<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Dransfield China Paper Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Territory of the British Virgin Islands
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
2676
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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.
Copies to:
Thomas J. Kenan Jeremy Lu
Fuller, Tubb & Pomeroy Dransfield Holdings Ltd.
800 Bank of Oklahoma Plaza 36-42 Pok Man Street
201 Robert S. Kerr, Suite 800 1st & 2nd Floors
Oklahoma City, OK 73102 Mongkok, Kowloon, Hong Kong
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
<PAGE> 2
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. [ ]
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 9,300,000 $0.0029 $26,855 $ 9(1)
Series A
Convertible
Preferred Stock 2,300,000 $0.0615 $141,450 $ 49(2)
Common Stock
Purchase
Warrants 386,004 $0 $ 0 $ 0(3)
Common Stock 386,004 $8.00 $3,088,032 $1,065(4)
------
1,123
- ----------------------------------------------------------------------
</TABLE>
(1) These 9,300,000 shares are to be offered in partial exchange for all
the issued and outstanding shares of capital stock of Dransfield Paper
Holdings Limited in a proposed merger. The registration fee is based
upon 4.1% of the $655,000 portion of the book value of Dransfield
Paper Holdings Limited on August 20, 1996 attributable to all but the
Series A Preferred Stock (see footnote 2 below), which 4.1% represents
the amount of stockholders' equity of Dransfield Paper Holdings
Limited being acquired by these shares. Reg. 230.457(f)(2).
(2) These 2,300,000 shares are to be offered in partial exchange for all
the issued and outstanding shares of capital stock of Dransfield Paper
Holdings Limited in a proposed merger. The registration fee is based
upon 4.1% of the $3,450,000 book value on August 20, 1996 of 2,300,000
shares of Preferred Stock of Dransfield Paper Holdings Limited for
which the registered shares will be exchanged. Reg. 230.457(f)(2).
(3) These 386,004 Common Stock Purchase Warrants are to be offered in
partial exchange for all the issued and outstanding shares of capital
stock of Dransfield Paper Holdings Limited in a proposed merger. No
registration fee is required for the warrants, because the securities
to be offered pursuant to the warrants are being registered in this
same registration statement. Reg. 230.457(g). The full value of the
exercise of the warrants is reflected in the 386,004 underlying shares
of Common Stock (see footnote 3).
<PAGE> 3
(4) These 386,004 shares underlie the 386,004 Common Stock Purchase
Warrants described in footnote (2). The registration fee is based
upon the $8.00 exercise price of the Warrants. Reg. 230.457(g).
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> 4
DRANSFIELD CHINA PAPER CORPORATION
FORM S-4
CROSS REFERENCE SHEET
PART I
INFORMATION REQUIRED IN THE PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
The registrant is not a foreign private issuer, as defined in
Regulation 230.405, but the company being acquired, Dransfield Paper
Holdings, Ltd., is a foreign private issuer. Item 11 information is provided
pursuant to Form S-4 for the registrant and pursuant to Form F-4 for
Dransfield Paper Holdings, Ltd.
Page Item Location
- ---- ---- --------
Item 1. Forepart of Statement
and Outside Front Cover of
Prospectus:
(a): Facing page Outside front cover
(b) Outside front cover of
prospectus:
S-K 501(b)(1): Name of the Outside front cover
Registrant
S-K 501(b)(2): Securities Outside front cover
offered
S-K 501(b)(3): Selling Outside front cover
shareholders
S-K 501(b)(4): Cross Outside front cover
reference to risk factors
S-K 501(b)(5): Cautionary Outside front cover
statement
S-K 501(b)(6): Estimates of Not applicable
price and no. of shares
S-K 501(b)(7): Table Outside front cover
S-K 501(b)(8): "Subject to Not applicable
completion" statement
S-K 501(b)(9): State legends Not applicable
S-K 501(b)(10): Date Outside front cover
<PAGE> 5
S-K 501 Instruction No. 5: Outside front cover
Other expenses
Item 2. Inside front and out-
side back cover pages of pro-
spectus:
i S-K 502(a): Available Inside front cover
information Additional Information
ii S-K 502(b): Reports to Additional Information -
security holders Reports to Shareholders
S-K 502(c): Incorporation by Not applicable
reference statement
S-K 502(d)(1): Stabilization Not applicable
S-K 502(d)(2): Passive market Not applicable
making
iii S-K 502(e): Delivery of Inside front cover
prospectus
ii S-K 502(f): Enforceability of Inside front cover -
civil liabilities against Enforceability of Civil
foreign persons Liabilities
iv S-K 502(g): Table of Contents Table of contents
Item 3. Risk Factors, Ratio of
Earnings to Fixed Charges:
S-K 503: Summary Information
Risk Factors and Ratio of
Earnings to Fixed Charges:
1 S-K 502(a): Summary Summary of Proposed Tran-
saction
2,4 S-K 503(b): Address and Summary of Proposed Tran-
telephone number saction - The Three Com-
panies
9 S-K 503(c): Risk Factors Risk Factors
S-K 503(d): Ratio of Not applicable
earnings to fixed charges
2
<PAGE> 6
2,4 Item 3(a): Names, addresses, Summary of Proposed Tran-
and telephone numbers of the saction - The Three Com-
companies panies
2,3,4 Item 3(b): Description of busi- Summary of Proposed Tran-
nesses of the Companies saction - The Three Com-
panies
4 Item 3(c): Description of the Summary of Proposed Tran-
transaction saction - the Proposed
Merger and Spinoff
35 Item 3(d): Selected financial Information About Drans-
data (S-K 301 for registrant field Paper - Selected
and Item 8 of Form 20F for the Financial Data
company being acquired)
24 Item 3(e): Pro Forma selected Terms of the Transaction
financial data (S-K 301 for - Pro Forma Financial
registrant and Item 8 of Form Information and Dilution
20-F for company being acquired
Item 3(f): Per share data Not applicable
Item 3(g): Comparative market Not applicable
value of securities
8 Item 3(h): Share held by affil- Summary of Proposed Tran-
iates and vote required for saction Degree of Manage-
approval ment Control of Vote on
Merger
8 Item 3(i): Regulatory require- Summary of Proposed Tran-
ments saction - Compliance with
Governmental Regulations
8 Item 3(j): Dissenters' rights Summary of Proposed Tran-
of appraisal saction - Dissenters'
Rights of Appraisal
8 Item 3(k): Tax consequences Summary of Proposed Tran-
saction - The Proposed
Merger and Spinoff - Tax
Consequences of the Tran-
saction
Item 4. Terms of the Transac-
tion
16 Item 4(a): Summary of the Tran- Terms of the Transaction
saction
3
<PAGE> 7
17 Item 4(a)(1): Terms of the Ac- Terms of the Transaction
quisition Agreement - Reasons for the Merger
and Spinoff
17 Item 4(a)(2): Reasons for En- Terms of the Transaction
gaging in the Transaction - Reasons for the Merger
and Spinoff
18 Item 4(a)(3): Description of Terms of the Transaction
the Registrant's Securities (S- - Description of Securi-
K 202) ties
18 Item 4(a)(4): Differences Be- Terms of the Transaction
tween the Rights of Security - Differences Between
Holders of the Companies Rights of Shareholders of
the Company and of Drans-
field Paper
18 Item 4(a)(5): Accounting Treat- Terms of the Transaction
ment of the Transaction - Accounting Treatment of
Proposed Merger
23 Item 4(a)(6): Tax Consequences Terms of the Transaction
- Income Tax Consequences
Item 4(a)(7): Form F-4: Differ- Not applicable
ences in corporate laws of the (same country)
countries
Item 4(b): Report, Opinion or Not applicable
Appraisal
82 Item 4(c): Incorporation of the Not Applicable. See Ap-
Acquisition Agreement by Refer- pendix A - Agreement of
ence Merger
24 Item 5. Pro Forma Financial Terms of the Transaction
Information - Pro Forma Financial In-
formation and Dilution
24 Item 6. Material Contacts with Terms of the Transaction
the Company Being Acquired - Material Contacts Among
the Companies
Item 7: Additional Information
Required for Reoffering by Per-
sons and Parties Deemed to be
Underwriters:
4
<PAGE> 8
4,17 Item 7(a): Selling Security Summary Information - The
Holders (S-K 507) Spinoff; Terms of the
Transaction - Reasons for
the Merger and Spinoff
6,26 Item 7(b): Information Concern- Summary Information - The
ing the Acquisition of the Proposed Merger and Spin-
Shares to be Reoffered off - The Escrow Arrange-
ment; Information About
the Company - Course of
Business Should the Merg-
er Not Occur - Market for
the Company's Common
Stock and Related Stock-
holder Matters
Item 8: Interests of Named Ex-
perts and Counsel
24 S-K 509: Interests of Named Terms of the Transaction
Experts and Counsel - Interest of Counsel
Item 9: Disclosure of Commis-
sion Position on Indemnifica-
tion for Securities Act Lia-
bilities.
25 S-K 510: Disclosure of Commis- Terms of the Transaction
sion Position on Indemnifica- - Indemnification
tion for Securities Act Liabil-
ities
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Re- Not applicable
spect to S-3 Registrants.
Item 11. Incorporation of Cer- Not applicable
tain Information by Reference.
Item 12. Information with Re- Not applicable
spect to S-2 or S-3 Regis-
trants.
Item 13: Incorporation of Cer- Not applicable
tain Information by Reference.
Item 14: Information with Re-
spect to Registrants Other than
S-3 or S-2 Registrants:
5
<PAGE> 9
S-K 101: Description of busi-
ness
26 S-K 101(a): General Information About the
development of business Company - Description of
Business and Properties
S-K 101(b): Financial Not applicable
information about industry
segments
26 S-K 101(c): Narrative Information About the
description of business Company - Description of
Business and Properties
S-K 101(d): Financial Not applicable
information about foreign and
domestic operations and
export sales
26 S-K 102: Description of Proper- Information About the
ty Company - Description of
Business and Properties
26 S-K 103: Legal Proceedings Information About the
Company - Legal Proceed-
ings
S-K 201: Market Price of and
Dividends on the Registrant's
Common Equity and Related
Stockholder Matters
26 S-K 201(a): Market information Information About the
Company - Market for the
Company's Common Stock
and Related Stockholder
Matters
26 S-K 201(b): Holders Information About the
Company - Market for the
Company's Common Stock
and Related Stockholder
Matters
26 S-K 201(c): Dividends Information About the
Company - Market for the
Company's Common Stock
and Related Stockholder
Matters - Dividends
28 Financial Statements Information About the
6
<PAGE> 10
Company - Financial Stat-
ements
S-K 301: Selected Financial Not applicable due to
Data lack of operations
S-K 302: Supplementary Finan-
cial Information:
S-K 302(a): Selected Not applicable
quarterly financial data
S-K 302(b): Information about Not applicable
oil and gas producing activi-
ties
26 S-K 303: Management's Discus- Information About the
sion and Analysis of Financial Company - Course of Busi-
Condition and Results of Opera- ness Should the Merger
tions: Not Occur
S-K 303(a): Full fiscal Not applicable
years:
303(a)(1) Liquidity
303(a)(2) Capital resour-
ces
303(a)(3) Results of op-
erations
S-K 303(b): Interim periods Not applicable
303(b)(1) Material changes
in financial condition
303(b)(2) Material changes
in results of operations
S-K 304: Changes and disagree- Not applicable
ments with accountants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
The Company being acquired, Dransfield Paper Holdings, Ltd.
("Holdings"), is a foreign private issuer, as defined in Regulation 230.405 and
is eligible to use Form F-4.
7
<PAGE> 11
Item 15. Information with Re- Not applicable
spect to F-3 Companies.
Item 16. Information with Re- Not applicable
spect to F-2 or F-3 Companies.
Item 17. Information with Re-
spect to Foreign Companies
Other than F-3 or F-2 Compa-
nies:
Item 17(a): Information Re- Not applicable. The Com-
quired by Item 14 of Form F-4 pany being acquired is
not subject to the re-
porting requirements of
the Exchange Act.
Item 17(b)(1): Description
of Business:
Item 1 of 20-F: Description of
Business.
