<PAGE> 1
SEC File No. 333-11637
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Dransfield China Paper Corporation
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(Exact name of registrant as specified in its charter)
Territory of the British Virgin Islands
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(State or other jurisdiction of incorporation or organization)
2676
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(Primary Standard Industrial Classification Code Number)
None Required
------------------------------------
(I.R.S. Employer Identification No.)
49 Strawberry Lane, Suite 200,
Palos Verdes Peninsula,
California 90274, U.S.A.
310-541-4415
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(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
T.E. King
49 Strawberry Lane, Suite 200,
Palos Verdes Peninsula,
California 90274, U.S.A.
310-541-4415
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(Address, including zip code, and telephone number, including
area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.
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. [ ]
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(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Title of Proposed Proposed
each class maximum maximum
of securities offering aggregate Amount of
to be Amount to be price per offering registration
registered registered unit price fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 461,572 $0.001 $ 462 $ 0.16(1)
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Minimum fee: $ 100.00
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</TABLE>
(1) These 461,572 shares are owned by SuperCorp Inc., the controlling
shareholder of the Registrant, and are to be distributed by SuperCorp
Inc. to its shareholders as a stock dividend. The registration fee is
based upon the book value of the Registrant as of two business days
prior to the date of filing this registration statement. Reg.
230.457(a).
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 the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
<PAGE> 3
PROSPECTUS
Dransfield China Paper Corporation
(a British Virgin Islands international business company)
461,572 Shares of Common Stock
(For the account of a distributing shareholder, SuperCorp Inc.)
Dransfield China Paper Company ("the Company") is a recently formed,
development-stage shell company without significant assets or any business. It
was formed by SuperCorp Inc., an Oklahoma corporation, for the purpose of (i)
creating a public market for the Company's securities by distributing to
SuperCorp's approximately 2,500 shareholders ("the Spinoff") 461,572 shares of
the Company's Common Stock ("the Spinoff Shares"), (ii) merging with another
British Virgin Islands company, Dransfield Paper Holdings Limited ("Dransfield
Paper") ("the Merger"), which other company is a viable company with
significant assets and an ongoing business, and (iii), following the Merger,
engaging in the business and activities now being conducted by Dransfield Paper
- - buying and selling paper, distributing Proctor & Gamble's "Tempo" brand paper
handkerchiefs in Hong Kong and China, and converting jumbo rolls of paper into
finished hygienic paper products for sale in Hong Kong and China.
In addition to the 461,572 Spinoff Shares registered herein and to be
distributed pro rata to SuperCorp's shareholders, 38,428 unregistered shares of
Common Stock will be issued to two persons for services rendered to the Company
and 500,000 unregistered Callable Common Stock Purchase Warrants ("U.S.
Callable Warrants" exercisable at $5.50 and callable by the Company at $8.00)
will be issued for nominal consideration to eight "insiders" of the Company
(either directly or indirectly through family members), three of whom are
officers and directors of SuperCorp and seven of whom are SuperCorp
shareholders who will receive 41 percent of the Spinoff Shares through the pro
rata spinoff distribution. Following the Merger, should it be approved by
Dransfield Paper's shareholder, and assuming the conversion into Common Stock
of all securities distributed in the Merger including the 500,000 U.S. Callable
Warrants distributed to the eight insiders of the Company, the SuperCorp
shareholders receiving the Spinoff Shares and the eight insiders would own an
aggregate of 1,000,000 shares of Common Stock or 7.7 percent of the outstanding
13,046,004 shares of Common Stock of the Company. Of this 7.7 percent, or
1,000,000 shares, the "insiders" would own 72.6 percent, or 725,930 shares -
187,502 shares of which they would
(continued on next page)
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Recipient Commissions Other Persons(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ 0.001(2) $0 $ 0.001
461,572 Shares $ 462(3) $0 $ 462(4)
- --------------------------------------------------------------------------------------------------------
</TABLE>
The date of this Prospectus is , 1997.
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<PAGE> 4
(1) The estimated expenses of the transaction described herein are
$______, all of which is being borne by Dransfield Paper Holdings
Limited ("Dransfield Paper"), a British Virgin Islands international
business company with whom the Company proposes to merge. These
expenses are federal and state registration fees - $1,380; stock
transfer agent's fee - $4,375; escrow agent's fee - $500; printing and
engraving - $10,000; legal fees - $40,000; auditor's fee - $______;
mailing cost - $4,000; and Nasdaq listing fee - $50,000.
(2) Based upon the book value of Dransfield China Paper Corporation ("the
Company") on June 30, 1996.
(3) These 461,572 Shares ("the Spinoff Shares") of Common Stock are owned
by SuperCorp Inc. ("SuperCorp"), a shareholder of the Company.
Certificates evidencing these Spinoff Shares will be distributed to an
escrow agent ("the Spinoff") for delivery to the approximately 2,500
shareholders of SuperCorp at such time as (i) a proposed merger ("the
Merger") between the Company and Dransfield Paper should be effected,
(ii) this Prospectus is supplemented to indicate the date the Merger
was effected, and (iii) information concerning the surviving Company
shall have been made available to the public and to National
Association of Securities Dealers member firms. See "Plan of
Distribution."
(4) These funds represent the aggregate book value, at $0.001 a Share, of
the Spinoff Shares at the time of the Spinoff (and before the proposed
Merger), which Shares shall be received by the shareholders of
SuperCorp.
- ----------------------------------------
have received through the pro rata spinoff distribution, 38,428 shares they
would have received for services rendered, and 500,000 shares they would have
purchased for $2,750,000, and the other SuperCorp shareholders would own 27.4
percent, or 274,070 shares, which they would have received as a dividend
through the pro rata spinoff distribution. See "Certain Insider Transactions."
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" ON PAGE 5.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prior to the date of this Prospectus the Company was not a "reporting
company," as such term is employed in the Securities Exchange Act of 1934, and
its Common Stock was neither listed on any exchange nor eligible for quotation
on the Nasdaq Stock Market. There presently is no public market for the Common
Stock of the Company, and there can be no assurance that such a market will
develop or can be sustained should there be a completion of the proposed
Merger. Should the proposed Merger be approved and effected, it is expected
that the Common Stock of the Company will then be eligible for quotation on the
Nasdaq Stock Market.
ii
<PAGE> 5
Should the proposed Merger not be effected, there will be no public market for
the securities of the Company because of the above-described escrow
arrangement. See "Summary of Proposed Transaction - Plan of Distribution."
ADDITIONAL INFORMATION
REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission in Washington, D.C. a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Common Stock offered by
this Prospectus. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits listed in the Registration Statement. The Registration
Statement can be examined at the Public Reference Room of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies may be obtained upon payment of the prescribed fees. The Company is an
electronic filer, and the Securities and Exchange Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http:\\www.sec.gov.
REPORTS TO SHAREHOLDERS. Provided the Merger is effected, the
post-Merger Company will be a "private foreign issuer," as such term is defined
by the Securities and Exchange Commission, and will file reports with the
Securities and Exchange Commission as required of private foreign issuers. The
Company intends to furnish shareholders with annual reports containing
financial statements audited by independent public or certified accountants and
such other periodic reports as it may deem appropriate or as required by law.
STOCK CERTIFICATES. It is expected that certificates for the
securities offered hereby will be ready for delivery within one week after the
date of this Prospectus (see "The Escrow Arrangement").
POST-EFFECTIVE AMENDMENT AND PROSPECTUS STICKERS CONCERNING PROPOSED
MERGER. Should the proposed merger described herein be approved by the
requisite shareholder vote and become effective, the Company will file a post-
effective amendment to the Registration Statement described above and cause
stickers to be placed on the front cover page of all copies of the Prospectus,
which amendment and stickers will describe the results of the vote and the
effective date of the merger.
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is incorporated in the Territory of the British Virgin
Islands as an international business company and has no assets there. After the
merger described herein, all of the Company's directors and officers and
certain experts named herein will reside outside the United States either in
Hong Kong, in the Peoples Republic of China (the "PRC") or in the British
Virgin Islands, and virtually all the assets of the Company and of such persons
are or may be located outside the United States. Therefore, with respect to
the enforcement by investors of civil liabilities under the U.S. Federal
securities laws, it may not be
iii
<PAGE> 6
possible for investors to effect service of process within the United States
against such persons or, if service is effected and a judgment in U.S. courts
is obtained against such persons, it is unlikely that such a judgment could be
enforced in the U.S. courts. In July 1997 Hong Kong becomes part of the PRC,
and as the PRC does not have treaties providing for the reciprocal recognition
and enforcement of judgments of courts within the United States, administrative
actions brought by regulatory authorities, such as the Securities and Exchange
Commission ("the Commission"), and other actions, which result in foreign court
judgments, could (assuming such actions are not required by PRC law and the
Company's Articles of Association to be arbitrated) only be enforced in the PRC
if such judgments or rulings do not violate the basic principles of the law of
the PRC or the sovereignty, security and public interest of the society of the
PRC, as determined by a people's court of the PRC which has jurisdiction for
recognition and enforcement of judgments. Finally, the Company has been advised
by Harney, Westwood & Riegels, solicitors in the British Virgin Islands, that
there is uncertainty as to whether the courts of the British Virgin Islands
would enforce (i) judgments of United States courts obtained against the
Company or such persons predicated solely upon the civil liability provisions
of the Federal securities laws or (ii), in original actions brought in the
British Virgin Islands, liabilities against the Company or such persons
predicated solely upon the Federal securities laws.
UNTIL _____________, 1997 (90 DAYS AFTER THE EFFECTIVE DATE OF THE MERGER) ALL
U.S. DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
iv
<PAGE> 7
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Registration Statement . . . . . . . . . . . . . . . . . . . . . . iii
Reports to Shareholders . . . . . . . . . . . . . . . . . . . . . iii
Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . iii
Post-Effective Amendment and Prospectus Stickers
Concerning Proposed Merger . . . . . . . . . . . . . . . . iii
Enforceability of Civil Liabilities . . . . . . . . . . . . . . . . . . . . iii
Summary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The transaction . . . . . . . . . . . . . . . . . . . . . . . . 1
The Spinoff . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Spinoff Shares . . . . . . . . . . . . . . . . . . . . . . . . 1
Terms of the Spinoff . . . . . . . . . . . . . . . . . . . . . . . 1
Other securities of the Company . . . . . . . . . . . . . . . . . 1
The proposed Merger . . . . . . . . . . . . . . . . . . . . . . . 1
The survivor of the Merger . . . . . . . . . . . . . . . . . . . . 1
Business of the Company . . . . . . . . . . . . . . . . . . . . . 1
Business of Dransfield Paper . . . . . . . . . . . . . . . . . . . 1
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . 2
Management of the Company after the Merger . . . . . . . . . . . . 2
Insiders to the transaction . . . . . . . . . . . . . . . . . . . 2
Securities to be outstanding after the Merger . . . . . . . . . . 2
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 4
Tax consequences of the Spinoff . . . . . . . . . . . . . . . . . 4
Tax consequences of the Merger . . . . . . . . . . . . . . . . . . 4
Address of SuperCorp . . . . . . . . . . . . . . . . . . . . . . . 4
Address of the Company . . . . . . . . . . . . . . . . . . . . . . 4
Address of Dransfield Paper . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
No Assurance of a Public Market . . . . . . . . . . . . . . . . . 5
No Assurance of Success of Planned Business Expansion 5
Reliance on Key Personnel . . . . . . . . . . . . . . . . . . . . 6
Volatility of Price of Pulp . . . . . . . . . . . . . . . . . . . 6
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 7
Political Considerations . . . . . . . . . . . . . . . . . . . . . 7
Economic Considerations . . . . . . . . . . . . . . . . . . . . . 7
Legal System . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Government Control of Currency Conversion and
Exchange Rate Risks . . . . . . . . . . . . . . . . . . . 8
Environmental Liability Exposure . . . . . . . . . . . . . . . . . 9
Dividends Not Likely . . . . . . . . . . . . . . . . . . . . . . . 9
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Exchange Rate Information . . . . . . . . . . . . . . . . . . . . . . . . . 10
SuperCorp - The Distributing Shareholder . . . . . . . . . . . . . . . . . 12
SuperCorp May be Deemed to be an Underwriter . . . . . . . . . . . 12
SuperCorp's Exposure as a Control Person . . . . . . . . . . . . . 13
</TABLE>
v
<PAGE> 8
<TABLE>
<S> <C>
Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . 13
Reasons for the Merger and Spinoff . . . . . . . . . . . . . . . . 15
Accounting Treatment of Proposed Merger . . . . . . . . . . . . . 15
Degree of Management Control of Vote on Merger . . . . . . . . . . 15
Dissenters' Right of Appraisal . . . . . . . . . . . . . . . . . . 15
Compliance with Governmental Regulations . . . . . . . . . . . . . 15
Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . 16
Transactions with Insiders . . . . . . . . . . . . . . . . . . . . . . . . 16
Services Rendered by Insiders . . . . . . . . . . . . . . . . . . 18
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Escrow Arrangement . . . . . . . . . . . . . . . . . . . . . . 19
Should the Merger Occur . . . . . . . . . . . . . . . . . 20
Consequences Should the Merger Not Occur . . . . . . . . . 20
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 21
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Voting rights . . . . . . . . . . . . . . . . . . . . . . 22
Dividend rights . . . . . . . . . . . . . . . . . . . . . 22
Liquidation rights . . . . . . . . . . . . . . . . . . . . 22
Preemptive rights . . . . . . . . . . . . . . . . . . . . 22
Registrar and transfer agent . . . . . . . . . . . . . . . 22
Dissenters' rights . . . . . . . . . . . . . . . . . . . . 22
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 22
Series A Convertible Preferred Stock . . . . . . . . . . . 22
Dividend rights . . . . . . . . . . . . . . . . . . . . . 23
Liquidation or dissolution rights . . . . . . . . . . . . 23
Conversion rights . . . . . . . . . . . . . . . . . . . . 24
Voting rights . . . . . . . . . . . . . . . . . . . . . . 25
Changes in Terms of Series A Convertible
Preferred Stock . . . . . . . . . . . . . . . . . 25
Preemptive rights . . . . . . . . . . . . . . . . . . . . 25
Registrar and transfer agent . . . . . . . . . . . . . . . 25
Dissenters' rights . . . . . . . . . . . . . . . . . . . . 25
Series B Preferred Stock . . . . . . . . . . . . . . . . . . . . . 25
Liquidation rights . . . . . . . . . . . . . . . . . . . . 25
Other rights . . . . . . . . . . . . . . . . . . . . . . . 26
Registrar and transfer agent . . . . . . . . . . . . . . . 26
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Call Feature of the Callable Warrants . . . . . . . . . . 26
Registrar and transfer agent . . . . . . . . . . . . . . . 26
Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . 26
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The Spinoff . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Shareholders of SuperCorp . . . . . . . . . . . . . . . . . . . . 27
Recipients of the U.S. Callable Warrants . . . . . . . . . . . . . 27
Other Financial Considerations . . . . . . . . . . . . . . . . . . . . . . 28
Pro Forma Financial Information and Dilution . . . . . . . . . . . 28
Material Contacts Among the Companies . . . . . . . . . . . . . . 28
Information About the Company . . . . . . . . . . . . . . . . . . . . . . . 28
Description of Business and Properties . . . . . . . . . . . . . . 28
</TABLE>
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<TABLE>
<S> <C>
Course of Business Should the Merger Not Occur . . . . . . . . . . 29
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 29
Market for the Company's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . 29
Dividends . . . . . . . . . . . . . . . . . . . . . . . . 30
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 30
Information About Dransfield Paper . . . . . . . . . . . . . . . . . . . . 30
Description of Business and Properties . . . . . . . . . . . . . . 31
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 32
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 34
Overview . . . . . . . . . . . . . . . . . . . . . . . . . 34
Results of Operations . . . . . . . . . . . . . . . . . . 35
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Interim results . . . . . . . . . . . . . . . . . 35
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 35
Interim results . . . . . . . . . . . . . . . . . 36
Selling, general and administrative expenses . . . . . . . 36
Interim results . . . . . . . . . . . . . . . . . 36
Interest expense . . . . . . . . . . . . . . . . . . . . . 36
Interim results . . . . . . . . . . . . . . . . . 36
Net income . . . . . . . . . . . . . . . . . . . . . . . . 36
Interim results . . . . . . . . . . . . . . . . . 37
Balance sheet items . . . . . . . . . . . . . . . . . . . 37
Interim results . . . . . . . . . . . . . . . . . 37
Liquidity and capital resources . . . . . . . . . . . . . 37
Interim results . . . . . . . . . . . . . . . . . 39
Outlook . . . . . . . . . . . . . . . . . . . . . . . . 39
Timing of the expansion . . . . . . . . . . . . . . . . . 40
Paper Mill No. 1 . . . . . . . . . . . . . . . . 40
Paper Mill No. 2 . . . . . . . . . . . . . . . . 41
Paper Mills No. 3 and 4 . . . . . . . . . . . . . 41
The Paper Industry in China . . . . . . . . . . . . . . . . . . . 44
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Conghua - Paper Mill No. 1 . . . . . . . . . . . . . . . . 45
Jiangyin - Paper Mill No. 2 . . . . . . . . . . . . . . . 45
Office facilities . . . . . . . . . . . . . . . . . . . . 45
Dependence on major customers and suppliers . . . . . . . . . . . 45
Research and development . . . . . . . . . . . . . . . . . . . . . 45
Environmental controls . . . . . . . . . . . . . . . . . . . . . 45
Number of employees . . . . . . . . . . . . . . . . . . . . . . 46
Venue of sales . . . . . . . . . . . . . . . . . . . . . . . . . 46
Patents, Copyrights and Intellectual Property . . . . . . . . . . 46
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 46
Market for Dransfield Paper's Capital Stock and
Related Stockholder Matters . . . . . . . . . . . . . . . 46
Financial Statements . . . . . . . . . . . . . . . . . . . . . . 47
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
British Virgin Islands Taxation . . . . . . . . . . . . . . . . . 47
U. S. Federal Income Taxation . . . . . . . . . . . . . . . . . . 47
Taxation of the Company . . . . . . . . . . . . . . . . . 47
Taxation of Shareholders . . . . . . . . . . . . . . . . . 48
Tax on Dividends . . . . . . . . . . . . . . . . 48
</TABLE>
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<TABLE>
<S> <C>
Sale or Other Disposition . . . . . . . . . . . . 48
Hong Kong Taxes . . . . . . . . . . . . . . . . . . . . . . . . 48
Tax on Dividends . . . . . . . . . . . . . . . . . . . . . 48
Profits Tax . . . . . . . . . . . . . . . . . . . . . . . 48
Estate Duty . . . . . . . . . . . . . . . . . . . . . . . 48
Stamp Duty . . . . . . . . . . . . . . . . . . . . . . . . 48
Taxation of the Company by the PRC . . . . . . . . . . . . . . . . 49
Income Tax . . . . . . . . . . . . . . . . . . . . . . . . 49
Value added tax . . . . . . . . . . . . . . . . . . . . . 49
Management Information . . . . . . . . . . . . . . . . . . . . . . . . 49
Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . 49
Directors, Executive Officers and Significant
Employees . . . . . . . . . . . . . . . . . . . . . . . . 51
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Executive directors of Dransfield Paper . . . . . . . . . . . . . 52
Horace YAO Yee Cheong . . . . . . . . . . . . . . . . . . 52
Warren MA Kwok Hung . . . . . . . . . . . . . . . . . . . 52
Jeremy LU Yuen Tong . . . . . . . . . . . . . . . . . . . 53
Senior executives of Dransfield Paper . . . . . . . . . . . . . . 53
James MADISON . . . . . . . . . . . . . . . . . . . . . . 53
Peter KEATINGE . . . . . . . . . . . . . . . . . . . . . . 53
CHOW Yeung Chee . . . . . . . . . . . . . . . . . . . . . 53
Manuel ALVAREZ . . . . . . . . . . . . . . . . . . . . . . 53
Terry BURTON . . . . . . . . . . . . . . . . . . . . . . . 53
Eddy WU . . . . . . . . . . . . . . . . . . . . . . . . 53
Joe PANKRATZ . . . . . . . . . . . . . . . . . . . . . . . 53
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
T. E. King . . . . . . . . . . . . . . . . . . . . . . . . 53
Remuneration of Directors and Officers . . . . . . . . . . . . . . 54
The Company . . . . . . . . . . . . . . . . . . . . . . . 54
Dransfield Paper . . . . . . . . . . . . . . . . . . . . . 54
Stock Options . . . . . . . . . . . . . . . . . . . . . . 54
The Plan . . . . . . . . . . . . . . . . . . . . 54
Other Options . . . . . . . . . . . . . . . . . . 55
Certain Relationships and Related Transactions . . . . . . . . . . 55
Company's Transactions with Promoters . . . . . . . . . . 55
Dransfield Paper's Transactions with Management . . . . . 55
Interests of Named Experts and Counsel . . . . . . . . . . . . . . . . . . 56
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Financial Statements Index . . . . . . . . . . . . . . . . . . . . . . . . 57
Appendix A - Agreement of Merger . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B - The People's Republic of China . . . . . . . . . . . . . . . . B-1
</TABLE>
viii
<PAGE> 11
SUMMARY INFORMATION
The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. All financial statements set forth herein for the Company and
Dransfield Paper Holdings Ltd. have been prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP").
The transaction - A Spinoff and a proposed Merger.
The Spinoff - A pro rata distribution by SuperCorp
Inc. ("SuperCorp") to its
approximately 2,500 shareholders of
461,572 shares of Common Stock of
Dransfield China Paper Company ("the
Company"), which SuperCorp purchased
for $0.001 a share.
The Spinoff Shares - The 461,572 shares of Common Stock
of the Company held by SuperCorp.
Terms of the Spinoff - 1 Spinoff Share for each 14 shares
of Common Stock of SuperCorp held of
record on _________________, 1996.
Other securities of the Company - 38,428 shares of Common Stock and
500,000 Callable Common Stock
Purchase Warrants ("the U.S.
Callable Warrants"), each warrant
exercisable at $5.50 and callable by
the Company at $8.00, all held by
"insiders" of the Company and of
SuperCorp.
The proposed Merger - Subject to shareholder approval of
both companies, the Company will
merge with Dransfield Paper Holdings
Limited ("Dransfield Paper"),
another British Virgin Islands
international business company.
The survivor of the Merger - The Company.
Business of the Company - None. A development-stage, shell
corporation, organized to merge with
Dransfield Paper.
Business of Dransfield Paper - Buying, selling and distributing, to
consumers, hygienic paper, including
Proctor & Gamble's "Tempo" brand
1
<PAGE> 12
paper handkerchiefs, in Hong Kong and
China, which business is proposed to
be expanded to include the
manufacture in China of such paper.
Terms of the Merger - Dransfield Paper's sole shareholder,
Dransfield Holdings Limited
("Dransfield Holdings"), a Cayman
corporation, would exchange its
existing shareholdings in Dransfield
Paper for the following securities
of the Company: (1) 9,300,000
shares of Common Stock, (2)
2,300,000 shares of Series A
Convertible Preferred Stock, which
are convertible into 2,300,000
shares of Common Stock, and (3)
446,004 Callable Common Stock
Purchase Warrants exercisable at
$5.50 and callable by the Company at
$8.00 (the "Merger Callable
Warrants").
Management of the Company
after the Merger - Dransfield Paper's management.
Insiders to the transaction - The following persons may be deemed
to be "insiders" to the transaction:
J. Douglas Bowey, T.E. King, John E.
Adams, Thomas J. Kenan, Albert L.
Welsh, George W. Cole, Robert G.
Rader and Gary E. Bryant. Each of
them will receive directly, or may
be attributed indirectly through
receipt by family members or family
controlled entities, securities of
the Company in addition to their
receipt of shares of Common Stock
through the pro rata distribution of
the Spinoff Shares. See
"Transactions with Insiders."
Securities to be outstanding
after the Merger - See table below:
2
<PAGE> 13
<TABLE>
<CAPTION>
Other Dransfield
Type of SuperCorp Paper
Company's Security Insiders Shareholders Shareholders Total
- ------------------ -------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Common Stock 225,930(1) 274,070(2) 9,300,000(3) 9,800,000
Percent 2.3% 2.8% 94.9% 100%
Series A Convertible
Preferred Stock
(converts to
Common Stock,
share for
share) 0 0 2,300,000(3) 2,300,000
Percent 0 0 100% 100%
Callable Warrants,
exercisable
at $5.50 500,000(4) 0 446,004(5) 946,004
Percent 52.9% 0 47.1% 100%
Common Stock (after
conversion of
Preferred Stock
and exercise
of all Callable
Warrants) 725,930 274,070 12,046,004 13,046,004
Percent 5.6% 2.1% 92.3% 100%
</TABLE>
- -----------------------
(1) 187,502 of these shares are Spinoff Shares, registered with the
Securities and Exchange Commission ("the Commission"). 38,428 of these
shares are restricted securities, are held 26,786 by J. Douglas Bowey, a
finder, and 11,642 by T.E. King, president and sole director of the
Company and president and a director of SuperCorp, and are proposed to be
registered with the Commission for resale soon after the Merger should
become effective.
(2) Registered with the Commission and unrestricted for transfer in the stock
market.
(3) Unregistered shares, but the issuance of which, for the Merger, is not
subject to the registration provisions of the Securities Act. Some of
these shares may be registered later for resale by Dransfield Holdings or
could later enter the U.S. stock market through the limited amount
"dribble rule" provision of the Commission's Rule 144 which is applicable
to affiliates of issuers.
(4) Unregistered, as are the 500,000 shares of Common Stock underlying the
U.S. Callable Warrants. Proposed to be registered for resale soon after
the Merger should become effective.
(5) Unregistered, but the issuance of which, for the Merger, is not subject
to the registration provisions of the Securities Act. Proposed to be
registered for resale soon after the Merger should become effective.
3
<PAGE> 14
Plan of Distribution - Certificates representing the 500,000
shares of Common Stock and 500,000 U.S.
Callable Warrants to be distributed to the
SuperCorp shareholders and insiders will
be delivered to Liberty Bank and Trust
Company of Oklahoma City to be held in
escrow, pursuant to SEC Regulation
230.419, until the Merger should be
approved by Dransfield Holdings. Should
it be so approved, Liberty Bank will then
transmit such certificates to their
owners; provided, however, that SuperCorp
shareholders entitled to receive fewer
than 10 shares of Common Stock will be
notified by SuperCorp that they can elect
to receive their certificates or have
their shares aggregated with other
small-denomination shareholders and sold
in a broker's transaction into the open
market, after which they will receive the
net cash proceeds of the sale.
Tax consequences of the Spinoff - Taxable both to SuperCorp and to the
SuperCorp shareholders receiving the
461,572 Spinoff Shares. Based upon the
opinion of counsel, SuperCorp believes the
value of the Spinoff Shares for federal
income tax purposes is negligible - $0.001
a share. See "Income Tax Consequences."
Tax consequences of the Merger - Not taxable under the laws of the British
Virgin Islands, the U.S., or Hong Kong.
See "Income Tax Consequences.
Address of SuperCorp - 49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Telephone: 310-541-4415
Address of the Company - Same as SuperCorp
Address of Dransfield Paper - 36-42 Pok Man Street
First and Second Floors
Mongkok, Kowloon, Hong Kong
Telephone: 011-852-2787-0838
(by direct dial from the U.S.)
4
<PAGE> 15
RISK FACTORS.
Ownership of the Common Stock of the Company is speculative and involves
a high degree of risk, whether the Merger with Dransfield Paper be effected or
not. See "Risk Factors" below.
RISK FACTORS
Any person acquiring securities of the Company, either through a
purchase in the open market or through exercise of the U.S. Warrants, is making
an investment decision that involves a high degree of risk and should carefully
consider the following factors:
1. No Assurance of a Public Market. There is presently no public
market for the Spinoff Shares and there is no assurance that a public market
for such securities will develop after the occurrence of the Merger described
in this Prospectus or, if one develops, that it will be sustained. Until the
Merger should be approved by Dransfield Paper - and no assurance can be or is
given that such approval will be given, certificates representing the Spinoff
Shares will be placed in escrow with Liberty Bank and Trust Company of Oklahoma
City, N.A. ("the Escrow Agent"). See "Plan of Distribution." No market for
the securities can or will develop as long as the escrow continues. Should the
Merger be approved and effected, the Escrow Agent will distribute the
certificates to their owners, but this will not in itself create an active
market in the Company's Common Stock. The Company anticipates that its Common
Stock will be listed on the Nasdaq Stock Market, but no assurance can be given
that this will occur or, if it occurs, that such listing can be maintained.
Further, should the Company's Common Stock trade on the Nasdaq Small Cap Market
at less than $5 a share - and no assurance can be given that this will not be
the case, many broker-dealer firms will not allow their registered
representatives to recommend the stock to their customers because of certain
administrative severities placed by the Securities and Exchange Commission on
so-called "penny stocks," which disallowance would tend to further inhibit the
creation of market interest in the stock and act as a depressant on its price
in the stock market.
2. No Assurance of Success of Planned Business Expansion. Should
the proposed Merger occur, the post-Merger Company will be engaged in an effort
to effectuate an ambitious plan to expand its operations to those of a
vertically integrated paper manufacturer and distributor of paper products.
See "Information About Dransfield Paper." There is, and can be, no assurance
that this business expansion will be realized. While a considerable part of
the capital expenditures required for this business expansion have been
obtained or made available by Dransfield Paper's corporate parent, additional
funds, not yet obtained, are required, and there is and can be no assurance
that these additional funds will be obtained. Further, the success of this
planned business expansion can be affected by many other factors which are not
in the Company's control, such as political and economic decisions made by the
Chinese government and economic developments affecting the paper
5
<PAGE> 16
manufacturing industry throughout the world. The planned expansion is complex
in conception, its parts are interdependent, delays in one area can create
delays in other areas, and the post-Merger Company has no prior experience in
paper manufacturing as a company, even though it has acquired experienced
personnel to effectuate this expansion. Further, execution of the entire plan
over the next several years requires that the Company obtain the manufacture,
by other companies in the PRC, of certain equipment now being imported by the
Company from the United States and Europe. While the Company believes such
equipment manufacture in the PRC can be achieved, no assurance can be given
that it will be. A failure to achieve such equipment manufacture in the PRC
should be expected to materially and adversely affect the cost of the planned
business expansion, by reason of recent actions of the Chinese government in
significantly raising import duties on some of the equipment to be needed in
the future. A projection is made herein of the timing of the planned business
expansion, but no assurance is or can be given that the timing can be met;
indeed, it has been and will be subject to periodic revisions caused by
unanticipated delays. See "Information About Dransfield paper."
3. Reliance on Key Personnel. Should the Merger occur, the
post-Merger Company will be reliant on the continued services of several key
personnel, and the loss of any of them could have a materially adverse effect
on the future operations of the Company. These persons are Horace Yao, deputy
chairman and chief executive officer of the Company; Warren Ma, treasurer and
secretary; Jeremy Lu, assistant to Mr. Yao; James Madison, general manager for
deinked pulp and tissue; Peter Keatinge, manager for maintenance and
engineering; Yeung Chee Chow, plant manager of Guangzhou Dransfield Paper Ltd.;
Manuel Alvarez, general manager for paper converting operations; and Terry
Burton, general manager of the Fine Paper Division. For example, an illness to
Mr. Alvarez in early 1996 caused a delay of two months in commencing operations
at the Company's paper converter facility at Paper Mill No. 1 in Conghua in the
PRC. Two experienced persons had to be recruited to fill Mr. Alvarez's
position during his absence. The Company is continually identifying and
sourcing experienced paper industry personnel, particularly in the United
Kingdom and the United States, but there can be no assurance, particularly
because of its efforts at expansion, that the loss of key personnel will not
materially and adversely affect its operations and, particularly, its
expansion. See "Management Information - Directors, Executive Officers and
Significant Employees."
4. Volatility of Price of Pulp. The profitability of the Company's
paper making operations, should the Merger described herein be effected, can be
severely affected by the price of pulp used in the manufacture of paper. In
the recent past, the price of pulp has been most unstable and subject to
significant increases and decreases within a single year's period. Even though
conservative inventory practices may be followed, some raw materials must be
purchased in advance to assure a continued supply. Until such time as a
planned, vertically-integrated paper business is achieved, which integration
can tend to
6
<PAGE> 17
offset increased costs of raw materials by higher prices obtainable for
finished goods, the Company's profitability can be affected quarter to quarter
by the volatility of pulp prices.
5. Tax Consequences. In the opinion of tax counsel to the Company
(see "Income Tax Consequences"), the proposed Merger will be a tax-free
reorganization and the distribution of the 461,572 Spinoff Shares to the
SuperCorp shareholders will occasion negligible income taxes to the SuperCorp
shareholders and none to the Company. These anticipated favorable tax
consequences are not supported by an advance ruling by the Treasury Department
or the tax authorities of the Territory of the British Virgin Islands but are
based upon opinions of tax counsel to the Company and to SuperCorp. Should the
actual tax consequences be different than as represented herein, SuperCorp's
shareholders, to whom would be distributed 461,572 Spinoff Shares, could
recognize taxable dividend income equal to the fair market value of the Spinoff
Shares, which could range from as low as $0.34 a Spinoff Share (the June 30,
1996 book value) to a higher price possibly set by initial trading activity in
the stock market.
6. Political Considerations. The Company's business may be
adversely affected by political, economic and social uncertainties in China. A
change in policies by the Chinese government could adversely affect the
Company's interests by, among other things, changes in laws, regulations, or
the interpretation thereof, confiscatory taxation, restrictions on currency
conversion, imports and sources of suppliers, or the expropriation of private
enterprises. Although the Chinese government has been pursuing economic reform
policies for the past 17 years, no assurance can be given that the Chinese
government will continue to pursue such policies or that such policies may not
be significantly altered, especially in the event of a change in leadership,
social or political disruption or unforeseen circumstances affecting China's
political, economic and social life. See "Risk Factors - Legal System" and see
generally "Appendix B: The People's Republic of China."
7. Economic Considerations. The economy of China differs
significantly from the United States economy in such respects as structure,
level of development, gross national product, growth rate, capital
reinvestment, resource allocation and self-sufficiency, rate of inflation and
balance of payments position, among others. Since the early 1950s, the economy
of China has been a planned economy subject to five-year and annual plans
adopted by central authorities which set forth production goals. Only recently
has the Chinese government encouraged substantial private economic activity.
The Chinese economy has experienced significant growth in the past five years,
but such growth has been uneven among various sectors of the economy and there
can be no guarantee that the government's pursuit of economic reforms will be
consistent or effective. Action by the central government of China could have
a significant adverse effect on economic conditions in China. Further, much of
the economic activity is export driven and, therefore, affected by developments
in the economies of China's
7
<PAGE> 18
principal trading partners. See generally "Appendix B: The People's Republic
of China".
8. Legal System. In December 1982, the National People's Congress
of China amended the Constitution of China to authorize foreign investment and
to guarantee the "lawful rights and interests" of foreign investors in China.
Despite the subsequent activity and progress in developing the legal system,
China does not have a comprehensive system of laws. Enforcement of existing
laws may be uncertain and sporadic, and implementation and interpretation
thereof inconsistent. The Chinese judiciary is relatively inexperienced in
enforcing the laws that exist, leading to a higher than usual degree of
uncertainty as to the outcome of any litigation. Even where adequate law
exists in China, it may be impossible to obtain swift and equitable enforcement
of such law, or to obtain enforcement of a judgment by a court of another
jurisdiction. See "Enforceability of Civil Liabilities".
While Chinese law expressly protects the status and rights of
Sino-foreign joint venture enterprises, including their right to use land
during the term of their respective joint venture contracts, the state reserves
the right, in extreme and exceptional circumstances, to terminate the joint
venture and provide compensation therefor. In such an event, a joint venture's
right to use land would terminate and all plant and facilities would revert to
the state in exchange for just compensation.
9. Government Control of Currency Conversion and Exchange Rate
Risks. The Company receives its revenues in the PRC in Renminbi, which is not
freely convertible into foreign exchange. However, the Company requires
foreign currency to fund a portion of its operations. For example, the Company
requires, and expects to require in the future, U.S. dollars to purchase
equipment for expansion projects. In addition, revenues will need to be
converted into United States dollars, Hong Kong dollars and other currencies in
the amounts needed for the Company to discharge obligations denominated in
foreign currency.
The PRC Government imposes control over its foreign currency
reserves in part through direct regulation of the conversion of Renminbi into
foreign exchange and through restrictions on foreign imports.
In general, domestic enterprises operating in the PRC must price
and sell their goods and services in the PRC in Renminbi and are also required,
with certain exceptions, to sell all their foreign exchange revenues to
designated foreign exchange banks in the PRC. In addition, domestic
enterprises must provide satisfactory evidence of their need for foreign
currency before converting Renminbi to foreign currency through designated
foreign exchange banks. However, according to regulations which took effect on
July 1, 1996, foreign investment enterprises may be able to access foreign
exchange from both designated foreign exchange banks and swap centers, provided
that such foreign exchange will be used for current account transactions.
8
<PAGE> 19
Prior to January 1, 1994, there was significant volatility in
the exchange rate of Renminbi to U.S. dollars. Although the Renminbi to U.S.
dollar exchange rate has been relatively stable since January 1, 1994 and the
PRC Government has stated its intention to intervene in the future to support
the value of the Renminbi, there can be no assurance that exchange will not
again become volatile or that the Renminbi will not devalue significantly
against the U.S. dollar. See "Exchange Rate Information." Exchange rate
fluctuations may adversely affect the Company's financial performance and
ability to meet its obligations because of its current and future foreign
currency denominated liabilities and may materially adversely affect the value,
translated into U.S. dollars, of the Company's net fixed assets, earnings and
any declared dividends.
The current restrictions and uncertainties relating to the
currency conversion system in the PRC give rise to risks affecting the ability
of the Company to obtain adequate foreign exchange at acceptable rates to meet
its foreign exchange needs.
