies at 12.5 percent is payable on all
future dividends declared out of distributable reserves.
24. EVENTS SUBSEQUENT TO BALANCE SHEET DATE (Unaudited)
Effective July 1, 1997 the Company completed negotiations to acquire Fifers
Bakery (Proprietary) Limited ("Fifers"), subject to the satisfactory
outcome of a due diligence investigation to be performed by Price
Waterhouse. Fifers will fit into the Company's Bakery and Confectionery
interests under First SA Food Holdings Limited, in which the Company holds
an effective 70% interest.
F-32
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
JUNE 30 AND SEPTEMBER 30, 1997
ASSETS
JUNE 30, SEPTEMBER 30,
1997 1997
$ $
----------- -----------
CURRENT ASSETS
Cash on hand 19,889,111 15,709,781
Trade accounts receivable 12,000,224 12,233,595
Less: Allowances for bad debts (696,279) (625,591)
----------- -----------
11,303,945 11,608,004
Inventories (net) 7,219,960 8,217,416
Prepaid expenses and other current assets 934,263 1,318,041
Deferred charges (net) 838,439 763,046
----------- -----------
TOTAL CURRENT ASSETS 40,185,718 37,616,288
Property, plant and equipment 16,197,605 17,060,233
Less: Accumulated depreciation (4,849,396) (5,346,616)
----------- -----------
11,348,209 11,713,617
Intangible assets (net) 12,620,822 16,663,164
Other assets 42,730 79,091
----------- -----------
64,197,479 66,072,160
=========== ===========
F-33
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
JUNE 30 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
JUNE 30, SEPTEMBER 30,
1997 1997
$ $
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft payable -- --
Current portion of long term debt 1,673,712 1,505,759
Trade accounts payable 6,755,823 7,630,538
Other provisions and accruals 3,184,428 2,667,183
Other taxes payable 654,653 281,138
Income tax payable 1,721,079 1,739,168
----------- -----------
TOTAL CURRENT LIABILITIES 13,989,695 13,823,786
Long term debt 13,341,758 13,690,750
Deferred income taxes 358,446 239,496
----------- -----------
27,689,899 27,754,032
----------- -----------
Minority shareholders' investment 13,287,566 13,445,605
STOCKHOLDERS' INVESTMENT
Capital stock:
A class common stock, $0.01 par value - authorized
23,000,000 shares, issued and outstanding at June 30
3,516,115 Shares and at September 30 3,780,315 shares 35,361 37,803
B class common stock, $0.01 par value - authorized
2,000,000 shares, issued and outstanding at
June 30 1,842,500 shares and at September 30
1,822,500 shares 18,691 18,711
Preferred stock, $0.01 par value, - authorized
5,000,000 shares, issued and outstanding nil shares 22,891,093 24,658,766
Capital in excess of par
Retained earnings 2,803,065 3,791,691
Foreign currency translation adjustments (2,528,196) (3,634,448)
----------- -----------
64,197,479 66,072,160
=========== ===========
</TABLE>
F-34
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
$ $
----------- -----------
<S> <C> <C>
Revenues 11,690,884 21,461,433
=========== ===========
Operating expenses
Cost of sales 6,213,717 12,698,212
Selling, general and administrative costs 4,254,284 7,316,524
----------- -----------
10,468,001 20,014,736
----------- -----------
Operating income 1,222,883 1,446,697
Other income 199,910 243,082
Interest income/( expense) (215,087) 175,741
----------- -----------
Income from consolidated companies before income taxes 1,207,706 1,865,520
Provision for taxes on income (378,571) (446,193)
----------- -----------
829,135 1,419,327
Minority interest in consolidated subsidiary companies -- (430,701)
----------- -----------
Net income 829,135 988,626
=========== ===========
Basic earnings per share 0.18 0.18
Fully diluted earnings per share 0.18 0.17
Weighted average number of shares outstanding
Basic earnings per share 4,679,356 5,495,119
Fully diluted earnings per share 4,679,356 7,337,754
</TABLE>
F-35
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
$ $
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income 829,135 988,626
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 334,878 594,612
Deferred income taxes (11,688) (111,706)
Net loss on sale of assets -- 20,162
Effect of changes in current assets and current liabilities 904,731 (1,665,749)
Minority interest in consolidated subsidiary companies -- 430,701
----------- -----------
Net cash provided by operating activities 2,057,056 256,646
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (144,745) (681,483)
Proceeds on disposal of property, plant and equipment -- 18,083
Additional purchase price payments -- (2,886,407)
Other assets acquired (44,854) (147,487)
Acquisitions of subsidiaries (net of cash of $33,856) (2,673,865) (2,238,196)
----------- -----------
Net cash used in investing activities (2,863,464) (5,935,490)
----------- -----------
Cash flows from financing activities:
Net (repayments)/borrowings in bank overdrafts 2,049,273 (10,217)
Borrowings of long term debt 1,365,585 308,179
Reduction in deferred debt issue costs -- 46,000
Repayments in short term debt (2,002,662) (165,041)
Proceeds on stock issues -- 1,770,130
----------- -----------
Net cash provided in financing activities 1,412,196 1,949,051
----------- -----------
Effect of exchange rate changes on cash 4,931 (449,537)
Cash (used) generated by operations 610,719 (4,179,330)
Cash on hand at beginning of period 4,682,035 19,889,111
----------- -----------
Cash on hand at end of period 5,292,754 15,709,781
=========== ===========
</TABLE>
F-36
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' INVESTMENT
FOR THE PERIOD JUNE 30, 1997 TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CAPITAL STOCK FOREIGN
FIRST SOUTH CAPITAL IN CURRENCY
AFRICA CORP., EXCESS OF RETAINED TRANSLATION
LTD. PAR EARNINGS ADJUSTMENTS TOTAL
$ $ $ $ $
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 54,052 22,891,093 2,803,065 (2,528,196) 23,220,014
Issuance of stock to FSAC escrow agent 847 -- -- -- 847
Issuance of stock to acquire subsidiaries 20 699,414 -- -- 699,434
Proceeds on warrants exercised 1,595 1,068,259 -- -- 1,069,854
Net income -- -- 988,626 -- 1,023,689
Translation adjustment -- -- -- (1,106,252) (1,106,252)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 56,514 24,658,766 3,791,691 (3,634,448) 24,907,586
=========== =========== =========== =========== ===========
</TABLE>
F-37
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
1. PRINCIPLE ACTIVITIES OF THE GROUP
The principle activities of the group include the following:
FOOD INTERESTS
The manufacture, sale and distribution of both ready to eat and ready for
bake off pastry related food products, the manufacture, sale and
distribution of high margin speciality breads and staple breads, the
manufacture and sale of a wide range of prepared food products and the
manufacture, sale and distribution of a wide range of processed meat
products.
ENGINEERING INTERESTS
The business of manufacturing, servicing and selling packaging machines,
receiving commission income, receiving rental income, manufacture of
washers for use in the fastener industry, manufacture and supply of
air-conditioning products.
2. ORGANIZATION
First South Africa Corp., Ltd. (the "Company") was founded on September 6,
1995. The purpose of the Company is to acquire and operate South African
companies.
On July 1, 1997 the Company acquired 100% of the common stock of Fifers
Bakery (Proprietary) Limited for an aggregate net purchase price of $
1,844,890. The acquisition was accounted for using the purchase method of
accounting. The assets and liabilities were recorded at fair market value
as determined by management.
The purchase consideration has been decreased to give effect to the debt
ceded to First South African Holdings Corp. (Pty) Ltd. in the acquisition.