34 (a) Business done and Information About Drans-
intended to be done: field Paper - Description
(1) General of Business and Proper-
development of ties
business
(2) Plan of
operations:
(1) Period cash Not applicable
requirements will be
satisfied
(2) Material product Not applicable
R&D
40,41 (3) Anticipated Dransfield Paper's Expan-
42,43 acquisition of plant sion - Timing of the Ex-
44,45 and equipment pansion - Paper Mill No.
47 1 - Paper Mill No. 2 -
Paper Mills No. 3 and 4 -
Converting - Second Paper
Converting Plant - Sor-
ting and Deinking - Paper
Tissue Making - Proper-
ties
8
<PAGE> 12
48 (4) Changes in number Number of Employees
of employees
(5) Areas peculiar to Not applicable
the business
(3) Principal products, Information About Drans-
23,43 services, markets, and field Paper - Description
44,44 methods of distribution of Business and Proper-
45,45 ties; Paper Distribution;
Paper Merchanting; Con-
verting; Sorting and De-
inking; Paper Tissue Mak-
ing
47,48 (4) Breakdown of sales Dependence on Major Cus-
and revenues tomer; Venue of Sales
Item 2 of 20-F: Description of
Property
40,41 (a) Description Dransfield Paper's Expan-
42,43 sion - Timing of the Ex-
44,44 pansion - Paper Mill No.
45,45 1 - Paper Mill No. 2 -
47 Paper Mill No. 3 and 4;
Converting; Second Paper
Converting; Sorting and
Deinking; Paper Tissue;
Properties
(b) Oil and gas operations Not applicable
49 Item 17(b)(2): Item 5 of Form Market for Dransfield
20-F. Nature of Trading Mar- Paper's Capital Stock and
kets Related Stockholder Mat-
ters
35 Item 17(b)(3): Item 8 of Form Information About Drans-
20-F. Selected Financial Data. field Paper - Selected
Financial Information
37 Item 17(b)(4): Item 9 of Form Information About Drans-
20-F. Management's Discussion field Paper - MD&A
and Analysis of Financial Con-
dition and Results of Operation
(a) Liquidity
(b) capital Resources:
9
<PAGE> 13
(1) Commitments for Management's Discussion
37,38 capital expenditures and Analysis of Financial
Condition and Results of
Operations - Results of
Operations - Years Ended
March 31, 1994 and March
31, 1995 - Liquidity and
Capital Resources - Years
Ended March 31, 1995 and
March 31, 1996 - Liquidi-
ty and Capital Resources
(2) Known trends Not applicable
(c) Results of operations
37 (1) Unusual events Management's Discussion
and Analysis of Financial
Condition and Results of
Operations - Results of
Operations
(2) Known trends Dransfield Paper's Expan-
41,42 sion - Timing of the Ex-
43 pansion - Paper Mill No.
1 - Paper Mill No. 2 -
Paper Mills No. 3 and 4
37 (3) Increase in net sales Management's Discussion
or revenues and Analysis of Financial
Condition and Results of
Operations - Overview -
Results of Operations
40 (4) Impact of inflation Inflation and Economic
Growth
51 Item 17(b)(5): Form 20-F finan- Information About Drans-
cial statements annual report field Paper - Financial
Statements
Item 17(b)(6): Reg. S-X Rule 3- Not applicable
19 interim financial statements
Item 17(b)(7): Schedules re- Not applicable
quired by Reg S-X Rules 12-15,
28 and 29
10
<PAGE> 14
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Prox-
ies, Consents or Authorizations
are to be Solicited:
Item 18 (a)(1): Information if
Proxies, Consents or Authoriza-
tions are to be solicited:
73 Schedule 14A, Item 1(A): Date, Voting and Management In-
Time and Place formation - Date, Time
and Place Information
Item 14A, Item 1(b): Date when Not applicable
Proxies are to be sent
Item 14A, Item 1(c): Rule 14a- Not applicable
5(e) Information
Schedule 14A, Item 2: Revoca- Not applicable
bility of Proxy
73 Schedule 14A, Item 3: Dissente- Voting and Management
rs' Rights of Appraisal Information - Dissenters'
Rights of Appraisal
74 Schedule 14A, Item 4(a)(1): Voting and Management
Voting and Management Informa- Information - Persons
tion - Persons Making the So- Making the Solicitation
licitation
Schedule 14A, Item 4(a)(2): Not applicable
Solicitations Made Otherwise
than by the Registrant
74 Schedule 14A, Item 4(a)(3): Voting and Management
Solicitations Made Otherwise Information - Persons
than by the Mails Making the Solicitations
Schedule 14A, Item 4(a)(4): Not applicable
Cost of Solicitation
Schedule 14A, Item 4(b): Solic- Not applicable
itations Subject to Rule 14a-11
Schedule 14A, Item 5: Interest Not applicable
of Certain Persons
Schedule 14A, Item 6: Voting
Securities and Holders Thereof:
11
<PAGE> 15
74 Item 6(a): Number of Shares Voting and Management
Outstanding and Number of Votes Information - Security
Ownership of Certain Ben-
eficial Owners and Man-
agement
74 Item 6(b): Record Date Voting and Management
Information - Security
Ownership of Certain Ben-
eficial Owners and Man-
agement
Item 6(c): Election of Direc- Not applicable
tors
74 Item 6(d): For registrant - S-K Voting and Management
403. Security Ownership of Information - Security
Certain Beneficial Owners and Ownership of Certain Ben-
Management. For company being eficial Owners and Man-
acquired - Item 4 of Form 20-F agement
Item 6(e): Change in Control Not applicable
73,74 Schedule 14A, Item 21: Vote Voting and Management
Required for Approval Information - Date, Time
and Place Information -
Security Ownership of
Certain Beneficial Owners
and Management
For registrant - S-K 401:
74 401(a): Identification of Voting and Management
Directors Information - Security
Ownership of Certain Ben-
eficial Owners and Man-
agement
74 401(b): Identification of Voting and Management
executive officers Information - Security
Ownership of Certain Ben-
eficial Owners and Man-
agement
401(c): Identification of Not applicable
certain significant em-
ployees
401(d): Family relation- Not applicable
ships
12
<PAGE> 16
79 401(e)(1): Business expe- Voting and Management
rience background Information - Directors,
Executive Officers and
Significant Employees -
The Company
401(e)(2): Directorships Not Applicable
401(f): Involvement in Not Applicable
certain legal proceedings
80 401(g): Promoters and Voting and Management
Control Persons Information - Certain
Relationships and Related
Transactions - Transac-
tions with Promoters
For company being acquired -
Item 10 of Form 20-F:
76,78 Item 10(a). Directors and Voting and Management
78 Officers Information - Directors,
Executive Officers and
Significant Employees -
Executive Directors of
Dransfield Paper - Senior
Executives of Dransfield
Paper
Item 10(b). Family Rela- Not Applicable
tionships
For registrant - S-K 402.
Executive Compensation:
40-2(a): General No information required
79 402(b): Summary compensa- Voting and Management
tion table Information - Remunera-
tion of Directors and
Officers - The Company
402(c): Option/SAR Grants Not Applicable
Table
402(d): Aggregated Opt- Not Applicable
ion/SAR exercise and Fy-
End Option/SAR Value Ta-
ble
402(e): Long-Term Incen- Not Applicable
tive Plan Awards Table
13
<PAGE> 17
402(f): Defined Benefit Not applicable
or Actuarial Plan Disclo-
sure
79 402(g): Compensation of Voting and Management
Directors Information - Remunera-
tion of Directors and
Officers - The Company
402(h): Employment Con- Not applicable
tracts and Termination of
Employment and Change-in-
Control Arrangements
402(i): Report on Repric- Not applicable
ing Options/SARs
402(j): Additional Infor- Not applicable
mation
402(k): Board Compensa- Not applicable
tion Committee Report on
Executive Compensation
402(l): Performance Graph Not applicable
For Company being acquired -
Items 11 and 12 of Form 20-F:
Item 11. Compensation of Direc-
tors and Officers:
79 Item 11(a). Aggregate Compensa- Voting and Management
tion Information - Remunera-
tion of Directors and
Officers - Dransfield
Paper
79 Item 11(b). Pension, retirement Voting and Management
or similar benefits Information - Remunera-
tion of Directors and
Officers
Item 12. Options to Purchase
Securities from Registrant or
Subsidiaries.
Item 12(a). Options to Purchase
Securities from Registrant or
Subsidiaries:
14
<PAGE> 18
80 Item 12(a). Description Voting and Management
Information - Remunera-
tion of Directors and
Officers - Stock Options
- The Plan - Other Opt-
ions
80 Item 12(b). Total amount held Voting and Management
by directors and officers Information - Remunera-
tion of Directors and
Officers - Stock Options
- The Plan
For Registration - S-K 404. Cer-
tain relationships and related
transactions
80 404(a). Transactions with Voting and Management
management and others Information - Certain
Relationships and Related
Transactions
404(b). Certain business Not applicable
relationships
404(c). Indebtedness of Not applicable
management
81 404(d). Transactions with Voting and Management
promoters Information - Certain
Relationships and Related
Transactions - Transac-
tions with Promoters
For company being acquired -
Item 13 of Form 20-F. Interest
of Management in Certain Trans-
actions
81 Item 13(a). Transactions in Voting and Management
last 3 fiscal years Information - Certain
Relationships and Related
Transactions - Dransfield
Paper's Transactions with
Management
Item 13(b). Indebtedness of Not applicable
management
Item 18(b). Incorporation by Not applicable
reference for S-2 and S-3 fil-
ers
15
<PAGE> 19
Item 19. Information if Prox- Not applicable
ies, Consents or Authorizations
are not to be Solicited
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of
Directors and Officers:
97 S-B 702: Indemnification of Indemnification of Direc-
Directors and Officers tors and Officers
Item 21. Exhibits and Financial
Statement Schedules
Item 21(a). S-K 601 exhibits:
100 601(a) Exhibits and index:
(1) Underwriting agree- Not applicable
ment
(2) Plan of Merger Exhibits 2 and 2.1
(3) Articles of Exhibits 3 and 3.1
incorporation and
bylaws
(4) Instruments defining Exhibits 4 and 4.1
rights of securities
holders
(5) Opinion on legality Exhibit 5
(8) Opinion on tax mat- Exhibit 8
ters
(9) Voting trust Not applicable
agreements
(10) Material contracts Exhibits 10.1, 10.2 and
10.3
(11) Statement on Not applicable
computation of per
share earnings
(12) Statement on Not applicable
computation of ratios
16
<PAGE> 20
(15) Letter on unaudited Not applicable
interim financial
information
(16) Letter on changes in Not applicable
certifying
accountant
(21) Subsidiaries of the Exhibit 21
registrant
(23) Consents of experts Exhibits 23, 23.1, 23.2
and counsel
(24) Power of attorney Not applicable
(25) Statement of Not applicable
eligibility of
trustee
(26) Invitations for com- Not applicable
petitive bids
(27) Financial data sche- Not applicable
dule
(99) Additional exhibits Exhibits 23.3, 23.4,
23.5, 23.6 and 23.7
Item 21(b). Financial Statement Not applicable
schedules required by Reg. S-X
and Item 14(a), Item 17(a) or
Item 17(b)(9) of Form S-4
Item 21(c). Report, opinion or Not applicable
appraisal described pursuant to
Item 4(b) of this Form.
Item 22: Undertakings:
99 S-K 512(a): Rule 415 Offering Undertakings
S-K 512(b): Filings Not applicable
incorporating subsequent
Exchange Act documents by
reference
S-K 512(c): Warrants and Not applicable
Rights Offerings
S-K 512(d): Competitive Bids Not applicable
17
<PAGE> 21
S-K 512(e): Incorporated Not applicable
annual and quarterly reports
S-K 512(f): Equity Offerings Not applicable
of Non-Reporting Registrants
S-K 512(g): Registration on Not applicable
Form S-4 or F-4
100 S-K 512(h): Request for Undertakings
Acceleration
S-K 512(i): Reliance on Rule Not applicable
430A Undertaking
S-K 512(j): Qualifications of Not applicable
trust indentures
100 Signatures Signatures
18
<PAGE> 22
PROXY STATEMENT
Dransfield China Paper Corporation
(a British Virgin Islands international business company)
9,300,000 Shares of Common Stock
2,300,000 Shares of Series A Convertible Preferred Stock
386,004 Common Stock Purchase Warrants
386,004 Shares of Common Stock (Underlying the Warrants)
__________________________________________________________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" ON PAGE 9.