10. Environmental Liability Exposure. The Company is subject to PRC
national and local environmental protection regulations which currently impose
fees for the discharge os waste substances, require the payment of fines for
pollution, and provide for the closure by the PRC Government of any facility
that fails to comply with orders requiring it to cease or improve upon certain
activities causing environmental damage. Due to the nature of the Company's
business, the Company produces significant amounts of waste water and solid
waste materials during the course of its production. The Company has
established environmental protection systems to treat such waste materials and
to safeguard against accidents. The Company believes its environmental
protection facilities and systems are adequate for it to comply with the
existing national, provincial, and local environmental protection regulations.
However, there can be no assurance that the PRC national, provincial, or local
authorities will not impose additional or more stringent regulations which
would require additional expenditure on environmental matters or changes in the
Company's processes or systems. See "Information About Dransfield Paper -
Properties - Environmental Controls."
11. Dividends Not Likely. Should the Merger be effected, for the
foreseeable future it is anticipated that any earnings which may be generated
from operations of the emergent company will be used to finance the growth of
such company, and cash dividends will not be paid to holders of the Common
Stock.
USE OF PROCEEDS
No funds will be raised for the Company through the Spinoff and Merger
transactions described herein. However, 500,000 U.S. Callable Warrants and
(should the Merger be effected) 446,000 Merger Callable Warrants, each
exercisable at $5.50, are being distributed, expire 18 months after the
effective date of the Merger, and are callable by the
9
<PAGE> 20
Company on 30 days notice at such time as the Company's Common Stock should
have traded at or above a $8 closing price for 10 consecutive trading days.
Should all the Callable Warrants be exercised, the Company would receive
$5,203,022 from the sale of the 946,004 shares of Common Stock underlying the
Callable Warrants, which funds would be used as part of the capital
requirements for Dransfield Paper's planned Paper Mill Nos. 3 and 4. See
"Information About Dransfield Paper - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
EXCHANGE RATE INFORMATION
Should the Merger described herein be approved and effected, the
business of the Company will be conducted in and from Hong Kong and the
People's Republic of China ("the PRC") in Hong Kong dollars and the PRC
Renminbi. Periodic reports will be made to U.S. shareholders (see "Additional
Information - Reports to Shareholders") and will be expressed in U.S. dollars
using the then-current exchange rates.
The PRC Government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign trade. The conversion of the
Renminbi into U.S. dollars must be based on the PBOC Rate. The PBOC Rate is
set based on the previous day's PRC interbank foreign exchange market rate and
with reference to current exchange rates on the world financial markets. In
line with the unification of the two exchange rates, the Renminbi was revalued
at HK$1.00=RMB1.12 and US$1.00=RMB8.70 on January 3, 1994. Since revaluation,
the exchange rate has fluctuated between a range of US$1.00 = RMB8.30 and
US$1.00 = RMB8.70.
The following table sets forth certain information concerning exchange
rates between Renminbi and U.S. dollars for the periods indicated:
<TABLE>
<CAPTION>
NOON BUYING RATE(1)
-------------------------------------------------
PERIOD PERIOD END AVERAGE(2) HIGH LOW
- ------ ---------- ------- ---- ---
(EXPRESSED IN RMB PER US$)
<S> <C> <C> <C> <C>
1989 4.7339 3.8149 4.7339 3.7314
1990 5.2352 4.8175 5.2352 4.7334
1991 5.4478 5.3431 5.4478 5.2352
1992 5.7662 5.5309 5.9007 5.4124
1993 5.8145 5.7769 5.8245 5.7076
1994 8.6044 8.6402 8.7128 8.5999
1995 8.3374 8.3692 8.3993 8.3543
</TABLE>
- ---------------------------
Source: The Noon Buying Rate in New York for cable transfers
payable in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York.
10
<PAGE> 21
Notes:
(1) The Noon Buying Rate did not differ significantly from
the Official Rate prior to January 1, 1994, the date on
which the Official Rate was abolished. Prior to the
adoption of the PBOC Rate, there was a significant degree
of variation between the Official Rate and the rates
obtainable at Swap Centers, such as the Shanghai Swap
Center. After January 1, 1994 and the unification of the
foreign currency exchange system there have not been
significant differences between the Noon Buying Rate, the
PBOC Rate and the Shanghai Swap Center Rate. As of May
6, 1996, the Noon Buying Rate was US$1.00 = RMB8.35, the
PBOC Rate was US$1.00 = RMB8.33 and the Shanghai Swap
Center Rate was US$1.00 = RMB8.33.
(2) Determined by averaging the rates on the last business
day of each month.
The Hong Kong dollar is freely convertible into the U.S. dollar. Since
October 17, 1983, the Hong Kong dollar has been linked to the U.S. dollar at
the rate of HK$7.80 to US$1.00. The central element in the arrangements which
give effect to the link is an agreement between the Hong Kong government and
the three Hong Kong banknote issuing banks, the Hongkong and Shanghai Banking
Corporation Limited, Standard Chartered Bank and the Bank of China, whereby
certificates of indebtedness, which are issued by the Hong Kong Government
Exchange Fund to the banknote issuing bank to be held as cover for their
banknote issues, are issued and redeemed only against payment in U.S. dollars,
at the fixed exchange rate of US$1.00 = HK7.80. When the banknotes are
withdrawn from circulation, the banknote issuing banks surrender the
certificates of indebtedness to the Hong Kong Government Exchange Fund and are
paid the equivalent of U.S. dollars at the fixed rate. Exchange rates between
the Hong Kong dollar and other currencies are influenced by the linked rate
between the U.S. dollar and the Hong Kong dollar.
The market exchange rate of the Hong Kong dollar against the U.S.
dollar continues to be determined by the forces of supply and demand in the
foreign exchange market. However, against the background of the fixed rate
system which applies to the issue of Hong Kong currency in the form of
banknotes, as described above, the market exchange rate has not deviated
significantly from the level of HK$7.80 to US$1.00. See "Information About
Dransfield Paper - Selected Financial Data." The Hong Kong government has
stated its intention to maintain the link at that rate. The Hong Kong
government has stated that is has no intention of imposing exchange controls in
Hong Kong and that the Hong Kong dollar will remain freely convertible into
other currencies (including the U.S. dollar). The PRC and the United Kingdom
agreed in 1984 pursuant to the Joint Declaration of the Government of the
United Kingdom of Great Britain and Northern Ireland and the Government of the
People's Republic of China on the Question of Hong Kong ("the Joint
Declaration") that, after Hong Kong becomes a special administrative region of
the PRC on July 1, 1997 (an "SAR"), the Hong Kong dollar will continue to
circulate and remain freely convertible. However, no assurance can be given
that the Hong Kong government, or the successor SAR government, will maintain
the link at HK$7.80 to US$1.00, if at all.
11
<PAGE> 22
SUPERCORP - THE DISTRIBUTING SHAREHOLDER
SuperCorp Inc. ("SuperCorp") was organized under the laws of the State
of Oklahoma on October 21, 1988. SuperCorp has approximately 2,500
shareholders in 48 states which it acquired in early 1989 when it purchased all
the assets of Naturizer, Inc., through a chapter 11 plan of reorganization, in
exchange for shares of common stock of SuperCorp, which shares were distributed
to the creditors and shareholders of Naturizer, Inc. One of the purposes for
which SuperCorp was organized is to engage in "spinoff" activities such as are
described herein, such spinoffs to involve the distribution, by way of stock
dividends or otherwise, of registered shares of stock of other companies.
SuperCorp has assets consisting of approximately $65,000 in cash. Each
of its three directors, T.E. King, Thomas J. Kenan, and Albert L. Welsh, either
directly or by attribution through ownership by family members, owns 375,000
shares of common stock of SuperCorp, which amount is less than 6 percent of the
number of outstanding shares. See "Management Information - Security Ownership
of Certain Beneficial Owners and Management."
SuperCorp is not subject to the reporting requirements imposed by
Section 15(d) of the Securities Act of 1933 or Section 13 of the Securities
Exchange Act of 1934. Its common stock does not trade in the stock market, and
it has never sought a market maker for its stock.
SuperCorp organized the Company in June 1996 as a vehicle specifically
for the proposed Merger. The Company has no business history, $500 in assets,
no liabilities, and three shareholders - SuperCorp; T.K. King, the sole officer
and director of the Company and president and a director of SuperCorp; and J.
Douglas Bowey, a "finder" with respect to the transaction with Dransfield
Paper. See "Information About the Company." Should the proposed Merger not be
effected, see "Plan of Distribution - The Escrow Arrangement - Consequences
Should the Merger Not Occur" below for an explanation of what disposition would
be made of the Company.
SUPERCORP MAY BE DEEMED TO BE AN UNDERWRITER.
The 461,572 Spinoff Shares described herein are owned by SuperCorp and
are to be redistributed by SuperCorp, who might be deemed to be an underwriter
by reason of its intent to distribute such Shares.
After the distribution by SuperCorp of the Spinoff Shares to its
shareholders, SuperCorp will no longer own any shares of capital stock of the
Company, except to the extent that 2,250 Spinoff Shares, reserved for rounding
up purposes, would not be allocated in the rounding up process (see "Terms of
the Merger").
A consequence to SuperCorp, should it be deemed to be an underwriter of
the Shares to be distributed to its shareholders, is that any person who
purchases the registered Shares within 3 years after the
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<PAGE> 23
distribution could assert a claim against SuperCorp under Section 11 of the
Securities Act of 1933. The purchase could be in the open market as long as
the shares purchased can be traced to the registered Shares SuperCorp
distributes to its shareholders. Such a claim, to be successful, must be based
upon a showing that statements in the registration statement were false or
misleading with respect to a material fact or that the registration statement
omitted material information required to be included therein.
Open market purchasers may have to prove reliance upon the alleged
misstatement or omission, but reliance may not necessarily require a showing
that the purchaser actually read the registration statement but, instead, that
the misstatements or omissions in the registration statement were a substantial
factor in the purchase of the shares.
SUPERCORP'S EXPOSURE AS A CONTROL PERSON.
SuperCorp organized the Company and, since its organization and until
the proposed Merger should become effective, has been and will be a "control
person" of the Company, as that term is defined in Section 15 of the Securities
Act of 1933 ("the Act").
Section 15 of the Act imposes joint and several liability on persons
who control other persons substantively liable under other sections of the Act
- - Section 11, for misrepresentations in a registration statement, Section 12(1)
- - the unlawful sale of unregistered securities, and Section 12(2) -
misrepresentations in the sale of securities. A controlling person can avoid
liability by proving "he had no knowledge of or reasonable grounds to believe
in the existence of the facts by reason of which the liability of the
controlled person is alleged to exist."
TERMS OF THE TRANSACTION
The Company, SuperCorp, and Dransfield Paper, pursuant to approval by
their respective boards of directors, have entered into an agreement of merger
between the Company and Dransfield Paper, a copy of which is included herein
(see "Appendix A - Agreement of Merger"). In order for the merger contemplated
by the Agreement of Merger to become effective, it is necessary that each of
the following occur:
(i) a registration statement covering 461,572 Spinoff Shares
(for distribution pro rata to SuperCorp's securities holders) must be
filed with the Securities and Exchange Commission and with appropriate
state securities regulatory agencies and must become effective;
(ii) the shareholders of each of the Company and of Dransfield
Paper must, by a requisite vote of the shares outstanding, approve the
merger contemplated by the Agreement of Merger; and
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<PAGE> 24
(iii) certain documents evidencing the approved merger must be
prepared and filed with the appropriate state authority in the
Territory of the British Virgin Islands.
The terms of the proposed merger ("the Merger") are as follows:
1. Dransfield Paper shall merge into the Company.
2. Upon the effectiveness of the Merger, the outstanding 80 shares
of common stock of Dransfield Paper shall be exchanged for 9,300,000 shares of
Common Stock of the Company ("the Merger Shares") and 446,004 Callable Common
Stock Purchase Warrants ("the Callable Merger Warrants"), and the 2,300,000
outstanding shares of Series A Convertible Preferred Stock of Dransfield Paper
shall be exchanged for 2,300,000 shares of Series A Convertible Preferred Stock
of the Company of equivalent tenor. See "Description of Securities."
3. The business of Dransfield Paper shall be conducted, after the
Merger, by the Company, into which Dransfield Paper shall have merged, but
Dransfield Paper's management and directors shall become the management and
directors of the Company. See "Management Information."
4. Prior to the Merger, SuperCorp shall have distributed to its
shareholders ("the Spinoff"), on a basis proportionate to their shareholdings
in SuperCorp, 461,572 Shares ("the Spinoff Shares") of Common Stock of the
Company now held by SuperCorp. Each SuperCorp shareholder shall receive one
share of the Company for each 14 shares of SuperCorp held of record on
____________________, 1996.
5. At the time of the Spinoff and prior to the Merger, the Company
shall exchange 38,428 shares of its Common Stock, at $0.001 a share ("the
Escrow Shares") for 38,428 outstanding shares of its Series B Preferred Stock
held by two persons, T.E. King, president and director of the Company and
president and a director of SuperCorp; and G. Douglas Bowey, a finder. See
"Transactions with Insiders" and "Management Information - Security Ownership
of Certain Beneficial Owners and Management."
6. At the time of the Spinoff and prior to the Merger, the Company
shall exchange 500,000 Callable Common Stock Purchase Warrants ("the U.S.
Callable Warrants") for 100,000 presently outstanding stock options of the
Company held by 8 persons. See "Transactions with Insiders."
7. The historical financial statements of the post-Merger Company
shall be those of Dransfield Paper. See "Financial Statements - Dransfield
Paper."
8. Should the Merger not be approved by the sole shareholder of
Dransfield Paper, none of Dransfield Paper, the Company, or SuperCorp shall be
liable to any of the others, but it shall be the sole
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<PAGE> 25
obligation of Dransfield Paper to pay all three parties' expenses relating to
the registration of the Shares described herein.
REASONS FOR THE MERGER AND SPINOFF.
The managements of the Company and of Dransfield Paper believe that
Dransfield Paper's shareholders will benefit from receiving shares that have
been registered under the Securities Act in exchange for their shares of
capital stock of Dransfield Paper. They believe that the distribution of shares
to the stockholders of SuperCorp in the Spinoff will provide the basis for the
creation of a public market for the Common Stock of the post-Merger Company and
that the existence of such a public market will facilitate the raising of
expansion funds in the U.S. and elsewhere for the post-Merger Company. No
assurance can be given, however, that a market will develop for the Common
Stock or, if it develops, that it will be sustained. See "Risk Factors - No
Assurance of a Public Market."
ACCOUNTING TREATMENT OF PROPOSED MERGER.
Because the Company is only a corporate shell and not an operating
entity, the proposed Merger will be accounted for as if Dransfield Paper
recapitalized.
DEGREE OF MANAGEMENT CONTROL OF VOTE ON MERGER.
The Merger must be approved by a vote of a majority of the outstanding
shares of Common Stock of each of the Company and Dransfield Paper. With
respect to such companies, the percentage of outstanding shares entitled to
vote and held by officers, directors and their affiliates are as follows: the
Company - 95%; and Dransfield Paper - 100%.
DISSENTERS' RIGHTS OF APPRAISAL.
No dissenters' rights of appraisal come into effect with respect to the
proposed Merger. While the British Virgin Islands International Business
Companies Ordinance does provide dissenters' rights of appraisal in the case of
mergers, (1) all the issued and outstanding shares of capital stock of the
Company will be voted by the SuperCorp directors and the finder, and a
unanimous vote approving the Merger is assured, and (2) all the issued and
outstanding shares of capital stock of Dransfield Paper are held by one
shareholder, which shareholder will either vote to approve or disapprove the
Merger, and no dissenters' rights of appraisal would be created by either vote
because a vote to disapprove would defeat the Merger.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS.
No federal or state regulatory requirements, other than securities laws
and regulations, must be complied with or federal or state approval obtained in
connection with the Spinoff and Merger, other than the
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<PAGE> 26
filing of articles of merger with the Registrar of Companies of the Territory
of the British Virgin Islands after a favorable vote might be obtained on the
proposed merger. Dransfield Holdings, the sole shareholder of Dransfield
Paper, has communicated the details of the proposed Merger to officials of The
Hong Kong Stock Exchange, which officials have determined that the shareholders
of Dransfield Holdings need not be given the opportunity to vote on the
proposed Merger after approval of the Merger, should such approval occur, by
the directors of Dransfield Holdings. More than 60 percent of the voting
capital stock of Dransfield Holdings is held by or attributed to directors and
the families of directors of Dransfield Holdings.
AGREEMENT AND PLAN OF MERGER.
The complete Agreement of Merger among the Company, Dransfield Paper,
and SuperCorp is included in this Prospectus. See "Appendix A - Agreement of
Merger."
TRANSACTIONS WITH INSIDERS
The 461,572 Spinoff Shares will be distributed pro rata to all
SuperCorp shareholders of record on _____________________, 1996. An additional
38,423 shares of Common Stock and 500,000 U.S. Callable Warrants (exercisable
at $5.50 a warrant and callable by the Company at $8.00) will be received by
eight persons, either directly or by attribution through receipt by their
family members or family controlled entities.
Seven of these eight persons, either directly or by attribution, are
shareholders of SuperCorp, six of whom will each receive in the pro rata
Spinoff distribution, either directly or by attribution, 26,786 shares of the
Spinoff Shares and one of whom, Robert G. Rader, will receive, through
attribution, 17,858 shares of the Spinoff Shares. The eighth person is a
finder, is not a shareholder of SuperCorp and will receive none of the Spinoff
Shares. All eight of these persons, by reason of their receipt of securities
in addition to the pro rata receipt of Spinoff Shares by all but the finder,
may be deemed to be "promoters" or "insiders" of the Company who will receive
benefits from the transaction not received by SuperCorp shareholders who are
not insiders.
The identities of the insiders, their positions with the Company and
with SuperCorp, and the securities each will receive, in addition to the pro
rata receipt of Spinoff Shares by all but the finder, are as follows:
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<PAGE> 27
<TABLE>
<CAPTION>
Position with Shares of Number
Company or Common of
Insider SuperCorp Stock Warrants(1)
- ------- --------- ----- --------
<S> <C> <C> <C>
J. Douglas Bowey Finder 26,786(2) 30,000
T.E. King Company president and 11,642(2) 250,000
sole director; Super-
Corp president and
director
Thomas J. Kenan Company counsel; 0 20,000(3)
SuperCorp counsel;
SuperCorp officer
and director
Albert L. Welsh SuperCorp officer 0 40,000
and director
George W. Cole None 0 40,000(4)
John E. Adams None 0 40,000(5)
Robert G. Rader None 0 40,000(6)
Gary E. Bryant None 0 40,000
</TABLE>
- --------------------
(1) Each U.S. Callable Warrant entitles the holder to purchase 1 share of
the Company's Common Stock for $5.50 and expires 18 months from the
effective date of a Merger with Dransfield Paper. The Warrants are
callable by the Company on 30 days notice at such time as the Company's
Common Stock has traded at $8 a share for 10 consecutive days. The
500,000 U.S. Callable Warrants, at the time of the Spinoff, will be
exchanged for 100,000 options that were issued to the 8 insiders listed
above as partial payment for the services described immediately below.
The options entitle the option holders to purchase 100,000 shares of
Common Stock of the Company at $0.50 a share and expire if not
exercised on December 31, 1997.
(2) These shares of Common Stock, at the time of the Spinoff, will be
received by the holders in exchange for an equal number of shares of
Series B Preferred Stock of the Company that were issued to the two
insiders listed above as partial payment for the services described
immediately below. The Series B Preferred Stock has the same rights as
the Company's Common Stock and, in addition, is entitled to receive in
liquidation $1 a share before liquidating distributions are made to the
Common Stock holders.
(3) These warrants will be held by the Marilyn C. Kenan Trust, of which
trust Mr. Kenan's spouse, Marilyn C. Kenan, is the trustee and sole
beneficiary.
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<PAGE> 28
(4) These warrants will be held by Marjorie J. Cole, Mr. Cole's spouse.
(5) These warrants will be held by Meridyne Corporation, of which Mr. Adams
is an officer and director.
(6) These warrants will be held by Judith Rader, Mr. Rader's spouse.
SERVICES RENDERED BY INSIDERS.
Mr. Bowey's finder services consisted of introducing Mr. King to
SuperCorp in 1995, and the Company securities he will receive represent
compensation to him for these services.
Mr. King developed personal contacts with officers of Dransfield Paper
in 1995 and, together with Messrs. Kenan and Welsh during a due diligence trip
to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper. Subsequent to the November 1995 due
diligence trip and throughout 1996, Mr. King has done additional due diligence
services, financial and economic analyses, economic projections with respect to
the business of Dransfield Paper and near-daily liaison with officers of
Dransfield Paper. Mr. King is the sole officer and director of the Company
prior to the Merger, should the Merger be approved, and is and will be the
Company's agent for service of process after the Merger. For these services,
Mr. King has received $45,000 from Dransfield Paper and will receive the
securities listed above.
Mr. Kenan, together with Messrs. King and Welsh during a due diligence
trip to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper and throughout 1996 has done additional due
diligence services and has performed legal services in organizing the Company
and registering the Spinoff transaction with the Securities and Exchange
Commission ("the Commission"). For these services and for additional legal
services Mr. Kenan is to perform with respect to the Commission should the
Merger be approved by Dransfield Paper, Mr. Kenan has been paid $60,000 by
Dransfield Paper and will receive the securities listed above.
Mr. Welsh, together with Messrs. King and Kenan during a due diligence
trip to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper.
Other than as stated above, none of the insiders has received any
compensation from SuperCorp or the Company with respect to the transaction with
Dransfield Paper. Further, none other than Mr. Adams, the former president and
a former director of SuperCorp, has received a salary or other compensation
from SuperCorp for his services as an officer or director of SuperCorp.
All of the insiders have performed services for SuperCorp, Messrs.
Kenan and Adams since 1989, Mr. Welsh since 1991, and the others since 1994,
such services being in the nature of searching for and developing
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<PAGE> 29
candidates, such as Dransfield Paper, for a spinoff-merger transaction that
will benefit SuperCorp shareholders. Other than payments made to Mr. Adams for
6 years of services rendered as past president and a former director of
SuperCorp, these services go uncompensated, and the attendant expenses in most
instances go unreimbursed, unless and until an opportunity for indirect
compensation presents itself, such as the 500,000 U.S. Callable Warrants to be
distributed or attributed to the eight insiders. Until such time as the
Company's Common Stock should be listed on the Nasdaq National Market or
otherwise qualify as a "covered security" under the National Securities Markets
Improvement Act, and no assurance can be given that such would ever occur, the
distribution of these warrants to approximately 2,500 SuperCorp shareholders in
48 states on a pro rata basis would require registration under the state Blue
Sky laws and would be economically prohibitive and, in some states, impossible,
due to state securities laws and regulations. Yet, the distribution and
potential exercise of the 500,000 U.S. Callable Warrants was essential to the
negotiation of the transaction with Dransfield Paper.
Should the Merger be approved by Dransfield Paper, the Company proposes
to register for resale the insiders' 500,000 U.S. Callable Warrants as well as
446,000 Merger Callable Warrants to be distributed to Dransfield Paper's
shareholder, Dransfield Holdings, and perhaps redistributed by it to its
shareholders. Should such registration occur, the resale of the Callable
Warrants cannot be made to residents of most states unless registered there
(the cost of which is deemed prohibitive) or unless the Company's Common Stock
qualifies for listing on the Nasdaq National Market for which it may not
immediately qualify. Accordingly, the market value of the U.S. Callable
Warrants could be adversely affected. Nevertheless, the eight insiders,
through their receipt of the U.S. Callable Warrants, are positioned to obtain
financial benefits from the U.S. Callable Warrants, either through exercising
them at a price lower than the prevailing Common Stock price in the stock
market or through selling them at a premium should they be registered for
resale and a buyer be found in a state where transfer of the U.S. Callable
Warrants is permitted.
For a comparison of the securities to be received by the insiders and
to be received by other SuperCorp shareholders, see the table under "Summary
Information - Securities to be Outstanding after the Merger." For details
concerning the direct ownership and the attribution of ownership of Company
securities by the finder and the insiders who are officers and directors of
SuperCorp and the Company, see "Management Information - Security Ownership of
Certain Beneficial Owners and Management."
PLAN OF DISTRIBUTION
THE ESCROW ARRANGEMENT.
A vote to approve the Merger by the shareholders of the Company is
assured. After such vote but before any vote by the shareholder of
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<PAGE> 30
Dransfield Paper, SuperCorp shall declare a dividend to its shareholders of the
461,572 shares of Common Stock of the Company held by it ("the Spinoff
Shares"). Some 38,428 unregistered shares shall be exchanged for the 38,428
outstanding shares of Series B Preferred Stock of the Company held by 2
insiders, and the 8 insiders holding the Company's outstanding Options shall
exchange the Options for the 500,000 U.S. Callable Warrants. Certificates
representing the 461,572 Spinoff Shares, the 38,428 unregistered shares, and
the 500,000 U.S. Callable Warrants shall be distributed by SuperCorp to Liberty
Bank of Oklahoma City, N.A. ("the Escrow Agent") to be held in escrow pursuant
to the provisions of Securities and Exchange Commission Regulation 230.419.
Later distribution by the Escrow Agent would be as follows:
SHOULD THE MERGER OCCUR. Upon the legal effectiveness of the Merger
(should Dransfield Paper's shareholder approve the Merger), the Company shall
supplement this Prospectus to indicate the fact and date of the Merger. At such
time as the Company's Common Stock is declared eligible for quotation on
Nasdaq, the Company shall provide to the Escrow Agent the Company's
representation that the requirements of Securities and Exchange Commission
Regulation Section 230.419(e) have been met, and the Escrow Agent shall
distribute, subject to the small shareholders' provision described in the next
paragraph, the escrowed certificates representing the 461,572 Spinoff Shares,
the 38,428 unregistered shares, and the 500,000 U.S. Callable Warrants to the
owners of such securities.
With respect to certificates representing the ownership of fewer than
10 Spinoff Shares of the Company, the Escrow Agent shall not immediately
distribute these certificates to the SuperCorp shareholders. Rather, each
SuperCorp shareholder entitled to one of these small denomination certificates
shall be advised by SuperCorp that the shareholder can elect either (i) to
receive his certificate or (ii) to have his shares aggregated with those of
other small- denomination shareholders who choose not to receive their
certificates, have his shares sold through a broker into the open market after
trading in the shares should commence in the open market, and receive the net
cash proceeds of the sale.
CONSEQUENCES SHOULD THE MERGER NOT OCCUR. There can be no assurance
that the proposed Merger between the Company and Dransfield Paper will occur,
since a favorable shareholder vote of Dransfield Paper's shareholder must be
obtained, and Dransfield Paper's shareholder, Dransfield Holdings, has
indicated that it will delay deciding whether to approve the Merger until it is
time to actually vote, in order that its directors can keep open any other
opportunities for Dransfield Paper that might be foreclosed by a vote to
approve the Merger.
Should the Merger not become effective, (i) Dransfield Paper will
continue as a wholly-owned subsidiary of Dransfield Holdings with its existing
assets and business, and (ii) the Company will have no significant assets or
business, and there will be no trading market for
20
<PAGE> 31
its securities, which will still be held in escrow by the Escrow Agent. As
long as this escrow continues, no transfer or other disposition of the
securities held in escrow shall be permitted other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code of 1986, as amended, or Title 1 of the
Employee Retirement Income Security Act or the rules thereunder. The Company's
management has no specific plans for an alternative to a rejection of the
proposed Merger but would seek to acquire a business or assets that would
constitute a business, using funds contributed by management to pay the costs
of such search. Upon execution of any agreement for the acquisition of a
business or assets that would constitute a business, the Company shall file a
post-effective amendment to the Registration Statement and shall supplement
this Prospectus to disclose information about the alternative business or
assets acquisition, including financial statements and other information
required by the Securities and Exchange Commissions's Rule 419. Upon the legal
effectiveness of the acquisition described in the amended registration
statement and supplemented Prospectus, an additional post-effective amendment
to the registration statement would be filed, and upon the effectiveness of
such post-effective amendment filed with the Commission, the Escrow Agent would
distribute the certificates held in escrow. Should no alternative to the
Merger be effected within 18 months after the effective date of the
Registration Statement of which this Prospectus is a part, the holders of a
majority of the Company's Common Stock will have the voting rights to cause a
dissolution of the Company and persons who will constitute such a majority have
indicated their intentions to so exercise these voting rights to that effect at
that time. Such persons are T.E. King, president and sole director of the
Company and president and a director of SuperCorp; Nita Kaye Adams, Renee
Adams, Chris Adams, and Meridyne Corp., all of whom are related to or
affiliated with John Adams, a former director of SuperCorp; the Marilyn C.
Kenan Trust, which is under the control of the spouse of Thomas J. Kenan, a
director of SuperCorp and Mary M. Kenan and Joseph N. Kenan, the adult daughter
and son of Thomas J. Kenan; Albert L. Welsh, a director of SuperCorp; Marjorie
Cole; Judith Rader, Gary E. Bryant, Suzanne Kerr, and Suzanne Peterson,
shareholders of SuperCorp; and J. Douglas Bowey, a finder. See "The Escrow
Arrangement."
DESCRIPTION OF SECURITIES
The Company is organized under the laws of the British Virgin Islands,
("the BVI"). The relevant BVI law imposes no limitations on the rights of
nonresidents or foreign owners to hold or vote securities of the Company, nor
are there any charters or other constituent documents of the Company that would
impose similar limitations. There are no BVI governmental laws, decrees or
regulations affecting the remittance of dividends or other payments to
nonresident holders of the Company's securities. U.S. holders of the
securities of the Company are subject to no taxes or withholding provisions
under existing BVI laws and regulations. By reason of the fact that the
Company conducts no business operations within the BVI, there are no applicable
reciprocal
21
<PAGE> 32
tax treaties between the BVI and the U.S. that would affect the preceding
statement that there are no BVI taxes, including withholding provisions, to
which U.S. security holders are subject under existing laws and regulations of
the BVI.
COMMON STOCK. The Company is authorized to issue 40 million shares of
Common Stock, no par value. The Company has 461,572 shares of Common Stock
issued and outstanding.
VOTING RIGHTS. Holders of the shares of Common Stock are entitled to
one vote per share on all matters submitted to a vote of the shareholders.
Shares of Common Stock do not have cumulative voting rights, which means that
the holders of a majority of the shares voting for the election of the board of
directors can elect all members of the board of directors.
DIVIDEND RIGHTS. Holders of record of shares of Common Stock are
entitled to receive dividends when and if declared by the board of directors
out of funds of the Company legally available therefor.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up,
holders of shares of Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to shareholders, subject to
the prior satisfaction of the liquidation rights of the holders of outstanding
shares of Preferred Stock.
PREEMPTIVE RIGHTS. Holders of Common Stock do not have any preemptive
rights to subscribe for or to purchase any stock, obligations or other
securities of the Company.
REGISTRAR AND TRANSFER AGENT. Liberty Bank and Trust Company of
Oklahoma City serves as the transfer agent and registrar of the Common Stock of
the Company.
DISSENTERS' RIGHTS. Under current British Virgin Islands law, a
shareholder is afforded dissenters' rights which if properly exercised may
require the corporation to repurchase its shares. Dissenters' rights commonly
arise in extraordinary transactions such as mergers, consolidations,
reorganizations, substantial asset sales, liquidating distributions, and
certain amendments to the company's memorandum and articles of association.
PREFERRED STOCK. The Company is authorized to issue 10 million shares
of Preferred Stock, no par value. The Preferred Stock may be issued from time
to time by the directors as shares of one or more series. The description of
shares of each series of Preferred Stock, including any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption shall be set forth in
resolutions adopted by the directors.
SERIES A CONVERTIBLE PREFERRED STOCK. The directors of the Company have
designated as "Series A Convertible Preferred Stock"
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<PAGE> 33
2,300,000 shares of Preferred Stock, the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms, are set forth below. Dransfield Paper has 2,300,000
identical shares of Series A Convertible Preferred Stock issued and
outstanding. None of the Company's authorized 2,300,000 shares of Series A
Convertible Preferred Stock have been issued but are reserved for issuance in
the event of the effectiveness of the Merger.
DIVIDEND RIGHTS. Commencing on October 1, 1996 the holders of the
Series A Convertible Preferred Stock shall be entitled to receive, out of
surplus, a cumulative dividend at the rate of US$0.15 per share per annum,
payable semi- annually in equal installments on the first days of April and
October in each year, if, as and when determined by the directors, before any
dividend shall be set apart or paid on any other capital stock for such year,
after which payment they shall be entitled to participate in dividends set
apart or paid on other capital stock on the same basis as the holders of the
company's Common Stock.
LIQUIDATION OR DISSOLUTION RIGHTS. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of the
Company, the holders of the issued and outstanding Series A Convertible
Preferred Stock shall be entitled to receive $1.50 for each share of Series A
Convertible Preferred Stock before any distribution of the assets of the
Company shall be made to the holders of any other capital stock, plus all
accrued and unpaid dividends declared thereon, with interest on such accrued
and unpaid dividends. After such payment shall have been made in full to the
holders of the issued and outstanding Series A Convertible Preferred Stock, or
funds necessary for such payment shall have been set aside in trust for the
account of the holders of the issued and outstanding Series A Convertible
Preferred Stock so as to be and continue to be available therefor, then, before
any further distribution of the assets of the Company shall be made, a dollar
amount equal to the aggregate dollar amount already distributed to the holders
of the Series A Convertible Preferred Stock shall be distributed pro rata to
the holders of the other issued and outstanding capital stock of the Company,
subject to the rights of any other class of capital stock set forth in the
Memorandum of Association and Articles of Association of the Company. After
such payment shall have been made in full to the holders of such other issued
and outstanding capital stock, or funds necessary for such payment shall have
been set aside in trust for the account of the holders of such other issued and
outstanding capital stock so as to be and continue to be available therefor,
the holders of the issued and outstanding Series A Convertible Preferred Stock
shall be entitled to participate with the holders of all other classes of
issued and outstanding capital stock in the final distribution of the remaining
assets of the Company, and, subject to any rights of any other class of capital
stock set forth in the Memorandum of Association and Articles of Association,
the remaining assets of the Company shall be divided and distributed ratably
among the holders of both the Series A Convertible Preferred Stock and the
other capital stock then issued and outstanding according to the proportion by
which their respective record ownership
23
<PAGE> 34
of shares of Series A Convertible Preferred Stock and such capital stock bears
to the total number of shares of the Series A Convertible Preferred Stock and
such capital stock then issued and outstanding; provided, however, that for
this purpose the holders of the issued and outstanding shares of Series A
Convertible Preferred Stock shall be regarded as having converted into Common
Stock their shares of Series A Convertible Preferred Stock in accordance with
their conversion rights described below. If, upon such liquidation,
dissolution, or winding-up, the assets of the Company distributable, as
aforesaid, among the holders of the Series A Convertible Preferred Stock shall
be insufficient to permit the payment to them of said amount, the entire assets
shall be distributed ratably among the holders of the Series A Convertible
Preferred Stock. A consolidation or merger of the Company, a share exchange, a
sale, lease, exchange or transfer of all or substantially all of its assets as
an entirety, or any purchase or redemption of stock of the Company of any
class, shall not be regarded as a "liquidation, dissolution, or winding-up of
the affairs of the Company."
CONVERSION RIGHTS. Series A Convertible Preferred Stock shall
be convertible into Common Stock as follows and, when so converted, shall be
cancelled and retired and shall not be reissued as such:
(A) Any holder of the Series A Convertible
Preferred Stock may at any time or from time to time convert such stock into
Common Stock of the Company, on presentation and surrender to the Company, of
the certificates of the Series A Convertible Preferred Stock to be so
converted.
(B) Each holder of Series A Convertible Preferred
Stock shall have the right to convert such Series A Convertible Preferred Stock
on and subject to the following terms and conditions:
(i) The Series A Convertible Preferred Stock shall
be converted into Common Stock at the conversion rate, determined as
hereinafter provided, in effect at the time of conversion. Unless such
conversion rate shall be adjusted as described below, the conversion rate shall
be one share of Common Stock for each share of Series A Convertible Preferred
Stock so converted.
(ii) The conversion rate described above shall be
subject to adjustment as follows: In case the Company shall (a) pay a dividend
consisting of shares of its capital stock, (b) subdivide its outstanding shares
of Common Stock into a greater number of shares, (c) combine its outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of its shares of Common Stock any shares of its capital stock,
the conversion rate in effect immediately prior thereto shall be adjusted so
that the holder of a share of Series A Convertible Preferred Stock surrendered
for conversion after the record date fixing shareholders to be affected by such
event shall be entitled to receive, upon conversion, the number of shares of
Common Stock which such holder would have owned or have been entitled to
receive after the happening of such event had such share of Series A
Convertible Preferred
24
<PAGE> 35
Stock been converted immediately prior to the record date in the case of such
dividend or the effective date in the case of any such subdivision, combination
or reclassification.
VOTING RIGHTS. Each share of Series A Convertible Preferred Stock is
entitled to one vote, voting together with the holders of shares of Common
Stock and not as a class, on each matter submitted to a vote at a meeting of
shareholders of the Company.
CHANGES IN TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK. The terms of
the Series A Convertible Preferred Stock may not be amended, altered or
replaced, and no class of capital stock or securities convertible into capital
stock shall be authorized which has superior rights to the Series A Convertible
Preferred Stock as to dividends, liquidation or vote, without the consent of
the holders of at least two-thirds of the outstanding shares of Series A
Convertible Preferred Stock.
PREEMPTIVE RIGHTS. Holders of shares of the Series A Convertible
Preferred Stock do not have any preemptive rights to subscribe for or to
purchase any stock, obligations or other securities of the Company.
REGISTRAR AND TRANSFER AGENT. The Company serves as its own registrar
and transfer agent for its Series A Convertible Preferred Stock.
DISSENTERS' RIGHTS. Under current British Virgin Islands law, a
shareholder is afforded dissenters' rights which if properly exercised may
require the corporation to repurchase its shares. Dissenters' rights commonly
arise in extraordinary transactions such as mergers, consolidations,
reorganizations, substantial asset sales, liquidating distributions, and
certain amendments to the company's memorandum and articles of association.