FIFERS BAKERY
(PTY)
LTD
$
---------
Acquisition costs
Stock issued in lieu of cash 699,434
Cash consideration (net of debt ceded to holding company) 1,145,456
---------
Purchase price to be allocated 1,844,890
Summary allocation of purchase price
Current assets 565,354
Property, plant and equipment 461,560
Other assets 33,238
Goodwill 1,796,136
TOTAL ASSETS ACQUIRED 2,856,288
Current liabilities 425,390
Long term debt 154,685
Deferred income taxes 4,161
Debt ceded to holding company 427,162
---------
TOTAL LIABILITIES ASSUMED 1,011,398
1,844,890
=========
F-38
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
3. SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements should be read in conjunction with
the consolidated financial statements included with the Company's Form 10K
which has been prepared in accordance with US generally accepted accounting
principles and incorporate the following significant accounting policies:
Consolidation
First South Africa Corp., Ltd., consolidates its majority owned
subsidiaries. The consolidated financial statements include the accounts of
the Company, First South Africa Corp., Ltd. and its subsidiaries. Minority
interests have been taken into account when determining the net income due
to the Company. Material intercompany transactions have been eliminated on
consolidation.
Accounting estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements, disclosure of contingent liabilities at the
financial statement date and reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Interim Financial Statements
The unaudited financial statements reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
consolidated financial statements for an interim period. All such
adjustments are of a normal, recurring nature. The operating results may
not be indicative of the results for a full fiscal year.
Earnings per share
Earnings per share on common shares is based on net income and reflects
dilutive effects of any stock options and warrants which exist at year end.
Intangible assets
Goodwill, recipes and other intellectual property, and trademarks are 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 the six year term of the agreements.
The company has adopted Statement of Financial Accounting Standards No. 121
("SFAS 121") "Accounting for the impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". No impairments in long-lived assets
has taken place.
Foreign currency translation
The functional currency of the underlying companies is that of South
African Rand. Accordingly, the following rates of exchange have been used
for translation purposes:
o Assets and liabilities are translated into United States Dollars using
the exchange rates at the balance sheet date.
o Common stock and capital in excess of par are translated into United
States Dollars using historical rates at date of issuance.
o 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
stockholders' investment designated as "Foreign currency translation
adjustment".
F-39
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
3. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Foreign assets and liabilities
Transactions in foreign currencies arise as a result of inventory purchases
from foreign countries and intercompany funding transactions between the
subsidiaries and First South Africa Corp., Ltd. Transactions in foreign
currencies are accounted for at the rates ruling on transaction dates.
Exchange gains and losses are charged to the income statement during the
period in which they are incurred. Foreign assets and liabilities of the
group which are not denominated in United States Dollars are converted into
United States Dollars at the exchange rates ruling at the financial year
end or at the rates of forward cover purchased. Forward cover is purchased
to hedge the currency exposure on foreign liabilities.
Inventories
Inventories are valued at the lower of cost and net realizable value, using
both the first-in, first-out and the weighted average methods. The value of
work-in-progress and finished goods includes an appropriate portion of
manufacturing overheads. A Valuation reserve has been established tp reduce
the values of certain identified inventories (Determined to be obsolete or
otherwise impaired) to their estimated net realizable values (market or
selling price less costs to dispose).
Property, plant and equipment
Land is stated at cost and is not depreciated. Buildings are depreciated on
the straight line basis over estimated useful lives of 20 years.
Plant and equipment, and motor vehicles are written off over their
estimated useful lives of 5 to 10 years.
Income taxes
Income tax expense is based on reported earnings before income taxes.
Deferred income taxes represent the impact of temporary differences between
the amounts of assets and liabilities recognised for financial reporting
purposes and such amounts recognised for tax purposes. Deferred taxes are
measured by applying currently enacted tax laws.
Fair value of financial instruments
As at September 30 1997, the carrying value of accounts receivable,
accounts payable and investments approximate their fair value. The carrying
value of long term debt approximates fair value, as the debt, other than
convertible debentures, interest rates are keyed to the prime lending rate.
The convertible debentures are believed to approximate fair market due to
their recent issuance from April through August 1997.
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.
Revenues are stated net of allowances granted to customers and trade
discounts. Returns of defective product are offset against revenues. Due to
the low incidence of warranty returns, where warranties are provided to
customers, the warranty costs are charged to cost of goods sold as and when
incurred.
Gain on disposal of subsidiary stock
Subsidiary stock disposed of during the period is recognized as a gain in
the statement of income and is separately disclosed as a non operating
gain.
F-40
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
4. INVENTORIES
Inventories consist of the following:
JUNE 30, SEPTEMBER 30,
1997 1997
$ $
---------- ----------
Finished goods 4,032,523 4,576,602
Work in progress 532,144 109,113
Raw materials and ingredients 2,365,213 2,931,945
Supplies 716,081 1,034,383
---------- ----------
Inventories (Gross) 7,645,961 8,652,043
Less: Valuation allowances (426,001) (434,627)
---------- ----------
Inventories (Net) 7,219,960 8,217,416
========== ==========
5. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information tabled below has been
prepared assuming that all of the acquisitions which occurred subsequent to
September 30, 1996 had taken place and that operations had commenced on
July 1, 1996, an adjustment has been made to eliminate the minority
interest in the net income of consolidated subsidiaries assuming that the
disposal of an effective 30% interest in First SA Food Holdings Limited had
taken place on July 1, 1996.
JULY 1, TO
SEPTEMBER 30,
1996
$
-----------
Revenues 19,393,376
===========
Net income before minority interest in consolidated subsidiaries 1,273,192
Minority interest in consolidated subsidiary companies (243,250)
-----------
Net income 1,029,942
-----------
Basic earnings per share 0.19
Weighted average number of shares in issue 5,495,119
6. COMMITMENTS
The Company is required to make additional contingent payments to the
former owners of certain companies that it has acquired based on a multiple
of pre tax earnings. These payments are to be made by the issue of stock
and cash over the next two to three years. Under its various acquisition
agreements, the Company anticipates having to spend approximately $2.25
million in cash for its contingent payments over the next 12 months as well
as approximately $1.85 million in stock. The Company anticipates that its
cash and operating cash flows will be sufficient to fully fund these
payments as well as fund the capital expenditures for its various
operations. Excess cash will also be utilized to
F-41
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
6. COMMITMENTS (CONTINUED)
fund additional acquisitions. The Company anticipates that any longer term
contingent acquisition payments will be funded out of operating cash flows
of the acquired entities.
7. SUBSEQUENT EVENTS
EVENTS SUBSEQUENT TO BALANCE SHEET DATE
Effective July 1, 1997 the Company completed negotiations to acquire Fifers
Bakery (Proprietary) Limited ("Fifers"), subject to the satisfactory
outcome of a due diligence investigation to be performed by Price
Waterhouse. Fifers will fit into the Company's Bakery and Confectionery
interests under First SA Food Holdings Limited, in which the Company holds
an effective 70% interest.
On October 31, 1997, First South Africa Corp., Ltd. a Bermuda corporation
(the "Company"), consummated the private placement and sale of 15,000
Increasing Rate Senior Subordinated Convertible Debentures of the Company
due October 31, 2001 (the "Debentures"), at a purchase price of $1,000 per
Debenture, to two offshore investors including BT Global Credit Limited as
the lead investor (the "Offering") pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, (the
"Act") under Regulation S promulgated thereunder. The Debentures are
subject to the terms of an Indenture dated October 29, 1997 by and between
the Company and the American Stock Transfer & Trust Company, as Trustee.