________________________________________
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.
________________________________________
<TABLE>
<CAPTION>
All Prices are Given in U.S. Dollars
---------------------------------------------
Underwriting Proceeds to
Price to Discounts and Issuer or
Recipient Commissions Other Person(1)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Per Merger Share $ 0.003(2) $ 0 $ 0.003
9,300,000 Merger Shares $ 26,885(3) $ 0 $ 26,855
Per Merger Preferred
Share(2) $ 0.06 $ 0 $ 0.06
2,300,000 Merger
Preferred Shares(4) $ 141,450 $ 0 $ 141,450
Per Merger Warrant $ 0 $ 0 $ 0
386,004 Merger Warrants $ 0(5) $ 0 $ 0
Per Warrant Share $ 8 $ 0 $ 8
386,004 Warrant Shares $3,088,032(6) $ 0 $3,088,032
- ---------------------------------------------------------------------------
</TABLE>
(1) The estimated expenses of the Merger transaction described herein are
$100,000, all of which is being borne by Dransfield Paper Holdings
Limited.
(continued on next page)
The date of this Proxy Statement is ___________, 1996.
<PAGE> 23
(2) Based upon the book value of Dransfield Paper on August 20, 1996.
(3) Should the proposed merger ("the Merger") between Dransfield China Paper
Corporation ("the Company") and Dransfield Paper Holdings Limited
("Dransfield Paper") described herein be approved and effectuated, these
9,300,000 Merger Shares will be distributed to the sole shareholder of
Dransfield Paper, and the 80 shares of outstanding Common Stock of
Dransfield Paper will be cancelled. See "Terms of the Merger."
(4) Should the proposed Merger be approved and effected, these 2,300,000
Merger Preferred Shares will be distributed to the sole shareholder of
Dransfield Paper, and all shares of outstanding preferred stock of
Dransfield Paper will be cancelled. See "Terms of the Merger."
(5) Should the proposed Merger be approved and effected, these 386,004 Merger
Warrants will be distributed to Dransfield Paper's parent-shareholder,
which is Dransfield Holdings Limited, who in turn proposes to distribute
them to its shareholders upon approval of such distribution by the Hong
Kong Stock Exchange. See "Terms of the Merger."
(6) These 386,004 shares of Common Stock underlie the 386,004 Merger Warrants
described in footnote 5 above.
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 either be listed on the American
Stock Exchange or be eligible for quotation on Nasdaq's National Market. 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 - The Escrow Arrangement."
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
i
<PAGE> 24
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 the
approval of the proposed merger and the filing of the necessary merger
documents with the Territory of the British Virgin Islands, should the proposed
merger be approved by the requisite shareholder vote of each of the Company and
Dransfield Paper Holdings Limited.
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 or in the Peoples Republic of China (the "PRC"), 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
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
ii
<PAGE> 25
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 or the PRC 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 or the PRC, liabilities
against the Company or such persons predicated solely upon the Federal
securities laws.
UNTIL _____________, 1996 (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.
iii
<PAGE> 26
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . i
Registration Statement . . . . . . . . . . . . . . . . . . . . . . i
Reports to Shareholders . . . . . . . . . . . . . . . . . . . . . . ii
Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . ii
Post-Effective Amendment and Prospectus Stickers
Concerning Proposed Merger . . . . . . . . . . . . . . . . . ii
Enforceability of Civil Liabilities . . . . . . . . . . . . . . . . . . . ii
Summary of Proposed Transaction . . . . . . . . . . . . . . . . . . . . . 1
The Three Companies . . . . . . . . . . . . . . . . . . . . . . . . 2
Dransfield China Paper Corporation ("the Company") . . . . . . . . 2
Dransfield Paper Holdings Limited ("Dransfield Paper") . . . . . . 2
Dransfield Paper's Expansion . . . . . . . . . . . . . . . . 2
Timing of the Expansion . . . . . . . . . . . . . . . . . . . 3
Dransfield Paper's Management . . . . . . . . . . . . . . . . 4
SuperCorp Inc. . . . . . . . . . . . . . . . . . . . . . . . 4
The Spinoff . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Proposed Merger and Spinoff . . . . . . . . . . . . . . . . . . 4
The Escrow Arrangement . . . . . . . . . . . . . . . . . . . 6
Should the Merger Occur . . . . . . . . . . . . . . . . 6
Consequences Should the Merger Not Occur . . . . . . . 7
Degree of Management Control of Vote on Merger . . . . . . . 8
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . 8
Compliance with Governmental Regulations . . . . . . . . . . 8
Tax Consequences of the Transaction . . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . 9
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
No assurance of a Public Market . . . . . . . . . . . . . . . . . . 9
Political Considerations . . . . . . . . . . . . . . . . . . . . . 9
Economic Consideration . . . . . . . . . . . . . . . . . . . . . . 9
Legal Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Government Control of Currency Conversion and Exchange
Rate Risks . . . . . . . . . . . . . . . . . . . . . . . . . 11
Competition, Import Restrictions and GATT . . . . . . . . . . . . . 12
Volatility of Price of Pulp . . . . . . . . . . . . . . . . . . . . 13
Environmental Liability Exposure . . . . . . . . . . . . . . . . . 13
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dividends Not Likely . . . . . . . . . . . . . . . . . . . . . . . 14
Reliance on Key Personnel . . . . . . . . . . . . . . . . . . . . . 14
No Assurance of Success of Proposed Business Expansion . . . . . . 14
Exchange Rate Information . . . . . . . . . . . . . . . . . . . . . . . . 14
Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . . . . 16
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 17
Reasons for the Merger and Spinoff . . . . . . . . . . . . . . . . 17
Accounting Treatment of Proposed Merger . . . . . . . . . . . . . . 18
Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . 18
Differences Between Rights of Shareholders of the
Company and of Dransfield Paper . . . . . . . . . . . . . . . 18
Description of Securities . . . . . . . . . . . . . . . . . . . . . 18
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 18
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 19
Series A Convertible Preferred Stock . . . . . . . . . 19
</TABLE>
iv
<PAGE> 27
<TABLE>
<S> <C>
Series B Preferred Stock . . . . . . . . . . . . . . . 22
Warrants . . . . . . . . . . . . . . . . . . . . . . . 23
Call Feature of the Warrants . . . . . . . . . . 23
Registrar and Transfer Agent . . . . . . . . . . . . . 23
Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . 23
Shareholders of Dransfield Paper and the Company . . . . . . 23
Pro Forma Financial Information and Dilution . . . . . . . . . . . 24
Material Contacts Among the Companies . . . . . . . . . . . . . . . 24
Interest of Counsel . . . . . . . . . . . . . . . . . . . . . . . . 24
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Information About the Company . . . . . . . . . . . . . . . . . . . . . . 26
Description of Business and Properties . . . . . . . . . . . . . . 26
Course of Business Should the Merger Not Occur . . . . . . . . . . 26
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 26
Market for the Company's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 26
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 28
Information About Dransfield Paper . . . . . . . . . . . . . . . . . . . 34
Description of Business and Properties . . . . . . . . . . . . . . 34
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 37
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 37
Years Ended March 31, 1994 and March 31, 1995 . . . . . . . . 37
Liquidity and Capital Resources . . . . . . . . . . . . 38
Years Ended March 31, 1995 and March 31, 1996 . . . . . . . . 38
Liquidity and Capital Resources . . . . . . . . . . . . 38
The Paper Industry in China . . . . . . . . . . . . . . . . . . . . 39
Other Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Demographics of the Targeted Chinese Market . . . . . . . . . . . . 40
Inflation and Economic Growth . . . . . . . . . . . . . . . . . . . 40
Dransfield Paper's Expansion . . . . . . . . . . . . . . . . . . . 40
Timing of the Expansion . . . . . . . . . . . . . . . . . . . 41
Paper Mill No. 1 . . . . . . . . . . . . . . . . . . . 41
Paper Mill No. 2 . . . . . . . . . . . . . . . . . . . 42
Paper Mills No. 3 and 4 . . . . . . . . . . . . . . . . 43
Paper Distribution . . . . . . . . . . . . . . . . . . . . . . . . 43
Paper Merchanting . . . . . . . . . . . . . . . . . . . . . . . . . 44
Converting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Second Paper Converting Plant . . . . . . . . . . . . . . . . 45
Sorting and Deinking . . . . . . . . . . . . . . . . . . . . . . . 45
Paper Tissue Making . . . . . . . . . . . . . . . . . . . . . . . . 45
Immediate Plans . . . . . . . . . . . . . . . . . . . . . . . 46
Seasonal Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Dransfield Paper's Management . . . . . . . . . . . . . . . . . . . 47
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Dependence on Major Customers . . . . . . . . . . . . . . . . . . . 47
Research and Development . . . . . . . . . . . . . . . . . . . . . 48
Environmental Controls . . . . . . . . . . . . . . . . . . . . . . 48
Number of Employees . . . . . . . . . . . . . . . . . . . . . . . . 48
Venue of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Term Loan and Line of Credit . . . . . . . . . . . . . . . . . . . 48
Patents, Copyrights and Intellectual Property . . . . . . . . . . . 48
</TABLE>
v
<PAGE> 28
<TABLE>
<S> <C>
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 49
Market for Dransfield Paper's Capital Stock
and Related Stockholder Matters . . . . . . . . . . . . . . . 49
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
British Virgin Islands Taxation . . . . . . . . . . . . . . . 49
U.S. Federal Income Taxation . . . . . . . . . . . . . . . . 49
Taxation of the Company . . . . . . . . . . . . . . . . 49
Taxation of Shareholders . . . . . . . . . . . . . . . 50
Tax on Dividends . . . . . . . . . . . . . . . . 50
Sale or Other Disposition . . . . . . . . . . . . 50
Hong Kong Taxes . . . . . . . . . . . . . . . . . . . . . . . 50
Tax on Dividends . . . . . . . . . . . . . . . . . . . 50
Profits Tax . . . . . . . . . . . . . . . . . . . . . 50
Estate Duty . . . . . . . . . . . . . . . . . . . . . . 50
Stamp Duty . . . . . . . . . . . . . . . . . . . . . . 50
Taxation of the Company by the PRC . . . . . . . . . . . . . 51
Income Tax . . . . . . . . . . . . . . . . . . . . . . 51
Value Added Tax . . . . . . . . . . . . . . . . . . . . 51
Financial Statements . . . . . . . . . . . . . . . . . . . . 51
Index to Financial Statements . . . . . . . . . . . . . 52
Voting and Management Information . . . . . . . . . . . . . . . . . . . . 73
Date, Time and Place Information . . . . . . . . . . . . . . . . . 73
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 73
Dransfield Paper . . . . . . . . . . . . . . . . . . . . . . 73
Voting Securities and Principal Holders Thereof . . . . . . . . . . 73
Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . 73
Persons Making the Solicitation . . . . . . . . . . . . . . . 74
Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 74
Directors, Executive Officers and Significant
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Executive Directors of Dransfield Paper . . . . . . . . . . . 78
Senior Executives of Dransfield Paper . . . . . . . . . . . . 78
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 79
Remuneration of Directors and Officers . . . . . . . . . . . . . . 79
The Company . . . . . . . . . . . . . . . . . . . . . . . . . 79
Dransfield Paper . . . . . . . . . . . . . . . . . . . . . . 79
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . 80
The Plan . . . . . . . . . . . . . . . . . . . . . . . 80
Other Options . . . . . . . . . . . . . . . . . . . . . 80
Certain Relationships and Related Transactions . . . . . . . . . . 80
Company's Transactions with Promoters . . . . . . . . . . . . 80
Dransfield Paper's Transactions With Management . . . . . . . 81
Appendix A - Agreement of Merger . . . . . . . . . . . . . . . . . . . . 82
Appendix B - The People's Republic of China ("PRC") . . . . . . . . . . . 87
</TABLE>
vi
<PAGE> 29
SUMMARY OF PROPOSED TRANSACTION
The following summary is qualified in its entirety by and should be read
in conjunction with the detailed information and financial statements and notes
thereto appearing elsewhere in this Proxy Statement. All financial statements
set forth herein for the Company have with been reconciled with U.S. generally
accepted accounting principles ("U.S. GAAP").