SERIES B PREFERRED STOCK. The Company has designated as "Series B
Preferred Stock" 38,428 shares of its Preferred Stock. The preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms are set forth below. The Company has all
38,428 shares of its Series B Preferred Stock issued and outstanding.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of
the Company, holders of shares of the Series B Preferred Stock are entitled to
receive, after the satisfaction of the liquidation rights of the holders of the
Company's Series A Convertible Preferred Stock but before the satisfaction of
liquidation rights of the holders of outstanding shares of common stock, $1.00
a share, after which they are entitled to receive pro rata with the holders of
the outstanding shares of common stock of the Company, all of the assets of the
Company available for distribution to shareholders, subject to the prior
satisfaction of the liquidation rights of the holders of outstanding shares of
Preferred Stock.
25
<PAGE> 36
OTHER RIGHTS. All other rights of the holders of the shares of Series
B Preferred Stock are identical to the rights of the holders of the shares of
Common Stock of the Company.
REGISTRAR AND TRANSFER AGENT. The Company serves as its own registrar
and transfer agent for its Series B Preferred Stock.
WARRANTS. The Company has authorized the issuance of 946,004 Callable
Warrants, each of which Callable Warrants entitles the holder to purchase 1
share of Common Stock of the Company for $5.50. None of the authorized
Callable Warrants have been issued but are reserved for issuance in connection
with the Spinoff and Merger described herein. Each warrant expires 18 months
after the effective date of the Merger, should the Merger be effected, but is
subject to call by the Company on 30-days notice at such time as the Company's
common stock has traded at or above an $8 closing price for 10 consecutive
trading days.
CALL FEATURE OF THE CALLABLE WARRANTS. Should the Company be able to
exercise its right to call the Warrants, as described above, holders of the
Callable Warrants will forfeit their rights to exercise the Warrants unless the
rights are exercised before the call date set in a notice of the call.
Notice of a call of the Warrants shall be made by the Company (i) to
the record holders of the Warrants by registered mail or other means of mail
that provides a record of delivery, to the extent such means are available in
the countries of the record holders of the Warrants, and, should the Warrants
be widely distributed, (ii) publication of the notice of the call in Hong Kong
in the Hong Kong English and Chinese Newspaper and in the U.S. in the national
edition of the Wall Street Journal no less than once a week for four weeks
prior to the date of the call, and (iii) continuously during the period of the
call through the electronic facilities of Nasdaq or the NASD.
REGISTRAR AND TRANSFER AGENT. Should the Callable Warrants be
registered for resale, Liberty Bank and Trust Company of Oklahoma City will
serve as the registrar and transfer agent of the Company's Callable Warrants.
At present, the Company will serve as the registrar and transfer agent of the
Callable Warrants.
INCOME TAX CONSEQUENCES
THE MERGER. In the opinion of Harney, Westwood & Riegels, solicitors
in the British Virgin Islands, the Merger will be a tax-free reorganization and
the Company and the recipients of all distributions made by it to persons who
are not resident in the British Virgin Islands are exempt from British Virgin
Islands income tax on all income arising to the Company, both before and after
the Merger and Spinoff.
THE SPINOFF. In the opinion of Thomas J. Kenan, U.S. counsel to the
Company, the distribution by SuperCorp to its shareholders (all of whom are
assumed to be U.S. citizens or U.S. residents) of the 461,572 Spinoff Shares
will be a taxable event to SuperCorp and to each of its
26
<PAGE> 37
shareholders receiving any of the Spinoff Shares. Gain (but not loss) would be
recognized by SuperCorp under Section 311 of the Internal Revenue Code for any
excess of the fair market value of the Company's stock on the date of actual
distribution over the tax basis to SuperCorp of such stock.
SHAREHOLDERS OF SUPERCORP. As for SuperCorp's shareholders who
receive Spinoff Shares of the Company, the Spinoff shall occur prior to the
vote by Dransfield Paper's shareholder to accept or reject the Merger. Since
the result of the vote by Dransfield Paper's shareholder cannot be forecast,
and since the Merger cannot and shall not become effective until after a
favorable vote is obtained on the Merger, based upon Mr. Kenan's opinion,
SuperCorp believes it is more likely than not that the fair market value of
the Spinoff Shares on the date of the Spinoff should not have increased over
the $0.001 price paid by SuperCorp for the 461,572 Spinoff Shares.
SuperCorp has no current or accumulated earnings, and the distribution
is being made from excess capital. Each shareholder of SuperCorp should reduce
the adjusted basis of his SuperCorp stock by the fair market value of the
distribution to him, and any remaining portion will be treated as capital gain
in the same manner as a sale or exchange of the stock. This fair market value
is assumed to be $0.001 per share. SuperCorp undertakes to advise its
shareholders in early 1997 should it deem the fair market value of the
distributed Spinoff Shares on the date of distribution to have been different
than $0.001 per share or should it have had earnings in 1996 which would cause
the distribution, to the extent of such earnings, to be taxed as a dividend and
as ordinary income.
RECIPIENTS OF THE U.S. CALLABLE WARRANTS. As for the persons who
presently hold options to purchase 100,000 shares of Common Stock of the
Company at $0.50 a share and who will exchange these options for the 500,000
U.S. Callable Warrants, which can be exercised to purchase 500,000 shares of
Common Stock of the Company at $5.50 a share, based on Mr. Kenan's opinion, the
Company believes that neither the options nor the U.S. Callable Warrants have
any value on the day of the exchange, because (i) the exchange takes place
before Dransfield Paper votes on the Merger and the outcome of the vote is
uncertain, (ii) the exchange takes place when the book value of the Company is
only $0.001 a share, and (iii) there is no market for the Company's Common
Stock on the date of the exchange.
The $5.50 exercise price for the U.S. Callable Warrants and the Merger
Callable Warrants was established by the Company, SuperCorp, and Dransfield
Paper as being an estimate of what would be the initial trading price of the
Company's Common Stock should the Merger be approved and effected.
The above discussion as to British Virgin Islands and U.S. income tax
consequences is not based upon an advance ruling by the Treasury Department or
the tax authorities of the Territory of the British Virgin Islands but upon the
opinion of tax counsel to the
27
<PAGE> 38
Company (which tax opinions are exhibits to the registration statement of which
this Prospectus is a part). See "Risk Factors - Tax Consequences."
OTHER FINANCIAL CONSIDERATIONS
PRO FORMA FINANCIAL INFORMATION AND DILUTION.
Due to the fact that the Company has no substance or operating history
- - it was organized as a shell to accommodate the desire of Dransfield Paper's
management to provide for the issuance of securities registered under the
Securities Act to Dransfield Paper's shareholder, pro forma financial
information giving effect to the Merger would not vary in any significant
respect from the financial information of Dransfield Paper.
Essentially, the immediate effect of the Merger is to dilute by 4.1
percent the equity of the shareholder of Dransfield Paper by transferring this
equity to the present shareholders of SuperCorp. See "Summary Information -
Securities to be Outstanding After the Merger."
MATERIAL CONTACTS AMONG THE COMPANIES.
Other than the proposed Spinoff and Merger described herein, there have
been no material contracts, arrangements, understandings, relationships,
negotiations or transactions among Dransfield Paper, the Company, and SuperCorp
during the periods for which financial statements appear herein.
INFORMATION ABOUT THE COMPANY
The Company was incorporated under the laws of the Territory of the
British Virgin Islands on June 24, 1996. It is a development stage company,
has no business or significant assets, and was organized for the purpose of
entering into the Merger proposed herein (see "Terms of the Transaction - Terms
of the Merger"). It has no employees; its management will serve without pay
until the Merger should become effective.
DESCRIPTION OF BUSINESS AND PROPERTIES
Should the Merger be approved and effected, the Company shall be the
surviving company, but the Company's management shall not remain as the
management of the Company. Control of the Company, through the voting power to
elect the entire board of directors and thereby to replace management, shall
pass to the present shareholder of Dransfield Paper, and Dransfield Paper's
present management shall become the management of the Company. See "Management
Information - Directors, Executive Officers, and Significant Employees."
It is the intention of Dransfield Paper's present management to
continue the business of Dransfield Paper as the business of the Company
28
<PAGE> 39
(see "Information about Dransfield Paper - Description of Business and
Properties") after the Merger.
The Company's present management consists of one person, T.E. King.
Mr. King is the president of King & Associates, a Los Angeles, California-based
firm which provides financial-community relations services for publicly-held
corporation, and also is the president and a director of SuperCorp.
COURSE OF BUSINESS SHOULD THE MERGER NOT OCCUR.
Should the Merger not be approved and effected, the Company will be
without any property or business. The Company's management would seek to
acquire, in exchange for stock of the Company, a business or assets that would
constitute a business. Should no acquisition that would cause the Company to
become a going concern be made within 18 months after the date of the
Registration Statement of which this Prospectus is a part, the holders of the
majority of the issued and outstanding shares of Common Stock will have the
voting power to cause a dissolution of the Company, and persons who are today
the holders of a majority of these shares have indicated their intention to do
so. See "Plan of Distribution - The Escrow Arrangements - Consequences Should
the Merger Not Occur."
LEGAL PROCEEDINGS
Neither the Company nor its property is a party to or the subject of
pending legal proceedings.
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
As of the date of this Prospectus there is no public trading market in
the U.S. or elsewhere for the Company's Common Stock or its warrants. After
the Spinoff and before any vote on the merger by the directors of Dransfield
Holdings, all certificates representing the 461,572 Spinoff Shares, the 38,428
unregistered shares, and the 500,000 U.S. Callable Warrants shall be held in
escrow by the Escrow Agent.
Should the Merger be approved and effected, (i) the Escrow Agent will
release from escrow the certificates representing the ownership of the escrowed
securities, which certificates would be delivered to the approximately 2,500
persons owning the securities represented by the certificates, and (ii) the
shareholder of Dransfield Paper will receive 9,300,000 Shares of Common Stock
of the Company, the 446,004 Merger Callable Warrants and 2,300,000 shares of
Series A Convertible Preferred Stock of the Company in exchange for all the
issued and outstanding shares of capital stock of Dransfield Paper.
Should the Merger be effected, the Common Stock is expected to be
listed on the Nasdaq Stock Market, and the Company proposes to register for
resale the 38,428 shares of Common Stock received by Messrs. King and Bowey at
the time of the Spinoff and the 500,000 U.S. Callable Warrants received by the
eight insiders.
29
<PAGE> 40
Should the Merger be effected and trading commence in the Company's
Common Stock and Warrants, Dransfield Paper has no immediate plans to sell any
of the 9,300,000 Merger shares acquired by it in the Merger. Accordingly,
there shall be available for trading the 461,572 Spinoff Shares and the 38,428
shares of Common Stock registered for resale, which number is subject to being
increased through the exercise of any of the 500,000 U.S. Callable Warrants and
446,004 Merger Callable Warrants. Dransfield Paper has advised the Company
that its sole shareholder, Dransfield Holdings, may distribute the 446,004
Merger Callable Warrants to the shareholders of Dransfield Holdings on the
basis of one Merger Callable Warrant for each 1,000 shares of Dransfield
Holdings. Dransfield Holdings is a publicly-held company whose shares are
listed on The Hong Kong Stock Exchange. Should such a distribution of Merger
Callable Warrants be made by Dransfield Holdings, the Company proposes to
register for resale into the U.S. stock market the Merger Callable Warrants and
the shares of Common Stock underlying them. Some 237,614 of the 446,004 Merger
Callable Warrants initially would be held by affiliates of the post-Merger
Company. Dransfield Holdings, which will be an affiliate of the post-merger
Company, would be restricted to the provisions of Rule 144 should it determine
to sell into the U.S. market any of the 9,300,000 Merger Shares it would
acquire in the Merger (or any of the 2,300,000 shares of Common Stock it could
acquire through the conversion provision of the 2,300,000 shares of Series A
Preferred Stock it would acquire in the Merger) unless it registered such
shares for resale. The limitation upon amount that would be imposed upon
Dransfield Holdings for each 3 months would be the greater of 1% of the total
outstanding number of shares of the Company or the average weekly trading
volume in such shares over a four-week period as reported on all national
securities exchanges or through the automated quotation system of a recognized
quotation service such as Nasdaq. Finally, should Dransfield Holdings transfer
some of its shares of Common Stock of the post-Merger Company to a non-U.S.
person, unaffiliated with the post- Merger Company, such person, after a 40-day
holding period, could sell such shares into the U.S. stock market.
DIVIDENDS. The Company has had no operations or earnings and has
declared no dividends on its capital stock. Should the Merger be approved and
effected, there are no restrictions that would, or are likely to, limit the
ability of the Company to pay dividends on its Common Stock, but the Company
has no plans to pay dividends in the foreseeable future and intends to use
earnings for business expansion purposes (see "Information about the Company -
Description of Business and Properties").
FINANCIAL STATEMENTS.
See "Financial Statements - Dransfield China Paper Corporation" for the
independent auditor's report dated December 13, 1996 with respect to the
Company's balance sheet as of November 30, 1996, such balance sheet, and the
notes to the balance sheet.
INFORMATION ABOUT DRANSFIELD PAPER
Dransfield Paper Holdings Limited ("Dransfield Paper") was incorporated
under the International Business Companies Ordinance (No.
30
<PAGE> 41
8 of 1984) of the Territory of the British Virgin Islands on March 11, 1994.
DESCRIPTION OF BUSINESS AND PROPERTIES.
Dransfield Paper is a wholly-owned subsidiary of Dransfield Holdings
Limited ("Dransfield Holdings"), a Cayman Islands company which was founded by
Sir Kenneth Fung, CBE, JP, in the 1940s to market and to distribute consumer
products in Hong Kong. Dransfield Holdings has four business divisions - a
consumer electronics division which distributes household appliances under the
brand names of AIWA and Turbo; a paper business which buys and sells hygienic
paper products for consumer use, including a Proctor & Gamble brand-name paper
handkerchief, which Dransfield Paper distributes to retailers, and which
business division is expanding its operations to include paper manufacturing; a
food and beverage division which has breweries in China and the United Kingdom,
an edible oil factory in China, and which distributes alcoholic and
non-alcoholic beverages in Hong Kong; and a logistics and services division
which provides warehousing, deliveries, repair, exhibition and buying-program
services to affiliated and non-affiliated companies in Hong Kong and China.
Dransfield Paper's parent, Dransfield Holdings, has been listed on the
Hong Kong Stock Exchange since April 1993.
The purpose of the merger and the spinoff described herein is to
transfer, from the Hong Kong Stock Exchange to the Nasdaq Stock Market in the
U.S., Dransfield Holdings' equity in its paper business division, which paper
business is conducted in Dransfield Paper. The paper business dates back to
1975, when A Dransfield & Co. Ltd., a wholly-owned subsidiary of Dransfield
Holdings Limited (the parent of Dransfield Paper), secured the exclusive
distribution for Tempo paper handkerchiefs from Vereinigte Papierwerke in Hong
Kong and Macau. In 1994 Dransfield Paper succeeded to this business from its
sister company and continued to develop a substantial distribution network
principally through supermarkets, drug stores and newspaper stands for Tempo
handkerchiefs.
Based on Dransfield Paper's surveys and management estimates, Tempo's
market share of paper handkerchiefs in Hong Kong and Macau currently stands at
approximately 46%.
In November 1994 Dransfield Paper undertook to establish business
contacts and to gain experience in buying waste paper, which it did both on an
indent basis (a pre-sold basis) or on an agency basis, all in support of a
plan to expand its business to that of an integrated manufacturer and
distributor of hygienic paper products for consumers. See below, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Sales, and Outlook." This paper merchanting operation was organized through the
formation of a holding company named C.S. Paper Holdings (International) Ltd.
A minority partner, Mr. Ian Fung, through his holding company, Summerhouse
Profits, Ltd., holds a one-third interest. Dransfield Paper owns a two-thirds
interest. The joint venture includes the following operations:
31
<PAGE> 42
o A paper agency company, Central National Hong Kong., Ltd.,
through a joint venture with Central National Gottesman, Inc., a
U.S. company.
o A paper trading company in Hong Kong, Dransfield Paper (HK)
Trading, Ltd., selling packaging grade papers through indent or
from stock.
In August 1996, Dransfield Paper commenced testing production runs on a
paper converting facility it established situated in Conghua in the city of
Guangzhou, Guangdong Province in Southern China - another step in its plan to
expand its operations to those of a vertically-integrated hygienic paper
producer and distributor in some of the largest population and fastest growing
economies of China as well as in Hong Kong. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Outlook."
SELECTED FINANCIAL DATA.
The following selected financial data for the five years ended March
31, 1996, are derived from the audited consolidated financial statements of
Dransfield Paper. The financial data for the six-month period ended September
30, 1996 and 1995 are derived from unaudited financial statements. The
unaudited financial statements include all adjustments, consisting of normal
recurring accruals, which Dransfield Paper considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended September 30, 1996, are
not necessarily indicative of the results that may be expected for the year
ending March 31, 1997. The data should be read in conjunction with the
consolidated financial statements and the related notes, which are included
elsewhere in this Prospectus.
32
<PAGE> 43
<TABLE>
<CAPTION>
Six month
period ended
Years ended March 31, September 30,
---------------------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1995 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net Sales(1) 74,391 65,322 78,387 94,359 307,047 39,701 169,441 89,965
Income before interest and
income taxes and minority 4,354 2,049 4,809 6,951 13,443 1,738 15,227 2,259
interests
Interest income/(expenses),
net(1) (491) (131) 60 (198) (5,603) (724) (2,871) (2,119)
Provision for income taxes (637) (336) (960) (1,130) (1,391) (180) (1,986) (94)
Income/(loss) after income
taxes but before minority
interests 3,226 1,582 3,909 5,623 6,449 834 10,370 46
Net income(1) 3,226 1,582 3,909 5,215 5,034 651 7,234 382
Pro forma income per share ($) N/A N/A N/A N/A 0.42 0.05 N/A 0.03
<CAPTION>
As at March 31, As at September 30,
---------------------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1995 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Fixed assets(2) 12,644 12,644 12,780 25,467 57,880 7,484 40,611 72,975
Total assets(2) 52,389 41,629 69,216 91,518 176,577 22,831 201,286 162,859
Long term liabilities(3) - - - - 73,459 9,499 428 48,733
</TABLE>
- --------------------
(1) For a discussion of the reasons for the significant changes in certain
selected financial data between fiscal years 1995 and 1996, see below,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the subsections thereof as follows: for
"Net Sales" in the table above, see "Sales" below; for "Interest
income/(expenses), net" above, see "Interest Expense" below; and for
"Net income" above, see "Net income" below.
(2) Total assets increased by US$11 million from US$11.8 million in 1995 to
US$22.8 million in 1996. The increase is mainly attributable to
increased accounts receivable of US$5.4 million,
33
<PAGE> 44
increased inventories of US$1.2 million and fixed assets acquisition of
US$3.7 million.
(3) Long-term liabilities are composed mainly of US$8.7 million which is
not repayable within one year. In 1995 this loan was classified as a
current liability.
The following table sets forth certain information concerning exchange
rates between Hong Kong dollars and U.S. dollars for the periods presented,
expressed in HK$ per US$:
<TABLE>
<CAPTION>
Period Period End Average High Low
------ ---------- ------- ---- ---
<S> <C> <C> <C> <C>
1991 7.7800 7.7713 7.8025 7.7155
1992 7.7430 7.7412 7.7765 7.7237
1993 7.7280 7.7348 7.7650 7.7230
1994 7.7375 7.7284 7.7530 7.7225
1995 7.7323 7.7354 7.7665 7.7300
1996 7.7330 7.7348 7.7440 7.7310 through 9/17
</TABLE>
- -------------------------
Source: Federal Revenue Bank of New York.
Note: The average rates were determined by averaging the noon buying rate in
New York for cable transfers payable in New York in foreign currencies on the
last business day of each month.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and the accompanying notes thereto and is
qualified entirely by the foregoing and by other more detailed financial
information appearing elsewhere. See "Financial Statements - Dransfield
Paper." All dollar amounts are in U.S. dollars unless otherwise noted.
OVERVIEW.
Dransfield Paper was incorporated on March 11, 1994. Its fiscal year
ends March 31. Accordingly, the financial information appearing in its
financial statements for the year ended March 31, 1994 are almost entirely the
results of operations of a predecessor company, A. Dransfield & Co. Ltd., which
also is a wholly-subsidiary of Dransfield Holdings, the parent of Dransfield
Paper, and relate almost entirely to the paper distribution business conducted
that year by A. Dransfield & Co. Ltd. Dransfield Paper succeeded to this
business. Certain vertical integration activities (see "Outlook" below) are
reflected in the statements of operation and cash flows for the fiscal years
ended March 31, 1995 and 1996.
34
<PAGE> 45
RESULTS OF OPERATIONS.
The following table presents, as a percentage of sales, certain
selected consolidated financial data for each of the three years in the period
ended March 31, 1996:
<TABLE>
<CAPTION>
Year ended March 31 1994 1995 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 77.0 80.9 89.6
----------------------
Gross margin 23.0 19.1 10.4
----------------------
Selling, general and
administrative expenses 16.9 11.5 7.7
Interest expense 0.0 0.1 1.8
Other income and expenses, net 1.1 2.0 (0.7)
----------------------
18.0 13.6 18.8
----------------------
Net income 5.0% 5.5% 1.6%
----------------------
</TABLE>
SALES.
Sales for 1996 increased approximately $27.5 million or 225% over the
prior year as compared with an increase of $2 million or 20% in 1995 over 1994.
The increases were due to the institution of paper merchanting activities, in
an effort to obtain experience and establish business contacts for a planned
expansion into hygienic paper manufacturing, which activities were commenced in
November 1994, and amounted to $3.1 million in the five months of operations in
fiscal 1995 and then increased by $26.8 million, or 851%, in 1996. Sales of
the Tempo brand handkerchief remained steady for the two years. Dransfield
Paper's paper handkerchief market share in the Hong Kong area is approximately
46%, down from approximately 48% two years ago. Its nearest competitive brand
has an approximate market share of 26%.
INTERIM RESULTS. Sales of $11.6 million for the first six months of
fiscal year 1997 (which fiscal year ends March 31, 1997) decreased by $10.3
million, or 47%, from the first six months sales of $21.9 million in fiscal
year 1996. This reflects Dransfield Paper's paper merchanting activities and
the volatility of paper prices in fiscal 1996. The price of pulp reached $980
a metric ton and then collapsed to a low of $380 a metric ton in March 1996.
In December 1996 pulp prices appeared to settle at approximately $580 a metric
ton.
Sales in paper merchanting decreased by 63.7% - from $16.8 million to
$6.1 million. Sales of Tempo brand handkerchiefs increased by 9 percent,
however - from $5 million to $5.5 million, due to increased sales in Hong Kong.
GROSS MARGIN.
Gross margin increased by $1.8 million in 1996 or 78% over 1995 as
compared with a decrease of $34,000 or 1% in 1995 from 1994. As a percentage
of sales, however, the 1996 gross margin decreased to 10.4% of sales from 19.1%
of sales in 1995 and 23.3% of sales in 1994. The
35
<PAGE> 46
decreases reflect the lower margins inherent in the paper merchanting
activities which commenced in November 1994.
INTERIM RESULTS. Gross margin for the first six months of fiscal 1997
decreased to 9 percent from 12 percent in the first six months of fiscal 1996.
The decrease was due largely to increased costs associated with preparing for
sale finished products produced by the paper converting plant at Paper Mill No.
1.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses increased $1.7 million in
1996 or 119% over 1995. In 1995 these expenses decreased by $316,000 or 18.4%
from 1994. The 1996 increase was attributable to expenses involving travel,
hiring new personnel, negotiating joint venture agreements, and surveying the
world's used paper-making equipment for purchase - all with respect to
expanding Dransfield Paper's paper business to that of a vertically-integrated,
hygienic paper producer and distributor. The 1995 decrease was attributable to
a reduction in advertising expenses, which reduction for part of 1995 was due
to Proctor & Gamble's assumption of Tempo marketing expenses after it acquired
the Tempo line of paper handkerchiefs from the former owner, and to a decrease
in sales of the Tempo brand handkerchief.
INTERIM RESULTS. Selling, general and administrative expenses
decreased by $30,000, or by 2.3 percent in the first half of fiscal 1997 from
the same period of fiscal 1996.
INTEREST EXPENSE.
The interest expense of fiscal 1996 and fiscal 1997 was attributable
mainly to the financing of Dransfield Paper's paper merchanting activities.
The substantial increase in interest expense in fiscal 1996 over fiscal 1995
was due to the substantial increase in such trading.
INTERIM RESULTS. Interest expense in the first half of fiscal 1997 was
$278,000, a decrease of 26 percent from $378,000 in the same period in fiscal
1996. This decrease reflects a reduction in bank loans from $13 million to $6
million during these comparable periods, the reduction reflecting reduced
activities in paper merchanting.
NET INCOME.
Income before interest expense, income taxes and provision for minority
interests increased by $839,000 from 1995 to $1,738,000 in 1996, but interest
expense of $724,000 (see "Interest expense" immediately above), income taxes of
$180,000 and provision for minority interests of $183,000 resulted in a
reduction in net income from 1995 to 1996 of $23,000 or 3.4% from 1995 as
compared with an increase of $169,000 or 33.4% in 1995 over 1994. Net income
expressed as a percentage of sales began dropping sharply in November 1994 when
paper merchanting activities were commenced, due to the low margins inherent in
paper merchanting and the high volume of paper merchanting sales as compared to
the sales derived from marketing the Tempo paper handkerchiefs.
36
<PAGE> 47
INTERIM RESULTS. Net income during the first half of fiscal 1997 was
$49,000, a 95 percent decrease from net income of $935,000 in the first half of
fiscal 1996. This significant reduction reflects losses in paper merchanting
activities not overcome by modest gains in profits from sales of Tempo paper
handkerchiefs. Dransfield Paper's management has reduced its paper merchanting
activities to the initial needs of its planned paper mills. Yet the
activities, begun in November 1994 and conducted during a period of great
volatility in prices, are believed by Dransfield Paper to have been successful
in establishing its credibility and business contacts among suppliers of waste
paper. Sourcing raw materials will be a critical part of Dransfield Paper's
planned vertical integration of its paper business.
BALANCE SHEET ITEMS. Significant changes in several balance sheet
items occurred from 1995 to 1996, in particular accounts receivable,
inventories, fixed assets, and liabilities. These changes reflect the impact
on Dransfield Paper's operations of the high volume, large inventory, and low
gross margin paper merchanting activities, and the acquisition of plant and
equipment for Paper Mill Nos. 1 and 2.
INTERIM RESULTS. Accounts receivable during the first half of fiscal
1997 decreased by 62 percent from the same period in fiscal 1996 - from $12.9
million to $4.9 million. Similarly, inventories decreased by 81 percent - from
$6.9 million to $1.3 million. These reductions were caused by reductions in
paper merchanting activities, tightened collection of receivables, better
control over purchasing, and more emphasis on pre-sold orders. Accordingly,
bank loans decreased significantly.
LIQUIDITY AND CAPITAL RESOURCES.
Dransfield Paper had negative cash flows from operations of $0.7
million in 1996, $1.4 million in 1995 and $1.1 million in 1994. The
acquisition of fixed assets and equipment for its planned paper business
expansion (see "Outlook" below) reduced cash flow by $772,000 in 1996 and
$497,000 in 1995. The shortfalls in liquidity were provided by advances from
Dransfield Holdings and bank loans, with loans from one also being used to pay
down the other in succeeding years. Significant capital expenditures have been
both made and committed with respect to the acquisition, refurbishment, and
installation of equipment, land and buildings for Dransfield Paper's planned
paper business expansion. Additional capital expenditures of $11.5 million
must be made to complete the first two paper mills, and additional capital
expenditures of approximately $25 million, not yet obtained or committed, must
be made should Dransfield Paper be able to complete its proposed third and
fourth paper mills, as follows:
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<PAGE> 48
<TABLE>
<CAPTION>
$000s
-----------------------------------------------
To Be
Capital Requirement Purchased Purchased Timing
- ------------------- --------- --------- ------
<S> <C> <C> <C>
MILL NO. 1:
Used Deink Line (Belgium) Apr 96
Used Paper Making Machine (USA) Nov 96-Dec 96
Used Paper Converting (USA, Japan) Jan 96
Land & Building (USA) Jan 95-Oct 95
-------
Sub-Total $ 6,820
New Auxiliary Equipment (China) $ 1,900 Nov 96-Apr 97
New Environmental Control
Equipment (China/USA) 1,400 Jan 97-May 97
Infrastructure (China) 1,500 Dec 96-Apr 97
-------
Sub-Total $ 4,800
MILL NO. 2:
Used Deink Line (USA) Jan 96
Used Paper Making Machine (Belgium) Jan 96
Used Paper Converting (USA, Japan) Apr 96
Land & Building (USA) Sep 96-Dec 96
-------
Sub-Total $ 4,900
New Auxiliary Equipment (China) $ 3,200 Nov 96-Feb 97
New Environmental Control
Equipment (China/USA) 2,000 Jan 97-Mar 97
Infrastructure (China) 1,500 Nov 96-Feb 97
-------
Sub-Total $ 6,700
MILL NO. 3:
Used Paper Making Machine $ 650 Nov 96
-------
(USA)
Sub-Total $ 650
MILL NO. 4:
Used Paper Making Machine $ 650 Nov 96
-------
(USA)
Sub-Total $ 650
------- -------
TOTAL $13,020 $11,500
</TABLE>
The source of funds for these capital expenditures for Paper Mill Nos.
1 and 2 is as follows:
o $9 million advance from parent, Dransfield Holdings (these
funds became available in November 1996), and
o $3 million advance from Dransfield Holdings anticipated in
January 1997 (convertible debenture issue by Dransfield
Holdings being planned with Hong Kong investment bankers).
The proposed sources of funds for Paper Mill Nos. 3 and 4 are as
follows:
o $2.75 million by September 1997 from the exercise of 500,000
U.S. Callable Warrants to be distributed to 8 persons in the
Spinoff-Merger transaction with the Company,
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<PAGE> 49
o $2.45 million by December 1997 from the exercise of 446,004
Merger Callable Warrants to be distributed to Dransfield
Holdings should the Merger with the Company be approved, and
o $20 million by December 1997 from the sale of shares of the
Company in a rights offering with standby underwriters.
The advances from Dransfield Holdings to complete Paper Mills Nos. 1
and 2 are not proposed to be made under circumstances involving the issuance of
equity securities to Dransfield Holdings. The proposed source of funds for
Plant Nos. 3 and 4 would involve the issuance of equity securities by the
post-merger Company and, accordingly, represent potential dilution to the
Company's shareholders.
INTERIM RESULTS. Dransfield Paper continued to require advances from
Dransfield Holdings and bank loans to maintain positive cash flow - $2.3
million in the first half of fiscal 1997 compared to $10.4 million in the first
half of fiscal 1996.
OUTLOOK.
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
vary materially.
Dransfield Paper's approximately 46 percent share of the paper
handkerchief market in Hong Kong represents, to Dransfield's management, a base
from which continued, significant growth in volume is difficult but an
excellent base from which a vertically-integrated, consumer hygienic paper
manufacturing and distribution business can be built. Such a business
expansion has been planned since 1993, business contacts in the buying and
selling of unfinished paper have been made, business alliances for two plants
in China have been made, material capital expenditures have been both made and
committed, and the first paper converting plant is operational.
Paper merchanting activities were started in November 1994 for the
purpose of establishing business contacts and acquiring skill in buying raw
materials, the quality and mix of which will bear directly on Dransfield
Paper's competitiveness and profitability later in recycling waste paper into
pulp, making tissue paper, converting tissue paper into finished hygienic
paper products and selling the products to consumers. After a year - fiscal
1996 - of high volume in sales and highly volatile paper prices, Dransfield
Paper reduced its paper merchanting activities to the initial needs of its
planned paper mills. From average monthly turnover volume of $2.5 million in
1996, Dransfield Paper had monthly turnover of only $397,000 in November 1996.
Yet the activities were successful in establishing credibility and business
contacts among suppliers of office waste paper.
Dransfield Paper's vertical integration plans embrace the following
activities, all of which are still in the development stage:
o Recycled pulp production. Waste paper will be processed into
recycled pulp. Until needed for its own further processing,
39
<PAGE> 50
approximately half of this would be offered for sale to other
companies in China with paper mills and approximately half
would be supplied to Dransfield Paper's own paper making
operation.
o Paper making. Paper making machines will process recycled pulp
into jumbo rolls. Until needed for its own further processing,
approximately half of the production would be offered for sale
to other companies in China with paper converting plants and
approximately half would be supplied to Dransfield Paper's own
paper converting plants.
o Paper converting. Jumbo rolls of paper will be converted into
finished paper products, such as bathroom tissue, facial
tissue, napkins and handkerchiefs, which finished paper
products will be packaged and distributed to customers.
TIMING OF THE EXPANSION. The business expansion is planned to take
place in two phases, Phase One being the development and completion of Paper
Mills No. 1 and No. 2 and Phase Two being the development and construction of
Paper Mills No. 3 and No. 4. The projected dates for the completion and
commencement of operations of the plants in each of the four paper mills are as
follows:
<TABLE>
<CAPTION>
Recycled Pulp Paper Paper
Production Making Converting
------------- ------ ----------
<S> <C> <C>
Phase 1: Under construction
- ----------------------------
Paper Mill No. 1 July 1997 August 1997 Operational
Paper Mill No. 2 March 1997 June 1997 June 1997
Phase 2: Planned. Not under construction
- ------------------------------------------
Paper Mill No. 3 April 1998 June 1998 June 1998
Paper Mill No. 4 January 1999 March 1999 March 1999
</TABLE>
PAPER MILL NO. 1. Dransfield Paper has recently invested $6 million in
establishing a paper conversion plant, a conference center, and a research and
development center in Conghua in the city of Guangzhou, Guangdong Province in
southern China. The paper conversion plant tested production in August 1996,
is anticipated to be on stream before the end of December 1996, and converts
jumbo rolls of paper into such products as toilet tissue, paper handkerchiefs,
napkins and facial tissue. Its capacity is approximately 23 metric tons a day.
It will also serve as a training and as a research and development center to
develop Dransfield Paper's paper business. An expert plant manager with 30
years' experience has been brought from the U.S. to manage and supervise this
plant and to develop a capable production team to spearhead Dransfield's
expansion.
A used de-inking plant for recycled pulp production was purchased in
Belgium, dismantled, shipped to China in May 1996, and is planned to commence
operations by July 1997 with an output capacity of approximately 90 metric tons
a day. The targeted customers for half of the recycled pulp production of this
plant are located in the Pearl
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<PAGE> 51
River delta area, which is within 8 miles from this mill, which customers have
present annual demand exceeding 800,000 metric tons.
PAPER MILL NO. 2. Dransfield Paper will invest approximately $12
million for a 60 percent controlling voting interest and a 48 percent equity
interest in a paper mill to be established in the city of Jiangyin in Jiangsu
Province 90 minutes west of Shanghai, China.
Paper Mill No. 2 will be owned by a Sino-foreign equity joint venture
among Dransfield Paper, Jiangsu Huaxi Holdings Corporation and Broadsino
Investment Company Ltd. ("Broadsino"). The joint venture company, Jiang Ying
Dransfield Paper Co. Ltd. ("Jiang Ying") is 40 percent owned by Jiang Su Huaxi
Holdings Corporation and 60 percent owned by Dransfield Broadsino Paper
Holdings Limited ("Dransfield Broadsino Paper"), a company 80 percent owned by
Dransfield Paper and 20 percent owned by Broadsino. Dransfield Paper has agreed
to provide Broadsino's equity contribution (approximately $1.8 million) to the
joint venture through a loan to Broadsino bearing compound interest at the rate
of 6% a year.
The project site is located adjacent to a tributary of the Yangtze
River, which tributary will supply water to the paper mill. The Chinese
partners are contributing a 12,000-kilowatt-hour, coal-fired, power plant for
their 40% interest in the joint venture. The power plant is currently
supplying electricity to other plants nearby and will supply the required
amount of electricity and steam to the paper mill.
Unsorted office waste will be purchased directly from U.S. suppliers
such as Weyerhaeuser, Smurfit, Allan & Co., and Rock-Tenn. Dransfield Paper
will also make use of other grades of waste paper to reduce its cost of
production.
A used 120-metric-tons-a-day de-inking plant for recycled pulp
production has been purchased from Georgia Pacific Company in the U.S., and a
used 28-metric-tons-a-day paper making plant has been purchased from VPK in
Belgium. Both arrived in China in May and July 1996.
Until needed for its own end products, it is estimated that less than
half of the 120-metric tons-a-day recycled pulp production will be used in
Paper Mill No. 2's own tissue paper plant and more than half of the production
shall be offered for sale to other paper mills in the Jiangsu and Zhejiang
Provinces, which have an annual demand of 1,400,000 metric tons.
Operations are scheduled to commence at the recycled pulp production
plant by March 1997, at the paper conversion plant by May 1997, and at the
paper making plant by May 1997.
PAPER MILLS NO. 3 AND 4. Complete paper mills - plants for recycled
pulp production, paper making, and paper conversion - are planned for two other
areas. One is in northern China in the Tianjin area, and the other is in
western China in the Sichuan area. These two paper mills will be installed
after the first two mills, now under construction, are operational. Subject to
funding, Dransfield Paper's plans envision the commencement of full operations
at Paper Mills No. 3
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<PAGE> 52
and 4 by the last quarter of 1998. Considerable equipment has already been
acquired for the paper conversion plants for Paper Mills No. 3 and No. 4.