Interest payable on the Debentures is 4% per annum for the year ending
October 31, 1998, 4.5% per annum for the two years ending October 31, 2000,
and 5% per annum for the year ending October 31, 2001, payable on a
quarterly basis. In the event the Debentures shall not have been redeemed
or converted pursuant to the terms thereof and the Indenture prior to the
due date, the Company shall pay each registered holder of the Debentures an
additional amount equal to 22.25% of the principal amount of Debentures
held by each such registered holder. The Debentures are convertible at any
time (subject to prior redemption) into shares of Common Stock at the
initial conversion price of $9.50 per share of Common Stock, subject to
adjustment in certain events. The Debentures are redeemable after one year
if the Company's Common Stock trades at more than $14.25 per share, subject
to adjustment in certain events, during an agreed upon period of time (30
consecutive market days ending on the market day prior to the date on which
the notice of redemption is first given). The redemption value of the
debenture is 122.25% of the principal amount. The Company has paid Bankers
Trust Company ("BTC") a fee equal to 4.5% of the total offering amount and
has agreed to reimburse BTC for its reasonable legal expenses with respect
to such transaction up to an amount of $50,000.
On November 25, 1997, the Company closed an offer that it had made to
exchange common stock for all its outstanding Class A and Class B Warrants.
Holders of the Company's Class A and Class B Warrants were offered the
opportunity to convert 3 A and 3 B Warrants for 2 shares of common stock.
Holders of only A Warrants were offered the opportunity to convert 5 A
Warrants for 2 shares of common stock. Holders of only B Warrants were
offered the opportunity to convert 10 B Warrants for 2 shares of common
stock. A total of 1,807,891 A Warrants and 1,740,456 B Warrants were
tendered for exchange. The Company has issued approximately 1,172,144 new
shares to complete the exchange. There are currently 884,749 A Warrants and
814,803 B Warrants outstanding.
F-42
<PAGE>
FIRST SOUTH AFRICA CORP., LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
The following pro forma consolidated statements of income are prepared
assuming that the acquisition of Seemann's Quality Meat Products (Pty) Ltd
(purchased November 1, 1996), Gull Foods (Pty) Ltd (purchased January 1, 1997,
Pakmatic Company (Pty) Ltd (purchased March 1, 1997) and Fifers Bakery
(Proprietary) Limited (purchased on July 1, 1997) all occurred on July 1, 1996
(the first day of the fiscal year ended June 30, 1997). The pro forma
consolidated statements of income combine the historical operating results of
the Company for the year ended June 30, 1997 with:
o The operating results of Seemann's Quality Meat Products (Pty) Ltd for
the four months ended October 31, 1996;
o The operating results of Gull Foods (Pty) Ltd for the sic months ended
December 31, 1996;
o The operating results of Pakmatic Company (Pty) Ltd for the eight
months ended February 28, 1997.
The unaudited pro forma consolidated statement of income also includes
pro forma adjustments to give effect to the issuance of 496,728 shares of Class
B Common Stock and $2,500,000 of the $10 million 9% Senior Subordinated
Convertible Debentures issued in connection with the acquisitions. The pro forma
adjustments are based upon available information and certain assumptions that
management believe are reasonable.
The unaudited pro forma consolidated statements of income are presented
for informational purposes only and do not purport to be indicative of the
operating results that actually would have occurred if the acquisitions and
related financing had been consummated on July 1, 1996. Additionally, the
unaudited pro forma consolidated statements of income should be read in
conjunction with the historical financial statements of the Company and Gull
Foods (Pty) Ltd included elsewhere in this Prospectus.
The pro forma information has been prepared assuming that the
acquisitions prior to September 30, 1997 had taken place and that operations had
commenced on July 1, 1996.
F-43
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
[TABLE 1 OF 2]
<TABLE>
<CAPTION>
Seemann's
Actual Year Quality Meat Gull Foods Pakmatic
Ended June Products (Pty) (Pty) Company (Pty)
30, 1997 Ltd. Ltd. Ltd.
$ $ $ $
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues 66,575,931 3,472,590 6,247,121 2,301,005
----------- ----------- ----------- -----------
Operating expenses
Cost of Sales 37,869,755 2,649,351 3,739,753 1,747,549
Selling general and administrative costs 23,269,607 741,174 2,067,018 462,140
----------- ----------- ----------- -----------
61,134,362 3,390,525 5,806,771 2,209,689
=========== =========== =========== ===========
Operating income (loss) 5,441,569 82,065 440,350 91,316
Gains on disposal of subsidiary stock 3,327,478 -- -- --
Other income 468,531 -- 108,877 --
Interest (expense)/income (858,067) (998) 30,806 4,347
----------- ----------- ----------- -----------
Income (loss) from consolidated companies before
income taxes and minority interests 8,379,511 81,067 580,033 95,663
Provision for taxes on income (1,572,049) (43,773) (200,336) (18,675)
----------- ----------- ----------- -----------
6,807,462 37,294 379,697 76,988
Minority interest in consolidated subsidiary companies (135,224) (135,224)
----------- ----------- ----------- -----------
Net income (loss) from consolidated companies 6,672,238 37,294 379,697 76,988
Equity in net earnings of affiliated companies 10,927 -- -- --
----------- ----------- ----------- -----------
Net income (loss) 6,683,165 37,294 379,697 76,988
=========== =========== =========== ===========
Basic earnings (loss) per share
Weighted average number of shares outstanding
</TABLE>
[TABLE 2 OF 2]
<TABLE>
<CAPTION>
Fifers Bakery Pro Forma Pro Forma
(Pty) Consolidation for Year Ended
Ltd. Adjustments June 30, 1997
$ $ $
----------- ----------- -----------
<S> <C> <C> <C>
Revenues 3,167,476 -- 81,764,123
----------- ----------- -----------
Operating expenses
Cost of Sales 2,418,667 -- 48,425,075
Selling general and administrative costs 531,926 111,905 27,178,770
----------- ----------- -----------
2,950,593 111,905 75,603,845
=========== =========== ===========
Operating income (loss) 216,883 (111,905) 6,160,278
Gains on disposal of subsidiary stock -- -- 3,327,478
Other income 38,008 -- 615,416
Interest (expense)/income (55,438) (378,000) (1,257,350)
----------- ----------- -----------
Income (loss) from consolidated companies before
income taxes and minority interests 199,453 (489,905) 8,845,822
Provision for taxes on income (18,267) 171,467 (1,681,633)
----------- ----------- -----------
181,156 (318,438) 7,164,189
Minority interest in consolidated subsidiary companies
----------- ----------- -----------
Net income (loss) from consolidated companies 181,186 (318,438) 7,028,965
Equity in net earnings of affiliated companies -- -- 10,927
----------- ----------- -----------
Net income (loss) 181,186 (318,438) 7,039,892
=========== =========== ===========
Basic earnings (loss) per share $ 1.32
Weighted average number of shares outstanding 5,345,178
</TABLE>
F-44
<PAGE>
FIRST SOUTH AFRICAN CORP., LTD
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1997
(UNAUDITED)
1. AMORTIZATION OF INTANGIBLES
Amortization of other intangibles which represents the rights to intangible
knowledge acquired from the selling stockholders. Amortized over a twenty
five year period.
Amortization not included in actual results for the
year ended June 30, 1997 $111,905
--------
Taxation effect at 35%, the South African Statutory
tax rate for the year ended June 30, 1997 39,167
------
2. INTEREST COST OF DEBENTURES ISSUED
The $10,000,000 9% senior, subordinated debentures were raised to fund the
following:
o The acquisition of Gull Foods (Pty) Ltd - 3,200,000
o Additional purchase price payments for Piemans Pantry (Pty) Ltd,
representing a delayed purchase price consideration in terms of profit
warranty arrangements -- $1,200,000
o Additional purchase price payments for Seemann's Quality Meat Products
Pantry (Pty) Ltd, representing a delayed purchase price consideration
in terms of profit warranty arrangements -- $710,000
o The acquisition of Pakmatic (Pty) Ltd--$1,000,000
o The balanced of the net proceeds after issue costs were retained as
working capital.
Due to the fact that the additional purchase price payments and working
capital funding does not give rise to any additional revenue, these amounts
have been excluded in the calculation of pro forma interests adjustments.