The transaction in which the securities being registered are to be
offered is a proposed merger ("the Merger") between two British Virgin Island
international business companies, Dransfield China Paper Corporation ("the
Company") and Dransfield Paper Holdings Limited ("Dransfield Paper"). Should
the Merger be approved and effected, the Company will be the surviving entity,
will be under the management of Dransfield Paper's present management, and will
have its capital stock allocated as follows:
<TABLE>
<CAPTION>
Present Present
Shareholders of Shareholders of
the Company Dransfield Paper
------------------ ---------------------
No. Percent No. Percent
------- ------- ---------- -------
<S> <C> <C> <C> <C>
Common Stock 500,000 5.1 9,300,000 94.9
Series A Preferred Stock 0 0 2,300,000(1) 100
Warrants(2) 500,000 56.4 386,004 43.6
</TABLE>
- --------------------------
(1) Convertible into 2,300,000 shares of Common Stock of the Company. See
"Terms of the Transaction - Description of Securities - Preferred Stock."
(2) Each Warrant entitles the holder to purchase 1 share of Common Stock of
the Company at US$8.00. See "Terms of the Transaction - Description of
Securities - Warrants."
Some 461,572 of the Company's presently outstanding 500,000 shares of
Common Stock are owned of record by SuperCorp Inc., an Oklahoma corporation
("SuperCorp") with approximately 2,500 shareholders residing in forty-eight
states. Should the proposed Merger be approved, SuperCorp will distribute
certificates representing the 461,572 shares of Common Stock of the Company it
now owns to its approximately 2,500 shareholders ("the Spinoff") and thereby
lay the basis for the creation of a market for its Common Stock.
The Company anticipates that, should the Merger be approved and effected,
the Company's Common Stock will be accepted either for listing on the American
Stock Exchange or for quotation as a Nasdaq National Market stock.
1
<PAGE> 30
THE THREE COMPANIES.
Three companies and their shareholders are affected by the transaction
proposed in this Proxy Statement.
Dransfield China Paper Corporation ("the Company"). The Company was
incorporated under the International Business Companies Ordinance (No. 8 of
1984) of the Territory of the British Virgin Islands on June 24, 1996 for the
purpose of merging with Dransfield Paper Holdings Limited ("Dransfield Paper")
should the merger transaction described herein be approved. The Company has no
business operations or significant capital and has no present intention of
engaging in any active business until and unless it merges with Dransfield
Paper.
The business office of the Company is located at 49 Strawberry Lane,
Suite 200, Palos Verdes Peninsula, California 90274, U.S.A. Its telephone
number is 310-541-4415.
Dransfield Paper Holdings Limited ("Dransfield Paper"). Dransfield Paper
was incorporated under the International Business Companies Ordinance (No. 8 of
1984) of the Territory of the British Virgin Islands on March 11, 1994.
Dransfield Paper's business is -
o acting as a paper merchant - the buying and selling of hygienic
paper, of packaging grade paper and of office waste paper, both on
an indent basis (a pre-sold basis) and on an agency basis, and
o distributing Proctor & Gamble's "Tempo" brand paper handkerchiefs,
in Hong Kong and in China, which Dransfield Paper's parent,
Dransfield Holding, had been doing in Hong Kong since 1975 before
Dransfield Paper was organized. Dransfield Paper has the exclusive
distribution rights for Tempo-brand paper products in Hong Kong and
in China.
Dransfield Paper's expansion. Dransfield Paper's paper merchanting
division, which was established only in November 1994, and its Tempo-based
distribution division had revenue of US$39.7 million and net profit after taxes
of US$0.65 million in the fiscal year ended March 31, 1996. Dransfield Paper is
expanding both of these divisions to accommodate the entry by Dransfield Paper
into three additional lines of the paper business through the construction of
paper mills in four strategic locations in China by October 1998. The three
new lines of business are:
o Recycled pulp production. Waste paper will be processed into
recycled pulp. Approximately half of this will be sold to other
companies in China with paper mills. Approximately half will be
supplied to Dransfield Paper's own paper-making operation.
2
<PAGE> 31
o Paper making. Paper making machines will process recycled pulp
into jumbo rolls. Approximately half of the production will be sold
to other companies in China with paper converting plants.
Approximately half will 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
as follows:
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 started operations in
August 1996. Its capacity is approximately 23 metric tons a day.
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 March 1997 with an output capacity of approximately 90 metric
tons a day.
Paper Mill No. 2. Dransfield Paper will invest approximately $10
million for a 60-percent controlling interest in a paper mill to be established
in the city of Jiangyin in Jiangsu Province 90 minutes west of Shanghai, China.
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. A second paper making plant is
still to be purchased.
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 Chongqing 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 and 4 by December 1998. Considerable equipment
has already been acquired for the paper conversion plants of Paper Mills No. 3
and 4.
3
<PAGE> 32
Dransfield Paper's Management. Dransfield Paper's management - which
shall become the Company's management should the proposed Merger be approved
and effected - consists of U.S.-educated Hong Kong citizens with professional
training in accountancy, banking and marketing. Its senior officers average
more than 15 years experience in cultivating relationships and conducting
business in China. Its senior production management consists of an
international team of professionals with an average of more than 25 years
experience in the paper business in North America and in Europe. The
management at Paper Mill No. 2 in Jiangsu Province is supported by a team
composed of local Chinese engineers and of other Chinese engineers with working
experience in China but who received post-graduate degrees from universities in
the U.S. and Australia.
The business office of Dransfield Paper is 36-42 Pok Man Street, 1st and
2nd Floors, Mongkok, Kowloon, Hong Kong. Its telephone number is 2787-0838
(011-852-2787-0838 by direct dial from the U.S.).
SuperCorp Inc. SuperCorp Inc ("SuperCorp") was organized under the laws
of the State of Oklahoma on October 21, 1988. SuperCorp has approximately
2,500 shareholders which it acquired 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 organized the Company and, prior to the date of this Proxy Statement,
has been the controlling shareholder of the Company.
The Spinoff. SuperCorp purchased 461,572 Shares of Common Stock of the
Company for a cash consideration of $462 and proposes to distribute to the
shareholders of SuperCorp these 461,572 Shares on the basis of one share of the
Company for every 14 shares of SuperCorp held of record on September 30, 1996
("the Spinoff"). The Spinoff transaction is being registered by the Company
with the Securities and Exchange Commission on a separate registration
statement ("the Spinoff registration statement"). See "Terms of the
Transaction."
SuperCorp's address is 49 Strawberry Lane, Suite 200, Palos Verdes
Peninsula, California 90274. Its telephone number is 310-541-4415.
THE PROPOSED MERGER AND SPINOFF.
Upon the effectiveness both of the registration statement of which this
Proxy Statement is a part and the Spinoff registration statement, the
shareholders of the Company and of Dransfield Paper will each vote to approve
or reject a proposed merger of Dransfield Paper into the Company on the
following terms:
1. Dransfield Paper shall merge into the Company.
4
<PAGE> 33
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 386,004 Common Stock
Purchase Warrants ("the 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.
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.
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
September 30, 1996.
5. Prior to the Merger, the Company shall have exchanged 38,428 shares
of its Common Stock, at $0.001 a share ("the Escrow Shares") for 38,428
outstanding shares of its Preferred Stock held by two persons, one of whom is
affiliated with the Company and one may be deemed to be a promoter. See
"Management Information - Security Ownership of Certain Beneficial Owners and
Management."
6. Prior to the Merger, the Company shall have exchanged 500,000
Common Stock Purchase Warrants ("the U.S. Warrants") for 100,000 presently
outstanding stock options of the Company held by 6 persons.
7. The distribution of capital stock and warrants of both the Company
and of Dransfield Paper, before the Merger and after the Merger, will be as
follows should the Merger be effected:
<TABLE>
<CAPTION>
Before Merger After Merger
---------------------- ------------------------
Company Dransfield Company Company
Owner Shares Paper Shares Common Shares Warrants
- ----- ------- ------------ ------------- --------
<S> <C> <C> <C> <C>
Dransfield Paper
Common
Shareholder 0 80 9,300,000 386,004
Dransfield Paper
Series A Pref.
Stockholder 0 2,300,000 2,300,000(1) 0
SuperCorp 461,572 0 0 0
SuperCorp
Shareholders 0 0 461,572 0
</TABLE>
5
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Company's Pref.
Stock Holders 38,428 0 38,428 0
Company's
Stock Option
Holders 100,000(2) 0 0 500,000
</TABLE>
- -----------------------------
(1) These are Series A Convertible Preferred Stock shares of the Company but
are convertible into 2,300,000 shares of Common Stock of the Company.
(2) These shares are not issued or outstanding but are subject to being
issued should the options be exercised.
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 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"), the
38,428 Escrow Shares shall be exchanged for the 38,428 outstanding shares of
Series B Preferred Stock of the Company, and the persons holding the Company's
outstanding Options shall exchange the Options for the 500,000 U.S. Warrants.
Certificates representing the 461,572 Spinoff Shares, the 38,428 Escrow Shares,
and the 500,000 U.S. Warrants shall be distributed by SuperCorp to Liberty Bank
of Oklahoma City, N.A. ("the Escrow Agent") to be held in escrow for
distribution by it as follows:
SHOULD THE MERGER OCCUR. Upon the legal effectiveness of the Merger
(should Dransfield Paper's shareholder approve the Merger), the Company shall
then file a post-effective amendment to the Registration Statement and
supplement this Prospectus to indicate the fact and date of the Merger. At such
time as the Company's Common Stock either is approved for listing on the
American Stock Exchange or 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 Spinoff Shares, the Escrow Shares, and the U.S.
Warrants to the owners of such securities.
With respect to certificates representing the ownership of 5 or fewer
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
6
<PAGE> 35
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 Limited, 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 closely-held company 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 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 Proxy Statement 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 Proxy Statement, 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 Proxy Statement 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. See "Summary of Proposed Transaction - The Escrow
Arrangement."
7
<PAGE> 36
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) there are no such rights for the two shareholders of the Company,
because it is the surviving corporation and its shareholders continue to hold
the same shares 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 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. It is
possible, however, that The Hong Kong Stock Exchange may require that the
shareholders of Dransfield Holdings, Ltd., which is the sole shareholder of
Dransfield Paper, 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, Ltd. Because more than 60 percent of the voting capital
stock of Dransfield Holdings, Ltd. is held by directors and the families of
directors of Dransfield Holdings, Ltd., it should be expected that such
shareholders approval would be given should the directors of Dransfield
Holdings, Ltd. approve the Merger.
TAX CONSEQUENCES OF THE TRANSACTION.
The Merger should be a "tax-free" reorganization under the laws of the
Territory of the British Virgin Islands. See "Terms of the Transaction -
Income Tax Consequences."
USE OF PROCEEDS.
No funds will be raised for the Company through the Spinoff and Merger
transactions described herein. However, 500,000 U.S. Warrants and (should the
Merger be effected) 386,004 Merger Warrants exercisable
8
<PAGE> 37
at $8.00 are being distributed, expire 18 months after the effective date of
the Merger, and are callable by the Company on 30 days notice at such time as
the Company's Common Stock should have traded at or above a $12 closing price
for 10 consecutive trading days. Should all the Warrants be exercised, the
Company would receive $7,088,032 from the sale of the 886,004 shares of Common
Stock underlying the Warrants. Due to the uncertainties whether the Warrants
will be exercised or, if so, when, the Company has no plans dependent upon the
exercise of the Warrants and will use any proceeds realized from any exercise
of the Warrants, should such occur, to reduce long-term debt.
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
The shareholder of Dransfield Paper, who shall be asked to vote on the
proposed Merger through its board of directors, is making an investment
decision that involves a high degree of risk and should carefully consider the
following factors in evaluating the Merger, the surviving corporation, and its
business in determining whether to approve the Merger.
1. No Assurance of a Public Market. While the shares of Common Stock
and Warrants of the Company to be issued or distributed pursuant to this Proxy
Statement will be free of restrictions on transferability for all persons,
there is presently no public market for such securities and there is no
assurance that a public market for such securities will develop after the
occurrence of the Merger described in this Proxy Statement or, if one develops,
that it will be sustained.
2. 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."