Dransfield Paper's plans include recycling waste paper into pulp, which
is against the trend in China of importing virgin fiber. Dransfield Paper
estimates that, until needed for its own end products, approximately half of
its recycled paper will be allocated to its own paper converting and tissue
making facilities and half will be allocated for sale to other China paper
mills that produce packaging grade cartons and hygienic paper. Dransfield
Paper's survey indicates that the present annual demand for recycled pulp and
jumbo rolls, such as Dransfield Paper expects to produce, in the areas that
would be served by its 4 planned paper mills, and the annual production of
these 4 planned paper mills, are as follows:
<TABLE>
<CAPTION>
Potential DCPC's Planned
Demand Production
Phase I Province/City (Metric Tons) (Metric Tons)
------- ------------- ------------- -------------
<S> <C> <C> <C>
No. 1 Guangdong Province 861,022 30,000
No. 2 Jiangsu Province 767,050 40,000
No. 2 Zhejiang Province 679,100
No. 2 Shanghai Municipality 234,547
--------- ------
Total 2,541,719 70,000
</TABLE>
<TABLE>
<CAPTION>
Potential DCPC's Planned
Demand Production
Phase II Province/City (Metric Tons) (Metric Tons)
-------- ------------- ------------- -------------
<S> <C> <C> <C>
No. 3 Tianjin Municipality 221,400 30,000
No. 3 Beijing Municipality 101,000
No. 3 Heibei Province 128,000
No. 4 Sichuan Province 238,750 30,000
------- ------
Total 689,150 60,000
</TABLE>
Dransfield Paper's planned production represents only 4 percent of the
annual requirements of the targeted markets.
Over recent years the price of virgin pulp has ranged from $390 to $960
a metric ton. The price of office waste paper in the U.S. has ranged from $20
to $250 a metric ton. For instance, prices in September 1996 were $610 (cost
and freight from U.S. West Coast to China) for virgin pulp plus $12.20 duty, or
$622.20 a metric ton, compared with $165 (cost, freight and duty) for office
waste paper. Recycling costs in China are estimated to average $200 a ton and
not to exceed $250 a metric ton. There is little recycled fiber in China,
which fiber sells at prices 5 to 10 percent cheaper than virgin fiber.
Dransfield Paper expects that the net operating margin of its paper recycling
division will range from 10 to 15 percent.
Dransfield Paper has purchased equipment and is planning to make, into
jumbo rolls, various grades of hygienic paper from approximately
42
<PAGE> 53
half of its recycled pulp. Until needed for its own end products of consumer
hygienic paper, it plans to offer for sale to other paper mills in China
approximately half of the production of jumbo rolls of hygienic paper it makes.
It expects that the net operating margin of this division will range from 11 to
16 percent.
With reference to the volatility of the prices of virgin pulp and
office waste paper and the plans of Dransfield Paper to offer to other China
paper mills, until required for its own needs, approximately half of its
production both of recycled fiber and of jumbo rolls of hygienic paper, the
table below illustrates, pro forma, how its planned integrated facilities would
dampen the effects of price volatility with respect to profit margins:
<TABLE>
<CAPTION>
($ a Metric Ton)
August 1995 March 1996 October 1996
----------- ---------- ------------
<S> <C> <C> <C> <C>
1. Virgin Pulp Cost $960 $390 $580
2. Secondary Fiber
-Raw Material
(Office Waste) $170-250 $ 20-70 $ 70-120
-Freight Cost 80 80 80
-Processing Cost
(Average) 200 200 200
-------- -------- --------
$450-530 $300-350 $350-400
3. Profit Margin
-Recycled Pulp(1) High Low Medium
-Jumbo Roll(1) Medium Low Medium
-Finished Products Low High Medium
</TABLE>
- -----------------------
(1) Until needed for its own production of consumer hygienic paper
products, approximately half of this production is planned to be
available for sale to other paper mills in China.
In the past eighteen months, the price of virgin pulp has experienced
the most volatility in the last thirty years.
Finally, Dransfield Paper's paper converting facility in Plant No. 1 is
operational and the equipment for Plant No. 2's paper converting facility has
been purchased and is expected to be operating in June 1997. It plans to
convert and market relatively high grade hygienic paper, using the distribution
channels it has developed for the Tempo paper handkerchiefs and expanding its
distribution network through working with small paper converter companies who
have established distribution networks for lower grade products. Dransfield
Paper expects its net operating margin in this division to range from 18 to 23
percent.
The expansion into manufacturing and distribution of its own branded
paper products could impact Dransfield Paper's sale of Tempo brand paper
handkerchiefs, the distribution rights to which are exlusive in Hong Kong and
Macao and nonexclusive in China. Proctor & Gamble is aware of Dransfield
Paper's plans and has agreed that Dransfield Paper can distribute its own
branded products; however, Dransfield Paper does not propose to distribute its
own brand of paper handkerchiefs in Hong Kong and Macao - only other types of
hygienic paper products. Past operating results, which are based on
distributing Tempo products, are not indicative of future results, which will
be influenced to a major extent by still unproven manufacturing operations.
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<PAGE> 54
Dransfield Paper's future results of operations and the other
forward-looking statements contained in this Outlook, in particular the
statements regarding achievement of its expansion plans, capital spending,
costs of office waste paper and virgin fiber, and marketing, involve a number
of risks and uncertainties. In addition to the factors discussed above, among
the other factors that could cause actual results to differ materially are the
following: volatility of prices of office waste paper and virgin fibers, risk
of nonpayment of accounts receivable, inability of Dransfield Paper to obtain
its necessary capital, political instability in China, inflation, and
unforeseen competition.
THE PAPER INDUSTRY IN CHINA.
China has more than 5,000 paper mills with the majority of them
producing less than 10,000 metric tons a year. In 1992 there were 16.2 million
metric tons of paper and paper boards produced and 1.2 million metric tons of
hygienic paper produced by these paper mills.
Annual per capita consumption of hygienic paper in China is only a
small fraction of that in the West. For instance, the annual per capita
consumption of hygienic paper in the U.S. is 18.6 kilograms, in Hong Kong is 5
kilograms, and in China is less than 1 kilogram.
It is Dransfield Paper's belief that most of the paper mills that are
producing hygienic paper in China are under-financed, poorly managed, and
producing low-quality products. Dransfield Paper is building two paper mills
that target the medium- and premium-quality paper products markets in which
there is little competition. The only competition in these markets from an
international company is Scott Shanghai (now owned by Kimberly-Clark), which
has a plant with an output of 14,000 metric tons a year.
Despite recent double-digit economic growth in China and projected
annual growth of 8%, Dransfield Paper's management assumes that the majority of
consumers in China will not afford themselves the luxury and expense of hygiene
paper products sold at premium prices for several more years to come.
Nevertheless, Dransfield Paper proposes to position itself in the
premium-priced products market at the same time it develops the medium-priced
and medium-quality market, because of the huge size of these two markets. The
paper market targeted by Dransfield Paper covers 10% of the population of
China, which is equivalent to a market base almost half the size of that of the
U.S.
44
<PAGE> 55
PROPERTIES.
CONGHUA - PAPER MILL NO. 1.
Dransfield Paper has the land use rights to 16,011 square meters in a
development zone in Conghua, Guangzhou, PRC on which it has constructed a paper
conversion plant and warehouse, a conference center, and a 52-room guest house.
The recycled pulp production and paper making facilities are planned to be
located on a tract of approximately 35,000 square meters in Xinhui, near
Guangzhou, on a major river with ready access to road and river transportation
facilities, near other manufacturers of tissue and industrial grades of paper,
and with an abundant supply of electricity.
JIANGYIN - PAPER MILL NO. 2.
Dransfield Paper and its joint venture partners have a 50-year land use
agreement with the local authority in Jiangyin for a 65,000 square meters tract
on which Paper Mill No. 2 is being constructed. The tract is adjacent to a
navigable river, accessible to a nearby major highway, near other manufacturers
of industrial grade papers, and adequate to meet medium-term expansion needs.
Electricity is provided by Jiangsu Huaxi Holdings Corporation, a PRC government
corporation, one of the joint venture partners.
OFFICE FACILITIES.
Dransfield Paper rents office facilities in Hong Kong from another
subsidiary corporation of its parent, Dransfield Holdings, and shares these
facilities with other subsidiary corporations of Dransfield Holdings.
DEPENDENCE ON MAJOR CUSTOMERS AND SUPPLIERS. Dransfield Paper does not rely on
any single customer for 10% or more of its consolidated revenues. It does not
have and does not anticipate significant backlogs, because orders are usually
met within four days out of stock. The indent business consists of orders
received in advance at least 30 days on a back-to-back basis. Dransfield Paper
does depend entirely on Proctor & Gamble and its manufacturers for its supply
of Tempo paper handkerchiefs to be distributed.
As for business in the PRC, because raw materials are subject to import
duty, profits could be effected for a short period of time when the government
raises the duty. However, the current direction of the PRC government is for a
reduction in duties, not an increase.
RESEARCH AND DEVELOPMENT. Dransfield Paper has not incurred any significant
expenditures on research and development activities.
ENVIRONMENTAL CONTROLS. It is anticipated that the Chinese Government will
increase its requirements for environmental controls. With this in mind,
Dransfield Paper is installing and employing environmental control standards
that meet U.S. standards, which are higher than those currently required by the
PRC.
45
<PAGE> 56
With respect to Paper Mill No. 2, the environmental controls proposed
by and being installed by Dransfield Paper have been approved by the Provincial
authorities and the Central Government. The paper mills will use an enzymatic
process as the deinking agent, which employs a biological agent rather than the
traditional chemical process. Approximately 90% less chemicals will be used.
The entire deinking process has been designed by in-house U.S. and European
experts assisted by an independent consultant. The effluent output is mostly
clay, which can be used as a construction material, and the effluent water will
be treated in lagoons. Similar environmental controls are proposed for Paper
Mill No. 1 and are expected to be approved by the Provincial authorities and
the Central Government.
The effluent water, after treatment, will meet the standards set by the
Chinese Government for biological oxygen demand (BOD), chemical oxygen demand
(COD), suspended solids (SS) and pH.
Dransfield Paper's waste treatment process and plants have been
designed by specialists in the U.S. but are built locally in China.
The company does not anticipate having to pay any significant
environmental clean-up costs in its operations other than as part of its
regular operating requirements, because prior to actual installation of the
equipment, the company's environmental procedures will have met the local
authority requirements and approval.
NUMBER OF EMPLOYEES. On March 31, 1996 the company employed 30 persons. Once
the operation in Conghua goes into full operation, the number of employees will
increase substantially, as it will when installation of the deinking and tissue
making operations commence at the paper mills.
VENUE OF SALES. Less than 10% of sales during the year ended March 31, 1996
were attributable to exports to China. Most of the sales for the last three
fiscal years were in Hong Kong.
PATENTS, COPYRIGHTS AND INTELLECTUAL PROPERTY.
Dransfield Paper holds no patents, copyrights or intellectual property
other than trade marks established for its new paper products for the consumer
market. Dransfield paper is not aware of any patents, trademarks, licenses,
franchises and concessions that would affect its business and production
described herein.
LEGAL PROCEEDINGS.
Neither Dransfield Paper nor any of its property is a party to or the
subject of any material pending legal proceedings other than ordinary routine
litigation incidental to its business.
MARKET FOR DRANSFIELD PAPER'S CAPITAL STOCK AND RELATED STOCKHOLDER MATTERS.
As of the date of this Prospectus, there is no public trading market
for Dransfield Paper's capital stock and there is only one holder of record of
Dransfield Paper's issued and outstanding capital stock.
46
<PAGE> 57
Dransfield Paper has declared no dividends on its common stock. Should the
Merger not be approved and effected, there are no restrictions that would or
are likely to limit the ability of Dransfield Paper to pay dividends on its
common stock, but Dransfield Paper has no plans to pay dividends in the
foreseeable future and intends to use earnings for the expansion of its present
business.
FINANCIAL STATEMENTS.
See "Financial Statements - Dransfield Paper" for the consolidated
financial statements of Dransfield Paper and its subsidiaries containing
balance sheets at March 31, 1995 and 1996, and statements of income, cash
flows, and changes in shareholders' equity for the periods ended March 31,
1994, 1995, and 1996 which have been prepared in accordance with generally
accepted accounting principles in the United States.
TAXATION
The following discussion is a summary of certain anticipated tax
consequences, should the Merger be approved and effected, of the operations of
the Company and of an investment in the Company's Common Stock under British
Virgin Islands income tax laws, U.S. Federal income tax laws, Hong Kong tax
laws and PRC 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 Common Stock. The discussion does not take into account or discuss the tax
laws of any other countries or tax consequences or state, local and other tax
laws. Each person should consult his or her tax advisor regarding the tax
consequences of the acquisition, ownership and disposition of the securities
described herein. The discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this Prospectus, all of
which are subject to change.
BRITISH VIRGIN ISLANDS TAXATION.
The Company and Dransfield Paper are both incorporated under the
International Business Companies Ordinance of the British Virgin Islands.
Neither conducts any business operations in the British Virgin Islands. In the
opinion of Harney, Westwood & Riegels, solicitors in the British Virgin
Islands, such Ordinance provides an exemption for the Company and for
Dransfield Paper from income tax on all income arising to them and on all
distributions made by them to persons who are not resident in the British
Virgin Islands.
U.S. FEDERAL INCOME TAXATION.
TAXATION OF THE COMPANY.
The Company, after the Merger, will not be a "controlled foreign
corporation" and will be subject to U.S. Federal income tax only to the extent
that it has U.S.-source income. Currently the Company has no U.S.-source income
and anticipates none after the Merger.
47
<PAGE> 58
TAXATION OF SHAREHOLDERS.
The following discussion addresses the U.S. Federal income taxation of
a U.S. person (that is a U.S. citizen or resident, a U.S. corporation, a U.S.
partnership, or an estate or trust subject to U.S. tax on all of its income
regardless of source) ("a U.S. investor") who makes an investment in the
securities of the Company. This discussion does not address the U.S. tax
treatment of certain types of investors (that is, individual retirement and
other tax- deferred accounts, life insurance companies and tax-exempt
organizations) or of persons other than U.S. investors, all of whom may be
subject to tax rules that differ significantly from those summarized below.
TAX ON DIVIDENDS. A U.S. investor receiving a distribution on the
Common Stock will be required to include such distribution in gross income as a
taxable dividend to the extent such distribution is paid from earnings and
profits of the Company as determined under U.S. Federal income tax law.
Distributions in excess of the earnings and profits of the Company will first
be treated, for U.S. Federal income tax purposes, as a nontaxable return on
capital to the extent of the U.S. investor's basis in the Common Stock and then
as gain from the sale or exchange of a capital asset, provided that the shares
constitute a capital asset in the hands of the U.S. investor. Dividend income
with respect to the Common Stock will generally be subject to the separate
limitations for "passive income" for purposes of the foreign tax credit
limitation. Shareholders who are corporations will not be eligible for the
corporate dividends received deduction.
SALE OR OTHER DISPOSITION. With certain exceptions, gain or loss on
the sale or exchange of the shares will be treated as capital gain or loss (if
the shares are held as a capital asset). Such capital gain or loss will be
long- term capital gain or loss if the U.S. investor has held the shares for
more than one year at the time of the sale or exchange.
HONG KONG TAXES.
TAX ON DIVIDENDS. No tax will be payable in Hong Kong in respect of
dividends paid by the Company.
PROFITS TAX. No tax will be imposed in Hong Kong in respect of gains
from the sale of the Shares if the Shares are listed on the American Stock
Exchange or are quoted on the Nasdaq National Market.
ESTATE DUTY. No estate duty will be payable in Hong Kong in respect of
the Shares provided that the share register is located outside of Hong Kong and
that the Shares are listed on the American Stock Exchange or are quoted on the
Nasdaq National Market.
STAMP DUTY. No stamp duty will be payable in Hong Kong in respect of
the Shares provided that the share register is located outside of Hong Kong and
that the Shares are listed on the American Stock Exchange or quoted on the
Nasdaq National Market.
48
<PAGE> 59
TAXATION OF THE COMPANY BY THE PRC.
INCOME TAX. Income tax payable by wholly-foreign owned enterprises is
governed by the Income Tax law of the PRC for Enterprises with Foreign
Investment and Foreign Enterprises as well as the Detailed Rules for the
Implementation of the Income Tax Law of the PRC for Foreign Investment
Enterprises and Foreign Enterprises. This law and rules provide for an income
tax rate of 33%, unless a lower rate is provided by law, administrative
regulations, or state council regulations.
Dransfield Paper's Paper Mill No. 1 operations are conducted through
Guangzhou Dransfield Paper Ltd., a co- operative joint venture formed in the
PRC, and its Paper Mill No. 2 operations are conducted through Jaing Ying
Dransfield Paper Co. Ltd., an equity joint venture formed in the PRC. These
two ventures are subject to PRC income taxes at the applicable tax rate of 33%
for Sino-foreign joint venture enterprises. As such, they are eligible to full
exemption from joint venture income tax for the first two years starting from
their first profitable year of operations followed by a 50% deduction of the
applicable tax rate from the third to the fifth year. No PRC income taxes have
been levied on either of such companies, as they had not commenced operations
by the close of their last full fiscal year.
VALUE ADDED TAX. Effective January 1, 1994 the PRC introduced a value
added tax ("VAT") which is assessed on the sale of products within the PRC, the
importation of products, and the provision of processing or repair services
within the PRC. The VAT rate on exported goods is zero, unless otherwise
decided by the State Council. The VAT is levied at a rate of 17% or, in
certain limited circumstances, 13%, depending on the product. Credit is
allowed for VAT previously paid in respect of components of a given product.
MANAGEMENT INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows information as of November 15, 1996 with
respect (i) to each beneficial owner of more than 5% of each class of voting
stock of the Company and more than 10% of each class of voting stock of
Dransfield Paper, (ii) to each of the officers and directors of the Company
individually and as a group, and (iii) to the directors and officers of
Dransfield Paper as a group, and as of the same date with respect to the same
persons as adjusted to give effect to the proposed Merger between the Company
and Dransfield Paper and assuming exercise of the Callable Warrants and the
conversion into Common Stock by Dransfield Paper of its 2,300,000 shares of
Series A Convertible Preferred Stock (12,046,004 shares):
49
<PAGE> 60
<TABLE>
<CAPTION>
Capital Stock Beneficially Owned
---------------------------------
Before Company Common
Spinoff Merger After Merger
-------------- ------------
No. of % of No. of % of
The Company Class Shares Class Shares Class
----------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
SuperCorp Inc.
201 Robert S. Kerr, #800
Oklahoma City, OK 73102 Com. 461,572 100 0 0(1)
Thomas J. Kenan Com. 461,572(2) 100 26,786(3)
8511 Glenwood Ave. Options 4,000 4 20,000(4)
Oklahoma City, -------
OK 73114 46,786 *
T.E. King
49 Strawberry Lane, Com. 461,572(2) 100 26,786
Suite 200 Ser. B Pref. 11,642 30 11,642
Palos Verdes Options 50,000 45 250,000(4)
Peninsula, -------
CA 90274 288,428 2
J. Douglas Bowey
2127 Sawtelle Blvd., Ser. B Pref. 26,786(5) 70 26,786
Suite D Options 6,000 6 30,000(4)
Los Angeles, ------
CA 90025 56,786 *
Albert L. Welsh Com. 461,572(2) 100 26,786
3828 N.W. 69th Options 8,000 8 40,000(4)
Oklahoma City, ------
OK 73116 66,786 *
Officers and Directors Com. 461,572(2) 100 26,786
as a Group (1 person Ser. B Pref. 11,642 60 11,642
before Merger, 0 Option 50,000 50 250,000(4)
persons after Merger) -------
288,428 2
</TABLE>
- -----------------------------
* Less than 1 percent.
(1) After allocating 1 share of Common Stock of the Company for each 14
shares of common stock of SuperCorp, SuperCorp will have 2,250 shares
available for rounding up fractional shares.
(2) These shares are attributed to this person through his position as a
director of SuperCorp, which owns 461,572 shares of Common Stock of
the Company and accordingly represents voting and investment power
shared with the other directors of SuperCorp.
(3) These shares would be owned by the Marilyn C. Kenan Trust, which trust
is under the control of Marilyn C. Kenan, its sole trustee and sole
beneficiary for her life. Mrs. Kenan is the spouse of Thomas J.
Kenan, an officer and director of SuperCorp. Mr. Kenan
50
<PAGE> 61
disclaims any beneficial interest in shares of capital stock of the
Company owned by this trust, which is a testamentary trust established
in the 1980s by the estates of her deceased parents. Mr. Kenan
provides legal services to the Company and to SuperCorp.
(4) Assumes exercise of the U.S. Callable Warrants at $5.50 a Warrant.
(5) Mr. Bowey received these shares in the capacity of a finder. He has
no material relationship with the Company, its officers, directors or
principal shareholders.
<TABLE>
<CAPTION>
Capital Stock Beneficially Owned
--------------------------------------------------
Before Company Common
Spinoff-Merger After Merger
--------------------- --------------------
No. of % of No. of % of
Dransfield Paper Shares Class Shares Class
- --------------- --------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Dransfield
Holdings Com. 80 100 9,746,004(1)
Series A Pref. 2,300,000 100 2,300,000
----------
12,046,004 91
Officers and Com 80 100 9,746,004(1)
Directors Series A Pref. 2,300,000 100 2,300,000
as a group ----------
(8 persons) 12,046,004 91
</TABLE>
- ------------------------
(1) Assumes exercise of the 446,004 Merger Callable Warrants, all of which
will be held by Dransfield Holdings Limited immediately after the
Merger but which may be distributed to the shareholders of Dransfield
Holdings Limited should the directors of Dransfield Holdings Limited
so decide.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES.
Set forth below are the names, and terms of office of each of the
directors, executive officers and significant employees of both the Company and
Dransfield Paper and a description of the business experience of each.
<TABLE>
<CAPTION>
Office Held Term of
Person Office Since Office(1)
------ ------ ----- ------
<S> <C> <C> <C>
Dransfield Paper:
- -----------------
Horace YAO Yee Cheong, 50 Deputy Chairman April 1994 August 1997
and Chief Executive
Officer
Warren MA Kwok Hung, 39 Treasurer and April 1994 August 1997
Secretary
Jeremy LU Yuen Tong, 38 Assistant to February 1996 August 1997
Chief Executive
Officer
</TABLE>
51
<PAGE> 62
<TABLE>
<S> <C> <C> <C>
James MADISON, 46 General Manager May 1996 August 1997
Deinked Pulp
and Tissue
Peter KEATINGE, 61 Manager,
Maintenance May 1996 August 1997
and Engineering
CHOW, Yeung Chee, 54 Plant Manager of January 1996 August 1997
Guangzhou Dransfield
Paper Ltd.
Manuel ALVAREZ, 60 General Manager April 1995 August 1997
for paper con-
verting operations
Terry BURTON, 53 General Manager July 1996 August 1997
of Fine Paper
Division
Eddy WU, 37 General Manager, December 1996 August 1997
Hygienic Paper
(Pacific Basin)
Joseph PANKRATZ, 41 Manager of Pulp September 1996 August 1997
and Paper Making
</TABLE>
- --------------------------
(1) Subject to earlier removal without cause by the directors of
Dransfield.
<TABLE>
<CAPTION>
THE COMPANY:
- ------------
<S> <C> <C> <C>
T.E. King, 61 President, 1996 5-97
Secretary and 1996 5-97
Director 1996 5-97
</TABLE>
EXECUTIVE DIRECTORS OF DRANSFIELD PAPER.
HORACE YAO YEE CHEONG. Mr. Yao spent 17 years with Arthur Young &
Company, international accountants, where he worked in accounting and business
advisory services and rose to managing partner covering Hong Kong and the PRC.
Mr. Yao's responsibilities include strategic planning, business development,
administration and management of the Group. Mr. Yao holds a master of business
administration degree from a university in the U.S. and is a certified public
accountant in the U.S., Australia and Hong Kong.
WARREN MA KWOK HUNG. Mr. Ma is a fellow of the Chartered Association
of Certified Accountants and an associate of the Hong Kong Society of
Accountants. He spent 16 years in the accounting profession of which 10 years
are with Dransfield Holdings. He holds a Higher Diploma in Accountancy from
Hong Kong Polytechnic.
52
<PAGE> 63
JEREMY LU YUEN TONG. Mr. Lu has over sixteen years of international
experience in banking, general management and direct investment in Hong Kong,
Southeast Asia, Canada and China. He graduated from the University of Southern
California in Finance and Accounting. Mr. Lu is an Executive Director of
Dransfield Paper Holdings Ltd., assisting Mr. Horace Yao in corporate planning
and finance.
SENIOR EXECUTIVES OF DRANSFIELD PAPER.
JAMES MADISON. Mr. Madison has more than 24 years experience in
tissue paper making and converting. He holds a bachelor of science degree in
mechanical engineering from a university in the U.S.
PETER KEATINGE. Mr. Keatinge has more than 43 years of project
management experience in pulp and paper, engineering and energy conservation.
He holds a bachelor of science degree from London University and is a Chartered
Engineer and a member of the Institute of Electrical Engineers as well as the
Institute of Mechanical Engineers in the United Kingdom.
CHOW YEUNG CHEE. Mr. Chow has more than 31 years experience chemical
engineering and managing manufacturing plants. He has a bachelor of science
degree in chemistry.
MANUEL ALVAREZ. Mr. Alvarez has more than 30 years experience in the
paper converting business in the U.S. Prior to joining the Group, he was the
Vice President of Production of a major paper company in the U.S.
TERRY BURTON. Mr. Burton has over 30 years commercial experience in
the European paper trade including one of Europe's largest paper merchandising
groups and a Spanish recycled paper mill.
EDDY WU. Mr. Wu has a master's of business administration degree and
more than 13 years' experience in managing factories and being responsible for
sales and marketing for several Chinese consumer product companies, the last of
which was a large company listed on the Hong Kong Stock Exchange.
JOE PANKRATZ. Mr. Pankratz has more than 24 years' experience in
recycled pulp and paper making, working for Fort Howard Paper and for Pope &
Talbot. He specializes in the design of effluent treatment processes.
THE COMPANY.
T.E. KING. Mr. King received a bachelor of arts degree in finance in
1958 from Northwestern University and attended the J.L. Kellogg Graduate School
of Management in 1958-1959. He was employed during 1959-1960 as a floor
specialist trainee by Cruttenden & Co., a Midwest Stock Exchange firm, in
Chicago, Illinois and in 1960-1961 as an investment analyst for Cruttenden
Podesta in Chicago. He was employed during the period 1961-1963 in San
Francisco, California, first as vice president of research and corporate
finance for Walter C. Gorey & Co. and then as the senior vice president of
research for Henry F. Swift &
53
<PAGE> 64
Co. From 1963 to 1966 he was employed in Chicago by Dempsey Tegeler & Co. as
vice president of investment research for its midwest region and as a position
over-the-counter trader. From 1966 to 1967 he was employed in San Francisco as
the Bay area director of research for a New York-headquartered national
brokerage firm. From 1967 to 1980 he was the executive vice president of
Financial Relations Board, Inc. in Chicago, Illinois and Los Angeles,
California. From 1980 until the present he has served as the president of King
& Assoc. in Los Angeles, California. King & Assoc. provides corporate finance
consulting and project financing management for both privately-held and
publicly-held corporations and also provides financial community relations for
publicly-held corporations.
REMUNERATION OF DIRECTORS AND OFFICERS.
THE COMPANY.
Mr. King, the sole officer and director of the Company, has received
and is receiving no compensation for his services for the Company. No
compensation is proposed to be paid to any officer or director of the Company
prior to the proposed Merger with Dransfield Paper.
DRANSFIELD PAPER.
The directors and officers of Dransfield Paper received from it and
its subsidiaries an aggregate of US$226,000 of compensation in the last fiscal
year for their services in all capacities. Should the Merger be effected, they
shall become the directors of the post-Merger Company. There are no present
plans, arrangements, or understandings concerning any change in compensation
for them after the Merger, should the Merger be effected.
STOCK OPTIONS.
The Company has adopted a stock option plan ("the Plan") which shall
survive the Merger, the major provisions of which Plan are as follows and which
are substantially the same as a similar plan of Dransfield Paper:
THE PLAN. Nontransferable options may be granted by the directors to
employees and executive officers of the Company. The options are for 4-year
terms but may not be exercised during the first year. The exercise price for
each option shall be set by the directors but may not be less than 80 percent
of the average or closing price of the Company's Common Stock during the five
trading days prior to the grant of the option or, if the Common Stock is not
trading, not less than the net book value per share of the Company's Common
Stock as reflected in the Company's most recent balance sheet. The total
number of shares of Common Stock which can be subject to the options at any
time, both under this plan and otherwise, shall not exceed 10 percent of the
number of shares of Common Stock then outstanding. No person can be granted
options which, if fully exercised, would result in that person's owning more
than 25% of the outstanding shares of Common Stock after such exercise. No
options have been granted under the Plan by the
54
<PAGE> 65
Company, nor has Dransfield Paper granted options under its similar plan.
OTHER OPTIONS. The directors of the Company have granted options not
under the Plan to 8 persons to purchase 100,000 shares of Common Stock of the
Company at $0.50 a share, the options to expire December 31, 1997. Should the
Merger be approved and effected, the holders of these options shall exchange
them for 500,000 Callable Common Stock Purchase Warrants ("the U.S. Callable
Warrants"). See "Summary of Proposed Transaction," "Terms of the Transaction,"
"The Proposed Merger and Spinoff," and "Terms of the Transaction - Terms of the
Merger." One of the holders of these options is T.E. King, the sole officer
and director of the Company, who holds 50,000 of these options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
COMPANY'S TRANSACTIONS WITH PROMOTERS. The following persons may be
deemed to be "promoters" of the Company; J. Douglas Bowey, George W. Cole, John
E. Adams, Robert G. Rader, Gary E. Bryant, and the three directors of SuperCorp
- - T.E. King, Thomas J. Kenan, and Albert L. Welsh. Each of such persons, his
spouse, a trust of which his spouse is the principal beneficiary, or an entity
under his control, has purchased or shall receive securities of the Company in
addition to what will be received on a pro rata basis with other SuperCorp
shareholders through the Spinoff, all as set forth above under "Transactions
with Insiders" and "Management Information - Security Ownership of Certain
Beneficial Owners and Management." To the extent that any promoter, his
spouse, a trust or entity earlier described shall receive some of the Spinoff
Shares, such Spinoff Shares shall be received pro rata with all other
shareholders of SuperCorp. To the extent that T.E. King and J. Douglas Bowey
own Preferred Stock of the Company, they each paid $0.001 a share for such
Preferred Stock, T.E. King was permitted by the directors of SuperCorp to
purchase such Preferred Stock by way of compensating him for his services with
respect to the organization of the Company and entering into the Agreement of
Merger with Dransfield Paper and J. Douglas Bowey was permitted by the
directors of SuperCorp to purchase such Preferred Stock by way of compensating
him for his services as a finder. To the extent that any of such promoters is
the owner of Options of the Company, which Options shall be exchanged for U.S.
Callable Warrants, such person was granted such Options pursuant to a decision
made by the directors of SuperCorp by way of compensating such person for his
efforts expended in searching for candidates for merger-spinoff transactions
such as the one with Dransfield Paper described herein. Should any of the U.S.
Callable Warrants held by any of such promoters be exercised by him, the
Company shall receive $5.50 a share for each share purchased pursuant to an
exercise of the U.S. Callable Warrants.
DRANSFIELD PAPER'S TRANSACTIONS WITH MANAGEMENT. Since its inception
in March 1994, Dransfield Paper has had transactions with fellow subsidiary
companies (that is, companies which, like Dransfield Paper, are subsidiaries of
Dransfield Holdings Limited) in which Mr. Horace Yao, chief executive officer
and a director of Dransfield Paper,
55
<PAGE> 66
had a direct or indirect interest as a director or as a beneficial shareholder.
The fellow subsidiary companies provided accounting services, electronic data
processing, and building lease and management services, all at rates believed
by the directors of Dransfield Paper to be at approximately normal commercial
rates. It is proposed that such transactions will continue during the present
fiscal year. The amounts involved are not deemed to be material by Dransfield
Paper.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Thomas J. Kenan, esquire, counsel to the Company and a director of
SuperCorp, is named in this Prospectus as having given an opinion on legal
matters concerning the registration or offering of the securities described
herein. Mr. Kenan's spouse, Marilyn C. Kenan, is the trustee and sole
beneficiary of the Marilyn C. Kenan Trust, a testamentary trust which is the
beneficial owner of 5.8% of the issued and outstanding shares of Common Stock
of SuperCorp and, by reason of this ownership, shall become the beneficial
owner of 26,786 Shares of the Company by way of SuperCorp's distribution of the
461,572 Spinoff Shares to its shareholders, and Mr. Kenan is the record and
beneficial owner of an option to purchase 4,000 shares of Common Stock of the
Company which shall be exchanged for 20,000 U.S. Callable Warrants of the
Company. Mr. Kenan disclaims any beneficial ownership in the securities
beneficially owned by his spouse's trust.
INDEMNIFICATION
Under British Virgin Islands International Business Companies law, a
corporation is authorized to indemnify officers, directors, or a liquidator who
are made or threatened to be made parties to any civil, criminal,
administrative or investigative suits or proceedings by reason of the fact that
they are or were directors, officers, or liquidators of the corporation or are
serving as directors, officers, liquidators or in any other capacity for
another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such persons if they
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation or, with respect to any criminal
action or proceeding, if they had no reasonable cause to believe their conduct
was unlawful. To the extent any such persons are successful on the merits in
defense of any such action, suit or proceeding, Territory of the British Virgin
Islands law provides that they shall be indemnified against reasonable
expenses, including attorney fees. Indemnification and payment of expenses
provided by Territory of the British Virgin Islands law are not deemed
exclusive of any other rights by which an officer, director, employee or agent
may seek indemnification or payment of expenses or may be entitled to under any
by-law, agreement, or vote of shareholders or disinterested directors. In such
regard, a Territory of the British Virgin Islands corporation is empowered to,
and may, purchase and maintain liability insurance on behalf of any person who
is or was a director, officer, employee or agent of the corporation. As a
result of such corporation law, Dransfield Paper or, should the proposed merger
56
<PAGE> 67
become effective, the Company may, at some future time, be legally obligated to
pay judgments (including amounts paid in settlement) and expenses in regard to
civil or criminal suits or proceedings brought against one or more of its
officers, directors, employees or agents, as such, with respect to matters
involving the proposed Merger or, should the Merger be effected, matters that
occurred prior to the Merger with respect to Dransfield Paper.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
FINANCIAL STATEMENTS INDEX
The financial statements of the Company and of Dransfield Paper appear
as follows:
<TABLE>
<S> <C>
DRANSFIELD CHINA PAPER CORPORATION
Independent Auditors' Report F-1
Balance Sheet November 30, 1996 F-2
Notes to Balance Sheet November 30, 1996 F-3
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
Report of Independent Auditors F-6
Consolidated Balance Sheets as of March 31, 1995 and
March 31, 1996 F-7
Consolidated Statements of Income for the years ended
March 31, 1994, March 31, 1995, and March 31, 1996 F-8
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, March 31, 1995, and March 31, 1996 F-9
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1994, March 31, 1995,
and March 31, 1996 F-10
Notes to Consolidated Financial Statements F-11
Consolidated Balance Sheets as of March 31, 1996 and
September 30, 1996 (unaudited) F-26
Consolidated Statements of Income (unaudited) for the six
months ended September 30, 1995 and September 30, 1996 F-27
Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 1995 and September 30, 1996 F-28
Notes to Consolidated Financial Statements (unaudited) F-29
</TABLE>
57
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
To the Director and Stockholder
Dransfield China Paper Corporation
We have audited the balance sheet of Dransfield China Paper
Corporation (a Territory of the British Virgin Islands corporation), a
majority owned subsidiary of Supercorp, Inc. and a development stage company,
as of November 30, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the balance sheet. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall balance sheet presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of Dransfield China Paper
Corporation as of November 30, 1996, in conformity with generally accepted
accounting principles in the United States of America.
/S/ HOGAN & SLOVACEK
Oklahoma City, Oklahoma
December 13, 1996
F-1
<PAGE> 69
DRANSFIELD CHINA PAPER CORPORATION
(A Development Stage Company)
BALANCE SHEET
NOVEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash - on deposit in trust account US $ 500
========
STOCKHOLDER'S EQUITY
Preferred Stock - Authorized 10,000,000 shares,
no par value -
Series A - 2,300,000 shares authorized, unissued
Series B - 100,000 shares authorized, 38,428 issued US $ 38
Common Stock - 40,000,000 shares authorized,
no par value, 461,572 shares issued 462
--------
US $ 500
========
</TABLE>
The accompanying notes are an integral part
of this balance sheet.
F-2
<PAGE> 70
DRANSFIELD CHINA PAPER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO BALANCE SHEET
NOVEMBER 30, 1996
(1) ORGANIZATION
Dransfield China Paper Corporation (the Company) was organized
in accordance with The International Business Companies Act of the
Territory of the British Virgin Islands on June 24, 1996 for the
purpose of merging (the merger) with a wholly-owned subsidiary,
Dransfield Paper Holdings Limited (Dransfield Paper), of Dransfield
Holdings Limited (Dransfield Holdings), a Cayman Islands corporation
whose shares are listed for trading on the Hong Kong Stock Exchange.
The Company has no business operations or significant capital and has
no intention of engaging in any active business until it merges with
Dransfield Paper. Should the merger not occur, the Company would seek
other business opportunities, and if none were found, could be
dissolved within 18 months by a vote of the majority of its common
stockholders. The Company is a development stage company organized
for the merger described below.
The former sole director of the Company is a director of
Supercorp, Inc., the Company's parent. While in this office, this
director was responsible for the formation of the Company. The
current sole director of the Company is Supercorp, Inc.'s president.
Stock of the Company is owned by Supercorp, Inc. and will be
distributed to its shareholders upon the effectiveness of the
registration statements to be filed with the Securities and Exchange
Commission and a favorable vote of Supercorp, Inc.'s shareholders on
the proposed merger. The distributed stock will initially be held in
escrow according to an Escrow Agreement dated August 20, 1996 between
Supercorp, Inc., the Company and the Liberty Bank and Trust Company of
Oklahoma City, N.A.