Funds used to fund acquisitions $4,200,000
Debentures interest at 9% for the year ended June 30, 1997 $378,000
--------
Taxation effect at 35%, the South African statutory tax
rate for the year ended June 30, 1997 $132,300
--------
3. CALCULATION OF WEIGHTED AVERAGE NUMBER OF SHARES IN ISSUE
Weighted average number of shares in issue at June 30, 1997 5,139,855
Additional shares to give effect to the acquisition of
Seemann's Quality Meat Products (Pty) Ltd and Gull Foods
(Pty) Ltd from July 1, 1996 205,323
---------
5,345,178
=========
F-45
<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-46
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
UNAUDITED COMBINED STATEMENTS OF INCOME
FOR THE FOUR MONTHS ENDED JUNE 30, 1995 AND 1996
- - --------------------------------------------------------------------------------
JUNE 30, JUNE 30,
1995 1996
$ $
---------- ----------
Revenues 2,337,179 2,085,260
Operating expenses
Cost of sales 1,038,098 927,450
Selling, general and administrative costs 1,178,696 967,165
---------- ----------
2,216,794 1,894,615
---------- ----------
Operating income 120,385 190,645
Other income 15,420 16,074
Interest expenses (16,183) (10,748)
---------- ----------
Income before income taxes 119,622 195,971
Provision for taxes on income (4,120) (22,850)
---------- ----------
Net income 115,502 173,121
Retained earnings at beginning of the period 640,569 708,381
---------- ----------
Retained earnings at end of period 756,071 881,502
========== ==========
F-47
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED JUNE 30, 1995 AND 1996
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR FOR
JUNE 30, JUNE 30,
1995 1996
$ $
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income 115,502 173,121
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation 139,739 137,942
Effect of changes in assets and liabilities 137,873 467,205
-------- --------
Net cash provided by operating activities 393,114 778,268
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to fixed assets (481,668) (726,062)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings/(repayments) in bank overdraft (222,978) 231,907
Net proceeds of long term debt 37,371 86,682
Net (repayments)/borrowings in loans from stockholders 285,602 (256,433)
Net repayments in short term debt (55,375) (40,138)
-------- --------
Net cash provided by financing activities 44,620 22,018
-------- --------
Effect of exchange rate changes on cash (2,828) (28,399)
-------- --------
Net increase/(decrease) in cash on hand (46,762) 45,825
Cash on hand at beginning of period 317,081 236,789
-------- --------
Cash on hand at end of period 270,319 282,614
======== ========
</TABLE>
F-48
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED JUNE 30, 1995 AND 1996
- - --------------------------------------------------------------------------------
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-49
<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-50
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
---------- ----------
Revenue 6,315,976 7,200,784
---------- ----------
Operating expenses
Cost of sales 3,177,357 3,679,122
Selling, general and administrative costs 2,972,818 3,471,915
---------- ----------
6,150,175 7,151,037
---------- ----------
Operating income 165,801 49,747
Other income 38,354 69,448
Interest expense (63,163) (42,951)
---------- ----------
Income before income taxes 140,992 76,244
Provision for taxes on income (28,029) (8,432)
---------- ----------
Net income 112,963 67,812
Retained earnings at beginning of year 527,606 640,569
---------- ----------
Retained earnings at end of year 640,569 708,381
========== ==========
F-51
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF CASH FLOWS FOR THE
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
FOR FOR
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
-------- --------
Cash flows from operating activities:
Net income 112,963 67,812
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 137,502 157,861
Net gain on sale of assets (5,950) (13,233)
Effect of changes in assets and liabilities (153,866) 229,033
-------- --------
Net cash provided by operating activities 90,649 441,473
-------- --------
Cash flows from investing activities:
Net additions to fixed assets (171,684) (639,494)
-------- --------
Cash flows from financing activities:
Net (repayments)/borrowings in bank overdraft 11,411 (419,532)
Net proceeds/(repayments) of long term debt (20,979) 188,468
Net borrowings in loans from stockholders 387,870 372,387
Net (repayments)/borrowings in short term debt 5,543 (8,068)
-------- --------
Net cash provided by financing activities 383,845 133,255
-------- --------
Effect of exchange rate changes on cash (4,137) (15,526)
-------- --------
Net (decrease)/increase in cash on hand 298,673 (80,292)
Cash on hand at beginning of year 18,408 317,081
-------- --------
317,081 236,789
======== ========
F-52
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
AUDITED COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' INVESTMENT FOR THE YEARS ENDED
FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
<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>
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-53
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
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-54
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
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-55
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
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:
Accumulated Net book
Cost depreciation value
February 29, February 29, February 29,
1996 1996 1996
$ $ $
---------- ---------- ----------
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
==========
Certain plant and equipment is encumbered as security for liabilities of the
Companies (refer to note 7).
F-56
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
5. LONG TERM DEBT
FEBRUARY 29,
1996
$
------------
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
=======
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-57
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
7. OPERATING LEASES (CONTINUED)
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
Minimum rentals 254,859 257,123
======= =======
8. OTHER INCOME
Other income includes, interest received, profits on disposal of assets, rental
income and discounts received.
9. INTEREST EXPENSE
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
Current bank account 63,163 42,951
====== ======
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 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
Current
South African 28,029 8,432
------ ------
Total current taxes 28,029 8,432
------
Deferred
South African -- --
------ ------
Total deferred taxes -- --
------ ------
Provision for taxes on income 28,029 8,432
====== ======
F-58
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
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:
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
South African statutory tax rate 35,0 35,0
Capital gains/disallowable expenditure 0,1 (4,0)
Prior year under provision 4,4 --
Timing differences not provided for (5,5) (17,6)
Utilisation of operating loss carry forwards -- 12,4
Foreign tax rate differential (14,1) (14,7)
------ ------
Effective tax rate 19,9 11,1
====== ======
11. CASH FLOWS
The changes in assets and liabilities consist of the following:
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
Increase in receivables (157,685) (44,379)
Increase in inventories (19,968) (75,412)
Decrease/(increase) in prepaid expenses
and other current assets (83,157) 79,615
Increase in trade accounts payable 85,640 261,625
Increase in other provisions and accruals 8,607 7,796
(Decrease)/increase in income taxes payable 12,697 (212)
-------- --------
(153,866) 229,033
======== ========
Supplemental disclosures of cash
flow information:
Interest paid 63,163 42,951
======== ========
Income taxes paid 15,332 8,644
======== ========
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-59
<PAGE>
ASTORIA BAKERY CC AND
ASTORIA BAKERY LESOTHO (PROPRIETARY) LIMITED
NOTES TO THE AUDITED COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
- - --------------------------------------------------------------------------------
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 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
Pension costs 51,825 63,833
====== =======
Medical aid contributions 34,677 40,997
====== =======
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-60
<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-61
<PAGE>
GULL FOODS CC
UNAUDITED STATEMENTS OF INCOME
FOR THE TEN MONTHS ENDED DECEMBER 31, 1995 AND 1996
DECEMBER 31, DECEMBER 31,
1995 1996
$ $
---------- ----------
Revenues 9,172,227 9,455,224
---------- ----------
Operating expenses
Cost of sales 5,431,680 5,456,678
Selling, general and administrative costs 2, 907,718 3,019,539
---------- ----------
8,339,398 8,476,217
---------- ----------
Operating income 832,829 979,007
Other income 8,958 99,090
Interest expenses (2,297) (32,316)
---------- ----------
Income before income taxes 839,490 1,045,781
Provision for taxes on income (293,821) (357,011)
---------- ----------
Net income 545,669 688,770
Retained earnings at beginning of the period 414,457 959,093
---------- ----------
Retained earnings at end of period 960,126 1,647,863
========== ==========
F-62
<PAGE>
GULL FOODS CC
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1995 AND 1996
DECEMBER 31, DECEMBER 31,
1995 1996
$ $
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 545,669 688,770
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 71,541 148,259
Deferred income taxes -- 4,912
Effect of changes in assets and liabilities 89,061 107,308
-------- --------
Net cash provided by operating activities 706,271 949,249
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to fixed assets (277,925) (680,162)
Increase in loans to related companies (56,823) (5,586)
-------- --------
Net cash utilized by investing activities (334,748) (685,748)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings in bank overdraft 211,043 59,623
Net repayments of long-term debt 581,205 (66,187)
Net repayments in short term debt -- 47,136
-------- --------
Net cash provided by financing activities 211,043 40,572
-------- --------
Effect of exchange rate changes on cash (1,361) (85,705)
Net increase/(decrease) in cash on hand 581,205 218,368
Cash on hand at beginning of period -- 393,317
-------- --------
Cash on hand at end of period 581,205 611,685
======== ========
F-63
<PAGE>
GULL FOODS CC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1995 AND 1996
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-64
<PAGE>
Gull Foods CC
REPORT OF THE INDEPENDENT ACCOUNTANTS
To the members of Gull Foods CC:
The financial statements of Gull Foods CC at February 29, 1996 and February 28,
1995 were audited by other auditors whose reports dated March 14, 1997 and
October 24, 1996 respectively, expressed unqualified opinions on those
statements prepared in conformity with South African statutory accounting
principles.