3. Economic Considerations. The economy of China differs
significantly from the United States economy in such respects as
9
<PAGE> 38
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 other. Only recently has the Chinese
government encouraged substantial private economic activity. See generally
"Appendix B: The People's Republic of China". 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 ("State
Plans"). In their interpretation and implementation, the State Plans may be
subject to regional variation. Although the majority of productive assets in
China are still owned by the state, the importance of the State Plan in the
allocation of resources and productivity growth in the Chinese economy is
diminishing. For example, the central government established the Economic and
Trade Commission under the direction of the State Council to assume
responsibilities regarding China's economic and trade policies. The Economic
and Trade Commission will, in its policies, emphasize greater decentralization
and utilization of market forces for allocation of China's resources. 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. Much of the
economic activity is export driven and, therefore, affected by developments in
the economies of China's principal trading partners. See generally "Appendix
B: The People's Republic of China".
4. Legal System. Since 1979, many laws and regulations dealing with
economic matters in general and foreign investment in particular have been
promulgated in China. 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. In addition, 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". China's
legal system is based on written statutes and, therefore, decided legal cases
are without binding legal effect, although they are often followed by judges as
guidance. The interpretation of Chinese laws may be subject to policy changes
to reflect domestic political changes.
As the Chinese legal system develops, the promulgation of new laws,
changes to existing laws and the preemption of local regulations by national
laws may adversely affect foreign investors. The trend of legislation over the
past 12 years has, however, significantly enhanced
10
<PAGE> 39
the protection afforded foreign investment and allowed for more active control
by foreign parties of foreign invested enterprises in China. There can be no
assurance, however, that the current trend in economic legislation towards
promoting market reforms and experimentation as well as further "opening to the
outside world" will not be slowed, curtailed or reversed, especially in the
event of a change in leadership, social or political disruption or unforeseen
circumstances affecting China's political, economic or social life. Such a
shift could have a material adverse effect upon the business and prospects of
the Ventures.
The Company's activities in China are by law subject, in some particular
cases, to administrative review and approval by various national and local
agencies of the Chinese government. While China has promulgated an
administrative law permitting redress to the courts with respect to certain
administrative actions, this law appears to be largely untested in this
context. Although there is no assurance that governmental approvals, when
necessary or advisable, will be forthcoming, the Company believes that the
support of local, provincial and national governmental entities benefits the
Company's operations in connection with administrative review and receiving
approvals.
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.
5. 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, US dollars to purchase
equipment for expansion projects. In addition, profits will need to be
converted into United States dollars, Hong Kong dollars and other currencies in
the amount needed for the Company to pay dividends and 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. Effective January 1,
1994, pursuant to the Notice of the People's Republic of China Concerning
Further Reform of the Foreign Currency Control System (the "PBOC Notice"), the
conversion of Renminbi into Hong Kong dollars and United States dollars must
now be based on the rate set by the People's Bank of China (the "PBOC Rate"),
which is set daily based on the previous day's PRC interbank foreign exchange
market rate with reference to current exchange rates on the world financial
markets. In line with the adoption of the PBOC Rate, the Renminbi was revalued
at HK$1.00 = RMB1.12 and US$1.00 = RMB8.70 on January 3, 1994.
11
<PAGE> 40
In general, the PBOC Notice and the PRC Foreign Exchange Control
Regulations, which took effect on April 1, 1996, require that domestic
enterprises operating in the PRC must price and sell their goods and services
in the PRC in Renminbi. Domestic enterprises are also required to sell all
their foreign exchange revenues to designated foreign exchange banks in the PRC
with the exception of any portion of such revenues permitted by the PRC State
Administration for Exchange Control ("SAEC") to be retained in foreign
currency. 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 the
Regulations on the Administration of Foreign Exchange Settlement, Sale and
Payment which were promulgated by the PBOC on June 20, 1996 and 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.
Prior to the unification of the PRC's dual foreign exchange system on
January 1, 1994, there was significant volatility in the exchange rate of
Renminbi to US dollars. Although the Renminbi to US 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 US dollar. 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 US dollars, of the Company's net fixed assets, earnings and
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.
6. Competition, Import Restrictions and GATT. The PRC Government
imposes tariffs on imports of paper products and certain equipment that will be
employed in the construction of the Company's paper mills referred to herein.
These tariffs and other restriction on foreign imports cover a majority of the
product types produced by the Company. The tariff rates currently range from
1% to 40% on products which complete with those of the Company. The tariff is
levied on the landed price, which includes the cost of the products, packing,
freight to the PRC, insurance, and other relevant service fees. These tariffs
and import restrictions are intended, in part, to protect domestic producers of
these products, such as the Company.
Since 1994, the PRC has engaged in extensive negotiations to re-enter the
General Agreement on Tariffs and Trade (which became the World Trade
Organization on January 1, 1995) ("GAAT"), which regulates trading
12
<PAGE> 41
and tariffs among its signatory states. The PRC may re-enter GATT and assume a
position as a founding member of the World Trade Organization if agreement is
reached. If the PRC resumes its status as a signatory to GATT, it will be
required to reduce some of its import tariffs and other trade restrictions over
time. Further, in line with its general progress of economic reform and in
order to facilitate the resumption of its status as a signatory to GATT , the
PRC began, on April 1, 1996, and is expected to continue, lowering some import
tariffs and reducing certain other restrictions on imports. The PRC's possible
re-entry into GATT and the current policy of lowering import barriers may
result in increased competition in the domestic markets by foreign compeitiors.
It may also reduce the tariffs imposed by the PRC Government on production
equipment that the Company may import in the future, and the restriction on
availability of imported raw materials (such as waste paper) currently enforced
by the PRC. The effect of these two factors may be reduced during a transition
period associated with the PRC's resumption of its status as a signatory to
GATT. However, no assurance can be given that increased competition from
imported products will not have a materially adverse effect on the Company's
business and results of operations. See "Business - Competition."
7. 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 singly 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 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.
8. 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.
13
<PAGE> 42
9. Dilution. Should the Merger be approved and effected (and assuming
conversion of the Series A Convertible Preferred Stock into shares of Common
Stock but without giving consideration to the possible exercise of the
Warrants), the shareholders of Dransfield Paper shall suffer a 4.1% dilution in
their percentage ownership of the surviving company in exchange solely for
obtaining shares of Common Stock registered under the Securities Act to be
exchanged for their shares of capital stock of Dransfield Paper. The book value
(adjusted for the Merger as above) of each of Dransfield Paper's shares, as of
March 31, 1996, would be US$0.35 before the Merger and US$0.34 after the
Merger.
10. Tax Consequences. The anticipated favorable tax consequences of
the proposed Merger and Spinoff to the Company, and its shareholders (see
"Terms of the Transaction - Income 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 an opinion of tax
counsel to the Company and to SuperCorp (which tax opinion is an exhibit to the
registration statement of which this Prospectus is a part). Should the actual
income tax consequences be different than as represented herein by the Company,
gain or loss might be recognized and reportable by any of the Company,
SuperCorp, or SuperCorp's approximately 2,500 shareholders to whom will be
distributed 461,572 Spinoff Shares should the Merger be effected.
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.
12. 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.
13. No Assurance of Success of Proposed 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. There is, and can be,
no assurance that this business expansion will be realized.
EXCHANGE RATE INFORMATION
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 US 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
14
<PAGE> 43
has fluctuated between a range of US$1.00 = RMB8.30 and US$1.00 = RMB8.70.
The following table sets forth certain information concerning exchange
rates between Renminbi and US dollars for the periods indicated:
<TABLE>
<CAPTION>
NOON BUYING RATE(1)
-------------------------------------
PERIOD PERIOD END AVERAGE(2) HIGH LOW
- ------ ---------- ---------- ---- ---
(EXPRESSED IN RMB PER US$)
<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.
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 US dollar. Since
October 17, 1983, the Hong Kong dollar has been linked to the US 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 US 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
15
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equivalent of US dollars at the fixed rate. Exchange rates between the Hong
Kong dollar and other currencies are influenced by the linked rate between the
US dollar and the Hong Kong dollar.
The market exchange rate of the Hong Kong dollar against the US 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. 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 US 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.
TERMS OF THE TRANSACTION
The Company and Dransfield Paper, pursuant to approval by their
respective boards of directors, have entered into an agreement of merger, 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 9,300,000 Merger Shares,
386,004 Merger Warrants (and their 386,004 underlying shares) and
2,300,000 Series A Convertible Preferred Stock Shares and a separate
registration statement covering 461,572 Spinoff shares (for distribution
to SuperCorp's securities holders), 38,428 Exchange Shares affiliated
with the Company and 500,000 U.S. Warrants (and their 500,000 underlying
shares) (a) must be filed with the Securities and Exchange Commission and
with appropriate state securities regulatory agencies and (b) 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
(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.
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TERMS OF THE MERGER.
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 386,004 Common Stock
Purchase Warrants ("the 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.
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.
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
September 30, 1996.
5. Prior to the Merger, the Company shall have exchanged 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. See
"Management Information - Security Ownership of Certain Beneficial Owners and
Management."
6. Prior to the Merger, the Company shall have exchanged 500,000
Common Stock Purchase Warrants ("the U.S. Warrants") for 100,000 presently
outstanding stock options of the Company held by 8 persons.
7. The historical financial statements of the post-Merger Company
shall be those of 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 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
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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.
AGREEMENT AND PLAN OF MERGER.
The complete Agreement of Merger among the Company, Dransfield Paper, and
SuperCorp is included in this Proxy Statement. See "Appendix A - Agreement of
Merger."
DIFFERENCES BETWEEN RIGHTS OF SHAREHOLDERS OF THE COMPANY AND OF DRANSFIELD
PAPER.
There are no material differences between the rights of holders of the
Common Stock of the Company and of Dransfield Paper. See "Terms of the
Transaction - Description of Securities."
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 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, and Dransfield Paper is authorized to issue
4,000,000 shares of Common Stock, $0.0125 par value. As of the date of this
Prospectus, the Company had 461,572 shares of Common Stock issued and
outstanding, and Dransfield Paper had 80 shares of its Common Stock issued and
outstanding.
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VOTING RIGHTS. Holders of the shares of Common Stock of both
companies are entitled to one vote per share on all matters submitted to a vote
of the shareholders. Shares of Common Stock of both companies 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 of
both companies 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 of both companies, 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 of both companies 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. Dransfield Paper serves as its own
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.
DISSENTER'S 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 certificate of incorporation.
PREFERRED STOCK. The Company is authorized to issue 10 million shares of
Preferred Stock, no par value, and Dransfield Paper is authorized to issue
2,500,000 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 each of the
Company and Dransfield Paper have designated as "Series A Convertible Preferred
Stock" 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
shares of Series A Convertible Preferred Stock issued and outstanding. None of
the Company's authorized
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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 US$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 prorata 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 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
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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 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.
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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. Dransfield Paper and the Company
each serves as its own registrar and transfer agent for its Series A
Convertible Preferred Stock.
DISSENTER'S 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 certificate of incorporation.
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 prorata
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.
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.
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<PAGE> 51
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 886,004 Warrants,
each of which Warrants entitles the holder to purchase 1 share of Common Stock
of the Company for $8.00. None of the authorized 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 a $12
closing price for 10 consecutive trading days.
CALL FEATURE OF THE WARRANTS. Should the Company be able to
exercise its right to call the Warrants, as described above, holders of the
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, (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 and
the NASD.
REGISTRAR AND TRANSFER AGENT. Liberty Bank and Trust Company of Oklahoma
City serves as the registrar and transfer agent of the Company's Warrants.
INCOME TAX CONSEQUENCES.
In the opinion of Harney, Westwood & Riegels, solicitors in the British
Virgin Islands, 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.
SHAREHOLDERS OF DRANSFIELD PAPER AND THE COMPANY. The Company believes
that, under the tax laws of the U.S., there should be no recognition of taxable
gain or loss to the shareholders of Dransfield Paper or the Company by reason
of the Merger. The shareholder of Dransfield Paper and the shareholders of the
Company would have a carryover tax basis and a tacked holding period for the
Company's securities received in the Merger. Further, Dransfield Paper itself
would not recognize any taxable gain or loss, since its liabilities are not in
excess of the tax basis of its assets.
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It is anticipated that the distribution by SuperCorp to its shareholders
of the 461,572 Spinoff Shares will not adversely affect the non-recognition of
gain or loss to Dransfield Paper or its shareholder in the merger.