(2) MERGER AGREEMENT
The Company agreed to merge with Dransfield Paper on November
20, 1996. Dransfield Paper is an operating company acting as a paper
merchant and distributing Proctor & Gamble's "Tempo" brand paper
products in Hong Kong and China.
F-3
<PAGE> 71
Dransfield Paper plans to build four paper product mills in China, one
of which started operations in May, 1996 (see financial information of
Dransfield Paper filed with this registration statement). The Company
will be the surviving corporation (Survivor), but Dransfield Paper
will elect all directors and officers of the Survivor. All currently
outstanding stock of Dransfield Paper in the hands of its parent will
be cancelled and converted into 9,300,000 shares of common and
2,300,000 shares of Series A Preferred stock of the Company, all
authorized but unissued, to be owned by the parent of Dransfield
Paper, along with 446,004 of warrants when the merger is effective.
The merger of Dransfield Paper and the Company should qualify as a
nontaxable reorganization under the tax laws of the Territory of the
British Virgin Islands.
The merger is contingent upon the effectiveness of the
registration statements, and upon the shareholders of the Company and
of Dransfield Paper approving the proposed merger. Because the Company
is only a corporate shell and not an operating entity, the proposed
merger will be accounted for as if Dransfield Paper recapitalized.
Additionally, the historical financial statements for the Company
prior to the merger will be those of Dransfield Paper. Upon
completion of the proposed merger, Dransfield Holdings will own
9,300,000 shares of Common Stock and 2,300,000 shares of Series A
Preferred Stock of the Company or 95.87% of its voting shares. The
fiscal year of the Company will be March 31.
(3) COMMON STOCK OPTIONS AND WARRANTS
By action of the sole director, the Company granted on August
20, 1996 100,000 common stock options to insiders, exercisable at US
$.50 per share and expiring if not exercised on December 31, 1997.
These common stock options are to be cancelled and exchanged for
500,000 Stock Purchase Warrants of the Company on the effective date
of the merger. An additional 446,004 shares of Common Stock Purchase
Warrants of the Company are to be issued to the parent of Dransfield
Paper on the effective date of the merger and all warrants issued by
the Company are to purchase Company common stock at a price of US
$5.50 per share and expire 18 months from the effective date of the
merger.
The sole director also approved of the Share Option Scheme
(Plan) of the Company whereby, at the discretion of the directors,
invited employees of the Company will have the option of subscribing
to common shares of the Company based on a price determined by the
Plan for common shares which in total may not exceed 10% of the share
capital of the Company. No options have been granted in accordance
with this Plan.
F-4
<PAGE> 72
(4) PREFERRED STOCK
The Series A Convertible Preferred Stock to be issued in
connection with the merger shall be entitled to receive, out of
Surplus, a cumulative dividend at the rate of US $.15 per share per
annum and, after the payment of this dividend, share in any other
dividends declared and paid on other capital stock of the Company on
the same basis as the holders of the Company's Common Stock. In case
of liquidation of the Company, these Preferred Stock holders are to
receive US $1.50 for each share owned of the Series A Convertible
Preferred Stock before any distribution to other capital stockholders,
accrued and unpaid dividends and other considerations before the other
capital stockholders share in the liquidation of the assets. This
class of Preferred Stock is convertible into one share of Common Stock
of the Company and has equal voting rights with the Common
stockholders.
The Series B Preferred Stock of the Company has the same
voting rights as the Common stockholders and is entitled to receive in
liquidation US $1.00 per share after satisfaction of the liquidation
of the Series A Convertible Preferred Stock. The current outstanding
Series B Preferred Stock is to be exchanged for Common Stock of the
Company in connection with the merger.
F-5
<PAGE> 73
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Dransfield Paper Holdings Limited
We have audited the accompanying consolidated balance sheets of
Dransfield Paper Holdings Limited and subsidiaries as of March 31, 1996 and
1995 and the related statements of income, cash flows and changes in
shareholders' equity for each of the years in the three-year period ended March
31, 1996. 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 in accordance with auditing standards
generally accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Dransfield Paper Holdings Limited and subsidiaries at March 31, 1996 and 1995,
and the consolidated results of their operations and cash flows for each of the
years in the three-year period ended March 31, 1996, in conformity with
accounting principles generally accepted in the United States of America.
ERNST & YOUNG
Hong Kong
June 3, 1996
F-6
<PAGE> 74
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1995
AND MARCH 31, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Notes 1995 1996 1996
HK$ HK$ US$
------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and bank balances 1,561 853 110
Accounts receivable 6 43,724 85,480 11,053
Inventories, net 7 12,701 21,866 2,827
Prepaid expenses 980 2,392 309
Due from fellow subsidiaries 8 5,736 - -
------- -------- -------
Total current assets 64,702 110,591 14,299
Fixed assets 9 25,467 57,880 7,484
Loan to a related company 10 - 6,230 806
Deposit for fixed assets - 1,510 195
Deferred tax asset 5 592 166 21
Other assets 757 200 26
------- -------- -------
91,518 176,577 22,831
------- -------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans and overdrafts, secured 11 15,255 40,530 5,241
Accounts payable and accrued liabilities 4,666 22,939 2,966
Income tax payable 5 212 1,028 133
Due to holding company 12 63,966 1,884 243
Due to fellow subsidiaries 8 976 17,724 2,291
Due to a minority shareholder 13 1,000 7,000 905
------- -------- -------
Total current liabilities 86,075 91,105 11,779
Minority interests 5,408 6,944 898
Due to holding company 12 - 67,229 8,693
Loan from a related company 10 - 6,230 806
------- -------- -------
91,483 171,508 22,176
Commitments and contingencies 14 - - -
Shareholders' equity:
Common Stock, par value US$.0125 each,
4,000,000 shares authorized;
80 issued, and fully paid up 1 1 -
Contributed surplus 3,000 3,000 388
Retained earnings/(accumulated deficit) 11 ( 2,966) 2,068 267
------- -------- -------
Total shareholders' equity 35 5,069 655
------- -------- -------
Total liabilities and shareholders'
equity 91,518 176,577 22,831
------- -------- -------
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-7
<PAGE> 75
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1994, MARCH 31, 1995 AND MARCH 31, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Notes 1994 1995 1996 1996
HK$ HK$ HK$ US$
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales:
Paper handkerchiefs
- third parties 65,656 64,693 68,011 8,794
- fellow subsidiaries 15 12,731 5,314 7,480 967
Other paper products
to third parties -- 24,352 231,556 29,940
-------- -------- -------- --------
78,387 94,359 307,047 39,701
Cost of sales:
Paper handkerchiefs (60,132) (54,099) (61,086) (7,898)
Other paper products -- (22,266) (213,917) (27,660)
-------- -------- -------- --------
(60,132) (76,365) (275,003) (35,558)
Gross profit 18,255 17,994 32,044 4,143
Commission income -- -- 5,644 730
Selling, general and
administrative expenses 3
- third parties (5,352) (2,471) (12,938) (1,673)
- fellow subsidiaries 15 (7,930) (8,366) (10,822) (1,399)
-------- -------- -------- --------
(13,282) (10,837) (23,760) (3,072)
Interest income 11 66 284 94 12
Interest expense 11 (6) (482) (5,697) (736)
Other expenses, net (164) (206) (485) (63)
-------- -------- -------- --------
Income before income taxes 4,869 6,753 7,840 1,014
Provision for income taxes: 5
- Current (1,569) (1,113) (965) (125)
- Deferred 609 (17) (426) (55)
-------- -------- -------- --------
(960) (1,130) (1,391) (180)
-------- -------- -------- --------
Income before minority
interests 3,909 5,623 6,449 834
Minority interests -- (408) (1,415) (183)
-------- -------- -------- --------
Net income 3,909 5,215 5,034 651
======== ======== ======== ========
Earnings per share 2 48.86 65.19 62.93 8.14
======== ======== ======== ========
Pro forma earnings per common and
common equivalent share (dollars) 2 N/A N/A 0.42 0.05
======== ======== ======== ========
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-8
<PAGE> 76
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, MARCH 31, 1995 AND MARCH 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1994 1995 1996 1996
HK$ HK$ HK$ US$
------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income 3,909 5,215 5,034 651
Adjustments to reconcile income to net
cash provided by operating activities:
Minority interests -- 408 1,415 183
Depreciation 62 192 456 58
Deferred income taxes (609) 17 426 55
Loss on disposal of fixed assets 135 -- 113 15
Other -- -- 209 27
(Increase) decrease in current assets:
Accounts receivable (1,675) (21,881) (41,286) (5,338)
Inventories (12,250) 5,583 (9,165) (1,185)
Prepaid expenses 361 5,335 (1,406) (182)
Due from fellow subsidiaries (1,860) (1,268) 5,736 742
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 1,329 (3,235) 17,550 2,269
Income tax payable 234 212 704 91
Due to fellow subsidiaries 1,957 (1,481) 14,587 1,886
------- ------- ------- -------
Net cash provided by operating
activities (8,407) (10,903) (5,627) (728)
------- ------- ------- -------
Cash flows from investing activities:
Acquisition of fixed assets (220) (3,844) (5,013) (648)
Payment of deposit for purchase of fixed
assets -- -- (1,510) (196)
Proceeds from disposal of other assets 105 -- 557 72
------- ------- ------- -------
Net cash used in investing activities (115) (3,844) (5,966) (772)
------- ------- ------- -------
Cash flows from financing activities:
Capital contribution from a minority
shareholder of a subsidiary -- 5,000 -- --
Advances from a minority shareholder -- 1,000 6,000 776
Advances from holding company 531 27,053 19,930 2,577
Repayment of loan to holding company (9,918) (9,335) (40,320) (5,213)
Bank loans and overdrafts, secured 14,720 (11,571) 25,275 3,268
------- ------- ------- -------
Net cash provided by financing activities 5,333 12,147 10,885 1,408
------- ------- ------- -------
Net decrease in cash and cash equivalents (3,189) (2,600) (708) (92)
Cash and cash equivalents, at beginning
of year 7,350 4,161 1,561 202
------- ------- ------- -------
Cash and cash equivalents, at end of year 4,161 1,561 853 110
======= ======= ======= =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-9
<PAGE> 77
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1994, MARCH 31, 1995 AND MARCH 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Retained
earnings/
Common Contributed (accumulated
stock surplus deficit)
HK$ HK$ HK$
---------- ----------- -----------
<S> <C> <C> <C>
Balance at March 31, 1993 1 3,000 (670)
Net income -- -- 3,909
Distribution to parent (Note 1) -- -- (7,399)
---------- ---------- ----------
Balance at March 31, 1994 1 3,000 (4,160)
Net income -- -- 5,215
Distribution to parent (Note 1) -- -- (4,021)
---------- ---------- ----------
Balance at March 31, 1995 1 3,000 (2,966)
Net income -- -- 5,034
---------- ---------- ----------
Balance at March 31, 1996 1 3,000 2,068
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-10
<PAGE> 78
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION
Dransfield Paper Holdings Limited ("the Company" and together
with its subsidiaries aggregately referred as the "Group") was
incorporated in the British Virgin Islands on March 11, 1994 and was
inactive until May 19, 1994 when it acquired 100% of the issued share
capital of Grandom Dransfield (International) and Company Limited
("GDI") and Holdsworth Investments Limited ("Holdsworth") from
Dransfield Holdings Limited ("DHL"), a company incorporated in the
Cayman Islands and whose shares are listed for trading on the Hong
Kong Stock Exchange. The Company, in consideration for the above
acquisition, issued 1 common stock at a par value of US$1 to DHL. The
difference between the nominal value of the shares of GDI and
Holdsworth acquired over the nominal value of the Company's share
issued in exchange thereof is accounted for as contributed surplus.
The Company is currently a wholly-owned subsidiary of DHL.
The Group is principally engaged in a single product segment
of trading of various types of paper in Hong Kong, Macau and the
People's Republic of China ("PRC"). In 1994, the Group was mainly
engaged in trading of paper handkerchiefs. From 1995, the Group also
engaged in the trading of fine paper which includes box board, art
paper and woodfree paper.
The principal activities of GDI since April 1, 1994 are
distribution and trading of paper handkerchiefs in Hong Kong. Prior
to April 1, 1994, the business was conducted by A. Dransfield &
Company, Limited ("ADL"), which is also a wholly owned subsidiary of
DHL.
The acquisition by the Company of GDI and Holdsworth has been
accounted for as a combination of companies under common control in a
manner similar to a pooling of interests and accordingly, the
historical basis has been used to record the assets and liabilities of
GDI and Holdsworth as of March 31, 1995 and 1996 and retroactive
effect has been given to account for the operations of GDI and
Holdsworth in these financial statements at the historical cost of
DHL. The results of ADL in relation to the distribution and trading
of paper handkerchiefs (hereinafter referred to as the "Paper
Business") for the year ended March 31, 1994 have been accounted for
as a reorganisation under common control. As a result, the
consolidated financial statements has reflected the results of the
Paper Business of ADL for the year ended March 31, 1994 on a manner
similar to a pooling of interests as if ADL's Paper Business has been
under the Company's ownership since April 1, 1993. Intercompany
balances and transactions have been eliminated on consolidation.
F-11
<PAGE> 79
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
The consolidated financial statements have been prepared on a
"stand-alone" basis that reflects all costs incurred by the Group in
operating the business. Such expenses have been adjusted in the
income statements to reflect all of the cost of doing business. The
net effect of the above adjustments is reflected as a distribution to
parent in the statement of changes in shareholders' equity.
The consolidated financial statements were prepared in
accordance with U.S. GAAP. This basis of accounting differs from that
used in the statutory accounts of the Group which were prepared in
accordance with the accounting principles and the relevant financial
regulations applicable to accounting principles and practices
generally accepted in Hong Kong.
The principal adjustments made to conform with the
statutory accounts to U.S. GAAP included the following:
o Write-off of advertising expenses deferred; and
o Deferred taxation.
The financial information has been prepared in Hong Kong
dollars ("HK$"), the official currency of Hong Kong. Solely for the
convenience of the reader, the financial statements have been
translated into United States dollars prevailing on March 31, 1996
which was US$1.00 = HK$7.7353. No representation is made that the
Hong Kong dollar amounts could have been, or could be, converted into
United States dollars ("US$") at that rate or any other certain rate
on March 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and bank balances
Cash and bank balances include cash on hand and demand
deposits with banks with an original maturity of three months or less.
None of the Group's cash is restricted as to withdrawal or use.
(b) Inventories
Inventories comprising raw materials held for production and
goods held for resale, are stated at lower of cost, on a first-in,
first-out basis, or market.
F-12
<PAGE> 80
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Fixed assets and depreciation
Property, machinery and equipment are stated at cost less
accumulated depreciation. Depreciation of property, machinery and
equipment is computed using the straight-line method over the assets'
estimated useful life. The principal annual rates used are as
follows:
<TABLE>
<S> <C>
Land and buildings held in the PRC Over the period of the
land use rights
Buildings 4%
Leasehold improvements 20% or over the lease
terms, whichever
is shorter
Furniture, fixtures and office equipment 20%
Machinery and equipment 20 - 50%
Motor vehicles 20 - 25%
</TABLE>
(d) Income taxes
Income taxes are accounted for under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes", which
requires the use of the liability method of accounting for income
taxes. The liability method measures deferred income taxes by
applying enacted statutory rates in effect at the balance sheet date
to the differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements.
(e) Foreign currency translation
Foreign currency transactions are translated into Hong Kong
dollars at the approximate rates of exchange ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into Hong Kong
dollars at the approximate rates of exchange ruling at that date.
Exchange differences are accounted for in the statement of income.
On consolidation, the assets and liabilities of overseas
subsidiaries are translated to Hong Kong dollars at the approximate
rates of exchange ruling at the balance sheet date and the income and
expenses of overseas subsidiaries are translated to Hong Kong dollars
at the average rate. The resulting translation differences are
included in the exchange fluctuation reserve.
(f) Operating leases
Leases where substantially all the rewards and risks of
ownership of assets remain with the leasing company are accounted for
as operating leases. Rentals applicable to such operating leases are
charged to income on the straight-line basis over the lease terms.
F-13
<PAGE> 81
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(g) Revenue recognition
Revenue from sales of goods are recognised on delivery to
customers and acceptance of the goods. Commission income is
recognised as the services are provided.
(h) Advertising expenses
Advertising expenses, net of cooperative advertising
reimbursements, are charged to the profit and loss account when
incurred.
(i) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could
differ from stated estimates.
(j) Earnings per common and common equivalent share
The earnings per share is based on the net income applicable
to common share and on the weighted average of 80 common shares
outstanding during each of the years presented.
The pro forma earnings per common and common equivalent share
for the year ended March 31, 1996 is based on the net income
applicable to common and common equivalent share of HK$5,034, the
issuance of 2.3 million shares of Series A Convertible Preferred Stock
of the Company on conversion of HK$26,687 (US$3,450) of the amount due
to the holding company on 4 September 1996 (see note 20 (A)), and
after giving effect to the proposed merger - spin-off transaction
described in note 20 (B), the 12.1 million shares of Dransfield China
Paper Corporation ("DCPC") issued and outstanding. Under the proposed
merger - spin-off transaction, the 80 shares of Common Stock in the
Company shall be exchanged for 9.3 million shares of Common Stock in
DCPC, resulting in a total of 9.8 million shares of DCPC Common Stock
issued and outstanding. The 2.3 million shares of Series A
Convertible Preferred Stock of the Company issued and outstanding
shall be exchanged for 2.3 million shares of Series A Convertible
Preferred Stock of DCPC. Each share DCPC Preferred Stock is
convertible into one share DCPC Common Stock. The pro forma earnings
per common and common equivalent share is determined on the
assumptions that such a capital structure existed at 1 April 1995 and
that convertible preferred shares were converted at that date.
F-14
<PAGE> 82
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
3. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
------ ------ ------ ------
<S> <C> <C> <C> <C>
Selling, general and administrative
expenses:
Depreciation 62 192 456 58
Advertising expenses 5,414 1,383 599 77
Exchange gain, net (20) (36) (680) (88)
====== ====== ====== ======
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
------ ------ ------ ------
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest 6 687 6,805 880
Income taxes 1,569 901 149 19
====== ====== ===== ======
Non cash investing and financing
activities:
Loan from a related company
financed by a loan to a
related company - note 10 -- -- 6,230 806
====== ====== ===== ======
Fixed assets paid by
holding company -- 9,035 27,698 3,581
====== ====== ===== ======
</TABLE>
5. INCOME TAXES
The Company was incorporated in the British Virgin Islands
and, under current law of the British Virgin Islands, is not subject
to tax on income or on capital gains.
Grandom Dransfield (International) and Company Limited,
Dransfield Paper (HK) Trading Limited and Central National Hong Kong
Limited were incorporated in Hong Kong and under the current Hong Kong
tax law, any income arising in and deriving from business carried on
in Hong Kong is subject to tax. No tax is charged on dividends
received and capital gains earned.
Dransfield Paper (S.E.A.) Pte Ltd was incorporated in the
Republic of Singapore and is subject to Singapore tax and under the
current Singapore tax law, any income accrued in, derived from or
received in Singapore is subject to tax at a rate of 27%.
F-15
<PAGE> 83
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
5. INCOME TAXES (continued)
Guangzhou Dransfield Paper Limited is a co-operative joint
venture formed in the PRC and Jiang Ying Dransfield Paper Co. Ltd.
("JYDP") is an equity joint venture formed in the PRC and are subject
to PRC income taxes at the applicable tax rate of 33% for Sino-foreign
joint venture enterprises. These two subsidiaries are eligible for
full exemption from joint venture income tax for the first two years
starting from its first profitable year of operations followed by a
50% deduction from the third to fifth year. Under the Income Tax Law
applicable to Sino-foreign joint ventures, no PRC income tax was
levied on the above companies as they have not commenced operation as
at March 31, 1996.
Total income tax expense differs from the amount computed by
applying Hong Kong statutory income tax rate of 16.5% (1995: 16.5% and
1994: 17.5%) to income before taxes as follows:
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
------ ------ ------ ------
<S> <C> <C> <C> <C>
Computed expected income taxes (852) (1,114) (1,294) (168)
Non-deductible losses of subsidiaries (72) (31) (126) (16)
Difference between Hong Kong statutory
rate and Singapore statutory tax rate -- -- (10) (1)
Other (36) 15 39 5
------ ------ ------ ------
(960) (1,130) (1,391) (180)
====== ====== ====== ======
</TABLE>
The deferred tax asset arises from temporary difference
associated with the advertising expenses deferred for income tax
purposes.
6. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of:
<TABLE>
<CAPTION>
March 31,
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
Accounts receivable - trade 43,724 85,480 11,053
Less: Allowance for doubtful debts -- -- --
------ ------ ------
Accounts receivable, net 43,724 85,480 11,053
====== ====== ======
</TABLE>
No provision for doubtful debts has been made at March 31, 1996 (1995: nil).
F-16
<PAGE> 84
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
7. INVENTORIES, NET
<TABLE>
<CAPTION>
Inventories are comprised of: March 31,
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
Raw materials -- 1,299 168
Finished goods 12,701 21,269 2,750
Less: Allowance for obsolescence -- (702) (91)
------- ------- -------
Inventories, net 12,701 21,866 2,827
------- ------- -------
Movement of allowance for obsolescence
Balance as at April 1, -- -- --
Provided during the year -- 702 91
------- ------- -------
Balance as at March 31, -- 702 91
======= ======= =======
</TABLE>
8. DUE FROM (TO) FELLOW SUBSIDIARIES
Balances with fellow subsidiaries are unsecured, interest-free
and repayable within one year. The Group utilized the banking
facilities of a fellow subsidiary and the interest incurred on the
banking facilities were reimbursed by the Group.
9. FIXED ASSETS
<TABLE>
<CAPTION>
March 31,
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
Land and buildings 15,955 18,325 2,369
Leasehold improvement 132 132 17
Machinery and equipment 9,083 38,596 4,990
Motor vehicles 610 819 106
Furniture, fixtures and office equipment 540 1,303 169
------- ------- -------
26,320 59,175 7,651
Less: Accumulated depreciation (853) (1,295) (167)
------- ------- -------
25,467 57,880 7,484
======= ======= =======
</TABLE>
The Group's land and buildings are located in the PRC and held
under land use rights of 50 years from December 1, 1992 to November
30, 2041.
During the year, no depreciation was provided on the land and
buildings and machinery and equipment as they have not been put into
use at the balance sheet date.
F-17
<PAGE> 85
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
10. LOAN WITH A RELATED COMPANY
In May 1995, the Company entered into an agreement with a
third party, Broadsino Investment Company Limited ("Broadsino") to
establish Dransfield Broadsino Paper Holdings Limited ("DBPHL"), a
company which is 80% owned by the Company. DBPHL then entered into an
agreement to establish a Sino-foreign equity joint venture company,
JYDP, which is 60% owned by DBPHL and is principally engaged in paper
manufacturing. DBPHL has committed to contribute an amount of US$9.26
million (approximately HK$72 million) to JYDP, to be financed by a
shareholders' loan.
The Company, DBPHL and Broadsino entered into a loan agreement
whereby the Company and Broadsino agreed to make an interest-free
shareholders' loan of US$9.26 million (approximately HK$72 million)
(the "Shareholders' Loan") to DBPHL. Pursuant to another agreement,
the Company agreed to make a loan of US$1,852 (approximately HK$14
million) to Broadsino, bearing compound interest at the rate of 6
percent per annum, to finance its share of the Shareholders' Loan to
DBPHL. DBPHL has pledged all its assets with the Company and
Broadsino for the repayment in full of the Shareholders' Loan. In
addition, DBPHL also undertakes to apply any amounts, including
dividends, which may be distributed by JYDP to it to repay, in full,
the Shareholders' Loan. Broadsino has pledged both its 20 per cent
shareholding in DBPHL and any amount it may receive from DBPHL as
repayment of its proportion of the Shareholders' Loan to secure the
repayment, in full, of the loan from the Company. A promissory note
has been issued by a wholly owned subsidiary of Broadsino in favour of
the Company.
As at March 31, 1996, the Company advanced HK$6,230 (US$806)
to Broadsino for the capital injection in JYDP, which is classified as
a loan to a related company. The same amount of HK$6,230 (US$806) is
recorded in the consolidated financial statements as long term loan
payable to Broadsino by DBPHL. The loan to and loan from a related
company have no fixed repayment terms.
F-18
<PAGE> 86
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
11. BANK BORROWINGS
The Company and its principal subsidiaries obtained certain
working capital credit facilities from several banks, representing
short-term loans and overdrafts of HK$8 million (US$1,034) and letters
of credit and letters of guarantee of HK$123 million (US$15.9
million). As at March 31, 1996, the unutilized credit facilities
amounted to HK$90,538 (US$11,705), representing short-term loans and
overdrafts of HK$3,627 (US$469) and letters of credit and letters of
guarantee of HK$86,911. The credit facilities are collateralized by:
(a) corporate guarantees given by DHL to the extent of HK$95,850
(US$12,391);
(b) personal guarantees given by a minority shareholder of a
subsidiary to the extent of HK$48,150 (US$6,225); and
(c) a charge over a bank deposit of HK$3 million (US$388) plus
accrued interest held by the above minority shareholder of a
subsidiary.
Pursuant to the letters of undertaking with a banker to obtain
general banking facilities, CS Paper Holdings (International) Limited
("CSP"), a subsidiary of the Company, undertakes not to declare
dividends at more than 50% of the profits without the bank's prior
written approval and to maintain its net assets value, plus
shareholders' loans, at not less than HK$30 million (US$3,878). The
amount of consolidated retained earnings restricted pursuant to this
undertaking is not material.
In addition, the Company and its principal subsidiaries also
obtained working capital credit facilities from several banks which
are shared with DHL and certain of the Company's fellow subsidiaries
(the "Shared Facilities"). These facilities comprise short-term loans
and overdrafts of HK$35,158 (US$4,545) and letters of credit of
HK$41,498 (US$5,365). As at March 31, 1996, the unutilized amount of
the Shared Facilities amounted to HK$40,992 (US$5,299) representing
short-term loans and overdrafts of HK$5,678 (US$734) and letters of
credit of HK$35,314 (US$4,565). As at March 31, 1996, the Company and
its subsidiaries have not drawn down the Shared Facilities. The
Shared Facilities are collateralized by:
(a) a corporate guarantee given by DHL to the extent of HK$40
million (US$5,171);
(b) a corporate guarantee given by a fellow subsidiary to the
extent of HK$21 million (US$2,715); and
(c) unlimited cross guarantees given by a subsidiary of the
Company and certain fellow subsidiaries.
F-19
<PAGE> 87
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
11. BANK BORROWINGS (continued)
The weighted average interest rates on bank borrowings as at
the balance sheet date are as follows:
March 31,
1995 1996
Interest on bank loans and overdrafts 8% 9%
Interest expense on bank loans, net of the amounts capitalized,
is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C>
Interest incurred 6 687 6,805 880
Interest capitalized -- (205) (1,108) (143)
------ ------ ------ ------
Interest expense 6 482 5,697 737
====== ====== ====== ======
</TABLE>
12. DUE TO HOLDING COMPANY
The long term liability balance, which is used to finance the
Group's capital investment, is unsecured and interest-free. The
holding company has agreed that it will not demand payment of the
amount prior to April 1, 1997. The Group utilized the banking
facilities of the holding company and the interest incurred on the
banking facilities were reimbursed by the Group.
The current balance is unsecured, interest-free and has no
fixed term of repayment.
13. DUE TO A MINORITY SHAREHOLDER
The balance represents loans from a minority shareholder and a
director of a subsidiary, amounting to HK$5 million (US$646) and HK$2
million (US$259), respectively at March 31, 1996. The balances are
unsecured, interest-free and are repayable in full in May to June 1996
by three instalments (March 31, 1995: HK$1 million due to a minority
shareholder of a subsidiary is unsecured and interest-free).
F-20
<PAGE> 88
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
14. COMMITMENTS AND CONTINGENCIES
Capital commitments
As of March 31, 1996, the Group had outstanding capital
commitments in respect of its contribution to a subsidiary in the PRC
of approximately HK$43 million (US$5.5 million) and capital
expenditure of HK$10 million (US$1,293).
Contingencies
A subsidiary provided guarantee to DHL and DHL group of
companies to certain banks for an unlimited amount as at March 31,
1996. The amount of banking facilities utilised by DHL group of
companies as at March 31, 1996 is HK$36 million (US$4.6 million).
Besides, another subsidiary also provided guarantee to a bank for a
supplier for an amount of HK$4 million (US$517) and HK$2.3 million
(US$297) was utilized by the supplier as at March 31, 1996.
15. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
The major related party transactions are described in further
detail below. Management believes that the methods used in allocating
costs are reasonable.
<TABLE>
<CAPTION>
Year ended March 31,
Nature of transactions Notes 1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C>
Revenue:
Sales of products (a) 12,731 5,314 7,480 967
====== ====== ====== ======
Expenses:
Electronic data processing and
accounting services charges (b) 1,514 1,425 2,312 299
Storage and delivery charges (c) 4,877 4,436 7,069 914
Equipment rental (d) -- 434 105 13
Operating lease rental for land
and building (e) 1,539 2,071 1,336 173
------ ------ ------ ------
7,930 8,366 10,822 1,399
====== ====== ====== ======
</TABLE>
(a) Sales of products
The Group sold products to Victorison Marketing Limited and
Dransfield Pacific Limited, fellow subsidiaries of the Company at cost
plus 3% (3% to 6% in 1994 and 1995).
F-21
<PAGE> 89
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
15. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS (continued)
(b) Electronic data processing and accounting services charges
Dransfield Secretarial & Administrative Services Limited, a
fellow subsidiary of the Company, provides various administrative
services to the Group including electronic data processing,
accounting, shipping, personnel, legal and general administrative
services. The service fee charged by the fellow subsidiary is based
on apportioned salary costs on the basis of estimated time incurred
and cost of other resources consumed to provide these services to the
Group.
(c) Storage and delivery charges
Victorison Services Limited and Victorison Delivery Limited,
two fellow subsidiaries of the Company, provide storage and delivery
services to the Group at agreed prices, which, in the opinion of the
management, approximate prices negotiated with third parties on an
arm's length basis.
(d) Equipment rental
The equipment rental is paid to A. Dransfield & Company,
Limited, a fellow subsidiary of the Company, at the rate equivalent to
the depreciation of the equipment over its estimated useful live.
(e) Operating lease rental for land and building
The rental under operating leases is paid to Well Assessed
Limited, a fellow subsidiary of the Company based on the actual floor
area occupied by the Group at agreed rates, which, in the opinion of
the management, approximate rates negotiated with third parties on an
arm's length basis.
16. FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash and bank balances
approximate their fair value because of the short maturity of those
instruments. The carrying amounts of the Company's borrowings
approximate their fair value based on the borrowing rates currently
available for borrowings with similar terms and average maturities,
except for the loans from holding company, which, due to their nature,
the fair value is not determinable.
The carrying amount reported in the balance sheet for accounts
receivable and accounts payable approximate their fair value.
F-22
<PAGE> 90
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
17. CONCENTRATION OF RISK
Concentration of credit risk:
The Group's principal activities are distribution of fine
paper and paper handkerchiefs. The Group has long standing
relationships with most of its customers. The Group performs ongoing
credit evaluation of its customers' financial conditions and,
generally does not require collateral.
The allowance for doubtful accounts the Group maintains is
based upon the expected collectibility of all accounts receivable.
Current vulnerability due to certain concentrations:
The Group has investment in the PRC. The value of the Group's
investment may be adversely affected by significant political,
economic and social uncertainties in the PRC. Although the PRC
government has been pursuing economic reform policies for the past 17
years, no assurance can be given that the PRC government will continue
to pursue such policies or that such policies may not be significantly
altered, especially in the event of a change in leadership, social or
political disruption or unforeseen circumstances affecting the PRC's
political, economic and social life. There is also no guarantee that
the PRC government's pursuit of economic reforms will be consistent or
effective.
18. PENSION SCHEME
The Group is a member of a defined contribution pension scheme
of DHL (the "Scheme"). All the full time permanent staff, after
completion of one year's service, are eligible to join the Scheme.
The participants contribute 5% of their basic monthly salaries to the
Scheme while the Group contributes 5% to 6.5% of the basic monthly
salaries of the participants depending on the number of years of
employment of individual participants and such contributions are
charged to the profit and loss account as they become payable in
accordance with the rules of the Scheme. When an employee leaves the
Scheme prior to his/her interest in the Group employer contributions
vesting fully, the ongoing contributions payable by the Group may be
reduced by the relevant amount of forfeited contributions. Pension
scheme expenses, net of forfeited contributions, is HK$93 (US$12),
HK$62 (US$8), HK$44 (US$6) for the years ended March 31, 1994, 1995
and 1996.
F-23
<PAGE> 91
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
19. SEGMENT REPORTING AND MAJOR SUPPLIERS
The Group operates in one primary business segment, in paper
trading in Hong Kong, Macau and the PRC. The sales to Macau and the
PRC during the three years ended March 31, 1996 were insignificant.
There is no single customer who accounted for more than 10% of net
sales for the three years ended March 31, 1996.
In 1994, the Group had one supplier who accounted for
approximately 66% of total purchases. In 1995, the Group purchased
substantially all of its merchandise from two suppliers. In 1996, the
Group had three suppliers who accounted for approximately 57% of total
purchases.
20. SUBSEQUENT EVENTS (UNAUDITED)
(A) Pursuant to a resolution passed by the board of
directors on August 20, 1996, the authorized share capital of
the Company increased from 50,000 shares of Common Stock of
US$1 par value to 4,000,000 shares of Common Stock of US$.0125
par value and 2,500,000 shares of Preferred Stock without par
value. The one share of Common Stock of US$1 par value at the
balance sheet date was split into 80 shares of Common Stock of
US$.0125 par value. The above has been reflected in the
financial statements for the three-year period ended March 31,
1996 as if the split had taken place at the beginning of the
periods presented.
2,300,000 shares of the Preferred Stock were
designated as Series A Convertible Preferred Stock. The
holders of Series A Convertible Preferred Stock are entitled
to receive, out of surplus, a cumulative dividend at the rate
of US$.15 per share per annum and, after the payment of this
dividend, they are entitled to participate in dividends set
apart or paid on other capital stock of the Company on the
same basis as the holders of the Company's Common Stock. In
case of liquidation of the Company, these Preferred Stock
holders shall be entitled to receive US$1.50 for each share of
the Series A Convertible Preferred Stock before any
distribution of the assets of the Company to other capital
stock holders, plus all accrued and unpaid dividends declared
hereon and other considerations before the other capital
stockholders share in the liquidation of the assets. This
class of Preferred Stock is convertible at the option of the
holders into one share of Common Stock of the Company and has
equal voting rights with the Common Stockholders.
On September 4, 1996, the Company issued 2.3 million
shares of Series A Convertible Preferred Stock on conversion
of HK$26,687 (US$3,450) of the amount due to the holding
company.
F-24
<PAGE> 92
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
20. SUBSEQUENT EVENTS (UNAUDITED) (continued)
(B) Proposed merger - spin-off
On 20 August 1996, the Company entered into an
agreement, which was amended on November 15, 1996 (the "Merger
Agreement") with Dransfield China Paper Corporation ("DCPC")
and SuperCorp Inc. ("SuperCorp"), the controlling shareholder
of DCPC and a U.S. corporation with no substantial assets, for
a proposed merger - spin-off transaction to create a public
market for DCPC's stock. The proposed merger - spin-off would
be effected by SuperCorp forming a new subsidiary, DCPC which
would sell 461,572 shares of US$.001 par value Common Stock to
SuperCorp and 38,428 shares of Common Stock to two individuals
at a par value of US$.001. DCPC will authorize 50 million
shares of Common Stock with a par value of US$.001 per share
and 946,004 Common Stock Purchase Warrants which have eighteen
months term and would be exercisable at US$8 per share and 2.3
million shares of Series A Convertible Preferred Stock with
equivalent term as the Preferred Stock of the Company.
Dransfield Holdings Limited will exchange its 80 shares of
stock in the Company for a total of 9.3 million shares of
Common Stock in DCPC. The 2.3 million shares of Series A
Convertible Preferred Stock of the Company issued and
outstanding shall be exchanged for 2.3 million shares of
Series A Convertible Preferred Stock of DCPC, all authorised
but unissued. SuperCorp will file a registration statement on
Form S-1 with the Securities and Exchange Commission to
register the spinoff of the 461,572 shares by SuperCorp. The
merger agreement is subject to approval by the shareholders of
Dransfield Holdings Limited and to any approvals required by
the regulations of the Hong Kong Stock Exchange.
446,004 Common Stock Purchase Warrants of DCPC are to
be issued to Dransfield Holdings Limited on the effective date
of the merger and all warrants issued by DCPC are to purchase
common stock of DCPC at a price of $8.00 per share and expire
18 months from the effective date of the merger.
Because DCPC is only a corporate shell and not an
operating entity, the proposed merger will be accounted for as
if the Company recapitalized. Additionally, the historical
financial statements for DCPC prior to the merger will be
those of the Company.