We have audited the conversion of the financial statements of Gull Foods CC at
and for the years ended February 29, 1996 and February 28, 1995, from South
African statutory accounting principles to generally accepted accounting
principles in the United States. In our opinion, such conversion is appropriate
and has been properly applied.
/S/ Price Waterhouse
Price Waterhouse
Sandon, South Africa
June 30, 1997
F-65
<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-66
<PAGE>
GULL FOODS CC
AUDITED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
----------- -----------
Revenues 7,270,767 10,910,302
----------- -----------
Operating expenses
Cost of sales 4,514,074 6,241,299
Selling, general and administrative costs 2,376,329 3,866,133
----------- -----------
6,890,403 10,107,432
----------- -----------
Operating income 380,364 802,870
Other income 24,014 36,743
Interest expense (1,872) (20,127)
----------- -----------
Income before income taxes 402,506 819,486
Provision for taxes on income (140,877) (274,850)
----------- -----------
Net income 261,629 544,636
=========== ===========
F-67
<PAGE>
GULL FOODS CC
AUDITED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
FOR FOR
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 261,629 544,636
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 47,353 85,469
Deferred income taxes -- 240
Effect of changes in assets and liabilities (171,762) 44,186
-------- --------
Net cash provided by operating activities 137,220 674,531
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to plant and equipment (168,298) (309,116)
Increase in loans to related companies (162,958) (212,030)
-------- --------
Net cash utilized by investing activities (331,256) (521,146)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments)/borrowings in bank overdraft 174,397 (169,553)
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 (5,739) 257,997
-------- --------
Effect of exchange rate changes on cash (5,156) (18,065)
Net increase/(decrease) in cash on hand (204,931) 393,317
Cash on hand at beginning of year 204,931 --
======== ========
Cash on hand at end of year -- 393,317
======== ========
</TABLE>
F-68
<PAGE>
GULL FOODS CC
AUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
Foreign
currency
Capital Retained translation
stock earnings adjustments Total
$ $ $ $
-------- -------- -------- --------
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
======== ======== ======== ========
F-69
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
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-70
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
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-71
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
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:
Cost Accumulated Net book
February 29, depreciation value
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-72
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
5. LONG TERM DEBT
FEBRUARY 29,
1996
$
--------
FINDEVCO (PROPRIETARY) LIMITED - LONG TERM LOAN
Repayable in 48 monthly 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
========
Five year maturities of long term debt
Year ended February 28 $
1997 59,134
1998 103,324
1999 103,324
2000 103,324
2001 39,669
--------
408,775
F-73
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
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 28, FEBRUARY 29,
1995 1996
$ $
------- -------
Minimum rentals 113,846 141,021
======= =======
7. OTHER INCOME
Other income includes:
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------- -------
Rebates from South African government 16,864 29,742
Other sundry claims and interest income 7,150 7,001
-------- --------
24,014 36,743
======== ========
8. INTEREST EXPENSE
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------- -------
Current bank account 1,872 16,550
Lease interest -- 3,577
-------- -------
1,872 20,127
======== =======
F-74
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
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 28, FEBRUARY 29,
1995 1996
$ $
------- -------
Normal
South African
Current 140,877 274,174
Prior year -- 436
------- -------
Total current taxes 140,877 274,610
------- -------
DEFERRED
South African
Current -- 240
------- -------
Total deferred taxes -- 240
------- -------
Provision for taxes on income 140,877 274,850
======= =======
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:
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
------- -------
South African statutory tax rate 35.0 35.0
Permanent differences - not taxable -- (2.0)
Prior year under provision -- 0.5
---- ----
35.0 33.5
==== ====
F-75
<PAGE>
GULL FOODS CC
NOTES TO THE AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
10. CASH FLOWS
The changes in assets and liabilities consist of the following:
FEBRUARY 28, FEBRUARY 29,
1995 1996
$ $
-------- --------
Decrease/(increase) in receivables (538,749) 70,678
Increase in inventories (51,076) (396,242)
Increase in prepaid expenses and other current assets (1,557) (196)
Increase in trade accounts payable 276,146 106,568
Increase in income taxes payable 143,474 263,378
-------- --------
(171,762) 44,186
======== ========
Supplemental disclosures of cash flow information:
Interest paid 1,872 20,127
======== ========
Income taxes paid/ (refunded) (2,597) 11,472
======== ========
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 28, FEBRUARY 29,
1995 1996
$ $
------------ ------------
Medical aid contributions 3,868 4,888
===== =====
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-76
<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 FIRST SOUTH AFRICA CORP., LTD.
REPRESENTATIONS MUST NOT BE RELIED ------------------------------
UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN 10,000 9% SENIOR SUBORDINATED
OFFER TO SELL, OR A SOLICITATION OF AN CONVERTIBLE DEBENTURES
OFFER TO BUY, ANY SECURITIES OFFERED 1,666,667 SHARES OF COMMON STOCK
HEREBY BY ANYONE IN ANY JURISDICTION (UNDERLYING THE CONVERSION OF
IN WHICH SUCH OFFER OR SOLICITATION IS OUTSTANDING 9% SENIOR SUBORDINATED
NOT AUTHORIZED OR IN WHICH THE PERSON CONVERTIBLE DEBENTURES)
MAKING SUCH OFFER OR SOLICITATION IS 135,000 SHARES OF COMMON STOCK
NOT QUALIFIED TO DO SO OR TO ANYONE TO (UNDERLYING THE EXERCISE OF OUTSTANDING
WHOM IT IS UNLAWFUL TO MAKE SUCH PLACEMENT WARRANT)
OFFER, OR SOLICITATION. 25,000 SHARES OF COMMON STOCK
(UNDERLYING THE EXERCISE OF OUTSTANDING
----------- STOCK PURCHASE OPTIONS)
TABLE OF CONTENTS
PAGE
Prospectus Summary.................2
Summary Financial Information......7 ----------------------------
Cautionary Statement Regarding
Forward Looking Information ......8 PROSPECTUS
Risk Factors.......................8
Use of Proceeds...................15 ----------------------------
Dividend Policy...................15
Capitalization....................16
Market for Registrant's Common
Equity and Related Stockholder
Matters..........................17
Selected Historical and Pro
Forma Condensed Combined
Financial Data...................19
ProForma Financial Information....20
Management's Discussion and
Analysis of Financial Condition , 1997
and Results of Operations........21
Business..........................33
South Africa......................41
Management........................44
Certain Transactions..............51
Principal Shareholders............55
Description of Securities.........57
Selling Securityholders...........69
Plan of Distribution..............70
Certain Tax Considerations........71
Shares Eligible for Future Sale...76
Legal Matters.....................77
Experts...........................77
Enforceability of Civil
Liabilities......................77
Additional Information............77
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.