The Company further believes that, under the tax laws of Hong Kong, there
should be no adverse profits tax consequences to the shareholders of Dransfield
Paper by reason of the Merger. The Merger will be treated for Hong Kong profits
tax purposes as a disposition of assets by Dransfield Paper. As Dransfield
Paper is subject to Hong Kong profits tax, Dransfield Paper could incur profits
tax liability as a result of the Merger. However, there are certain provisions
in the Hong Kong Inland Revenue Ordinance that may enable Dransfield to
minimize any Hong Kong profits tax payable as a result of the Merger. The
directors of Dransfield Paper have resolved to take advantage of the relevant
provisions where possible.
The above discussion 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 Company (which tax opinion
is an exhibit to the registration statement of which this Proxy Statement is a
part). See "Risk Factors - Tax Consequences."
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 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 "Risk Factors - Dilution."
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.
INTEREST OF 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
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<PAGE> 53
and sole beneficiary of 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 Mrs. Kenan is the record and beneficial owner of an
option to purchase 15,000 shares of Common Stock of the Company which shall be
exchanged for 75,000 U.S. Warrants of the Company. Mr. Kenan disclaims any
beneficial ownership in the securities beneficially owned by his spouse.
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
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.
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INFORMATION ABOUT THE COMPANY
The Company was incorporated under the laws of the Territory of the
British Virgin Islands on June 24, 1996. It 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 (see "Voting and Management
Information - Directors, Executive Officers, and Significant Employees") 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.
It is the intention of Dransfield Paper's present management to continue
the business of Dransfield Paper as the business of the Company (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 Proxy Statement 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.
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.
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After the Spinoff and before any vote on the merger by the directors of
Dransfield Holdings, all certificates representing the Spinoff Shares, the
Escrow Shares, and the U.S. 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 461,572
Spinoff Shares, the 38,428 Escrow Shares, and the 500,000 U.S. Warrants, 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 386,004 Merger 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 American Stock Exchange or, alternatively, admitted for quotation on the
Nasdaq National Market.
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
Escrow Shares of Common Stock, which number is subject to being increased
through the exercise of any of the 500,000 U.S. Warrants and 386,004 Merger
Warrants. Dransfield Paper has advised the Company that its sole shareholder,
Dransfield Holdings, proposes to distribute the 386,004 Merger Warrants to the
shareholders of Dransfield Holdings on the basis of one Merger 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 Warrants be made by Dransfield Holdings, 217,614 of the
386,004 Merger Warrants initially would be held by affiliates of the
post-Merger Company and would be subject to the limitations on sales, including
the amount of such sales during a 3-month period, imposed by Rule 144 under the
Securities Act. Further, 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. 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.
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
27
<PAGE> 56
purposes (see "Information about the Company - Description of Business and
Properties").
FINANCIAL STATEMENTS.
Set forth below are the independent auditor's report dated August 23,
1996 with respect to the Company's balance sheet as of August 21, 1996, such
balance sheet, and the notes to the balance sheet.
28
<PAGE> 57
[HOGAN & SLOVACEK LETTERHEAD]
August 23, 1996
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 August 21, 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 generally accepted auditing
standards. 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 August 21, 1996, in conformity with generally accepted
accounting principles.
/s/ Hogan & Slovacek
29
<PAGE> 58
DRANSFIELD CHINA PAPER CORPORATION
(A Development Stage Company)
BALANCE SHEET
AUGUST 21, 1996
<TABLE>
<S> <C>
ASSETS
Cash - on deposit in trust account $ 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 $ 38
Common Stock - 40,000,000 shares authorized,
no par value, 461,572 shares issued 462
-----
$ 500
=====
</TABLE>
The accompanying notes are an integral part
of this balance sheet.
30
<PAGE> 59
DRANSFIELD CHINA PAPER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO BALANCE SHEET
AUGUST 21, 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, 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 August
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. 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
31
<PAGE> 60
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 386,004 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.
(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 $.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 386,004 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 $8.00 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.
(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 $.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 Com-
32
<PAGE> 61
pany, these Preferred Stock holders are to receive $1.50 for each
share owned of the Series A Convertible Preferred Stock before any
distribution to other capital stock holders, accrued and unpaid
dividends and other considerations before the other capital
stockholders share in the liquidation of the assets. This class of
Preferred Stock in 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 $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.
33
<PAGE> 62
INFORMATION ABOUT DRANSFIELD PAPER
Dransfield Paper Holdings Limited ("Dransfield Paper") was incorporated
under the International Business Companies Ordinance (No. 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 distributes personal care
paper products under the brand name of Tempo, a food and beverage division
which has breweries in China and the United Kingdom, edible oil and candy
factories 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 American Stock Exchange or
the Nasdaq Stock Market's National Market in the U.S., Dransfield Holdings'
equity in its paper business division, which paper business is conducted in
Dransfield Paper. An aggressive business expansion is planned for this paper
business, and the management of Dransfield Paper desires to position itself so
that it can take advantage of what is perceived to be greater opportunities for
raising capital in the U.S. capital market as compared to that of Hong Kong.
Until July 1996, Dransfield Paper was in two lines of business:
o distributing Proctor & Gamble's "Tempo" brand paper handkerchiefs
in Hong Kong and in China, which Dransfield Paper's parent,
Dransfield Holding, had been doing in Hong Kong since 1975 before
Dransfield Paper was organized. Dransfield Paper has the exclusive
distribution rights for Tempo-brand paper products in Hong Kong and
in China, and
o acting as a paper merchant - the buying and selling of hygienic
paper, of packaging grade paper and of office waste paper, both on
an indent basis (a pre-sold basis) and on an agency basis.
In August 1996, Dransfield Paper went on stream with a paper converting
facility situated in Conghua in the city of Guangzhou,
34
<PAGE> 63
Guangdong Province in Southern China. This represents another step, started
two years ago, in a five-year plan to build an integrated paper business in
China and Hong Kong. The information set forth below should be considered in
the context of a company aggressively pursuing not only business expansion of a
lateral nature but of vertical integration - expanding from being a distributor
of hygienic paper products manufactured by Proctor & Gamble to a manufacturer
itself of all types of paper products, starting with purchased waste paper and
ending with paper products of various types for sale in bulk or through its
long-established distribution system. Dransfield Paper has determined to
position itself as a vertically integrated paper producer and distributor in
some of the largest population and fastest growing economies of China.
Dransfield Paper's business and business plan includes the following five
elements in the order of their commencement:
o Distribution - since 1975 (through its parent, Dransfield Holdings
Ltd.).
o Paper merchanting - since November 1994.
o Paper converting - operational since August 1996.
o Sorting and de-inking (deinking) - operations projected for early
1997.
o Paper tissue making - operational by early 1997.
SELECTED FINANCIAL DATA.
The following table sets forth selected financial data and other
operating information of Dransfield Paper. The selected financial data in the
table are derived from the consolidated financial statements of Dransfield
Paper. The data should be read in conjunction with the consolidated financial
statements and the related notes thereto, which are included elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------
1992 1993 1994 1995 1996 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income Statement
Data:
Net sales 74,391 65,322 78,387 94,359 307,047 39,701
Income before
interest and
income taxes and
minority interests 4,354 2,049 4,809 6,951 13,443 1,738
</TABLE>
35
<PAGE> 64
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------
1992 1993 1994 1995 1996 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest income/
(expenses), net (491) (131) 60 (198) (5,603) (724)
Provision for income
taxes (637) (336) (960) (1,130) (1,391) (180)
Income after income
taxes but before
minority interests 3,226 1,582 3,909 5,623 6,449 834
Net income 3,226 1,582 3,909 5,215 5,034 651
</TABLE>
<TABLE>
<CAPTION>
AS AT MARCH 31,
--------------------------------------------------------
1992 1993 1994 1995 1996 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Fixed Assets 12,644 12,644 12,780 25,467 57,880 7,484
Total assets 52,389 41,629 69,216 91,518 176,577 22,831
Long term liabilities - - - - 73,459 9,499
</TABLE>
The following table sets forth certain information concerning exchange
rates between Hong Kong dollars and US dollars for the periods presented,
expressed in HK$ per US$:
<TABLE>
<CAPTION>
Period Period End Average High Low
------ ---------- ------- ---- ---
<S> <C> <C> <C> <C>
1992 7.7402 5.5206
1993 7.7357 5.7795
1994 7.7290 8.6404
1995 7.7357 8.3700
1996:
Jan. 7.7329 8.3384
Feb. 7.7323 8.3338
Mar. 7.7325 8.3495
Apr. 7.7345 8.3583
May 7.7363 8.3479
June 7.7404 8.3424
</TABLE>
- -------------------------
Source: Federal Revenue Bank of New York.
Note: The average rates were determined by averaging the noon buying rate in
New York for cable transfers payable in New York in foreign currencies on the
last business day of each month.
36
<PAGE> 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
The following discussion and analysis should be read in conjunction with
the financial statements and the accompanying notes thereto and is qualified
entirely by the foregoing and by other more detailed financial information
appearing elsewhere. See "Information About Dransfield Paper - Financial
Statements."
OVERVIEW.
Dransfield Paper was incorporated on March 11, 1994. Its fiscal year
ends March 31. Accordingly, the financial information appearing in its
financial statements for the year ended March 31, 1994 are almost entirely the
results of operations of a predecessor company, A. Dransfield & Co. Ltd., which
also is a wholly-subsidiary of Dransfield Holdings, the parent of Dransfield
Paper, and relate entirely to the paper distribution business conducted that
year by A. Dransfield & Co. Ltd. Dransfield Paper succeeded to this business.
Its vertical integration activities are reflected in the statements of
operation and cash flows for the fiscal years ended March 31, 1995 and 1996.
RESULTS OF OPERATIONS.
Many amounts are stated below in Hong Kong dollars, the currency in
which Dransfield Paper keeps its financial records. Hong Kong dollars (HK$)
convert to United States dollars (US$) as follows: HK$7.7353 = US$1.00.
YEARS ENDED MARCH 31, 1994 AND MARCH 31, 1995.
Gross revenues from the paper distribution business declined from
HK$78,387,000 to HK$69,341,000. The increase in gross revenue for the year
ended March 31, 1995 over the preceding year is represented by the first
revenues received from the newly-established paper merchanting division, which
revenues amounted to HK$25,018,000, representing 27% of total turnover. The
decrease in revenues from sales of Tempo paper products was attributable to the
diversion of the energy of the personnel of Dransfield to the initiation of
activities with respect to the creation of a vertically integrated paper
business.
The cost of sales of the Tempo products decreased 10% from
HK$60,132,000 to HK$54,099,000 for the fiscal years ended March 31, 1994 and
1995 respectively. Selling, general and administrative expenses declined in
rough proportion to such expenses incurred in the sale of Tempo products during
this period, even though most of the energies of the personnel were devoted to
the creation of the vertically integrated paper business.
37
<PAGE> 66
Net income increased from HK$3,909,000 to HK$5,215,000 during this
period due to revenues received during the last three months of the fiscal year
from the paper merchanting operations.
LIQUIDITY AND CAPITAL RESOURCES. Accounts receivable increased
from HK$1,675,000 to HK$21,881,000 for the years ended March 31, 1994 and 1995,
respectively, which increase reflects the results of the three months' activity
in paper merchanting. The acquisition of fixed assets increased from
HK$220,000 to HK$3,844,000, the increase this time reflecting purchases of
equipment for the planned paper mills. Net loans and advances from Dransfield
Paper's parent, Dransfield Holdings, of HK$17,718,000 were required during the
year ended March 31, 1995 in order to meet the cash flow requirements of the
company. An additional HK$5,000,000 was contributed by a minority shareholder
of a subsidiary, but bank loans and overdrafts, which increased by
HK$14,720,000 during the year ended March 31, 1994, were reduced by
HK$11,571,000 during the year ended March 31, 1995. The liquidity of the
company ultimately rested upon the advances from Dransfield Holdings.
YEARS ENDED MARCH 31, 1995 AND MARCH 31, 1996.
Gross revenues increased dramatically from HK$94,359,000 to
HK$307,047,000, the increase being attributable to HK$213,327,000 in paper
merchanting. Sales of the Tempo products amounted to HK$68,702,000 in the
fiscal year ended March 31, 1996, a decrease of approximately HK$639,000 from
the HK$69,341,000 realized from Tempo sales in the year ended March 31, 1995.
Net profit, however, did not increase during the year ended March 31, 1996 over
the previous year, due primarily to interest expense paid on bank borrowings
obtained by Dransfield Holdings to finance the expansion of the company in the
execution of its strategy to become a vertically integrated paper company.