F-25
<PAGE> 93
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Notes 3/31/96 9/30/96 9/30/96
HK$ HK$ US$
-------- -------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and bank balances 853 2,611 337
Accounts receivable 85,480 37,671 4,870
Inventories, net 3 21,866 10,412 1,346
Prepaid expenses 2,392 3,293 426
Due from fellow subsidiaries - 26,825 3,468
-------- -------- -------
Total current assets 110,591 80,812 10,447
Fixed assets 57,880 72,975 9,434
Loan to a related company 6,230 8,191 1,059
Deposit for fixed assets 1,510 - -
Deferred tax asset 166 681 88
Other assets 200 200 26
-------- -------- -------
176,577 162,859 21,054
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans and overdrafts, secured 40,530 46,355 5,993
Accounts payable and accrued liabilities 22,939 10,245 1,324
Income tax payable 1,028 1,362 176
Due to holding company 1,884 13,873 1,793
Due to fellow subsidiaries 17,724 607 78
Due to a minority shareholder 7,000 3,782 489
-------- -------- -------
Total current liabilities 91,105 76,224 9,853
Minority interests 6,944 5,767 745
Due to holding company 67,229 40,542 5,243
Loan from a related company 6,230 8,191 1,059
-------- -------- -------
171,508 130,724 16,900
Shareholders' equity:
Common Stock, par value US$.0125 each,
4,000,000 shares authorized;
80 issued, and fully paid up 4 1 1 -
Preferred Stock, no par value,
2,500,000 shares authorized;
2,300,000 issued, and fully paid up 4 - 26,687 3,450
Contributed surplus 3,000 3,000 388
Retained earnings 2,068 2,447 316
--------- -------- -------
Total shareholders' equity 5,069 32,135 4,254
--------- -------- -------
Total liabilities and shareholders'
equity 176,577 162,859 21,054
======== ======== =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-26
<PAGE> 94
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Six Six Six
months months months
ended ended ended
Notes 9/30/95 9/30/96 9/30/96
HK$ HK$ US$
--- --- ---
<S> <C> <C> <C>
Net sales:
Paper handkerchiefs
- third parties 33,956 -- --
- fellow subsidiaries 5,392 42,747 5,526
Other paper products 130,093 47,218 6,104
---------- ---------- ----------
169,441 89,965 11,630
Cost of sales:
Paper handkerchiefs (31,641) (36,811) (4,759)
Other paper products (116,042) (45,009) (5,818)
---------- ---------- ----------
(147,683) (81,820) (10,577)
Gross profit 21,758 8,145 1,053
Commission income 3,871 3,966 513
Selling, general and
administrative expenses
- third parties (4,438) (7,193) (930)
- fellow subsidiaries (5,716) (2,731) (353)
---------- ---------- ----------
(10,154) (9,924) (1,283)
Interest income 50 30 4
Interest expense (2,921) (2,149) (278)
Other income/(expenses), net (248) 72 9
---------- ---------- ----------
Income before income taxes 5 12,356 140 18
Provision for income taxes:
- Current (1,825) (614) (80)
- Deferred (161) 520 68
---------- ---------- ----------
(1,986) (94) (12)
---------- ---------- ----------
Income before minority
interests 10,370 46 6
Minority interests (3,136) 336 43
---------- ---------- ----------
Net income 7,234 382 49
========== ========== ==========
Earnings per share (dollars) 6 90,425 1.13 0.14
========== ========== ==========
Shares used in computation of
earnings per share 6 80 339,424 339,424
========== ========== ==========
Pro forma earnings per common
and common equivalent share (cents) 6 N/A 3.16 0.40
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-27
<PAGE> 95
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Six Six
months months months
ended ended ended
9/30/95 9/30/96 9/30/96
HK$ HK$ HK$
--- --- ---
<S> <C> <C> <C>
Net cash provided by/(used for) operating
activities (69,791) 835 109
Cash flows from investing activities:
Acquisition of fixed assets (15,353) (13,673) (1,768)
Proceeds from disposal of other assets 557 -- --
---------- ---------- ----------
Net cash used in investing activities (14,796) (13,673) (1,768)
---------- ---------- ----------
Cash flows from financing activities:
Advances from a minority shareholder 4,000 -- --
Repayment of loan to a minority shareholder -- (3,218) (416)
Advances from holding company -- 11,989 1,550
Repayment of loan to holding company (4,848) -- --
Bank loans and overdrafts, secured 85,067 5,825 752
---------- ---------- ----------
Net cash provided by financing activities 84,219 14,596 1,886
---------- ---------- ----------
Net increase/(decrease) in cash and
cash equivalents (368) 1,758 227
Cash and cash equivalents, at beginning
of period 1,561 853 110
---------- ---------- ----------
Cash and cash equivalents, at end of period 1,193 2,611 337
========== ========== ==========
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-28
<PAGE> 96
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and 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, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six month period ended September 30, 1996
are not necessarily indicative of the results that may be expected for
the year ending March 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto for the year
ended March 31, 1996 included elsewhere in this Registration
Statement.
2. FOREIGN CURRENCY EXCHANGE
The financial information has been prepared in Hong Kong
dollars ("HK$"), the official currency of Hong Kong. Solely for the
convenience of the reader, the financial statements have been
translated into United States dollars prevailing on March 31, 1996
which was US$1.00 = HK$7.7353. No representation is made that the
Hong Kong dollar amounts could have been, or could be, converted into
United States dollars ("US$") at that rate or any other certain rate
on March 31, 1996.
3. INVENTORIES, NET
Inventories are comprised of:
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
3/31/96 9/30/96 9/30/96
HK$ HK$ US$
<S> <C> <C> <C>
Raw materials 1,299 1,375 178
Finished goods 21,269 11,020 1,424
Less: Allowance for obsolescence (702) (1,983) (256)
------- ------- -------
Inventories, net 21,866 10,412 1,346
======= ======= =======
</TABLE>
F-29
<PAGE> 97
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
4. NUMBER OF SHARES OUTSTANDING
Pursuant to a resolution passed by the board of directors on
August 20, 1996, the authorized share capital of the Company increased
from 50,000 shares of Common Stock of US$1 par value to 4,000,000
shares of Common Stock of US$.0125 par value and 2,500,000 shares of
Preferred Stock without par value. The one share of Common Stock of
US$1 par value at that date was split into 80 shares of Common Stock
of US$.0125 par value. The above has been reflected in the financial
statements for the periods ended September 30, 1995 and 1996 as if the
split had taken place at the beginning of the periods presented.
2,300,000 shares of the Preferred Stock were designated as
Series A Convertible Preferred Stock. The holders of Series A
Convertible Preferred Stock are entitled to receive, out of surplus, a
cumulative dividend at the rate of US$.15 per share per annum and,
after the payment of this dividend, they are entitled to participate
in dividends set apart or paid on other capital stock of the Company
on the same basis as the holders of the Company's Common Stock. In
case of liquidation of the Company, these Preferred Stock holders
shall be entitled to receive US$1.50 for each share of the Series A
Convertible Preferred Stock before any distribution of the assets of
the Company to other capital stock holders, plus all accrued and
unpaid dividends declared hereon and other considerations before the
other capital stockholders share in the liquidation of the assets.
This class of Preferred Stock is convertible at the option of the
holders into one share of Common Stock of the Company and has equal
voting rights with the Common Stockholders.
On September 4, 1996, the Company issued 2.3 million shares of
Series A Convertible Preferred Stock on conversion of HK$26,687
(US$3,450) of the amount due to the holding company.
F-30
<PAGE> 98
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
5. EARNINGS PER SHARE
The earnings per common share for the period ended September
30, 1995 is based on the net income applicable to common share and on
the weighted average of common shares outstanding during the period.
The earnings per common and common equivalent share for the
period ended September 30, 1996 were computed by dividing net income
by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year. The convertible
preferred stock has been considered to be the equivalent of common
stock from its issuance on September 4, 1996. Each share of Preferred
Stock is convertible into one share of Common Stock. The number of
shares issuable on conversion of preferred stock was added to the
number of common shares.
The pro forma earnings per common and common equivalent share
for the period ended September 30, 1996 is based on the net income
applicable to common and common equivalent share of HK$186, the
issuance of 2.3 million shares of Series A Convertible Preferred Stock
of the Company on conversion of HK$26,687 (US$3,450) of the amount due
to the holding company on 4 September 1996), and after giving effect
to the proposed merger - spin-off transaction described in note 6, the
12.1 million shares of Dransfield China Paper Corporation ("DCPC")
issued and outstanding. Under the proposed merger - spin-off
transaction, the 80 shares of Common Stock in the Company shall be
exchanged for 9.3 million shares of Common Stock in DCPC, resulting in
a total of 9.8 million shares of DCPC Common Stock issued and
outstanding. The 2.3 million shares of Series A Convertible Preferred
Stock of the Company issued and outstanding shall be exchanged for 2.3
million shares of Series A Convertible Preferred Stock of DCPC. Each
share DCPC Preferred Stock is convertible into one share DCPC Common
Stock. The pro forma earnings per common and common equivalent share
is determined on the assumptions that such a capital structure existed
at 1 April 1995 and that convertible preferred shares were converted
at that date.
F-31
<PAGE> 99
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
6. SUBSEQUENT EVENTS
On 20 August 1996, the Company entered into an agreement,
which was amended on November 15, 1996 (the "Merger Agreement") with
Dransfield China Paper Corporation ("DCPC") and SuperCorp Inc.
("SuperCorp"), the controlling shareholder of DCPC and a U.S.
corporation with no substantial assets, for a proposed merger -
spin-off transaction to create a public market for DCPC's stock. The
proposed merger - spin-off would be effected by SuperCorp forming a
new subsidiary, DCPC which would sell 461,572 shares of US$.001 par
value Common Stock to SuperCorp and 38,428 shares of Common Stock to
two individuals at a par value of US$.001. DCPC will authorize 50
million shares of Common Stock with a par value of US$.001 per share
and 946,004 Common Stock Purchase Warrants which have eighteen months
term and would be exercisable at US$8 per share and 2.3 million shares
of Series A Convertible Preferred Stock with equivalent term as the
Preferred Stock of the Company. Dransfield Holdings Limited will
exchange its 80 shares of stock in the Company for a total of 9.3
million shares of Common Stock in DCPC. The 2.3 million shares of
Series A Convertible Preferred Stock of the Company issued and
outstanding shall be exchanged for 2.3 million shares of Series A
Convertible Preferred Stock of DCPC, all authorised but unissued.
SuperCorp will file a registration statement on Form S-1 with the
Securities and Exchange Commission to register the spinoff of the
461,572 shares by SuperCorp. The merger agreement is subject to
approval by the shareholders of Dransfield Holdings Limited and to any
approvals required by the regulations of the Hong Kong Stock Exchange.
446,004 Common Stock Purchase Warrants of DCPC are to be
issued to Dransfield Holdings Limited on the effective date of the
merger and all warrants issued by DCPC are to purchase common stock of
DCPC at a price of $8.00 per share and expire 18 months from the
effective date of the merger.
Because DCPC is only a corporate shell and not an operating
entity, the proposed merger will be accounted for as if the Company
recapitalized. Additionally, the historical financial statements for
DCPC prior to the merger will be those of the Company.
F-32
<PAGE> 100
APPENDIX A
AGREEMENT OF MERGER
This Agreement of Merger ("the Agreement") is made and
entered into as of November 20, 1996, by and among Dransfield China
Paper Corporation, a British Virgin Islands company ("the Company");
Dransfield Paper Holdings Limited, a British Virgin Islands company
("Dransfield Paper"); and SuperCorp Inc., an Oklahoma corporation
("SuperCorp").
WHEREAS, the Directors of the Company and the Directors of
Dransfield Paper have each agreed to submit to their respective
shareholders, for such shareholders' approval or rejection, the
merger of Dransfield Paper into the Company ("the Merger") in
accordance with the provisions of the International Business
Companies Ordinance (No. 8 of 1984) of the Territory of the
British Virgin Islands and of the provisions of this Agreement;
and
WHEREAS, SuperCorp is the controlling shareholder of the
Company;
NOW, THEREFORE, in consideration of the promises, undertakings
and mutual covenants set forth herein, the Company, Dransfield Paper,
and SuperCorp agree as follows:
1. Merger; Effective Date. Pursuant to the terms and
provisions of this Agreement and of the International Business Companies
Ordinance (No. 8 of 1984) of the Territory of the British Virgin
Islands, and subject to the prior approval by the shareholders of each
of the Company and Dransfield Paper, Dransfield Paper shall be merged
with and into the Company, as confirmed by the filing by the Company of
a certified copy of this Agreement or a certificate of merger with the
Registrar of the Companies of the Territory of the British Virgin
Islands ("the Effective Date"). The Company shall be the surviving
corporation ("the Surviving Corporation"). The Company and Dransfield
Paper shall be referred to hereinafter collectively as the "Constituent
Corporations." On the Effective Date, the separate existence and
corporate organization of Dransfield Paper, except insofar as it may be
continued by statute, shall cease and the Company shall continue as the
Surviving Corporation, which shall succeed, without other transfer or
further act or deed whatsoever, to all the rights, property and assets
of the Constituent Corporations and shall be subject to and liable for
all the debts and liabilities of each; otherwise, its identity,
existence, purposes, rights, immunities, properties, liabilities and
obligations shall be unaffected and unimpaired by the Merger except as
expressly provided herein.
2. Memorandum and Articles of Association. The Memorandum of
Association and the Articles of Association of the Surviving
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Corporation shall be the Memorandum of Association, as amended by the
certificate of merger, and the Articles of Association of the Company as
in effect on the Effective Date.
3. Directors. The directors of Dransfield Paper on the
Effective Date shall become the directors of the Surviving Corporation
from and after the Effective Date, who shall hold office subject to the
provisions of the Memorandum of Association as amended by the
certificate of merger and the Articles of Association of the Surviving
Corporation, until their successors are duly elected and qualified.
4. Officers. The officers of Dransfield Paper on the
Effective Date shall become the officers of the Surviving Corporation
from and after the Effective Date, subject to such powers with respect
to the designation of officers as the directors of the Surviving
Corporation may have under its Articles of Association.
5. Manner of Conversion. The manner of converting the shares
of capital stock of the Constituent Corporations into shares of the
Surviving Corporation shall be as follows:
5.1. The shares of Common Stock of Dransfield Paper which
shall be issued and outstanding on the Record Date (November 15, 1996)
shall, on the Effective Date, be cancelled and exchanged for 9,300,000
shares of Common Stock ("the Merger Shares") and 446,004 Common Stock
Purchase Warrants ("the Merger Warrants").
5.2 The 2,300,000 shares of Series A Convertible
Preferred Stock of Dransfield Paper which shall be issued and
outstanding on the Record Date shall, on the Effective Date, be
cancelled and exchanged for 2,300,000 shares of Series A Convertible
Preferred Stock of the Company ("the Merger Preferred Shares"), which
two preferred stocks shall be identical in every respect.
5.3. There shall be 461,572 shares of Common Stock, no
par value, of the Company issued and outstanding on the Record Date
("the Spinoff Shares"), which shares shall, on the Effective Date,
continue to be outstanding and which shall have been distributed by the
record holder thereof, SuperCorp, to its shareholders ("the Spinoff").
5.4 There shall be 38,428 shares of Preferred Stock of
the Company issued and outstanding on the Record Date ("the Preferred
Stock"), which shares, on the Effective Date, shall have been exchanged
for 38,428 shares of Common Stock of the Company ("the Escrow Shares").
5.5 There shall be options to purchase, at US$0.50 a
share, 100,000 shares of Common Stock of the Company outstanding on
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the Record Date ("the Options"), each of which Options, on the Effective
Date, shall have been cancelled and exchanged for 5 Common Stock
Purchase Warrants of the Company ("the U.S. Warrants").
5.6 By reason of the provisions of paragraphs 5.1 and
5.5 above, the Company shall have 946,004 Common Stock Purchase Warrants
("the Warrants") issued and outstanding after the merger. Each Warrant
shall entitle the holder to purchase 1 share of Common Stock of the
Company for US$5.50. Each Warrant shall expire 18 months after the
Effective Date and is callable by the Company on 30-days notice at such
time as the Company's Common Stock has traded at or above a US$8 closing
price for 10 consecutive trading days.
6. Representations and Warranties. SuperCorp and the Company
jointly represent and warrant to, and agree with, Dransfield Paper that:
6.1 The Company has been duly organized and is validly
existing under the International Business Companies Ordinance (No. 8 of
1984) of the Territory of the British Virgin Islands. The Company has
no subsidiary and does not own an equity interest in any entity.
6.2 The authorized capital of the Surviving Corporation
shall be 50,000,000 shares of capital stock, which shall be of two
classes as follows:
<TABLE>
<S> <C> <C> <C>
Number of Par value
Class Series Shares of shares
----- ------ ---------- ---------
Common None 40,000,000 No Par
Preferred Series A 2,300,000 No Par
To be designated 7,700,000 No Par
by the directors
</TABLE>
6.3 As of the Effective Date but immediately before
giving effect to the Merger, the Company has authorized and outstanding
capital as follows: (i) 461,572 shares of Common Stock, no par value,
(ii) 38,428 shares of Series B Preferred Stock, no par value, and (iii)
options to purchase 100,000 shares of Common Stock. No other shares,
options, warrants or any rights to acquire the Company's capital stock
will be issued and outstanding as of the Effective Date but immediately
before giving effect to the Merger. The shares of Common Stock and
Series A Convertible Preferred Stock to be issued upon exercise of the
warrants to be issued in connection with the Merger, when issued,
delivered and sold, will be duly and validly issued and outstanding,
fully paid and non-assessable, will not have been issued in violation of
or subject to any preemptive or similar rights and will be free from any
lien, charge, encumbrance or other security interest or third party
right or interest.
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6.4 The Company has no liabilities or obligations,
whether absolute, contingent or otherwise.
6.5 As of the Effective Date, the financial statements
of the Company shall not vary in any particular from the Company's
financial statements that appear in the registration statement described
in paragraph 7 below.
6.6 As of the Effective Date, the Merger and the
Agreement will have been duly authorized and approved by the Company's
directors and shareholders.
6.7 The Company is not an "investment company" or an
entity "controlled" by and "investment company" as such terms are
defined in the United States Investment Company Act of 1940, as amended.
7. Conditions of Dransfield Paper's obligations. The
obligations of Dransfield Paper to complete the Merger as provided
herein shall be subject to the accuracy of the representations and
warranties of SuperCorp and the Company herein contained as of the
Effective Date, to the performance by the Company and SuperCorp of their
obligations hereunder and to the following additional conditions:
7.1 The shares of Common Stock of the Company to be
distributed pursuant to the provisions of paragraph 5.3 above shall,
prior to the distribution thereof, be registered with the U.S.
Securities and Exchange Commission ("SEC"), the shares of Common Stock
and Warrants of the Company to be distributed pursuant to the provisions
of paragraphs 5.1 and 5.2 above shall, prior to the distribution
thereof, be approved for issuance by the Hong Kong Stock Exchange
Limited as may be necessary, and the shares of Common Stock and Warrants
of the Company to be distributed pursuant to the provisions of
paragraphs 5.4 and 5.5 above shall, after the distribution thereof, be
registered with the SEC for resale by the holders thereof.
7.2 SuperCorp shall have distributed the Spinoff Shares
to an escrow agent, as described in the registration statements filed
with the SEC.
7.3 The Company shall have registered with the SEC
pursuant to Section 12(b) or (g) of the Securities and Exchange Act
("the Act") of 1934, as amended, and is required to file reports
pursuant to Section 13 or 15(d) of the Act.
7.4 All certificates of Preferred Stock and Options
shall have been returned to the executive office of the Company.
7.5 The directors of the shareholder of Dransfield
Paper are free to approve or disapprove the Merger in their full
discretion and exercise of their duties as directors.
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8. Listing of the Company Common Stock on the American Stock
Exchange or the Nasdaq Stock Market's National Market. SuperCorp
covenants that it will exert its best efforts to obtain a listing of the
Company's Common Stock, after the Effective Date, on the American Stock
Exchange or the Nasdaq Stock Market's National Market, at the choice of
Dransfield Paper.
9. Tax Treatment. The merger of the Company and Dransfield
Paper shall be accomplished as a tax-free reorganization under the laws
of the Territory of the British Virgin Islands.
10. Certificate of Merger. Upon the approval of the merger by
the shareholders of the Company and of Dransfield Paper, the officers of
the Company shall file with the Registrar of Companies of the Territory
of the British Virgin Islands either a certified copy of this Agreement
or a Certificate of Merger, containing terms and provisions consistent
with this Agreement of Merger; provided, however, that at any time prior
to the filing of this Agreement (or a certificate in lieu thereof) with
the Registrar of Companies of the Territory of the British Virgin
Islands, the Agreement may be terminated by the board of directors of
Dransfield Paper notwithstanding approval of this Agreement by the
shareholders of Dransfield Paper or of the Company.
Dransfield China Paper Corporation, a
Territory of the British Virgin Islands
company
By: /s/ T.E. King
-------------------------------------
T.E. King, President
Dransfield Paper Holdings Limited, a
Territory of the British Virgin Islands
company
By: /s/ Warren Ma
-------------------------------------
Warren Ma, Director
SuperCorp Inc.
By: /s/ T.E. King
-------------------------------------
T.E. King, President
A-5
<PAGE> 105
APPENDIX B
THE PEOPLE'S REPUBLIC OF CHINA ("PRC")
AREA AND POPULATION
The PRC has a territory of approximately 9.6 million square kilometers
(3.71 million square miles) and is the third largest country in the world.
The PRC is the most populous country in the world. It had a population
at the end of 1993 of over 1.18 billion - about one-fifth of the world's
population. Its population is unevenly distributed, being very dense in the
east, particularly in the nine eastern coastal provinces and municipalities
which make up 31.7% of the total population. The western part of the PRC is
sparsely populated.
The PRC is becoming increasingly urbanized. From 1949 to 1994, the PRC
urban population increased from 11% of the total population to about 28% of the
population (that is, more than 300 million people). Chongqing and Shanghai,
with populations of approximately 15 to 13 million, respectively, are the
largest cities in the PRC.
POLITICAL OVERVIEW
The PRC political system is organized on the basis of the PRC
Constitution. The National People's Congress ("NPC") is the highest organ and
law-making body under the PRC Constitution, and the State Council is the
highest executive organ of the laws and decisions made by the NPC.
All state organs derive official authority from the PRC Constitution and
other laws. The principal powers of the NPC include amending and enacting the
PRC Constitution, promulgating and reviewing China's national laws and other
regulations, appointing and removing the Premier and other members of the State
Council, the Chairman of the Central Military Commission, the President of the
Supreme People's Court, the Procurator General of the Supreme People's
Procurate, and the President and Vice President of the PRC and approving
national, social and economic plans. Delegates to the NPC come from the various
provinces, regions, municipalities and armed force units and hold five year
terms. The NPC meets annually with the Standing Committee of the NPC
exercising state power when the NPC is not in session.
The State Council is the highest executive organ of the state. The
Premier of the State Council is appointed by the NPC. The State Council is
responsible for the supervision and co-ordination of all ministries and
commissions at the state level and all administrative agencies at the local
level. It prepares and supervises the implementation of the State Plan and
budget. There are 38 ministries and commissions together with the People's
Bank of China and the State Auditing Administration which are currently under
the authority of the State Council.
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The Chinese Communist Party ("CCP") plays a leading role in formulating
policy and selecting and providing personnel at all levels of the State
structure.
Administratively, the PRC is divided into 23 provinces (which includes
Taiwan), three municipalities (Beijing, Shanghai and Tianjin) and five
autonomous regions. At the local level, administrative entities derive their
authority from, and are accountable to, the People's Congresses at the
provincial and municipal levels.
ECONOMIC REVIEW
ECONOMIC STRUCTURE.
The PRC's economy contains four major sectors: state-owned enterprises,
collectively-owned enterprises, individually-owned enterprises and other
enterprises including enterprises with foreign capital. The proportion of
industrial output attributable to state-owned enterprises has been decreasing,
but state-owned enterprises still play a leading role in the economy. In 1993,
state-owned enterprises accounted for approximately 43% of the PRC's output and
enterprises owned by collectives and individuals accounted for 38.4% and 8.4%,
respectively. The fastest growing sector of the economy is other types of
enterprises, including enterprises with foreign capital, which accounted for
10.2% of the total industrial output in 1993, representing an increase of
approximately 43.7% over 1992 figures.
A recent reform has been the conversion of selected state-owned
enterprises into limited liability shareholding companies and the issue of
shares to public and private investors (including employees). Several of these
state-owned enterprises, after being converted into limited liability
shareholding companies, have been granted approval to list on the Shanghai
Stock Exchange and the Shenzhen Stock Exchange, the two emerging stock markets
in the PRC.
Collectively-owned enterprises are predominately located in rural areas
and concentrated in industries with lower demands for capital and technology or
with greater consumer orientation. Collectively-owned enterprises are not
subject to strict control but are only under the guidance of the State Plan.
This allows them more operational flexibility than state-owned enterprises but
entitles them to fewer state subsidies. In 1992, collectively-owned
enterprises accounted for approximately 38% of total industrial production
value in the PRC.
Individually-owned enterprises are typically family-run small
businesses. Individually-owned and other enterprises generally engage in
service industries or retail businesses and are not covered by the State Plan.
ECONOMIC PLANS AND DEVELOPMENT.
The development of the PRC's economy has been characterized by the
adoption, since 1953, of Five Year Plans. Implementation of the plans
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is carried out under the supervision of the State Planning Commission, which
reports directly to the State Council. The Ninth Five Year Plan for national,
economic and social development for 1996-2000 was adopted earlier this year by
the Standing Committee of the NPC.
One objective for the Plan is for the PRC's output to grow at an average
annual rate of growth of about 8%. From 1980 to 1990, the PRC had an average
GNP growth rate of approximately 9%.
The Plan also calls for the establishment of an economic structure
consistent with a socialist planned economy based on public ownership and
market regulation. In addition, emphasis is placed on the further opening of
the PRC to the outside world by expanding economic and technological exchanges
with other countries. The Plan also seeks to relieve supply problems which
have arisen from rapid growth during the 1980s and to allocate resources to the
priority areas of agriculture, energy, transportation, telecommunications and
basic materials industries.
ECONOMIC REFORMS.
In 1978, the PRC began implementing an economic reform program in an
effort to revitalize the economy and improve the standard of living. Since
that time, the PRC Government's economic policies have allowed for an
increasing degree of liberalization from a centrally-planned economy to a more
market-oriented economy. At the fourteenth Party Congress held in October
1992, the Congress called for a "socialist market economy" in which full rein
should be given to market forces with the government limiting its role to
setting and implementing broad macro-economic policies. This was later
endorsed by the eighth session of the NPC amending the Constitution. As part
of the economic reforms, managers of enterprises have been granted more
decision-making powers and responsibilities in relation to matters such as
production, marketing, use of funds, and employment and disciplining of staff.
The PRC Government is gradually relaxing many of its controls over
product prices. Although some products are still controlled and distributed by
the PRC Government at planned prices, the range of products subject to planned
prices has been substantially reduced, particularly in 1992 and the first half
of 1993. Products which are not subject to the State Plan are generally sold
at prices determined by market conditions. In addition, a state-owned
enterprise which has fulfilled its production obligations under the State Plan
may obtain additional raw materials and sell products which it has produced in
excess of the State Plan at market prices in both the international and
domestic markets.
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The following table sets out major economic indicators of the PRC from
1989 to 1993:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross national product
% change 4.4 4.1 8.2 13.4 13.2
Industrial output
% change 8.5 7.8 14.8 27.5 28.0
Light industries 8.2 9.2 13.0 26.1 n/a
Heavy industries 8.9 6.2 14.5 29.0 n/a
Per capita GNP
% change 2.8 9.0 12.8 19.1 27.2
Inflation rate
% change in Retail
Price Index 17.8 2.1 2.9 5.4 13.2
Gross industrial output value
% change 8.5 7.8 14.8 27.5 28.0
Merchandise exports
US$ billion 52.5 62.1 71.9 85.0 91.8
% change 10.6 18.2 15.7 18.2 8.0
Merchandise imports
US$ billion 59.1 53.4 63.8 80.6 104.0
% change 7.0 -9.8 19.6 26.4 29.0
Trade balance
US$ billion -6.6 8.7 8.1 4.4 -12.2
</TABLE>
- ------------------------------
Source: State Statistical Bureau of the PRC China Statistical Yearbook 1994;
As indicated in the table above, industrial output in the PRC has grown
rapidly since 1988. The last decade of economic reform has resulted in a great
change in the PRC's industrial pattern. In the first three decades after 1949,
the PRC placed great emphasis on heavy industry rather than light industry and
as a result the growth rate of heavy industry consistently out-performed that
of light industry. In recent years growth in industrial output has become
relatively balanced between light industry and heavy industry.
The PRC's economic reform has had its problems. Overheating of the
economy, inflation and stagnation in its basic infrastructure development
prompted the government to implement policies to curb inflation from time to
time during the 1980s. An austerity policy in 1988, in particular, led to two
years of stagnant markets and an economic downswing. Starting in early 1992,
boosted by Deng Xiaoping's calls for faster economic development during his
visit to southern China, the pace of the PRC's economic reform has accelerated.
At present, the PRC is in another period of very fast economic development.
However, economic problems are being encountered mainly due to over-investment
in fixed assets, rapid growth in the monetary supply, serious bottle-neck
problems in transport infrastructure, excessive increases in the prices of some
consumer goods and the costs
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of production. Commencing in the second half of 1993, the PRC implemented
macro-economic and fiscal policies in an effort to control its overheated
economy. The plan included raising interest rates, calling in speculative
loans, cutting government expenditure and suspending some price reform
measures. The challenge facing the PRC's economic planners is to ensure that
the economy continues to grow but that this growth takes place in a stable and
non- inflationary environment.
FOREIGN TRADE.
The PRC's foreign trade has grown rapidly since 1987. Trading partners now
include about 170 countries and regions. From 1978 to 1993, the value of total
trade grew from US$20.6 billion to US$195.7 billion.
In 1993, the PRC's foreign trade yielded a trade deficit of US$12.2
billion. Exports reached US$91.8 billion, representing an increase of 8% over
those of 1992, and imports reached US$103.95 billion, representing an increase
of 29%.
The PRC currently enjoys Most Favored Nation ("MFN") trading status with
the United States, which status is subject to renewal on an annual basis. The
PRC's MFN status means that the PRC maintains those trading privileges enjoyed
by all normal trading partners of the United States. The PRC has retained MFN
privileges since 1980. Rescission of MFN status would subject PRC exports to
the United States to significantly higher tariffs.
FOREIGN INVESTMENT.
Since 1978, the number of enterprises with foreign investment has increased
rapidly in the PRC. By the end of 1993, about 167,507 foreign investment
enterprises with an aggregate amount of contracted investment of about US$382
billion had been established. In 1990, foreign investment enterprises
constituted approximately 4.3% of the PRC's total industrial production value.
Since 1978, the PRC Government has afforded even greater flexibility to foreign
parties in relation to the industries in which investments may be made, access
to domestic markets, and management of foreign investment enterprises,
including greater latitude in the hiring and dismissal of employees, in setting
levels of wages, bonuses and allowances, and in purchasing raw materials and
marketing products.
FOREIGN INVESTMENT IN THE PRC FROM 1979 TO 1993.
(excluding joint stock limited companies)
<TABLE>
<CAPTION>
1979-84 1985-89 1990 1991 1992 1993
------- ------- ---- ---- ---- ----
<S> <C>
Number of contracts 3,248 18,530 7,273 12,978 48,764 83,437
Contractual value
(in US$ billions) 10.41 26.46 6.60 11.98 58.1 111.4
</TABLE>
- ---------------------
Source: State Statistical Bureau of the PRC.
B-5
<PAGE> 110
LEGAL SYSTEM
The legal system of the PRC is based principally on written laws and
regulations as supplemented by State Council Commission and Ministry level
measures, rules, interpretations, procedures and directives. Government
departments under the State Council in charge of state planning, economic
restructuring, foreign trade and investment, tax, customs and environmental
protection in particular have broad powers to establish binding legal rules
applicable to all industrial and commercial enterprises. Decided court cases
have no generally binding effect, although such cases are used for the purposes
of judicial reference and guidance. To date, court decisions have not played a
significant role in the interpretation of the PRC legislation relating to the
economy.
As stated above, the NPC is responsible for enacting national laws in the
PRC. The People's Congresses at the provincial and municipal levels have power
to promulgate rules and regulations which are effective only within the
relevant provinces and municipalities. The State Council, certain government
agencies under the State Council and the People's Congresses at the provincial
and municipal levels have authority to issue administrative measures, but such
administration measures, rules, regulations, decisions and directives must not
be in conflict with national laws.
The PRC is still in the course of developing a comprehensive system of laws
since its adoption of the economic opening-up policy and reform in 1978. It
has promulgated a series of laws and regulations principally on various
economic matters and foreign investment in the PRC. Such laws and regulations
mainly deal with foreign investments in the PRC, taxation, foreign trade,
economic contracts between PRC entities and foreign parties, technology
transfer and the protection of certain intellectual property rights. The PRC
Constitution was amended in December 1982 to permit investment by foreign
entities and individuals in the PRC and guarantee protection of the lawful
rights and interests of foreign investors in the PRC.
THE JUDICIAL SYSTEM.
The PRC judicial system is composed of four levels of court: the Supreme
People's Court, the Higher People's Court, the Intermediate People's Court and
the Basic People's Court. The People's Court is established with criminal,
civil and economic tribunals. In addition to these three tribunals, the
People's Court may establish other tribunals (such as an intellectual property
rights tribunal) if necessary. A higher-level People's Court and People's
Procuratorate are both responsible for the supervision of a lower-level
People's Court. The Supreme People's Court is the highest judicial authority
in the PRC judicial system and exercises supervisory power over the various
levels of People's Courts. The PRC adopts a two-tier final appeal system for
ordinary civil cases. Such cases are first heard by a People's Court of first
instance and then subject to appeal to the People's Court of
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second instance at the next higher level, whose decision is final. However, an
application for re-trial may be made to the court of original jurisdiction
which delivered the judgment or ruling, or a higher-level court pursuant to the
Judicial Supervisory Procedures.
The PRC legal system is based on statutes, and court cases do not
constitute binding precedents. The National People's Congress and its standing
committee, the Supreme People's Court, the Supreme People's Procuratorate and
the State Council may give opinions on the interpretation of laws and
regulations so as to resolve uncertainties and ambiguities. Interpretations
made by legislative bodies carry general legal effect. Interpretations made by
the Supreme People's Court and the Supreme People's Procuratorate are divided
into specific interpretations, which are binding interpretations in respect of
specific cases and general interpretations, which carry general legal effect.
Interpretations made by the State Council carry general legal effect but their
scope is restricted to administrative rules, regulations and provisions.
For civil cases, if a party fails to comply with a legally binding
judgment, ruling or settlement agreement, the other party to the dispute may
apply to the court of jurisdiction for enforcement. There are time limits
imposed on the right to apply for such enforcement. If at least one of the
parties to the dispute is an individual, the time limit is one year. If both
parties to the dispute are legal persons or other institutions, the time limit
is six months.
Foreign judgments and rulings will be recognized and enforced by the
People's Courts, if there is an international treaty or other reciprocal
enforcement between the PRC and the relevant foreign country and the
enforcement will not violate the public security, state sovereignty, public
interests or basic principles of law of the PRC.
ARBITRATION AND ENFORCEMENT OF ARBITRATION AWARDS.
The Arbitration Law of the People's Republic of China became effective
September 1, 1995. The Arbitration Law provides that it is applicable to trade
disputes involving foreign parties. The parties thereto may, pursuant to their
arbitration agreement, submit their dispute to arbitration before an
arbitration committee constituted in accordance with the Arbitration Law. The
arbitration rules to be applied by the arbitration committee shall be
formulated in accordance with Arbitration Law and the PRC Civil Procedure Law.
The China International Economic and Trade Arbitration Commission
("CIETAC") is one of the arbitration institutions in the PRC, whose
jurisdiction covers foreign related disputes arising from "international
economic and trade transactions" where the parties have reached an arbitration
agreement selecting CIETAC to be the venue of the arbitration.
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An award made by CIETAC is final and binding on the parties. Under the
PRC Civil Procedure Law and the Arbitration Law, the People's Court shall
enforce arbitration awards governed by CIETAC unless certain errors or
irregularities relating to the jurisdiction, arbitration procedures or
composition of the tribunal are proved or if in the view of the People's Court
the execution of the award would be contrary to the interests of the place of
domicile of the party subject to execution or the place where his property is
located.
Foreign arbitration awards may be enforced in China in accordance with
the PRC Civil Procedure Law provided that the relevant foreign country has
entered into an international treaty or other reciprocal enforcement
arrangement with China. An application for enforcement shall be submitted to
the Intermediate People's Court.
In 1987, China acceded to the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the "New York
Convention"). Because Hong Kong participates in the New York Convention by
virtue of the United Kingdom being a signatory to the New York Convention, an
award by an arbitration organization in Hong Kong can generally be enforced in
the PRC. However, the PRC's accession is subject to the reservation that (a)
the PRC will recognize and enforce foreign arbitration awards on the principles
of reciprocity, and (b) the PRC will only abide by the New York Convention in
disputes considered to be arising from contractual and non-contractual
mercantile legal relations under Chinese laws.
EXCHANGE CONTROL
On December 28, 1993, the People's Bank of China, authorized by the
State Council of the PRC, announced that the dual exchange rate system for
Renminbi against foreign currencies would be replaced by a unified exchange
rate system, with effect from January 1, 1994. The PRC's foreign exchange
control system has been in a state of flux since that time. Numerous rules and
regulations and implementation measures have been issued. To the extent that
existing provisions stipulated in previous regulations do not contradict new
regulations as mentioned above, the existing regulations should remain valid.
Set out below is a summary of these regulations which remain valid and
effective:
(1) Foreign exchange dealings are centralized and administered by the
State Administration for Exchange Control and its branches
("SAEC"). Foreign exchange transactions are to be carried out
under the approval of SAEC in the PRC through authorized banks and
other financial institutions, including certain designated foreign
banks.
(2) PRC residents and foreigners residing in the PRC with foreign
exchange incomes may deposit the foreign exchange in banks or sell
the foreign exchange to banks.
B-8
<PAGE> 113
(3) Foreign parties to Sino-foreign equity joint ventures, Sino-foreign
cooperative joint ventures, foreign investors in wholly
foreign-owned enterprises and other foreign enterprises in China
are permitted to remit their profits out of the PRC, subject to the
availability of foreign exchange.
Since March 1, 1993, each PRC or non-PRC resident has been permitted to
bring in or take out of the PRC RMB6,000 in cash.