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.
II-1
<PAGE>
(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 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, at a purchase price of $1,000 per Debenture. 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.
(e) On October 31, 1997, the Registrant completed a private placement
of 15,000 Increasing Rate Senior subordinated Convertible Debentures due October
31, 2001 at a purchase price of $1,000 per debenture. The Registrant believes
that such private placement is exempt from the registration provisions of the
Act in reliance upon Regulation S promulgated under the Act. Bankers Trust
Company earned a commission equal to 4.5% of the total offering amount ad the
Registrant has agreed to reimburse Bankers Trust company for its reasonable
legal expenses with respect to such transaction up to an amount of $50,000.
(f) On November 25, 1997 the Registrant's Warrant Exchange offer to
holders of the Company's Class A Warrants and Class B Warrants expired. As a
result of that offer, the Company issued 1,175,345 shares of Common Stock to
tendering warrant holders. The Registrant believes that such exchange is exempt
from the registration provisions of the Act in reliance upon Section 3(a)(9) of
the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - ------ -----------
3.1 Memorandum of Association of the Registrant
3.2 Bye-Laws of the Registrant
4.1 Form of Bridge Note
4.2 Form of Warrant Agreement
4.3 Form of Unit Purchase Option
4.4(1) Indenture dated April 25, 1997 between the Company and American
Stock Transfer & Trust Company
4.5(2) Form of Debenture
4.6(2) Form of Placement Warrant
4.7(2) Stock Option Agreement
5.1(2) Opinion of Conyers, Dill & Pearman
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- - ------ -----------
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(3) Pieman's Pantry Acquisition Agreement
10.18(4) Form of Astoria Acquisition Agreement
10.19(5) Form of Gull Foods Acquisition Agreement
10.20(6) Form of Employment Agreement of Cornelius Roodt
12.1(6) Computation of Ratio of Earnings to Fixed Charges
21.1(6) Subsidiaries of the Registrant
23.1(6) Consent of Price Waterhouse
23.2(2) Consent of Conyers, Dill & Pearman (Included in Exhibit 5.1)
23.3(2) Consent of Parker Chapin Flattau & Klimpl, LLP
23.4(2) Consent of Webber Wentzel Bowens
24.1(2) Power of Attorney of certain officers and directors of the Company
- - -----------
(1) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 4.1 (filed on September 10, 1997).
(2) Previously filed.
(3) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 1 (filed on June 14, 1996) as amended on Form 8-K/A (filed on
August 16, 1996).
(4) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 1 (filed on November 7, 1996) as amended on Form 8-K/A (filed on
March 14, 1997).
(5) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 1 (filed on May 8, 1997) as amended on Form 8-K/A (filed on July 3,
1997).
(6) Filed herewith
II-3
<PAGE>
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.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes;
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information, set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference
II-4
<PAGE>
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 14
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than te payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act an will
be governed by the final adjudication of such issue.
II-5
<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 4th day of December, 1997.
FIRST SOUTH AFRICA CORP., LTD.
By: /S/CLIVE KABATZNIK
------------------------
Clive Kabatznik
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
* Chairman of the Board of December 4, 1997
- - ------------------------- Directors
Michael Levy
/S/CLIVE KABATZNIK President, Vice Chairman, Chief
- - ------------------------- Executive Officer, Chief
Clive Kabatznik Financial Officer, Director and
Controller December 4, 1997
* Director December 4, 1997
- - -------------------------
Charles S. Goodwin
* Director December 4, 1997
- - -------------------------
John Mackey
* Director December 4, 1997
- - -------------------------
Cornelius J. Roodt
* By: /S/CLIVE KABATZNIK
------------------------------
Clive Kabatznik
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE NUMBER
3.1 Memorandum of Association of the Registrant
3.2 Bye-Laws of the Registrant
4.1 Form of Bridge Note
4.2 Form of Warrant Agreement
4.3 Form of Unit Purchase Option
4.4(1) Indenture dated April 25, 1997 between the Company
and American Stock Transfer & Trust Company
4.5(2) Form of Debenture
4.6(2) Form of Placement Warrant
4.7(2) Stock Option Agreement
5.1(2) Opinion of Conyers, Dill & Pearman
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(3) Pieman's Pantry Acquisition Agreement
10.18(4) Form of Astoria Acquisition Agreement
10.19(5) Form of Gull Foods Acquisition Agreement
10.20(6) Form of Employment Agreement of Cornelius Roodt
12.1(6) Computation of Ratio of Earnings to Fixed Charges
21.1(6) Subsidiaries of the Registrant
23.1(6) Consent of Price Waterhouse
23.2(2) Consent of Conyers, Dill & Pearman (Included in
Exhibit 5.1)
23.3(2) Consent of Parker Chapin Flattau & Klimpl, LLP
23.4(2) Consent of Webber Wentzel Bowens
24.1(2) Power of Attorney of certain officers and directors of
the Company
<PAGE>
- - -----------
(1) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 4.1 (filed on September 10, 1997).
(2) Previously filed.
(3) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 1 (filed on June 14, 1996)as amended on Form 8-K/A (filed on August
16, 1996).
(4) Incorporated by reference is the Registrant's Current Report on Form 8-K ,
Exhibit 1 (filed on November 7, 1996) as amended on Form 8-K/A (filed on
March 14, 1997).
(5) Incorporated by reference is the Registrant's Current Report on Form 8-K,
Exhibit 1 (filed on May 8, 1997) as amended on Form 8-K/A (filed on July 3,
1997).
(6) Filed herewith.
All other Exhibits have been previously filed with the Registrant's
Registration Statement on Form S-1 (No. 33-99180), which is incorporated by
reference.
EXHIBIT 10.20
AGREEMENT
between
FIRST SOUTH AFRICA HOLDINGS (PTY) LIMITED
("the company")
and
C. ROODT
("the employee")
<PAGE>
EMPLOYMENT CONTRACT AND PERIOD
1. This agreement serves to confirm the employee's employment as Managing
Director with effect from 1 July 1996 ("the commencement date") with
the company and sets out the terms and conditions of such employment.
The employee's employment with the company shall endure for an initial
period until 30 June 1997 ("the initial period of employment"), unless
terminated in accordance with the provisions relating to termination
below.
2. The company may in its absolute discretion require the employee to
perform duties which may fall outside his job title and job
description.
TERMINATION OF EMPLOYMENT
The company shall be entitled to terminate the employee's employment
without notice if he -
2.1 commits any serious or persistent breach of any of the
provisions of this agreement;
<PAGE>
2.2 is guilty of any serious misconduct or deliberate neglect in
the discharge of his duties under this agreement;
2.3 is declared provisionally or finally insolvent or effects or
attempts to effect a general compromise with some or all of
his creditors;
2.4 absents himself from his employment without leave;
2.5 disobeys any lawful order or direction of the Board of
Directors of the company ('the board") or the management of
the company;
2.6 fails to carry out any of his duties in a fit and proper
manner;
2.7 becomes of unsound mind;
2.8 is convicted of any criminal offence other than an offence
which, in the reasonable opinion of the company management,
does not affect his position as an employee of the company;
2.9 fails to give his whole time and attention to the business of
the company; or
2.10 is guilty of any other conduct which will justify summary
dismissal at common law. MASM2
3. Notwithstanding the above and only in the event that the company elects
to extend this agreement beyond the 48 month period referred to in
paragraph 14, the employee's employment with the company shall
terminate at the end of the month in which the employee turns 55 years
of age, unless the company and employee agree otherwise in writing.
REMUNERATION
4. The employee's salary will be an amount of US$ 150,000 per annum
payable monthly on the last business day of each month in arrears. The
employee's salary will be converted on the last business day of each
month by applying the middle market exchange rate as per the company's
bankers.