LIQUIDITY AND CAPITAL RESOURCES. Bank loans in the amount of
HK$25,275,000 were obtained during the fiscal year ended March 31, 1996, which
loans enabled the company to reduce its borrowings from Dransfield Holdings by
HK$20,390,000. Additional fixed assets were acquired during the year amounting
to HK$5,013,000, and HK$1,510,000 were deposited for the purchase of additional
fixed assets. Finally, the liquidity of the company during the year was
affected by a large increase in accounts receivable, from HK$21,881,000 for the
fiscal year ended March 31, 1995 to HK$41,286,000 for the year which ended
March 31, 1996.
Even though the paper converter facility went on stream in July 1996 at
Paper Mill No. 1 in Conghua in the PRC, approximately two months's operations
were lost due to an illness incurred by Mr. Manuel Alvarez, the director of
this facility. During his absence, the company recruited another professional
who will help run and manage the converting operation with Mr. Alvarez and in
his absence.
38
<PAGE> 67
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.(1)
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 proposing to 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.
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(2), in Hong Kong is 5
kilograms, and in China is less than 1 kilogram.(3)
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's management 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 for tourists and the other targeted markets together cover 10% of
the population of China, which is equivalent to a market base almost half the
size of that of the U.S.
OTHER MARKETS.
Dransfield Paper's vertically integrated paper business, which it is
developing, will be producing products suitable not only for itself but for
other manufacturers, converters, and consumers. Dransfield Paper projects that
it will offer for sale its products in the following markets:
o China - recycled fiber and jumbo reels in the form of tissue for
converters and finished products for consumers.
- ----------------------------------
(1) Source: Hawkins Wright Ltd. - China, 1994.
(2) Source: Report prepared by VIAG Aktiengesellschaft for PWA Hygiene
Papiere Unternehmensgruppe, 1995.
(3) Source: Jaakko Poyry, "Dynamics of the tissue paper business:
regional and global market potential," 1995.
39
<PAGE> 68
o Hong Kong and Macau - finished products for consumers and sorted
waste paper for local paper mills.
o Thailand, Malasia, Singapore and Taiwan - sorted waste paper and
recycled fiber.
DEMOGRAPHICS OF THE TARGETED CHINESE MARKET.
The four paper mills being constructed and planned to be constructed in
China are designed to serve markets in the following provinces and cities of
China:(4)
<TABLE>
<CAPTION>
(US$ Billion)(5)
(Million) Gross Domestic GDP Paper
Province or City Population Product (GDP) Per Capita Mill
- ---------------- ---------- ------------- ---------- ----
<S> <C> <C> <C> <C>
Guangdong Province 67.0 US$49.1 US$732 No.1
Jiangsu Province 70.2 47.6 678 No.2
Zhejiang Province 43.6 31.2 715 No.2
Shanghai Municipality 13.6 23.0 1,695 No.2
Tianjin Municipality 9.2 8.5 920 No.3
Beijing Municipality 11.1 11.9 1,075 No.3
Chongqing City 15.0 4.4 294 No.4
</TABLE>
INFLATION AND ECONOMIC GROWTH.
Since 1993 the Chinese government has imposed macro-economic controls in
an effort to reduce the money supply and inflation. Economic growth has slowed
considerably from earlier double-digit growth. According to a recent report to
the National People's Congress by Premier Li Peng, the central government will
continue to impose controls to restrain economic growth to an average annual 8%
rate over China's Ninth Five-Year Plan (1996-2000).(6)
DRANSFIELD PAPER'S EXPANSION.
Dransfield Paper's paper merchanting division, which was established only
in November 1994, and its established Tempo-based distribution division are to
be expanded to accommodate the entry by Dransfield Paper into three new lines
of the paper business through the construction of four paper mills in four
strategic locations in China by October 1998. The three new lines of business
are:
- ----------------------------------
(4) Source: Research Department, Hong Kong Trade Development Council
"Market File," 1994.
(5) Exchange Rate: US$1 = Rmb 8.5.
(6) Source: Business Post, South China Morning Post, March 5, 1996.
40
<PAGE> 69
o Recycled pulp production. Waste paper will be processed into
recycled pulp. Approximately half of this will be sold to other
companies in China with paper mills. Approximately half will be
supplied to Dransfield Paper's own paper making operation.
o Paper making. Paper making machines will process recycled pulp
into jumbo rolls. Approximately half of the production will be
sold to other companies in China with paper converting plants.
Approximately half will 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> <C>
Phase 1:
Paper Mill No. 1 March 1997 May 1997 Operating
Paper Mill No. 2 March 1997 May 1997 May 1997
Phase 2:
Paper Mill No. 3 December 1997 December 1997 December 1997
Paper Mill No. 4 December 1998 December 1998 December 1998
</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 started operations in
August 1996, went on stream in August 1996, and will convert 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 March 1997 with an output capacity of approximately 90 metric
tons a day. The targeted customers for half of
41
<PAGE> 70
the recycled pulp production of this plant are located in the Pearl River delta
area, which is within 8 miles from this mill, which customers have present
annual demand exceeding 600,000 metric tons.(7)
Paper Mill No. 2. Dransfield Paper will invest approximately $10
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 US$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 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. A second paper making plant is
still to be purchased.
Approximately 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 the other half
of the production shall be sold to other paper mills in the Giangsu and
Zhejiang Provinces which have an annual demand of 750,000 metric tons.(8)
- ----------------------------------
(7) Source: "Foreign Investment in China Paper Industry,"
Weyerhaeuser, 1995.
(8) "Foreign Investment in China Paper Industry," Weyerhaeuser, 1995.
42
<PAGE> 71
The project site area is 120 acres in size, and the total plant area is
220,000 square feet. The plant is currently under construction.
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 Chongqing 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 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.
PAPER DISTRIBUTION.
In September 1975, 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
Pepierwerke in Hong Kong and Macau.
Since then, A Dransfield & Co. Ltd. and, since 1994, Dransfield Paper,
developed a substantial distribution network principally through supermarkets,
drug stores and newspaper stands for Tempo handkerchiefs. According to a
report entitled "Paper Handkerchief Usage and Attitude Study" published in May
1992 by an independent international market research organization, Survey
Research Hong Kong Ltd. (SRH), Tempo handkerchiefs were the paper handkerchiefs
in respect of which the sample of the public questioned had the highest level
of awareness as compared to other paper handkerchief products available in Hong
Kong.
According to SRH Retail Audit of August 1992-September 1992 edition, the
value of sales of Tempo represented approximately 44.5% of the value of the
total sales of paper handkerchiefs in Hong Kong during the period covered by
the survey.
Periodic interim surveys indicate Tempo's market share to be at a 48% to
45% level. Based on Dransfield Paper's informal surveys and management
estimates, Tempo's market share currently stands at approximately 42%.
Because of the extensive retail outlets where Tempo products are
available in Hong Kong and Macau, Dransfield Paper intends to use the same
distribution network for the products such as toilet tissues, paper napkins and
box facial tissues to be produced by the converting facility in Conghua,
Guangzhou which went on stream in August 1996.
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<PAGE> 72
PAPER MERCHANTING. In November 1994 Dransfield Paper set up a merchanting
division 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:
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.
Dransfield Paper has been negotiating an agreement, which has not yet
been signed, and no assurance can be given that it will be signed, with
Summerhouse Profits Ltd., the minority shareholder of C.S. Paper Holdings
(International) Ltd. with respect to Summerhouse Profits Ltd's selling its
one-third interest in C.S. Paper Holdings (International) Ltd. to Dransfield
Paper and, in return, Dransfield Paper (HK) Trading Ltd's selling its interest
in Central National Hong Kong Ltd. to Summerhouse Profits Ltd. However, both
sales are to be at prices yet to be finalized. Such prices are not expected to
be larger than the net book value of the respective companies.
CONVERTING. In early 1990, Dransfield Holdings acquired two pieces of land
with an aggregate area of approximately 16,011 square meters in the Taiping
Development Zone in Conghua, Guangzhou, People's Republic of China.
From 1990 to July 1992 this property was occupied rent-free by a related
party which was engaged in the packaging of latex gloves and Tempo promotional
packs. This operation was discontinued in July 1992.
The property was vacated for the purpose of utilizing this industrial
property for a joint venture operation to manufacture paper-related products.
Extensive discussions were conducted with interested paper converters in
respect of a joint venture to produce hygienic paper products for distribution
in the People's Republic of China (PRC) and in Hong Kong. In particular, the
Company was in active discussion with Tempo manufacturer in Germany, Vereinigte
Papierwerke. However, Vereinigte Papierwerke was subsequently sold to Proctor
& Gamble in 1995, which resulted in Dransfield Paper's proceeding with the
paper converting venture on its own through a cooperative venture with the
local authority in Conghua.
Dransfield Holdings went public on April 30, 1993. Of the estimated
proceeds of HK$54.1 million, approximately HK$15 million was
44
<PAGE> 73
set aside to acquire equipment for the proposed joint venture operation in
Conghua, PRC, to manufacture and distribute paper-related products.
Acquisition of equipment as well as recruitment of a specialist converter
from the U.S., Mr. Manual Alvarez, was substantially completed by the end of
1995. Installation of the equipment was completed in May 1996. Test
production was completed in June 1996. This converter facility went on stream
in August 1996.
Based on current market prices, the Conghua converting facility's
estimated turnover is HK$20 million. Management expects to achieve this level
of turnover and profitability within 12-18 months from September 1996.
SECOND PAPER CONVERTING PLANT. Dransfield Paper has purchased a
substantial amount of used converting equipment currently located in Conghua
awaiting refurbishment. The refurbishment will take approximately 60 days from
September 1996. Additional equipment amounting to approximately US$400,000
needs to be acquired to complete the range of converting level as Conghua.
Dransfield Paper's management anticipates the second converting plant in
Jiangyin, Wuxi to be operational in March 1997.
SORTING AND DEINKING. Necessary balers, refurbished in Holland, covering
requirements in the Conghua as well as the Jiangyin paper mills are now on
site. Deinking equipment from Georgia-Pacific which has the capacity of 130
tons is now on site in Jiangyin, Wuxi, awaiting refurbishment. A deinking
facility of 90 tons capacity has been purchased from VPK and is now on site in
Chonghua awaiting refurbishment.
Plans to refurbish this equipment are being completed. Additional
experienced mechanical specialists are being recruited from the U.S. and should
be on site in early September 1996.
The refurbishment of foreign equipment, coupled with the acquisition of
local parts and locally sourced equipment set-up, should be ready towards the
end of 1996. The installation of the sorting and deinking section is planned
to be completed by March or April 1997.
The completion, installation and testing of these deinking facilities are
subject to stringent environment protection review and approval by the local
authorities concerned. Applications and clarification of environmental
procedures are being made. Dransfield Paper anticipates receiving such an
approval prior to installation of the equipment.
PAPER TISSUE MAKING. A used tissue making machine has been acquired from VPK
of Belgium. It should be on site in Jiangyin in early August 1996.
Refurbishment of this equipment shall commence in September and
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<PAGE> 74
should be completed in three months' time. Some local equipment will be needed
to recommission the paper tissue machine.
A ready-made steel structure for the factory covering deinking, paper
tissue making and converting for Jaingyin paper mill has been ordered and is
expected to be on site between September and November 1996 for the completion
of installation by the end of January 1997. During the same period, foundation
work for deinking and paper tissue making machine should be completed.
Used tissue making equipment for Conghua has been identified and active
negotiation is taking place. Further, for the Conghua paper mill, the steel
structure for deinking as well as the paper tissue section and the associated
land are yet to be acquired.
Total funding to acquire the needed structure and equipment for deinking
and paper tissue making for Jiangyin and Conghua is estimated at US$6 million.
Funding is not in place and will be required to cover the required purchases to
complete the project. Funding could come either from additional borrowing or
the exercise of the U.S. warrants.
IMMEDIATE PLANS. The principal products that are to be produced from the
converting division are toilet tissue, paper handkerchiefs, box facial tissue,
and, at a later date, kitchen towels. The sorting and deinking operations will
initially make recycled fiber for the paper mills. The paper tissue making
operations initially will make paper reels for the company's converting
facilities. The materials produced by deinking as well as by paper tissue
making will be made available for sale to outside paper mills and converters
in addition to meeting the company's own requirements.