The People's Bank of China, with authority from the State Council, on
December 28,1993 issued the Notice on Further Reform of the Foreign Exchange
Control Structure with effect from January 1, 1994. The Notice unifies the
official Renminbi exchange rate and the market rate for Renminbi established at
the foreign exchange swap centers throughout the PRC. Under the Notice, all
foreign exchange income of PRC enterprises must be sold to designated banks
authorized to deal in foreign exchange. However, enterprises with foreign
equity interests and enterprises allowed to have foreign exchange bank accounts
are allowed to retain their foreign exchange earnings.
Control on the purchase of foreign exchange is also relaxed. Enterprises
which require foreign exchange for their ordinary trading activities may
purchase foreign exchange from designated foreign exchange banks if the
applicant is supported by proper import contracts and payment notices. For
import activities which require quotas, import licenses and registration,
foreign exchange may be purchased if the applications are supported by import
contracts and payment notices. For import activities which require quotas,
import licenses and registration, foreign exchange may be purchased if the
applications are supported by import contracts and the relevant required
documents. For non-trading activities, any application for purchase of foreign
exchange needs to be supported by payment contracts or payment notices from
relevant overseas organizations. According to Article 14 of the Provisional
Regulations on the Sale, Purchase and Payment of Foreign Exchange, the payment
of dividends to foreign shareholders is one of the activities permitting the
purchase of foreign exchange through the banking system.
A unified foreign exchange inter-bank market among designated foreign banks
is to be established, to be supervised and administered by the People's Bank of
China through the SAEC.
A single exchange rate system has been set up to replace the official rate
and the swap center rate. Based on market conditions and supply and demand,
and based on the PRC interbank foreign exchange market rate on the previous
day, with reference to current exchange rates in the world financial markets,
the People's Bank of China announces each day an exchange rate which is to be
followed by all designated foreign exchange banks within the permitted range.
Further, foreign investment enterprises may distribute profit to their
foreign investors with funds in their foreign exchange bank
B-9
<PAGE> 114
accounts kept with designated foreign exchange banks. Should such foreign
exchange be insufficient, enterprises may apply to the relevant department of
the state for permission to purchase foreign exchange from designated foreign
exchange banks.
The foreign exchange quota system is being phased out and outstanding
holdings of foreign exchange quota and other entitlements may still be used to
obtain foreign currencies through swap centers which shall continue to operate
for an interim period.
B-10
<PAGE> 115
PART II
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are all expenses of this issuance and distribution. There
are no underwriting discounts or commissions. None of the expenses are being
paid by the distributing security holder, SuperCorp Inc. All expenses are
being paid by Dransfield Paper Holdings Limited, the company with which the
Registrant proposes to merger.
<TABLE>
<CAPTION>
Item Amount
------
<S> <C>
Registration fees $ 1,380
Escrow agent's fee 500
Stock transfer agent's fee 4,375
Printing and engraving 10,000
Postage 4,000
Legal 40,000
Accounting & auditors
Stock Exchange or Nasdaq listing fee 50,000
-------
$
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
There is set forth in the Prospectus under "Terms of the Transaction -
Indemnification for Securities Act Liabilities" a description of the laws of
the Territory of the British Virgin Islands with respect to the indemnification
of officers, directors, and agents of corporations incorporated in the
Territory of the British Virgin Islands.
Both the Company and Dransfield Paper Holdings Limited have Memorandum and
Articles of Association provisions that insure or indemnify, to the full extent
allowed by the laws of the Territory of the British Virgin Islands, directors,
officers, employees, agents or persons serving in similar capacities in other
enterprises at the request either of the Company or Dransfield Paper Holdings
Limited, as the case may be.
To the extent of the indemnification rights provided by the Territory of
the British Virgin Islands statutes and provided by the Company's and
Dransfield Paper Holdings Limited's Memorandum and Articles of Association, and
to the extent of Dransfield Paper Holdings Limited's and the Company's
abilities to meet such indemnification obligations, the officers, directors and
agents of Dransfield Paper Holdings Limited or the Company would be
beneficially affected.
RECENT SALES OF UNREGISTERED SECURITIES.
On June 30, 1996 the Registrant issued 461,572 shares of its common stock
to its corporate parent, SuperCorp Inc., an Oklahoma corporation, for a cash
consideration of $462, or $0.001 a share, and on August 15,
II-1
<PAGE> 116
1996 issued 26,786 shares of its Series B Preferred Stock to J. Douglas Bowey
and 11,642 shares of its Series B Preferred Stock to T.E. King for a cash
consideration of $38, or $0.001 a share.
On August 15, 1996 the Registrant issued to 9 persons options to purchase
100,000 shares of its Common Stock at $0.50 a share, each option expiring
December 31, 1997. These options are to be exchanged at the time of the
Spinoff described in Part I of this Registration Statement for 500,000 U.S.
Callable Warrants. The persons to whom the shares of Series B Preferred Stock
and the options were issued have the following relationships with the
Registrant:
<TABLE>
<CAPTION>
Shares of
Position with Series B Number
Company or Preferred of
Insider SuperCorp Stock Options(1)
- ------- --------- ------------ -------
<S> <C> <C> <C>
J. Douglas Bowey Finder 26,786(2) 6,000
T.E. King Company president and 11,642(2) 50,000
sole director; Super-
Corp president and
director
Thomas J. Kenan Company counsel; 0 4,000(3)
SuperCorp counsel;
SuperCorp officer
and director
Albert L. Welsh SuperCorp officer 0 8,000
and director
George W. Cole None 0 8,000(4)
John E. Adams None 0 8,000(5)
Robert G. Rader None 0 8,000(6)
Gary E. Bryant None 0 8,000(7)
</TABLE>
- --------------------
(1) 500,000 U.S. Callable Warrants, at the time of the Spinoff, will be
exchanged for 100,000 options that were issued to the 8 insiders listed
above as partial payment for the services described immediately below. The
options entitle the option holders to purchase 100,000 shares of Common
Stock of the Company at $0.50 a share and expire if not exercised on
December 31, 1997. Each U.S. Callable Warrant entitles the holder to
purchase 1 share of the Company's Common Stock for $5.50 and expires 18
months from the effective date of a Merger with Dransfield Paper. The
Warrants are callable by the Company on 30 days notice at such time as the
II-2
<PAGE> 117
Company's Common Stock has traded at $8 a share for 10 consecutive days.
(2) Shares of Common Stock, at the time of the Spinoff, will be received by the
holders in exchange for an equal number of shares of Series B Preferred
Stock of the Company that were issued to the two insiders listed above as
partial payment for the services described immediately below. The Series B
Preferred Stock has the same rights as the Company's Common Stock and, in
addition, is entitled to receive in liquidation $1 a share before
liquidating distributions are made to the Common Stock holders.
(3) These warrants will be held by the Marilyn C. Kenan Trust, of which trust
Mr. Kenan's spouse, Marilyn C. Kenan, is the trustee and sole beneficiary.
(4) These warrants will be held by Marjorie J. Cole, Mr. Cole's spouse.
(5) These warrants will be held by Meridyne Corporation, of which Mr. Adams is
an officer and director.
(6) These warrants will be held by Judith Rader, Mr. Rader's spouse.
(7) Half of these warrants will be held by Suzanne Kerr, Mr. Bryant's wife.
SERVICES RENDERED BY INSIDERS.
Mr. Bowey's finder services consisted of introducing Mr. King to SuperCorp
in 1995, and the Company securities he will receive represent compensation to
him for these services.
Mr. King developed personal contacts with officers of Dransfield Paper in
1995 and, together with Messrs. Kenan and Welsh during a due diligence trip to
Hong Kong and China in November 1995, negotiated the merger-spinoff transaction
with Dransfield Paper. Subsequent to the November 1995 due diligence trip and
throughout 1996, Mr. King has done additional due diligence services, financial
and economic analyses, economic projections with respect to the business of
Dransfield Paper and near-daily liaison with officers of Dransfield Paper. Mr.
King is the sole officer and director of the Company prior to the Merger,
should the Merger be approved, and is and will be the Company's agent for
service of process after the Merger. For these services, Mr. King has received
$45,000 from Dransfield Paper and will receive the securities listed above.
Mr. Kenan, together with Messrs. King and Welsh during a due diligence trip
to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper and throughout 1996 has done additional due
diligence services and has performed legal services in organizing the Company
and registering the Spinoff transaction with the Securities and Exchange
Commission ("the Commission"). For these services and for additional legal
services Mr. Kenan is to perform with respect to the Commission should the
Merger be approved by Dransfield
II-3
<PAGE> 118
Paper, Mr. Kenan has been paid $60,000 by Dransfield Paper and will receive the
securities listed above.
Mr. Welsh, together with Messrs. King and Kenan during a due diligence trip
to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper.
Other than as stated above, none of the insiders has received any
compensation from SuperCorp or the Company with respect to the transaction with
Dransfield Paper. Further, none has received a salary or other compensation
from SuperCorp for his services as an officer or director of SuperCorp.
All of the insiders have performed services for SuperCorp, Messrs. Kenan
and Adams since 1989, Mr. Welsh since 1991, and the others since 1994, such
services being in the nature of searching for and developing candidates, such
as Dransfield Paper, for a spinoff-merger transaction that will benefit
SuperCorp shareholders. These services go uncompensated, and the attendant
expenses in most instances go unreimbursed unless and until an opportunity for
indirect compensation presents itself, such as the 500,000 U.S. Callable
Warrants to be distributed or attributed to the eight insiders. Until such
time, should it ever occur, that the Company's Common Stock should qualify as a
"covered security" under the National Securities Market Improvement Act, the
distribution of these warrants to approximately 2,500 SuperCorp shareholders in
48 states on a pro rata basis would require registration under the state Blue
Sky laws and would be economically prohibitive and, in some states, impossible,
due to state securities laws and regulations. Yet, the distribution and
potential exercise of the 500,000 U.S. Callable Warrants was essential to the
negotiation of the transaction with Dransfield Paper.
There was no underwriter, and none of the above-described securities were
offered to any persons other than the present holders of these securities.
The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and by Regulation D, Rule 506. Each of the 8 persons was a
promoter and insider to the organization of the Registrant and fully informed
as to the details of organization of the Registrant.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Separately bound but filed as part of this Registration Statement are the
following exhibits:
Exhibit Item
------------
2 - Agreement of Merger of August 1, 1996,
between Dransfield China Paper Corporation
and Dransfield Paper Holdings Limited.*
II-4
<PAGE> 119
3(i) - Memorandum of Association of Dransfield China Paper
Corporation.*
3(ii) - Articles of Association of Dransfield China
Paper Corporation. (superseded by Exhibit 3(ii).1)
3(ii).1 - Restated and Amended Articles of Association of
Dransfield China Paper Corporation.**
3.1(i) - Memorandum of Association of Dransfield Paper
Holdings Limited.*
3.1(ii) - Articles of Association of Dransfield China Paper
Holdings Limited.*
4 - Relevant portion of the Memorandum of Association
of Dransfield China Paper Corporation defining
the rights of the holder of its Series A
Convertible Preferred Stock.*
4.1 - Relevant portion of the Memorandum of Association
of Dransfield China Paper Corporation defining the
rights of the holders of its Series B Preferred
Stock.*
4.2 - Relevant portion of director's resolution defining
and authorizing grant of stock options to 9
persons.*
5 - Opinion of Thomas J. Kenan, Esq., as to the
legality of the securities covered by the
Registration Statement. (superseded by Exhibit
5.1)
5.1 - Opinion of Harney, Westwood & Riegels as to
legality of the securities covered by this
Registration Statement.**
8 - Opinion of Thomas J. Kenan, Esq., as to tax matters
and tax consequences.* (superseded by Exhibit 8.3).
8.1 - Opinion of Harney, Westwood & Riegels as to matters
concerning British Virgin Islands law. (superseded
by Exhibit 8.2).
8.2 - Opinion by Harney, Westwood & Riegels as to matters
concerning British Virgin Islands law.**
8.3 - Opinion of Thomas J. Kenan, Esq., as to tax matters
and tax consequences.
10.1 - Escrow Agreement among Dransfield China Paper
Corporation; SuperCorp Inc., and Liberty Bank &
Trust Company of Oklahoma City, N.A. (superseded
by Exhibit 10.4)
II-5
<PAGE> 120
10.2 - 1996 Share Option Scheme adopted by Dransfield
China Paper Corporation.*
10.3 - Representative agreement among certain shareholders
of SuperCorp relating to compliance with S.E.C.
Rule 419.*
10.4 - Escrow Agreement among Dransfield China Paper
Corporation SuperCorp Inc., and Liberty Bank &
Trust Company of Oklahoma City, N.A.**
21 - List of all subsidiaries of Dransfield Paper
Holdings Limited.*
23 - Consent of Thomas J. Kenan, Esq. to the reference
to him as an attorney who has passed upon certain
information contained in the Registration
Statement. (superseded by Exhibit 23.7)
23.1 - Consent of Ernst & Young, independent auditors of
Dransfield Paper Holdings Limited. (superseded by
Exhibit 23.8)
23.2 - Consent of Hogan & Slovacek, independent auditors
of Dransfield China Paper Corporation. (superseded
by Exhibit 23.9)
23.3 - Consent of Horace Yao Yee Cheong to serve as a
director of Dransfield China Paper Corporation
should the proposed merger with Dransfield Paper
Holdings Limited become effective.**
23.4 - Consent of Warren Ma Kwok Hung to serve as a
director of Dransfield China Paper Corporation
should the proposed merger with Dransfield Paper
Holdings Limited become effective.**
23.5 - Consent of Jeremy Lu Yuen Tong to serve as a
director of Dransfield China Paper Corporation
should the proposed merger with Dransfield Paper
Holdings Limited become effective.**
23.6 - Consent of Harney, Westwood & Riegels, solicitors,
to the reference to them as experts who have passed
upon certain information contained in the
Registration Statement. (superseded by Exhibit
23.10)
23.7 - Consent of Thomas J. Kenan, Esq. to the reference
to him as an attorney who has passed upon certain
information contained in the Registration
Statement.**
II-6
<PAGE> 121
23.8 - Consent of Ernst & Young, independent auditors of
Dransfield Paper Holdings Limited.**
23.9 - Consent of Hogan & Slovacek, independent auditors
of Dransfield China Paper Corporation.**
23.10 - Consent of Harney, Westwood & Riegels, solicitors,
to the reference to them as experts who have passed
upon certain information contained in the
Registration Statement.**
27 - Financial Data Schedule.*
99 - Designation of T.E. King as the authorized
representative in the United States of Dransfield
China Paper Corporation.*
* Previously filed with Form S-1; incorporated herein.
** Filed with this Amendment No. 1 to Form S-1.
UNDERTAKINGS.
Dransfield China Paper Corporation will:
1. File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) reflect in the prospectus any facts or
events which, individually or together,
represent a fundamental change in the
information in the registration statement;
and
(iii) include any additional or changed material
information on the plan of distribution.
2. For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
4. File a post-effective amendment to the registration
statement to include any financial statements required by Regulation 210.3-19
under the Securities Act of 1933 at the start of a delayed offering or
throughout a continuous offering.
II-7
<PAGE> 122
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("the Act") may be permitted to directors, officers and controlling
persons of Dransfield China Paper Corporation pursuant to the foregoing
provisions, or otherwise, Dransfield China Paper Corporation 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 the payment by Dransfield China Paper Corporation
of expenses incurred or paid by a director, officer or controlling person of
Dransfield China Paper Corporation 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, Dransfield China Paper
Corporation will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Dransfield China Paper Corporation hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of an
included in the registration statement when it became effective.
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 Los Angeles,
California.
Date: December 26, 1996 Dransfield China Paper Corporation
By: /s/ T.E. King
------------------------------
T.E. King, president
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: December 26, 1996 /s/ T.E. King
------------------------------------
T.E. King, president, sole director,
principal financial officer, and
authorized representative in the
United States of the registrant
II-8
<PAGE> 123
EXHIBIT INDEX (AMENDMENT NO. 1 TO FORM S-1)
<TABLE>
<CAPTION>
Exhibit Item
- ------- ----
<S> <C>
3(ii).1 - Restated and Amended Articles of Association of
Dransfield China Paper Corporation.
5.1 - Opinion of Harney, Westwood & Riegels as to legality
of the securities covered by this Registration
Statement.
8.2 - Opinion by Harney, Westwood & Riegels as to matters
concerning British Virgin Islands law.
8.3 - Opinion of Thomas J. Kenan, Esq., as to tax matters
and tax consequences.
10.4 - Escrow Agreement among Dransfield China Paper
Corporation SuperCorp Inc., and Liberty Bank & Trust
Company of Oklahoma City, N.A.
23.3 - Consent of Horace Yao Yee Cheong to serve as a
director of Dransfield China Paper Corporation should
the proposed merger with Dransfield Paper Holdings
Limited become effective.
23.4 - Consent of Warren Ma Kwok Hung to serve as a director
of Dransfield China Paper Corporation should the
proposed merger with Dransfield Paper Holdings Limited
become effective.
23.5 - Consent of Jeremy Lu Yuen Tong to serve as a director
of Dransfield China Paper Corporation should the
proposed merger with Dransfield Paper Holdings Limited
become effective.
23.7 - Consent of Thomas J. Kenan, Esq. to the reference to
him as an attorney who has passed upon certain
information contained in the Registration Statement.
23.8 - Consent of Ernst & Young, independent auditors of
Dransfield Paper Holdings Limited.
</TABLE>
<PAGE> 124
<TABLE>
<S> <C>
23.9 - Consent of Hogan & Slovacek, independent auditors of
Dransfield China Paper Corporation.
23.10 - Consent of Harney, Westwood & Riegels, solicitors, to
the reference to them as experts who have passed upon
certain information contained in the Registration
Statement.
</TABLE>
<PAGE> 1
EXHIBIT 3(ii).1
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
ARTICLES OF ASSOCIATION
OF
DRANSFIELD CHINA PAPER CORPORATION
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context,
the words and expressions standing in the first column of the following
table shall bear the meanings set opposite them respectively in the
second column thereof.
Words Meaning
----- -------
capital
The sum of the aggregate par value of
all outstanding shares with par value of
the Company and shares with par value
held by the Company as treasury shares
plus
(a) the aggregate of the amounts
designated as capital of all
outstanding shares without par
value of the Company and shares
without par value held by the
Company as treasury shares, and
(b) the amounts as are from time
to time transferred from surplus to
capital by a resolution of
directors.
member A person who holds shares in the
Company.
person An individual, a corporation, a
trust, the estate of a deceased
individual, a partnership or an
unincorporated association of
persons.
resolution of (a) A resolution approved at a duly con-
directors vened and constituted meeting
of directors of the Company or of a
committee of directors of the
Company by the affirmative vote of
a simple majority of the directors
present at the meeting who voted
and did not abstain; or
(b) a resolution consented to in
writing by all directors or of all
members of the committee, as the
case may be;
1
<PAGE> 2
except that where a director is given
more than one vote, he shall be counted
by the number of votes he casts for
the purpose of establishing a majority.
resolution of (a) A resolution approved at a duly
members convened and constituted meeting of
the members of the Company by the
affirmative vote of
(i) a simple majority of the
votes of the shares
entitled to vote thereon
which were present at the
meeting and were voted and
not abstained, or
(ii) a simple majority of the
votes of each class or series
of shares which were present
at the meeting and entitled
to vote thereon as a class or
series and were voted and not
abstained and of a simple
majority of the votes of the
remaining shares entitled to
vote thereon which were
present at the meeting
and were voted and not
abstained; or
(b) a resolution consented to in
writing by
(i) an absolute majority of the
votes of shares entitled to
vote thereon, or
(ii) an absolute majority of the
votes of each class or series
of shares entitled to vote
thereon as a class or series
and of an absolute majority
of the votes of the remaining
shares entitled to vote
thereon;
securities Shares and debt obligations of every
kind, and options, warrants and rights
to acquire shares, or debt obligations.
surplus The excess, if any, at the time of the
determination of the total assets of
the Company over the aggregate of its
total liabilities, as shown in its
books of account, plus the Company's
capital.
2
<PAGE> 3
the Act The International Business Companies Act
(Cap. 291) including any modification,
extension, re-enactment or renewal
thereof and any regulations made
thereunder.
the Memorandum The Memorandum of Association of the
Company as originally framed or as from
time to time amended.
the Seal Any Seal which has been duly adopted as
the Seal of the Company.
these Articles These Articles of Association as
originally framed or as from time to
time amended.
treasury shares Shares in the Company that were
previously issued but were repurchased,
redeemed or otherwise acquired by the
Company and not cancelled.
2. "Written" or any term of like import includes words typewritten,
printed, painted, engraved, lithographed, photographed or represented
or reproduced by any mode of reproducing words in a visible form,
including telex, facsimile, telegram, cable or other form of writing
produced by electronic communication.
3. Save as aforesaid any words or expressions defined in the Act shall
bear the same meaning in these Articles.
4. Whenever the singular or plural number, or the masculine, feminine or
neuter gender is used in these Articles, it shall equally, where the
context admits, include the others.
5. A reference in these Articles to voting in relation to shares shall be
construed as a reference to voting by members holding the shares
except that it is the votes allocated to the shares that shall be
counted and not the number of members who actually voted and a
reference to shares being present at a meeting shall be given a
corresponding construction.
6. A reference to money in these Articles is, unless otherwise stated, a
reference to the currency in which shares in the Company shall be
issued according to the provisions of the Memorandum.
REGISTERED SHARES
7. Every member holding registered shares in the Company shall be
entitled to a certificate signed by a director or officer of the
Company and under the Seal specifying the share or shares held by him
and the signature of the director or officer and the Seal may be
facsimiles.
8. Any member receiving a share certificate for registered shares shall
indemnify and hold the Company and its directors and officers harmless
from any loss or liability which it or they may
3
<PAGE> 4
incur by reason of any wrongful or fraudulent use or representation
made by any person by virtue of the possession thereof. If a share
certificate for registered shares is worn out or lost it may be
renewed on production of the worn out certificate or on satisfactory
proof of its loss together with such indemnity as may be required by a
resolution of directors.
9. If several persons are registered as joint holders of any shares, any
one of such persons may give an effectual receipt for any dividend
payable in respect of such shares.
SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS
10. Subject to the provisions of these Articles and any resolution of
members, the unissued shares of the Company shall be at the disposal
of the directors who may, without limiting or affecting any rights
previously conferred on the holders of any existing shares or class or
series of shares, offer, allot, grant options over or otherwise
dispose of shares to such persons, at such times and upon such terms
and conditions as the Company may by resolution of directors
determine.
11. No share in the Company may be issued until the consideration in
respect thereof is fully paid, and when issued the share is for all
purposes fully paid and non-assessable save that a share issued for a
promissory note or other written obligation for payment of a debt may
be issued subject to forfeiture in the manner prescribed in these
Articles.
12. Shares in the Company shall be issued for money, services rendered,
personal property, an estate in real property, a promissory note or
other binding obligation to contribute money or property or any
combination of the foregoing as shall be determined by a resolution of
directors.
13. Shares in the Company may be issued for such amount of consideration
as the directors may from time to time by resolution of directors
determine, except that in the case of shares with par value, the
amount shall not be less than the par value, and in the absence of
fraud the decision of the directors as to the value of the
consideration received by the Company in respect of the issue is
conclusive unless a question of law is involved. The consideration in
respect of the shares constitutes capital to the extent of the par
value and the excess constitutes surplus.
14. A share issued by the Company upon conversion of, or in exchange for,
another share or a debt obligation or other security in the Company,
shall be treated for all purposes as having been issued for money
equal to the consideration received or deemed to have been received by
the Company in respect of the other share, debt obligation or
security.
15. Treasury shares may be disposed of by the Company on such terms and
conditions (not otherwise inconsistent with these Articles) as the
Company may by resolution of directors determine.
4
<PAGE> 5
16. The Company may issue fractions of a share and a fractional share
shall have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and
other attributes of a whole share of the same class or series of
shares.
17. Upon the issue by the Company of a share without par value, if an
amount is stated in the Memorandum to be authorized capital
represented by such shares then each share shall be issued for no less
than the appropriate proportion of such amount which shall constitute
capital, otherwise the consideration in respect of the share
constitutes capital to the extent designated by the directors and the
excess constitutes surplus, except that the directors must designate
as capital an amount of the consideration that is at least equal to
the amount that the share is entitled to as a preference, if any, in
the assets of the Company upon liquidation of the Company.
18. The Company may purchase, redeem or otherwise acquire and hold its own
shares but only out of surplus or in exchange for newly issued shares
of equal value.
19. Subject to provisions to the contrary in
(a) the Memorandum or these Articles;
(b) the designations, powers, preferences, rights, qualifications,
limitations and restrictions with which the shares were
issued; or
(c) the subscription agreement for the issue of the shares,
the Company may not purchase, redeem or otherwise acquire its own
shares without the consent of members whose shares are to be
purchased, redeemed or otherwise acquired.
20. No purchase, redemption or other acquisition of shares shall be made
unless the directors determine that immediately after the purchase,
redemption or other acquisition the Company will be able to satisfy
its liabilities as they become due in the ordinary course of its
business and the realizable value of the assets of the Company will
not be less than the sum of its total liabilities, other than deferred
taxes, as shown in the books of account, and its capital and, in the
absence of fraud, the decision of the directors as to the realizable
value of the assets of the Company is conclusive, unless a question of
law is involved.
21. A determination by the directors under the preceding Regulation is not
required where shares are purchased, redeemed or otherwise acquired
(a) pursuant to a right of a member to have his shares redeemed or
to have his shares exchanged for money or other property of
the Company;
(b) by virtue of a transfer of capital pursuant to Regulation 49;
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(c) by virtue of the provisions of Section 83 of the Act; or
(d) pursuant to an order of the Court.
22. Shares that the Company purchases, redeems or otherwise acquires
pursuant to the preceding Regulation may be cancelled or held as
treasury shares except to the extent that such shares are in excess of
80 percent of the issued shares of the Company in which case they
shall be cancelled but they shall be available for reissue.
23. Where shares in the Company are held by the Company as treasury shares
or are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the
election of directors of the other company, such shares of the Company
are not entitled to vote or to have dividends paid thereon and shall
not be treated as outstanding for any purpose except for purposes of
determining the capital of the Company.
24. The Company may purchase, redeem or otherwise acquire its shares at a
price lower than the fair value if permitted by, and then only in
accordance with, the terms of
(a) the Memorandum or these Articles; or
(b) a written agreement for the subscription for the shares to be
purchased, redeemed or otherwise acquired.
25. The Company may by a resolution of directors include in the
computation of surplus for any purpose the unrealized appreciation of
the assets of the Company, and, in the absence of fraud, the decision
of the directors as to the value of the assets is conclusive, unless a
question of law is involved.
MORTGAGES AND CHARGES OF REGISTERED SHARES
26. Members may mortgage or charge their registered shares in the Company
and upon satisfactory evidence thereof the Company shall give effect
to the terms of any valid mortgage or charge except insofar as it may
conflict with any requirements herein contained for consent to the
transfer of shares.
27. In the case of the mortgage or charge of registered shares there may
be entered in the share register of the Company at the request of the
registered holder of such shares
(a) a statement that the shares are mortgaged or charged;
(b) the name of the mortgagee or chargee; and
(c) the date on which the aforesaid particulars are entered in the
share register.
28. Where particulars of a mortgage or charge are registered, such
particulars shall be cancelled
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(a) with the consent of the named mortgagee or chargee
or anyone authorized to act on his behalf; or
(b) upon evidence satisfactory to the directors of the
discharge of the liability secured by the mortgage or
charge and the issue of such indemnities as the
directors shall consider necessary or desirable.
29. Whilst particulars of a mortgage or charge are registered, no transfer
of any share comprised therein shall be effected without the written
consent of the named mortgagee or chargee or anyone authorized to act
on his behalf.
FORFEITURE
30. When shares issued for a promissory note or other written obligation
for payment of a debt have been issued subject to forfeiture, the
following provisions shall apply.
31. Written notice specifying a date for payment to be made and the shares
in respect of which payment is to be made shall be served on the
member who defaults in making payment pursuant to a promissory note or
other written obligations to pay a debt.
32. The written notice specifying a date for payment shall
(a) name a further date not earlier than the expiration of 14 days
from the date of service of the notice on or before which
payment required by the notice is to be made; and
(b) contain a statement that in the event of non-payment at or
before the time named in the notice the shares, or any of
them, in respect of which payment is not made will be liable
to be forfeited.
33. Where a written notice has been issued and the requirements have not
been complied with within the prescribed time, the directors may at any
time before tender of payment forfeit and cancel the shares to which the
notice relates.
34. The Company is under no obligation to refund any moneys to the member
whose shares have been forfeited and cancelled pursuant to these
provisions. Upon forfeiture and cancellation of the shares the member is
discharged from any further obligation to the Company with respect to
the shares forfeited and cancelled.
LIEN
35. The Company shall have a first and paramount lien on every share issued
for a promissory note or for any other binding obligation to contribute
money or property or any combination thereof to the Company, and the
Company shall also have a first and paramount lien on every share
standing registered in the name of a member, whether singly or jointly
with any other person or persons, for all the debts and liabilities of
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<PAGE> 8
such member or his estate to the Company, whether the same shall have
been incurred before or after notice to the Company of any interest of
any person other than such member, and whether the time for the payment
or discharge of the same shall have actually arrived or not, and
notwithstanding that the same are joint debts or liabilities of such
member or his estate and any other person, whether a member of the
Company or not. The Company's lien on a share shall extend to all
dividends payable thereon. The directors may at any time either
generally, or in any particular case, waive any lien that has arisen or
declare any share to be wholly or in part exempt from the provisions of
this Regulation.
36. In the absence of express provisions regarding sale in the promissory
note or other binding obligation to contribute money or property, the
Company may sell, in such manner as the directors may by resolution of
directors determine, any share on which the Company has a lien, but no
sale shall be made unless some sum in respect of which the lien exists
is presently payable nor until the expiration of twenty-one days after a
notice in writing, stating and demanding payment of the sum presently
payable and giving notice of the intention to sell in default of such
payment, has been served on the holder for the time being of the share.
37. The net proceeds of the sale by the Company of any shares on which it
has a lien shall be applied in or towards payment of discharge of the
promissory note or other binding obligation to contribute money or
property or any combination thereof in respect of which the lien exists
so far as the same is presently payable and any residue shall (subject
to a like lien for debts or liabilities not presently payable as existed
upon the share prior to the sale) be paid to the holder of the share
immediately before such sale. For giving effect to any such sale the
directors may authorize some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of
the share and he shall not be bound to see to the application of the
purchase money, nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings in reference to the sale.
TRANSFER OF SHARES
38. Subject to any limitations in the Memorandum, registered shares in the
Company may be transferred by a written instrument of transfer signed by
the transferor and containing the name and address of the transferee,
but in the absence of such written instrument of transfer the directors
may accept such evidence of a transfer of shares as they consider
appropriate.
39. The Company shall not be required to treat a transferee of a registered
share in the Company as a member until the transferee's name has been
entered in the share register.
40. Subject to any limitations in the Memorandum, the Company must on the
application of the transferor or transferee of a registered
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share in the Company enter in the share register the name of the
transferee of the share save that the registration of transfers may be
suspended and the share register closed at such times and for such
periods as the Company may from time to time by resolution of
directors determine provided always that such registration shall not
be suspended and the share register closed for more than 60 days in
any period of 12 months.
TRANSMISSION OF SHARES
41. The executor or administrator of a deceased member, the guardian of an
incompetent member or the trustee of a bankrupt member shall be the
only person recognized by the Company as having any title to his share
but they shall not be entitled to exercise any rights as a member of
the Company until they have proceeded as set forth in the next
following three Regulations.
42. The production to the Company of any document which is evidence of
probate of the will, or letters of administration of the estate, or
confirmation as executor, of a deceased member or of the appointment
of a guardian of an incompetent member or the trustee of a bankrupt
member shall be accepted by the Company even if the deceased,
incompetent or bankrupt member is domiciled outside the British Virgin
Islands if the document evidencing the grant of probate or letters of
administration, confirmation as executor, appointment as guardian or
trustee in bankruptcy is issued by a foreign court which had competent
jurisdiction in the matter. For the purpose of establishing whether or
not a foreign court had competent jurisdiction in such a matter the
directors may obtain appropriate legal advice. The directors may also
require an indemnity to be given by the executor, administrator,
guardian or trustee in bankruptcy.
43. Any person becoming entitled by operation of law or otherwise to a
share or shares in consequence of the death, incompetence or
bankruptcy of any member may be registered as a member upon such
evidence being produced as may reasonably be required by the
directors. An application by any such person to be registered as a
member shall for all purposes be deemed to be a transfer of shares of
the deceased, incompetent or bankrupt member and the directors shall
treat it as such.
44. Any person who has become entitled to a share or shares in consequence
of the death, incompetence or bankruptcy of any member may, instead of
being registered himself, request in writing that some person to be
named by him be registered as the transferee of such share or shares
and such request shall likewise be treated as if it were a transfer.
45. What amounts to incompetence on the part of a person is a matter to be
determined by the court having regard to all the relevant evidence and
the circumstances of the case.
REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL
46. The Company may by a resolution of directors amend the Memorandum to
increase or reduce its authorized capital and in connection
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therewith the Company may in respect of any unissued shares increase
or reduce the number of such shares, increase or reduce the par value
of any such shares or effect any combination of the foregoing.
47. The Company may amend the Memorandum to
(a) divide the shares, including issued shares, of a class or
series into a larger number of shares of the same class or
series; or
(b) combine the shares, including issued shares, of a class or
series into a smaller number of shares of the same class or
series,
provided, however, that where shares are divided or combined under (a)
or (b) of this Regulation, the aggregate par value of the new shares
must be equal to the aggregate par value of the original shares.
48. The capital of the Company may by a resolution of directors be
increased by transferring an amount of the surplus of the Company to
capital.
49. Subject to the provisions of the two next succeeding Regulations, the
capital of the Company may by resolution of directors be reduced by
transferring an amount of the capital of the Company to surplus.
50. No reduction of capital shall be effected that reduces the capital of
the Company to an amount that immediately after the reduction is less
than the aggregate par value of all outstanding shares with par value
and all shares with par value held by the Company as treasury shares
and the aggregate of the amounts designated as capital of all
outstanding shares without par value and all shares without par value
held by the Company as treasury shares that are entitled to a
preference, if any, in the assets of the Company upon liquidation of
the Company.
51. No reduction of capital shall be effected unless the directors
determine that immediately after the reduction the Company will be
able to satisfy its liabilities as they become due in the ordinary
course of its business and that the realizable assets of the Company
will not be less than its total liabilities, other than deferred
taxes, as shown in the books of the Company and its remaining capital,
and, in the absence of fraud, the decision of the directors as to the
realizable value of the assets of the Company is conclusive, unless a
question of law is involved.
MEETINGS AND CONSENTS OF MEMBERS
52. The directors of the Company may convene meetings of the members of
the Company at such times and in such manner and places within or
outside the British Virgin Islands as the directors consider necessary
or desirable.
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53. Upon the written request of members holding 10 percent or more of the
outstanding voting shares in the Company the directors shall convene a
meeting of members.
54. The directors shall give not less than 7 days notice of meetings of
members to those persons whose names on the date the notice is given
appear as members in the share register of the Company and are
entitled to vote at the meeting.
55. The directors may fix the date notice is given of a meeting of members
as the record date for determining those shares that are entitled to
vote at the meeting.
56. A meeting of members may be called on short notice:
(a) if members holding not less than 90 percent of the total
number of shares entitled to vote on all matters to be
considered at the meeting, or 90 percent of the votes of each
class or series of shares where members are entitled to vote
thereon as a class or series together with not less than a 90
percent majority of the remaining votes, have agreed to short
notice of the meeting, or
(b) if all members holding shares entitled to vote on all or any
matters to be considered at the meeting have waived notice of
the meeting and for this purpose presence at the meeting shall
be deemed to constitute waiver.
57. The inadvertent failure of the directors to give notice of a meeting
to a member, or the fact that a member has not received notice, does
not invalidate the meeting.
58. A member may be represented at a meeting of members by a proxy who may
speak and vote on behalf of the member.
59. The instrument appointing a proxy shall be produced at the place
appointed for the meeting before the time for holding the meeting at
which the person named in such instrument proposes to vote.
60. An instrument appointing a proxy shall be in substantially the
following form or such other form as the Chairman of the meeting shall
accept as properly evidencing the wishes of the member appointing the
proxy.
(Name of Company)
I/We being a member of the above
Company with shares HEREBY APPOINT
of or failing him
of to be my/our proxy to vote for
me/us at the meeting of members to be held on the day of and at
any adjournment thereof.
(Any restrictions on voting to be inserted here.)
Signed this day of
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................................
Member
61. The following shall apply in respect of joint ownership of shares:
(a) if two or more persons hold shares jointly each of them may be
present in person or by proxy at a meeting of members and may
speak as a member;
(b) if only one of the joint owners is present in person or by
proxy he may vote on behalf of all joint owners, and
(c) if two or more of the joint owners are present in person or by
proxy they must vote as one.
62. A member shall be deemed to be present at a meeting of members if he
participates by telephone or other electronic means and all members
participating in the meeting are able to hear each other.
63. A meeting of members is duly constituted if, at the commencement of
the meeting, there are present in person or by proxy not less than 50
percent of the votes of the shares or class or series of shares
entitled to vote on resolutions of members to be considered at the
meeting. If a quorum be present, notwithstanding the fact that such
quorum may be represented by only one person then such person may
resolve any matter and a certificate signed by such person accompanied
where such person be a proxy by a copy of the proxy form shall
constitute a valid resolution of members.
64. If within two hours from the time appointed for the meeting a quorum
is not present, the meeting, if convened upon the requisition of
members, shall be dissolved; in any other case it shall stand
adjourned to the next business day at the same time and place or to
such other time and place as the directors may determine, and if at
the adjourned meeting there are present within one hour from the time
appointed for the meeting in person or by proxy not less than one
third of the votes of the shares or each class or series of shares
entitled to vote on the resolutions to be considered by the meeting,
those present shall constitute a quorum but otherwise the meeting
shall be dissolved.