5. The employee's salary shall be subject to review on the anniversary of
his employment. Salary increases will be reviewed on the basis of merit
and related factors by the board, whose decision shall be final.
- 2 -
<PAGE>
6. The company shall be entitled to deduct or set off from the employee's
salary any amounts due by him to the company for any reason whatsoever.
BONUS
7. The company shall pay the employee an annual incentive bonus of 4% (4
per cent) of the Minimum Pre-Tax Income above US$ 5 million, as shall
be reported in the company's audited financial statements for each
fiscal year, exclusive of any extraordinary earnings or charges which
would result from the release of the Earn-Out Escrow Shares.
SHARE OPTION PLAN
8. Within a 60 day period following the commencement date, the company
shall use its best efforts to cause First South African Holdings (Pty)
Ltd to grant the employee "B" class options at market value in terms of
the company's stock option plan on the following basis:
8.1 150,000 options granted at market value of R13.05 on 22 May
1996, to be exercised over a period of 5 years or earlier on
the following basis -
8.1.1 30,000 options, exercisable when the company realises
earnings of US$ .75 on a fiscal year basis,
8.1.2 50,000 options, exercisable when the company realises
earnings of US$ 1.00 on a fiscal year basis; and
8.1.3 70,000 options, exercisable when the company realises
earnings of US$ 1.50 on a fiscal year basis.
9. The options granted to the employee in terms of the company's stock
option plan shall only vest in the employee if the initial period of
employment is extended in terms of paragraph 14.
EMPLOYMENT DUTIES
10. The employee will be responsible for the management of the company's
business and for the management of all the company's present and future
subsidiaries.
11. The employee will be responsible for the development of the company's
short and long term operational and strategic goals and for directing
the activities of the
- 3 -
<PAGE>
company towards the achievement of such goals within such time frames
as may be determined by the board in consultation with the employee.
12. The employee undertakes to:
12.1 carry out all such functions and duties as are from time to
time assigned to him by the board as are reasonable or lawful;
12.2 obey and comply with all lawful and reasonable instructions
given to him by the board;
12.3 be true and faithful to the company in all dealings and
transactions relating to the business and interests of the
company and to use his best endeavors to protect and promote
the business, reputation and goodwill of the company;
12.4 submit to the board such information and reports as may be
required of him in connection with the performance of his
duties and the business of the company;
12.5 devote the whole of his time and attention during the
employee's working hours, and such additional time as the
exigencies of the company's business may require, to the
business affairs of the company and to his duties in terms of
this agreement.
EXTENSION OF FIXED TERM
13. This agreement will endure for an initial period of 12 months until 30
June 1997.
14. This agreement may be extended, at the company's election, for a
further period of 48 months, during which period either the employee or
the company shall be entitled to terminate the employee's employment on
6 months' written notice.
CONFIDENTIALITY
15. The employee acknowledges that, in the course of his employment with
the company, he may have access to confidential technical or commercial
information concerning the affairs of the company or its licensors,
trading partners or other associates. The employee undertakes, both
while he is employed by the company and after the termination of his
employment for any reason, not to disclose any such confidential
information to any person not employed by the company unless expressly
instructed by the company to do so, nor to make unauthorized use of any
such confidential information. The employee undertakes further not to
disclose any such confidential information to employees of the company
other than those who
- 4 -
<PAGE>
are required to know such information for the purposes of their
employment by the company, and then only to the extent necessary.
16. If the employee is uncertain as to whether any information is
confidential, the employee shall in writing request a ruling from the
company. The employee undertakes to abide by any ruling made in good
faith by the company.
17. The employee undertakes that, should he at any stage be aware of any
improper disclosure or use of any such confidential information by
another employee of the company or any other person, he will
immediately bring the matter to the attention of the company in
writing.
INVENTIONS, INNOVATIONS AND DISCOVERIES BY THE EMPLOYEE
18. The employee acknowledges that if, while he is employed by the company,
he makes any invention, innovation or discovery that is within the
scope of the existing or possible activities of the company, whether or
not employed in a capacity which normally requires him to make
technological or commercial improvement to the property or assets or
activities of the company, or if, in the course of making any
invention, innovation or discovery, he makes use of the personnel or
other resources or facilities of the company, all proprietary rights in
such invention, discovery or innovation (including copyright in any
work associated with the invention, innovation or discovery) will vest
in the company.
19. The rights of the company under paragraph 1/8 above will include the
right to obtain formal registration In its name of the proprietary or
intellectual property rights in the invention, innovation or discovery.
The employee undertakes, both while employed by the company and after
the termination of employment for any reason, to take all steps
reasonably necessary to assist the company in this regard, including
19.1 disclosing full details promptly in writing to the company of
the invention, innovation or discovery;
19.2 signing all assignment deeds or other documents prepared in
this regard by or on behalf of the company
19.3 giving the company and its attorneys or other advisers such
assistance as may be required in obtaining legal protection
for, and in commercially exploiting, the invention, innovation
or discovery.
20. If the employee applies within 1 year after the termination of his
employment by the company for any reason for the registration of a
patent, registered design or trade mark, or is cited as the inventor or
author in respect of any patent, registered
- 5 -
<PAGE>
design or trade mark applied for in this period, the invention,
innovation or discovery will be deemed, unless the employee proves
otherwise, to have been made during his employment by the company. The
employee undertakes to notify the company in writing, and in advance of
the event, of any proposed application for such registration.
21. The company undertakes that if the company decides not to obtain legal
protection for any invention, innovation or discovery mentioned in
paragraph 19 above, or if the company decides not to exploit
commercially any such invention, innovation or discovery, the company
will promptly notify the employee in writing of the decision and if the
company in its discretion so decides, the company will also notify the
employee in writing that he may himself obtain legal protection for,
and exploit commercially, the invention, innovation or discovery, at
his cost and for his benefit.
22. The employee acknowledges that, regardless of his position or rank in
the company, he is obliged as part of his duties to apply his skills,
training, and experience for the benefit of the company.
23. The employee agrees that copyright in all works made in the course and
scope of his employment by the company and of which he is the author or
co-author, will vest in the company.
CHANGE IN CONTROL, TERMINATION OF EMPLOYMENT AND
COMPENSATION IN EVENT OF TERMINATION
24. After a direct or indirect change in control of the company has
occurred, if either the employee terminates his employment within 6
months after he has obtained actual knowledge of the direct or indirect
change in control of the company (or any successor thereto) or the
employee's employment with the company is terminated by a party other
than the employee within one year after the direct or indirect change
in control, the employee -
24.1 shall be entitled to his salary, benefits and reimbursable
expenses accrued to the date that the employee's employment
with the company is terminated ("the termination date"); and
24.2 shall be entitled to be paid a lump-sum, on the termination
date, an amount of cash (to be computed, at the expense of the
company, by the independent certified accountants regularly
employed by the company ("the accountants") whose computation
shall be conclusive and binding upon the employee and the
company) equal to 2.99 x the employee's annual basic salary.
Such lump-sum payment shall be paid by the company and is
hereinafter referred to as the "termination compensation".
- 6 -
<PAGE>
25. For the purposes of this paragraph, a change in control shall be deemed
to have occurred where :
25.1 any person acquires securities of the company representing
twenty per cent (20%) or more of the company's then
outstanding shares;
25.2 if the shareholders of the company or First South Africa Corp
("FSAC") approve a plan of complete liquidation of the company
or FSAC, as the case may; or
25.3 if the shareholders of FSAC or the company approve an
agreement for the sale or disposition of all or substantially
all of FSAC's or the company's assets.
HOLIDAY LEAVE
26. The employee shall be entitled to 20 working days' leave with pay for
each completed period of twelve consecutive months of employment, which
leave shall be taken at a time or times convenient to the company.
27. Upon termination of his employment, the employee shall be entitled to
any accrued leave not yet taken during the twelve months preceding the
termination of his employment.