65. At every meeting of members, the Chairman of the Board of Directors
shall preside as chairman of the meeting. If there is no Chairman of
the Board of Directors or if the Chairman of the Board of Directors is
not present at the meeting, the members present shall choose some one
of their number to be the chairman. If the members are unable to
choose a chairman for any reason, then the person representing the
greatest number of voting shares present in person or by prescribed
form of proxy at the meeting shall preside as chairman failing which
the oldest individual member or representative of a member present
shall take the chair.
66. The chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
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67. At any meeting of the members the chairman shall be responsible for
deciding in such manner as he shall consider appropriate whether any
resolution has been carried or not and the result of his decision
shall be announced to the meeting and recorded in the minutes thereof.
If the chairman shall have any doubt as to the outcome of any
resolution put to the vote, he shall cause a poll to be taken of all
votes cast upon such resolution, but if the chairman shall fail to
take a poll then any member present in person or by proxy who disputes
the announcement by the chairman of the result of any vote may
immediately following such announcement demand that a poll be taken
and the chairman shall thereupon cause a poll to be taken. If a poll
is taken at any meeting, the result thereof shall be duly recorded in
the minutes of that meeting by the chairman.
68. Any person other than an individual shall be regarded as one member
and subject to the specific provisions hereinafter contained for the
appointment of representatives of such persons the right of any
individual to speak for or represent such member shall be determined
by the law of the jurisdiction where, and by the documents by which,
the person is constituted or derives its existence. In case of doubt,
the directors may in good faith seek legal advice from any qualified
person and unless and until a court of competent jurisdiction shall
otherwise rule, the directors may rely and act upon such advice
without incurring any liability to any member.
69. Any person other than an individual which is a member of the Company
may by resolution of its directors or other governing body authorize
such person as it thinks fit to act as its representative at any
meeting of the Company or of any class of members of the Company, and
the person so authorized shall be entitled to exercise the same powers
on behalf of the person which he represents as that person could
exercise if it were an individual member of the Company.
70. The chairman of any meeting at which a vote is cast by proxy or on
behalf of any person other than an individual may call for a
notarially certified copy of such proxy or authority which shall be
produced within 7 days of being so requested or the votes cast by such
proxy or on behalf of such person shall be disregarded.
71. Directors of the Company may attend and speak at any meeting of
members of the Company and at any separate meeting of the holders of
any class or series of shares in the Company.
72. An action that may be taken by the members at a meeting may also be
taken by a resolution of members consented to in writing or by telex,
telegram, cable, facsimile or other written electronic communication,
without the need for any notice, but if any resolution of members is
adopted otherwise than by the unanimous written consent of all
members, a copy of such resolution shall forthwith be sent to all
members not consenting to such resolution. The consent may be in the
form of counterparts, each counterpart being signed by one or more
members.
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DIRECTORS
73. The first directors of the Company shall be appointed by the
subscribers to the Memorandum; and thereafter, the directors shall be
elected by the members for such term as the members determine.
74. The minimum number of directors shall be one and the maximum number
shall be 12.
75. Each director shall hold office for the term, if any, fixed by
resolution of members or until his earlier death, resignation or
removal.
76. A director may be removed from office, with or without cause, by a
resolution of members or, with cause, by a resolution of directors.
77. A director may resign his office by giving written notice of his
resignation to the Company and the resignation shall have effect from
the date the notice is received by the Company or from such later date
as may be specified in the notice.
78. The directors may at any time appoint any person to be a director
either to fill a vacancy or as an addition to the existing directors.
A vacancy occurs through the death, resignation or removal of a
director, but a vacancy or vacancies shall not be deemed to exist
where one or more directors shall resign after having appointed his or
their successor or successors.
79. The Company may determine by resolution of directors to keep a
register of directors containing
(a) the names and addresses of the persons who are directors of
the Company;
(b) the date on which each person whose name is entered in the
register was appointed as a director of the Company; and
(c) the date on which each person named as a director ceased to be
a director of the Company.
80. If the directors determine to maintain a register of directors, a copy
thereof shall be kept at the registered office of the Company and the
Company may determine by resolution of directors to register a copy of
the register with the Registrar of Companies.
81. With the prior or subsequent approval by a resolution of members, the
directors may, by a resolution of directors, fix the emoluments of
directors with respect to services to be rendered in any capacity to
the Company.
82. A director shall not require a share qualification and may be an
individual or a company.
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POWERS OF DIRECTORS
83. The business and affairs of the Company shall be managed by the
directors who may pay all expenses incurred preliminary to and in
connection with the formation and registration of the Company and may
exercise all such powers of the Company as are not by the Act or by
the Memorandum or these Articles required to be exercised by the
members of the Company, subject to any delegation of such powers as
may be authorized by these Articles and to such requirements as may be
prescribed by a resolution of members; but no requirement made by a
resolution of members shall prevail if it be inconsistent with these
Articles nor shall such requirement invalidate any prior act of the
directors which would have been valid if such requirement had not been
made.
84. The directors may, by a resolution of directors, appoint any person,
including a person who is a director, to be an officer or agent of the
Company. The resolution of directors appointing an agent may authorize
the agent to appoint one or more substitutes or delegates to exercise
some or all of the powers conferred on the agent by the Company.
85. Every officer or agent of the Company has such powers and authority of
the directors, including the power and authority to affix the Seal, as
are set forth in these Articles or in the resolution of directors
appointing the officer or agent, except that no officer or agent has
any power or authority with respect to the matters requiring a
resolution of directors under the Act.
86. Any director which is a body corporate may appoint any person its duly
authorized representative for the purpose of representing it at
meetings of the Board of Directors or with respect to unanimous
written consents.
87. The continuing directors may act notwithstanding any vacancy in their
body, save that if their number is reduced to their knowledge below
the number fixed by or pursuant to these Articles as the necessary
quorum for a meeting of directors, the continuing directors or
director may act only for the purpose of appointing directors to fill
any vacancy that has arisen or for summoning a meeting of members.
88. The directors may by resolution of directors exercise all the powers
of the Company to borrow money and to mortgage or charge its
undertakings and property or any part thereof, to issue debentures,
debenture stock and other securities whenever money is borrowed or as
security for any debt, liability or obligation of the Company or of
any third party.
89. All cheques, promissory notes, drafts, bills of exchange and other
negotiable instruments and all receipts for moneys paid to the
Company, shall be signed, drawn, accepted, endorsed or otherwise
executed, as the case may be, in such manner as shall from time to
time be determined by resolution of directors.
90. The Company may determine by resolution of directors to maintain at
its registered office a register of mortgages, charges and
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other encumbrances in which there shall be entered the following
particulars regarding each mortgage, charge and other encumbrance:
(a) the sum secured;
(b) the assets secured;
(c) the name and address of the mortgagee, chargee or other
encumbrancer;
(d) the date of creation of the mortgage, charge or other
encumbrance; and
(e) the date on which the particulars specified above in respect
of the mortgage, charge or other encumbrance are entered in
the register.
91. The Company may further determine by a resolution of directors to
register a copy of the register of mortgages, charges or other
encumbrances with the Registrar of Companies.
PROCEEDINGS OF DIRECTORS
92. The directors of the Company or any committee thereof may meet at such
times and in such manner and places within or outside the British
Virgin Islands as the directors may determine to be necessary or
desirable.
93. A director shall be deemed to be present at a meeting of directors if
he participates by telephone or other electronic means and all
directors participating in the meeting are able to hear each other.
94. A director shall be given not less than 3 days notice of meetings of
directors, but a meeting of directors held without 3 days notice
having been given to all directors shall be valid if all the directors
entitled to vote at the meeting who do not attend, waive notice of the
meeting and for this purpose, the presence of a director at a meeting
shall constitute waiver on his part. The inadvertent failure to give
notice of a meeting to a director, or the fact that a director has not
received the notice, does not invalidate the meeting.
95. A director may by a written instrument appoint an alternate who need
not be a director and an alternate is entitled to attend meetings in
the absence of the director who appointed him and to vote or consent
in place of the director.
96. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by
alternate not less than one-half of the total number of directors,
unless there are only 2 directors in which case the quorum shall be 2.
97. If the Company shall have only one director the provisions herein
contained for meetings of the directors shall not apply but such sole
director shall have full power to represent and act for the
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Company in all matters as are not by the Act or the Memorandum or
these Articles required to be exercised by the members of the Company
and in lieu of minutes of a meeting shall record in writing and sign a
note or memorandum of all matters requiring a resolution of directors.
Such a note or memorandum shall constitute sufficient evidence of such
resolution for all purposes.
98. At every meeting of the directors the Chairman of the Board of
Directors shall preside as chairman of the meeting. If there is no
Chairman of the Board of Directors or if the Chairman of the Board of
Directors is not present at the meeting the Vice-Chairman of the Board
of Directors shall preside. If there is no Vice-Chairman of the Board
of Directors or if the Vice-Chairman of the Board of Directors is not
present at the meeting the directors present shall choose some one of
their number to be chairman of the meeting.
99. An action that may be taken by the directors or a committee of
directors at a meeting may also be taken by a resolution of directors
or a committee of directors consented to in writing or by telex,
telegram, cable, facsimile or other written electronic communication
by all directors or all members of the committee as the case may be,
without the need for any notice. The consent may be in the form of
counterparts, each counterpart being signed by one or more directors.
100. The directors shall cause the following corporate records to be kept:
(a) minutes of all meetings of directors, members, committees of
directors, committees of officers and committees of members;
(b) copies of all resolutions consented to by directors, members,
committees of directors, committees of officers and committees
of members; and
(c) such other accounts and records as the directors by resolution
of directors consider necessary or desirable in order to
reflect the financial position of the Company.
101. The books, records and minutes shall be kept at the registered office
of the Company, its principal place of business or at such other place
as the directors determine.
102. The directors may, by resolution of directors, designate one or more
committees, each consisting of one or more directors.
103. Each committee of directors has such powers and authorities of the
directors, including the power and authority to affix the Seal, as are
set forth in the resolution of directors establishing the committee,
except that no committee has any power or authority to amend the
Memorandum or these Articles, to appoint directors or fix their
emoluments, or to appoint officers or agents of the Company.
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104. The meetings and proceedings of each committee of directors consisting
of 2 or more directors shall be governed mutatis mutandis by the
provisions of these Articles regulating the proceedings of directors
so far as the same are not superseded by any provisions in the
resolution establishing the committee.
OFFICERS
105. The Company may by resolution of directors appoint officers of the
Company at such times as shall be considered necessary or expedient.
Such officers may consist of a Chairman of the Board of Directors, a
Vice-Chairman of the Board of Directors, a President and one or more
Vice-Presidents, Secretaries and Treasurers and such other officers as
may from time to time be deemed desirable. Any number of offices may
be held by the same person.
106. The officers shall perform such duties as shall be prescribed at the
time of their appointment subject to any modification in such duties
as may be prescribed thereafter by resolution of directors or
resolution of members, but in the absence of any specific allocation
of duties it shall be the responsibility of the Chairman of the Board
of Directors to preside at meetings of directors and members, the
Vice-Chairman to act in the absence of the Chairman, the President to
manage the day to day affairs of the Company, the Vice-Presidents to
act in order of seniority in the absence of the President but
otherwise to perform such duties as may be delegated to them by the
President, the Secretaries to maintain the share register, minute
books and records (other than financial records) of the Company and to
ensure compliance with all procedural requirements imposed on the
Company by applicable law, and the Treasurer to be responsible for the
financial affairs of the Company.
107. The emoluments of all officers shall be fixed by resolution of
directors.
108. The officers of the Company shall hold office until their successors
are duly elected and qualified, but any officer elected or appointed
by the directors may be removed at any time, with or without cause, by
resolution of directors. Any vacancy occurring in any office of the
Company may be filled by resolution of directors.
CONFLICT OF INTERESTS
109. No agreement or transaction between the Company and one or more of its
directors or any person in which any director has a financial interest
or to whom any director is related, including as a director of that
other person, is void or voidable for this reason only or by reason
only that the director is present at the meeting of directors or at
the meeting of the committee of directors that approves the agreement
or transaction or that the vote or consent of the director is counted
for that purpose if the material facts of the interest of each
director in the agreement or transaction and his interest in or
relationship to any other party to the
18
<PAGE> 19
agreement or transaction are disclosed in good faith or are known by
the other directors.
110. A director who has an interest in any particular business to be
considered at a meeting of directors or members may be counted for
purposes of determining whether the meeting is duly constituted.
INDEMNIFICATION
111. Subject to the limitations hereinafter provided the Company may
indemnify against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably
incurred in connection with legal, administrative or investigative
proceedings any person who
(a) is or was a party or is threatened to be made a party to any
threatened, pending or completed proceedings, whether civil,
criminal, administrative or investigative, by reason of the
fact that the person is or was a director, an officer or a
liquidator of the Company; or
(b) is or was, at the request of the Company, serving as a
director, officer or liquidator of, or in any other capacity
is or was acting for, another company or a partnership, joint
venture, trust or other enterprise.
112. The Company may only indemnify a person if the person acted honestly
and in good faith with a view to the best interests of the Company
and, in the case of criminal proceedings, the person had no reasonable
cause to believe that his conduct was unlawful.
113. The decision of the directors as to whether the person acted honestly
and in good faith and with a view to the best interests of the Company
and as to whether the person had no reasonable cause to believe that
his conduct was unlawful is, in the absence of fraud, sufficient for
the purposes of these Articles, unless a question of law is involved.
114. The termination of any proceedings by any judgment, order, settlement,
conviction or the entering of a nolle prosequi does not, by itself,
create a presumption that the person did not act honestly and in good
faith and with a view to the best interests of the Company or that the
person had reasonable cause to believe that his conduct was unlawful.
115. If a person to be indemnified has been successful in defence of any
proceedings referred to above the person is entitled to be indemnified
against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably
incurred by the person in connection with the proceedings.
116. The Company may purchase and maintain insurance in relation to any
person who is or was a director, an officer or a liquidator of the
Company, or who at the request of the Company is or was serving as a
director, an officer or a liquidator of, or in any other
19
<PAGE> 20
capacity is or was acting for, another company or a partnership, joint
venture, trust or other enterprise, against any liability asserted
against the person and incurred by the person in that capacity,
whether or not the Company has or would have had the power to
indemnify the person against the liability as provided in these
Articles.
SEAL
117. The Company may have more than one Seal and references herein to the
Seal shall be references to every Seal which shall have been duly
adopted by resolution of directors. The directors shall provide for the
safe custody of the Seal and for an imprint thereof to be kept at the
Registered Office. Except as otherwise expressly provided herein the
Seal when affixed to any written instrument shall be witnessed and
attested to by the signature of a director or any other person so
authorized from time to time by resolution of directors. Such
authorization may be before or after the Seal is affixed, may be
general or specific and may refer to any number of sealings. The
Directors may provide for a facsimile of the Seal and of the signature
of any director or authorized person which may be reproduced by
printing or other means on any instrument and it shall have the same
force and validity as if the Seal had been affixed to such instrument
and the same had been signed as hereinbefore described.
DIVIDENDS
118. The Company may by a resolution of directors declare and pay dividends
in money, shares, or other property, but dividends shall only be
declared and paid out of surplus. In the event that dividends are paid
in specie the directors shall have responsibility for establishing and
recording in the resolution of directors authorizing the dividends, a
fair and proper value for the assets to be so distributed.
119. The directors may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the profits of
the Company.
120. The directors may, before declaring any dividend, set aside out of the
profits of the Company such sum as they think proper as a reserve
fund, and may invest the sum so set aside as a reserve fund upon such
securities as they may select.
121. No dividend shall be declared and paid unless the directors determine
that immediately after the payment of the dividend the Company will be
able to satisfy its liabilities as they become due in the ordinary
course of its business and the realizable value of the assets of the
Company will not be less than the sum of its total liabilities, other
than deferred taxes, as shown in its books of account, and its
capital. In the absence of fraud, the decision of the directors as to
the realizable value of the assets of the Company is conclusive,
unless a question of law is involved.
122. Notice of any dividend that may have been declared shall be given to
each member in manner hereinafter mentioned and all dividends
20
<PAGE> 21
unclaimed for 3 years after having been declared may be forfeited by
resolution of directors for the benefit of the Company.
123. No dividend shall bear interest as against the Company and no dividend
shall be paid on treasury shares or shares held by another company of
which the Company holds, directly or indirectly, shares having more
than 50 percent of the vote in electing directors.
124. A share issued as a dividend by the Company shall be treated for all
purposes as having been issued for money equal to the surplus that is
transferred to capital upon the issue of the share.
125. In the case of a dividend of authorized but unissued shares with par
value, an amount equal to the aggregate par value of the shares shall
be transferred from surplus to capital at the time of the
distribution.
126. In the case of a dividend of authorized but unissued shares without
par value, the amount designated by the directors shall be transferred
from surplus to capital at the time of the distribution, except that
the directors must designate as capital an amount that is at least
equal to the amount that the shares are entitled to as a preference,
if any, in the assets of the Company upon liquidation of the Company.
127. A division of the issued and outstanding shares of a class or series
of shares into a larger number of shares of the same class or series
having a proportionately smaller par value does not constitute a
dividend of shares.
ACCOUNTS AND AUDIT
128. The Company may by resolution of members call for the directors to
prepare periodically a profit and loss account and a balance sheet.
The profit and loss account and balance sheet shall be drawn up so as
to give respectively a true and fair view of the profit and loss of
the Company for the financial period and a true and fair view of the
state of affairs of the Company as at the end of the financial period.
129. The Company may by resolution of members call for the accounts to be
examined by auditors.
130. The first auditors shall be appointed by resolution of directors;
subsequent auditors shall be appointed by a resolution of members.
131. The auditors may be members of the Company but no director or other
officer shall be eligible to be an auditor of the Company during his
continuance in office.
132. The remuneration of the auditors of the Company
(a) in the case of auditors appointed by the directors, may be
fixed by resolution of directors; and
21
<PAGE> 22
(b) subject to the foregoing, shall be fixed by resolution of
members or in such manner as the Company may by resolution of
members determine.
133. The auditors shall examine each profit and loss account and balance
sheet required to be served on every member of the Company or laid
before a meeting of the members of the Company and shall state in a
written report whether or not
(a) in their opinion the profit and loss account and balance sheet
give a true and fair view respectively of the profit and loss
for the period covered by the accounts, and of the state of
affairs of the Company at the end of that period; and
(b) all the information and explanations required by the auditors
have been obtained.
134. The report of the auditors shall be annexed to the accounts and shall
be read at the meeting of members at which the accounts are laid
before the Company or shall be served on the members.
135. Every auditor of the Company shall have a right of access at all times
to the books of account and vouchers of the Company, and shall be
entitled to require from the directors and officers of the Company
such information and explanations as he thinks necessary for the
performance of the duties of the auditors.
136. The auditors of the Company shall be entitled to receive notice of,
and to attend any meetings of members of the Company at which the
Company's profit and loss account and balance sheet are to be
presented.
NOTICES
137. Any notice, information or written statement to be given by the
Company to members may be served in the case of members holding
registered shares in any way by which it can reasonably be expected to
reach each member or by mail addressed to each member at the address
shown in the share register.
138. Any summons, notice, order, document, process, information or written
statement to be served on the Company may be served by leaving it, or
by sending it by registered mail addressed to the Company, at its
registered office, or by leaving it with, or by sending it by
registered mail to, the registered agent of the Company.
139. Service of any summons, notice, order, document, process, information
or written statement to be served on the Company may be proved by
showing that the summons, notice, order, document, process,
information or written statement was delivered to the registered
office or the registered agent of the Company or that it was mailed in
such time as to admit to its being delivered to the registered office
or the registered agent of the Company in the normal course of
delivery within the period prescribed for service and was correctly
addressed and the postage was prepaid.
22
<PAGE> 23
PENSION AND SUPERANNUATION FUNDS
140. The directors may establish and maintain or procure the establishment
and maintenance of any non-contributory or contributory pension or
superannuation funds for the benefit of, and give or procure the
giving of donations, gratuities, pensions, allowances or emoluments
to, any persons who are or were at any time in the employment or
service of the Company or any company which is a subsidiary of the
Company or is allied to or associated with the Company or with any
such subsidiary, or who are or were at any time directors or officers
of the Company or of any such other company as aforesaid or who hold
or held any salaried employment or office in the Company or such other
company, or any persons in whose welfare the Company or any such other
company as aforesaid is or has been at any time interested, and to the
wives, widows, families and dependents of any such person, and may
make payments for or towards the insurance of any such persons as
aforesaid, and may do any of the matters aforesaid either alone or in
conjunction with any such other company as aforesaid. Subject always
to the proposal being approved by resolution of members, a director
holding any such employment or office shall be entitled to participate
in and retain for his own benefit any such donation, gratuity, pension
allowance or emolument.
ARBITRATION
141. Except with respect to claims made under the U.S. federal securities
laws, whenever any difference arises between the Company on the one
hand and any of the members or their executors, administrators or
assigns on the other hand, touching the true intent and construction
or the incidence or consequences of these Articles or of the Act,
touching anything done or executed, omitted or suffered in pursuance
of the Act or touching any breach or alleged breach or otherwise
relating to the premises or to these Articles, or to any Act or
ordinance affecting the Company or to any of the affairs of the
Company such difference shall, unless the parties agree to refer the
same to a single arbitrator, be referred to 2 arbitrators one to be
chosen by each of the parties to the difference and the arbitrators
shall before entering on the reference appoint an umpire.
142. If either party to the reference makes default in appointing an
arbitrator either originally or by way of substitution (in the event
that an appointed arbitrator shall die, be incapable of acting or
refuse to act) for 10 days after the other party has given him notice
to appoint the same, such other party may appoint an arbitrator to act
in the place of the arbitrator of the defaulting party.
VOLUNTARY WINDING UP AND DISSOLUTION
143. The Company may voluntarily commence to wind up and dissolve by a
resolution of members but if the Company has never issued shares it
may voluntarily commence to wind up and dissolve by resolution of
director.
23
<PAGE> 24
CONTINUATION
144. The Company may by resolution of members or by a resolution passed
unanimously by all directors of the Company continue as a company
incorporated under the laws of a jurisdiction outside the British
Virgin Islands in the manner provided under those laws.
We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola,
British Virgin Islands for the purpose of incorporating an International
Business Company under the laws of the British Virgin Islands hereby subscribe
our name to these Articles of Association the 24th day of June, 1996 in the
presence of:
Witness Subscriber
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ------------------------ ----------------------------
Crairmuir Chambers Authorized Signatory
Road Town, Tortola HWR Services Limited
24
<PAGE> 1
EXHIBIT 5.1
Harney, Westwood & Riegels
Barristers, Solicitors, Notaries,
Patent and Trade Mark Agents
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola, British Virgin Islands
26 December 1996
Our Ref: FAB/prs/13-0336.001
Fuller, Tubb & Pomeroy
800 Bank of Oklahoma Plaza
201 Robert S. Kerr Avenue
Oklahoma City, OK 73102
Re: Dransfield China Paper Corporation
Dear Sirs:
We are British Virgin Islands counsel to Dransfield China Paper
Corporation, a company incorporated in the British Virgin Islands. We have
reviewed Amendment No. 1 to Form S-1 Registration Statement and are of the
opinion that the securities being registered have been legally issued, are
fully paid, and are non-assessable.
Yours faithfully,
HARNEY, WESTWOOD & RIEGELS
/s/ Fiona Bada
<PAGE> 1
EXHIBIT 8.2
Harney, Westwood & Riegels
Barristers, Solicitors, Notaries,
Patent and Trade Mark Agents
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola, British Virgin Islands
24 December, 1996
Our Ref: FAB/prs/13-0336.001
Fuller, Tubb & Pomeroy
800 Bank of Oklahoma Plaza
201 Robert S. Kerr Avenue
Oklahoma City, OK 73102-4292
Re: Dransfield China Paper Corporation
Dear Sirs:
We are British Virgin Islands counsel to Dransfield China Paper
Corporation, a company incorporated in the British Virgin Islands, and in that
regard we have reviewed Registration Statement Form S-1 and Amendment No. 1 to
Form S-1 and confirm that all statements made therein concerning British Virgin
Islands law and the enforcement of civil liabilities in the British Virgin
Islands are accurate as of the date hereof.
Yours faithfully,
HARNEY, WESTWOOD & RIEGELS
/s/ Fione Bada
<PAGE> 1
EXHIBIT 8.3
[Fuller, Tubb & Pomeroy Letterhead]
Oklahoma City, OK 73102
December 26, 1996
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Re: Dransfield China Paper Corporation;
spinoff transaction with Dransfield
Paper Holdings Limited and SuperCorp
Inc.
Dear Mr. King:
In connection with the preparation and filing of a Form S-1
Registration Statement under the Securities Act of 1933 ("the Act") by
Dransfield China Paper Corporation ("the Company") for the purpose of
registering 461,572 shares of its Common Stock ("the Spinoff Shares"), which
shares are presently owned by SuperCorp Inc., an Oklahoma corporation, I have
been asked to express my opinion with respect to certain U.S. federal income
tax matters.
I have examined the Form S-1 Registration Statement, as amended,
corporate proceedings reflected in the minutes of the Company as certified by
the secretary of the Company, an agreement of merger between the Company,
Dransfield Paper and SuperCorp effective November 20, 1996, and an escrow
agreement entered into on November 20, 1996 by the Company, SuperCorp, and
Liberty Bank & Trust Company of Oklahoma City, N.A. ("Liberty Bank").
Based upon my examination of the above-described documents, relevant
sections of the Internal Revenue Code of 1986 as amended ("the Code"), and
applicable regulations thereunder, I am of the following opinion:
1. To the extent that U.S. tax laws would apply to the merger
between two British Virgin Island corporations, the proposed merger between the
Company and Dransfield Paper will qualify as a type "A" reorganization under
section 368(a)(1) of the Code. However, when consideration is given to the
fact that the Company is newly organized, should the step transaction doctrine
be applied and the Company be considered a continuation of Dransfield Paper
<PAGE> 2
with only a change of name or place of incorporation, the transaction would be
a type "F" reorganization. In either case, there will be no recognition of
taxable gain or loss to the shareholders of Dransfield Paper or to the
shareholders of the Company. The Dransfield Paper shareholders will have a
carryover tax basis and a tacked holding period for the stock received by them
in the Company. Further, Dransfield Paper will not recognize any taxable gain
or loss, provided its liabilities are not in excess of the tax basis of its
assets.
2. The analysis of the income tax effects of the Spinoff is somewhat
different. Section 316 of the Code provides that, for purposes of the income
tax provisions of the Code (except subchapter L, which concerns insurance
companies), a dividend is any corporate distribution to shareholders made in
the normal course of business out of earnings and profits. Section 301(c) of
the Code provides that a distribution by a corporation which has no current or
accumulated earnings or profits is not taxable as a dividend. Instead, the
amount of the distribution must first be used to reduce the adjusted basis of a
stockholder's stock and any remaining portion will be treated as capital gain
in the same manner as a sale or exchange of the stock. The distributing
corporation, SuperCorp, advises the undersigned that it has no current or
accumulated earnings or profits. Even so, whether it will have earnings during
the current tax year cannot be determined until the end of the tax year.
Because SuperCorp advises the undersigned that the distribution is being made
from excess capital, the amount of the distribution to each SuperCorp
shareholder must first be used to reduce the adjusted basis of each
shareholder's stock and, should the adjusted basis be reduced to zero, any
remaining portion of the value of the distribution will be treated as capital
gain in the same manner as a sale or exchange of the stock. Should SuperCorp
determine later that it does have earnings in the year of the distribution, the
distribution would be deemed to be a dividend to the extent of such earnings
and taxed as ordinary income.
3. The basis of the stock in the Company to be received by the
SuperCorp shareholders in the distribution is the fair market value of the
property. Section 301(d) of the Code. Fair market value is determined as of
the date of the distribution. Section 301(b)(3). The principal question raised
by the escrow arrangement with Liberty Bank is whether the date of the
distribution occurs when the stock certificates are delivered to Liberty Bank
or, alternatively, later when Liberty Bank delivers the stock certificates to
the SuperCorp shareholders. Regulation Section 1.301-1(b) provides that a
distribution made by a corporation to its shareholders is to be included in
gross income of the distributees when the cash or other property is
"unqualifiedly made subject to their demands." When the distribution is in
property other than cash, this regulation
Exhibit 8.3
2 Page 2 of 4 pages
<PAGE> 3
provides that the valuation of the property is to be made on the date of
distribution without regard to whether such date is the same as that on which
the distribution is includable in gross income. An example is given in the
regulation of a corporation's distributing a taxable dividend in property on
December 31 which is received by, or unqualifiedly made subject to the demand
of, its shareholders two days later on January 2. In this example, the amount
to be included in the gross income of the shareholders will be the fair market
value of the property on December 31, although such amount will not be
includable in the gross income of the shareholders until January 2 of the next
year.
The important fact concerning the escrow with Liberty Bank is that
the escrow is required by a regulation of the Securities and Exchange
Commission. The distributees of the stock (the SuperCorp shareholders) have
full voting rights over the distributed stock, the right to receive dividends,
and the right in certain circumstances to transfer the stock. SuperCorp itself
has no right to recall the distribution. The distributees will have the same
type of constructive receipt of the stock as existed in Carnahan, 21 BTA 893
(1930) (Acq.), and the principles set forth in Reed v. Commissioner, 723 F.2d
138 (1st Cir. 1983) would apply in the same way and support the determination
that the date of distribution is the date the stock certificates are delivered
to Liberty Bank pursuant to the escrow agreement.
Based on the above, the value of the shares of the Company will be
valued at their fair market value no later than the time the certificates
representing the shares of the Company are received by the escrow agent,
Liberty Bank. Because the delivery of these certificates to Liberty Bank is to
take place before the shareholders of Dransfield Paper vote on the merger, and
because the outcome of the merger vote is uncertain, SuperCorp and its
shareholders may reasonably take the position that the value of the shares of
the Company at the time of the distribution is the book value of such shares on
the date of such delivery to Liberty Bank without giving effect to any increase
in book value that might occur should the merger be later approved and
effected.
There is the possibility that the Internal Revenue Service might
successfully argue under the step- transaction or substance-versus-form
doctrines that the delivery of the certificates to Liberty Bank should be
disregarded and the stock valued only when and if the merger is approved. The
concept that might be asserted by the Service would be that the transfer of
stock to Liberty Bank has no independent significance unless the merger is
approved and, therefore, should be disregarded. As stated in Minnesota Tea Co.
v. Helvering, 302 U.S. 609 (1938), a case in which the shareholders were
obligated to pay over to creditors cash received by the shareholders, "the
preliminary distribution to the stockholders was a meaningless and unnecessary
Exhibit 8.3
3 Page 3 of 4 pages
<PAGE> 4
step in the transmission of the fund to the creditors." However, the
distribution of shares of the Company by SuperCorp to its shareholders does
involve a situation where such shareholders will receive something of
significance from SuperCorp even if the merger is not consummated, because the
management of the Company will continue to exert efforts to find a business or
property for acquisition by the Company. Accordingly, it is more likely than
not that the step- transaction or substance-versus-form doctrines will not be
applicable. Further, these concepts are ordinarily applied only to determine
the characterization of an entire transaction, not to determine the time for
evaluation of property.
4. SuperCorp should undertake to advise its shareholders that it has
no current or accumulated earnings or profits, that the amount of the
distribution must first be used to reduce the adjusted basis of a shareholder's
SuperCorp stock and any remaining portion is to be treated as capital gain in
the same manner as a sale or exchange of the stock. SuperCorp should further
advise its shareholders what it considers to be the fair market value of the
stock of the Company on the date of the distribution. Finally, SuperCorp
should undertake to advise its shareholders, after the end of SuperCorp's
taxable year in which the distribution is made, that it had current earnings
during such year, if such be the case, which would cause it to alter its
earlier statement that no part of the distribution would be taxed as a dividend
and as ordinary income.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
TJK/ss
Exhibit 8.3
4 Page 4 of 4 pages
<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO ESCROW AGREEMENT
This Amendment to Escrow Agreement is entered into effective November
15, 1996 by and between Dransfield China Paper Corporation, a British Virgin
Islands corporation ("DCPC"); SuperCorp Inc., an Oklahoma corporation
("SuperCorp"); and Liberty Bank & Trust Company of Oklahoma City, N.A.
("Liberty Bank").
In consideration of the representations, undertakings, and promises
set forth below, the parties agree as follows:
1. REPRESENTATIONS. The parties represent that they executed an
Escrow Agreement on August 20, 1996 relating to the filing by DCPC of a Form
S-1 ("the S-1") and S-4 ("the S-4") Registration Statements with the Securities
and Exchange Commission ("the Commission") and the placing into escrow with
Liberty Bank of 461,572 shares of DCPC's common stock ("the Spinoff shares"),
38,428 shares of DCPC's common stock ("the Escrow shares"), and 500,000 stock
purchase warrants ("the U.S. warrants").
2. AMENDMENTS TO THE ESCROW AGREEMENT. The parties amend the
Escrow Agreement as follows:
2.1 Paragraph 6 of the Escrow Agreement is amended to
eliminate the words "and S-4."
2.2 Paragraph 5 of the Escrow Agreement is amended to
strike the period at the end and to add the following:
;provided, however, that all certificates
representing the ownership of 10 or fewer shares of
DCPC Common Stock shall not immediately be delivered
to DCPC's stock registrar-transfer agent, but shall
continue to be held in escrow until such time as
Liberty Bank has received written instructions from
SuperCorp with respect to such delivery, it being
contemplated that SuperCorp shall communicate with
the owners of the shares represented by such
small-denomination certificates, and extend to each
of such owners the election either to receive the
stock certificate or to have the shares represented
by such certificate sold in a broker's transaction
with the shares desired to be sold by other
small-denomination owners and to receive the net
proceeds of such sale.
<PAGE> 2
Dransfield China Paper Corporation
by:
/s/ T.E. King
---------------------------------
T. E. King, President
Liberty Bank & Trust Company of
Oklahoma City, N.A.
by:
/s/ John Brown
---------------------------------
John Brown, Senior Vice President
SuperCorp, Inc.
by:
/s/ T.E. King
---------------------------------
T. E. King, President
<PAGE> 1
EXHIBIT 23.3
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Dear Mr. King:
The undersigned consents to serve as a director of Dransfield China Paper
Corporation should the proposed merger between it and Dransfield Paper Holdings
Limited be approved and effected. Further, the undersigned consents to being
named in a Form S-1 Registration Statement filed with the Securities and
Exchange Commission as a person who will so serve as a director.
Sincerely,
/s/ Horace Yao Yee Cheong
Horace Yao Yee Cheong
Dated: December 6, 1996
<PAGE> 1
EXHIBIT 23.4
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Dear Mr. King:
The undersigned consents to serve as a director of Dransfield China Paper
Corporation should the proposed merger between it and Dransfield Paper Holdings
Limited be approved and effected. Further, the undersigned consents to being
named in a Form S-1 Registration Statement filed with the Securities and
Exchange Commission as a person who will so serve as a director.
Sincerely,
/s/ Warren Ma Kwok Hung
Warren Ma Kwok Hung
Dated: December 7, 1996
<PAGE> 1
EXHIBIT 23.5
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Dear Mr. King:
The undersigned consents to serve as a director of Dransfield China Paper
Corporation should the proposed merger between it and Dransfield Paper Holdings
Limited be approved and effected. Further, the undersigned consents to being
named in a Form S-1 Registration Statement filed with the Securities and
Exchange Commission as a person who will so serve as a director.
Sincerely,
/s/ Jeremy Lu Yuen Tong
Jeremy Lu Yuen Tong
Dated: December 6, 1996
<PAGE> 1
EXHIBIT 23.7
Fuller, Tubb & Pomeroy
Attorneys at Law
800 Bank of Oklahoma Plaza
201 Robery S. Kerr Avenue
Oklahoma City, OK 73102
December 24, 1996
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Dear Mr. King:
The undersigned is named in the Form S-1 Registration Statements of
Dransfield China Paper Corporation ("the Company"), a British Virgin Islands
corporation, which registration statement is to be filed with the Securities
and Exchange Commission in connection with a proposed merger with Dransfield
Paper Holdings Limited, a British Virgin Islands corporation, and a
distribution by SuperCorp Inc., an Oklahoma corporation, of certain of the
shares of Common Stock of the Company to the shareholders of SuperCorp Inc.
The capacity in which the undersigned is named in such S-1 Registration
Statement is that of counsel to the Company and as a person who has given an
opinion on tax and other legal matters concerning the registration or offering
of the securities described therein.
The undersigned hereby consents to being named in such S-1
Registration Statement in the capacity therein described.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
TJK:jw
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated 3 June 1996, with respect to
the consolidated financial statements of Dransfield Paper Holdings Limited
included in the Amendment No. 1 to the Registration Statement (Form S-1) and
related Prospectus of Dransfield China Paper Corporation for the registration
of 461,572 common shares.
/s/ Ernst & Young
Ernst & Young
Hong Kong
27 December 1996
<PAGE> 1
EXHIBIT 23.9
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Form S-1 Registration Statement of
Dransfield China Paper Corporation of our report dated December 13, 1996,
appearing in the Prospectus, which is part of this Registration Statement.
/s/ HOGAN & SLOVACEK
Oklahoma City, Oklahoma
December 13, 1996
<PAGE> 1
EXHIBIT 23.10
Harney, Westwood & Riegels
Barristers, Solicitors, Notaries,
Patent and Trade Mark Agents
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola, British Virgin Islands
24 December, 1996
Our Ref: FAB/prs/13-0336.001
Dransfield China Paper Corporation
c/o P.O. Box 71
Road Town
Tortola, British Virgin Islands
Re: Dransfield China Paper Corporation
Dear Sirs:
We hereby consent to the inclusion of the name of this firm as an
expert in Registration Statement S-1 to be filed with the Securities and
Exchange Commission.
Yours faithfully,
HARNEY, WESTWOOD & RIEGELS
/s/ Fione Bada