28. The employee is entitled to accumulate a maximum of 40 days' annual
leave.
SICK LEAVE
29. Notwithstanding anything to the contrary contained in this agreement,
should the employee be precluded, through illness, accident (other than
an accident, not caused by his negligence, arising out of his
employment) or any other cause, from the performance of his duties,
then the company undertakes for the first 120 days of such
indisposition during the period of this agreement, to pay the employee
at the full rate of his remuneration.
30. If after the lapse of an aggregate of 120 days during the period of
this agreement, the employee is unable to resume or properly perform
his duties, the company shall be entitled to forthwith cancel this
agreement on notice to that effect to the employee.
COMPASSIONATE LEAVE
31. The employee shall be entitled to compassionate leave in the event of
the death of a family member or close relative.
- 7 -
<PAGE>
32. In the event of the death of a family member or close relative
32.1 the company will grant compassionate leave of three (3) days
where the deceased lived in the Gauteng Province;
32.2 the company will grant compassionate leave of five (5) days
where the deceased lived outside the Gauteng Province.
PENSION FUND
33. It is the intention of the company to establish a pension fund. The
employee will be obliged to join such pension fund as may be
established by the board of the company.
RETIREMENT ANNUITY
34. The company shall pay 5% (five per cent) of the employee's annual
salary towards a retirement annuity of the employee's choice.
GROUP LIFE COVER
35. The company shall contribute an amount equivalent to 1% (one per cent)
of the employee's annual salary towards group life cover.
MEDICAL AID
36. The employee shall remain a member of the Chartered Accountants'
Medical Aid Fund ("the fund"). The company shall pay 100% of the
monthly contributions to the fund.
EXPENSES
37. The company shall refund to the employee any bona fide expenses
incurred by the employee from time to time on the company's business
provided that the expenses are reasonably and necessarily incurred and
have been authorised or approved by the board and are supported by
satisfactory voucher proof.
38. Motor vehicle travel expenses incurred by the employee in furtherance
of the company's business shall be refunded by the company at the rates
applied by Automobile Association of South Africa.
NO CREDIT
- 8 -
<PAGE>
39. The employee shall at no time borrow any money from the company without
the written consent of the board.
RETURN OF ASSETS AND RECORDS ON TERMINATION OF EMPLOYMENT
40. On termination of his employment the employee shall immediately deliver
to the company all assets, records, documents, accounts, letters,
notes, memoranda and papers of every description within his possession
or control relating to the affairs and business of the company, whether
or not they were originally supplied by the company.
MEDICAL EXAMINATIONS
41. The nature of the employee's job in the company's business requires
good health and physical fitness.
42. The employee shall, whenever the company deems it necessary, undergo a
medical examination at the expense of the company by a medical
practitioner nominated and appointed by the company. The employee gives
his irrevocable consent to any such medical practitioner making the
results and record of any medical examination available to the company.
SECURITY
43. The company's security regulations shall be observed by the company and
may at the discretion of the company be varied from time to time.
44. The employee shall not unlawfully possess any substance, article or
thing which is the property of the company or of any employee of the
company.
45. The employee gives his irrevocable consent to a duly authorised
representative of the company to search him or any article in his
possession or control or any article worn by him or in his possession
at the company's premises for the unlawful presence of any substance,
article or thing.
GENERAL
46. No indulgence granted by a party shall constitute a waiver of any of
that party's rights under this agreement; accordingly, that party shall
not be precluded, as a consequence of having granted such indulgence,
from exercising any rights against the other which may have arisen in
the past or which may arise in the future.
47. No agreement varying, adding to, deleting from or cancelling this
agreement, shall be effective unless reduced to writing and signed by
or on behalf of the parties.
- 9 -
<PAGE>
48. This agreement as read with the disciplinary, grievance and
retrenchment procedures laid down by the company from time to time,
shall constitute the entire contract between the parties with regard to
the matters dealt with in this agreement, and no representations,
terms, conditions or warranties not contained in this agreement shall
be binding on the parties.
49. This agreement and the disciplinary, grievance and retrenchment
procedures as laid down by the company from time to time, shall at all
times be subject to the provisions of the Labour Relations Act, 28 of
1956, and any other law applicable at the time.
- 10 -
<PAGE>
Kindly retain the copy of this letter for your own records and sign the
original hereof in order to signify your acceptance of the terms and
conditions of your employment contained herein.
Signed at _____________________ on ___________________________
AS WITNESSES
1. /s/ C. ROODT
----------------------------- -----------------------------
C. ROODT
2.
-----------------------------
Signed at _____________________ on ___________________________
AS WITNESSES
1.
-----------------------------
2.
----------------------------- -----------------------------
FIRST SOUTH AFRICA HOLDINGS
(PTY) LIMITED
- 11 -
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR YEAR THREE
ENDED ENDED MONTHS
FEBRUARY FEBRUARY YEAR ENDED MARCH 1, TO YEAR ENDED YEAR ENDED ENDED
28, 28, FEBRUARY 28, JUNE 30, JUNE 30, JUNE 30, SEPTEMBER
1993 1994 1995 1995 1996 1997 30, 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income/(loss)
from continuing
operations(1) $ 269,251 $ 321,319 536,440 359,045 (5,248,942) 8,390,438 1,865,520
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed Charges:
Interest expense and
amortization of debt
issue costs 223,314 180,960 152,163 18,801 865,733 858,067 512,147
Rentals:
One third of rental
expense relating to
operating leases 21,465 32,712 26,243 8,521 138,805 204,817 56,325
Total fixed charges 244,779 213,672 178,406 27,322 1,004,338 1,062,884 568,472
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income
taxes, minority interests
and fixed charges (1) 514,030 534,991 714,848 388,367 (4,244,604) 9,453,322 2,433,992
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to 2.1 1.67 4.0 14.2 (4.2)(2) 8.9(3) 4.3
fixed charges ========== ========= ========== ========== ========== ========== ==========
</TABLE>
- - ---------------
(1) Includes Minority Interests in Subsidiaries with fixed charges.
Minority Interests are disclosed below income after taxes in the
financial statements.
(2) As a result of the loss incurred in 1996, the company was unable to
fully cover the indicated fixed charges by $6,253,280.
(3) Included in earnings for 1997 was a non-recurring gain of $3,327,478
before income taxes relating to the disposal of a 30% interest in First
SA Food Holdings Limited as disclosed in Note 12 to the Company's
financial statements. If such sale had not occurred the ratio of
earnings to fixed charges would have been 5.8.
- 12 -
<PAGE>
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
AFTER ADJUSTMENT FOR PRE ACQUISITION PROFITS OF SUBSIDIARIES
YEAR
ENDED JUNE
30,
1997
----------
Pre-tax income/(loss) from continuing operations, as above(1) 8,390,438
----------
Adjustment for pre acquisition income of subsidiaries 705,671
----------
9,098,109
----------
Total fixed charges, as above 1,062,884
Adjustments:
Decrease due to decrease in net interest expenses (34,155)
Increase due to increase in net interest expense
----------
Total pro forma fixed charges 1,028,729
----------
Ratio of earnings to fixed charges 9.8
==========
- - ---------------
(1) Includes Minority Interests in Subsidiaries with fixed charges. Minority
Interests are disclosed below income after taxes in the financial
statements.
EXHIBIT 21.1
1. First South Africa Management Corp
(incorporated in Delaware)
2. First South African Holdings (Pty) Ltd.*
(incorporated in South Africa)
- - --------
* For a list of subsidiaries of First South African Holdings (Pty) Ltd see
"Business" in the Prospectus which is included in this Registration
Statement.
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 19, 1997, 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 Warrant and purchase options of the Company.
/s/Price Waterhouse
PRICE WATERHOUSE
SANDTON, SOUTH AFRICA
December 5, 1997