The designs of the toilet tissue, box tissue and paper napkins have been
completed and are ready for production. Still lacking is the design for the
paper handkerchiefs and the kitchen towels.
Until the company's deinking facility and first paper mill are ready, the
company's primary source of parent reels for the production of finished
products for the Hong Kong market will be from the U.S. For the PRC market,
jumbo reels will be supplied from Chinese local mills. When deinking and paper
tissue mills are ready, at least 80% of the company's requirements for paper
tissue and parent reels for converting will be internally sourced. External
sourcing will still be required to meet gaps in production.
Materials needed for sorting and deinking initially will consist of
semi-sorted office waste paper purchased from the U.S. Later, this requirement
will be met from Hong Kong and major cities in China.
SEASONAL OPERATIONS. For the hygienic grades of paper, Dransfield
Paper's production of paper will not be seasonal other than for the month of
February, when most Chinese businesses are shut down for the Chinese New Year.
The company will use this month for regular, annual
46
<PAGE> 75
maintenance of equipment and, accordingly, will anticipate a lower level of
sales that month.
DRANSFIELD PAPER'S MANAGEMENT. Dransfield Paper's management - which shall
become the Company's management should the proposed Merger be approved and
effected - consists of U.S.-educated Hong Kong citizens with professional
training in accountancy, banking and marketing. Its senior officers average
more than 15 years experience in cultivating relationships and conducting
business in China. Its senior production management consists of an
international team of professionals with an average of more than 25 years
experience in the paper business in North America and in Europe. The
management at Paper Mill No. 2 in Jiangsu Province is supported by a team
composed of local Chinese engineers and of other Chinese engineers with working
experience in China but who received post-graduate degrees from universities in
the U.S. and Australia. See "Management Information - Directors, Execution
Officers and Significant Employees."
PROPERTIES.
Dransfield Paper acquired from its parent, Dransfield Holdings, two
pieces of land in Conghua with an aggregated area of approximately 16,011
square meters, which property is in use. The property is situated in the
Taiping Development Zone. Further, a piece of land approximately 35,000 square
meters, which is approximately 300 yards from the existing property, is subject
to negotiations for acquisition by Dransfield Paper but has not yet been made
the subject of an agreement.
The real property to could be utilized in Jiangyin is approximately
65,000 square meters and is the subject of a 50-year land use agreement with
the local authority, which agreement is in favor of Jiang Ying Dransfield Paper
Co. Ltd., a joint venture company owned 40% by Jiangsu Huaxi Holdings
Corporation, a PRC government corporation.
Dransfield Paper rents its 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. 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.
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.
47
<PAGE> 76
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. Nevertheless,
Dransfield Paper is working with the appropriate governmental officials
concerning the necessary standards to be met in its deinking and paper mills.
It is the company's intention to bring its environmental control standards to
meet U.S. standards, which are higher than those currently required by the PRC.
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.
TERM LOAN AND LINE OF CREDIT.
Dransfield Paper's investment in the plant and equipment for Paper Mills
No. 1 and No. 2 has been funded by its parent, Dransfield Holdings, by
short-term bank loans. Used paper mills and equipment must be purchased
decisively when available, resulting in there being insufficient time to
arrange for long-term loans.
Dransfield Holdings is currently negotiating with banks to provide US$10
million in a 3-year-term loan and approximately US$5 million to be utilized to
repay short-term bank debt. These loans are sufficient to fund Paper Mills No.
1 and 2. To expand into Phase Two's development of Paper Mills No. 3 and 4,
equity funding will be needed. Because each paper mill costs approximately
US$10 million to set up, Dransfield Paper proposes to raise no less than US$20
million in the next two years to fund its expansion.
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.
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<PAGE> 77
LEGAL PROCEEDINGS.
Neither Dransfield Paper nor any of its property is a party to or the
subject of any pending legal proceedings.
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. 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.
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 will be subject to U.S. Federal income tax only to the
extent that it has U.S.-source income. Currently the Company does not have and
does not anticipate having any U.S.-source income.
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<PAGE> 78
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 and 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 by withholding or
otherwise 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
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<PAGE> 79
Hong Kong and that the Shares are listed on the American Stock Exchange or
quoted on the Nasdaq National Market.
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.
FINANCIAL STATEMENTS.
Set forth below are 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 financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States.
51
<PAGE> 80
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES:
Report of Independent Auditors F -2
Consolidated Balance Sheets as of March 31, 1995 and F -3
March 31, 1996
Consolidated Statements of Income for the years ended
March 31, 1994, March 31, 1995 and March 31, 1996 F -4
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, March 31, 1995 and March 31, 1996 F -5
Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1994, March 31, 1995
and March 31, 1996 F -6
Notes to Consolidated Financial Statements F - 7 - 21
</TABLE>
F - 1
52
<PAGE> 81
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.
/s/ Ernst & Young
ERNST & YOUNG
Hong Kong
June 3, 1996
F - 2
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<PAGE> 82
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$.0125 each,
4,000,000 shares authorized;
80 issued, and fully paid up 1 1 -
Contributed surplus 3,000 3,000 388
Retained earnings/(accumulated deficit) 11 (2,966) 2,068 267
------- ------- -------
Total shareholders' equity 35 5,069 655
------- ------- -------
Total liabilities and shareholders'
equity 91,518 176,577 22,831
======= ======= =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F - 3
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<PAGE> 83
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1994, MARCH 31, 1995 AND MARCH 31, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Notes 1994 1995 1996 1996
HK$ HK$ HK$ US$
---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales to
- third parties 65,656 89,045 299,567 38,734
- fellow subsidiaries 15 12,731 5,314 7,480 967
-------- -------- -------- --------
78,387 94,359 307,047 39,701
Cost of sales (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/(expense), net 11 60 (198) (5,603) (724)
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 48.87 65.19 62.93 8.14
======== ======== ======== ========
Shares used in computation of
earnings per share 80 80 80 80
======== ======== ======== ========
</TABLE>
F - 4
55
<PAGE> 84
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
Due to a minority shareholder - 1,000 6,000 776
------- ------- ------- -------
Net cash provided by/(used for) operating
activities (8,407) (9,903) 373 48
------- ------- ------- -------
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 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 11,147 4,885 632
------- ------- ------- -------
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 - 5
56
<PAGE> 85
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 - 6
57
<PAGE> 86
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$l 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. 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 - 7
58
<PAGE> 87
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 - 8
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<PAGE> 88
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:
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%
(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 dealt with in the profit and loss account.
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 the profit and loss account on the straight-line basis over
the lease terms.
F - 9
60
<PAGE> 89
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.
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>
F - 10
61
<PAGE> 90
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
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%.
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 to 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 mainly from temporary difference
associated with the advertising expenses deferred for income tax
purposes.
F - 11
62
<PAGE> 91
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
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).
7. INVENTORIES, NET
Inventories are comprised of:
<TABLE>
<CAPTION>
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>
F - 12
63
<PAGE> 92
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
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.
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 the
business of 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.
F - 13
64
<PAGE> 93
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 (continued)
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.
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.
F - 14
65
<PAGE> 94
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)
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 on 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$2,715); and
(c) unlimited cross guarantees given by a subsidiary of the
Company and certain fellow subsidiaries.
The weighted average interest rates on bank borrowings are
as follows:
<TABLE>
<CAPTION>
March 31,
1995 1996
<S> <C> <C>
Interest on bank loans and overdrafts 8% 9%
</TABLE>
Interest expense on bank loans, net of the amounts capitalized,
is as follows:
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ 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>
F - 15
66
<PAGE> 95
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
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 March 31, 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$259), respectively at March 31, 1996. The balances are
unsecured, interest-free and are repayable in full in May to June 1996
by three instalments (March 31, 1995: HK$l million due to a minority
shareholder of a subsidiary is unsecured and interest-free).
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$297) was utilized by the supplier as at March 31, 1996.
F - 16
67
<PAGE> 96
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
15. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
The major related party transactions are described in further
detail below:
<TABLE>
<CAPTION>
Year ended March 31,
Nature of transactions Notes 1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <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).
(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.
F - 17
68
<PAGE> 97
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)
(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 life.
(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.
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.
F - 18
69
<PAGE> 98
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 (continued)
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$6) for the years ended March 31, 1994, 1995
and 1996.
19. SEGMENT REPORTING AND MAJOR SUPPLIERS
The Group operates in one primary business segment, in paper
trading in Hong Kong, Macau and the PRC. The sales to Macau and the
PRC during the three years ended March 31, 1996 were insignificant.
There is no single customer who accounted for more than 10% of net
sales for the three years ended March 31, 1996.
In 1994, the Group had one supplier who accounted for
approximately 66% of total purchases. In 1995, the Group purchased
substantially all of its merchandise from two suppliers. In 1996, the
Group had three suppliers who accounted for approximately 57% of total
purchases.
F - 19
70
<PAGE> 99
DANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
20. SUBSEQUENT EVENTS (UNAUDITED)
(A) Pursuant to a directors resolution passed on August
20, 1996, the authorized share capital of the Company increased
from 50,000 shares of Common Stock of US$l par value to 4,000,000
shares of Common Stock of US$.0125 par value and 2,500,000 shares
of Preferred Stock without par value. The one share of Common
Stock of US$l 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 Stockholders 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
stockholders, 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$3,450) of the amount due to the holding company.
(B) Proposed merger - spin-off
On 20 August 1996, the Company entered into an
agreement (the "Merger Agreement") with Dransfield China Paper
Corporation ("DCPC") and SuperCorp Inc. ("SuperCorp"), the
controlling shareholder of DCPC and a U.S. corporation with no
substantial assets, for a proposed merger - spin-off transaction
to create a public market for DCPC's stock. The proposed merger -
spin-off would be effected by SuperCorp forming a new subsidiary,
DCPC, which would sell 500,000 shares of US$.001 par value Common
Stock to SuperCorp and several individuals at a par value of
US$.001. DCPC will authorize 50 million shares of Common Stock
with a par value of US$.00l per share and 886,004 Common Stock
Purchase Warrants which have eighteen months term and to be
exercisable at US$8 per share and 2.3 million shares of Series A
Convertible Preferred Stock with equivalent tenor 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
F - 20
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<PAGE> 100
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 (continued)
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 authorized
but unissued. SuperCorp will file registration statements on
Forms S-1 and S-4 with the Securities and Exchange Commission
to register the merger and the spinoff of the 500,000 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.
386,004 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.
(C) The Company has been negotiating an agreement which has not
yet been signed with Summerhouse Profits Ltd ("SPL") and a
minority shareholder of CSP, in relation to the following:
(1) SPL shall sell 690,000 shares in CSP and the
shareholder's loans of HK$5 million (US$646) owing by
CSP to SPL, to the Company at a consideration of
HK$10.2 million (US$2,318) adjusted by deducting an
appropriate amount of trade receivables and
inventories to be negotiated.
(2) Dransfield Paper (HK) Trading Ltd shall sell 2,900
'A' shares and 2,550 'B' shares in Central National
HK Ltd to SPL at a consideration of HK$136 (US$18).
F - 21
72
<PAGE> 101
VOTING AND MANAGEMENT INFORMATION
No proxies are to be solicited by the Company's or by Dransfield Paper's
management with respect to the proposed Merger described herein.
DATE, TIME AND PLACE INFORMATION.
THE COMPANY. Shareholder voting on the proposed Merger by the
shareholders of the Company shall be taken by their written, unanimous consent.
It is expected that written consent to the Merger, without a meeting being
taken, shall be obtained from the three shareholders of the Company within two
days after the date of this Proxy Statement.
DRANSFIELD PAPER. Shareholder voting on the proposed Merger by the
Shareholder of Dransfield Paper, Dransfield Holdings, shall be taken at a
special meeting of the directors of Dransfield Holdings, to be held at its call
within 21 days after the effective date of the Proxy Statement, at Dransfield
Holding's offices in Hong Kong. Management of Dransfield Paper does not have
majority control of the directors of Dransfield Holdings and is unable to
provide assurance that the Merger will be approved.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF.
The proposed Merger must be approved (i) by a majority vote of the
outstanding shares of Common Stock and Series B Preferred Stock of the Company
on the day of the vote and (ii) by an approving vote of the sole shareholder of
both classes of capital stock of Dransfield Paper, which vote shall be taken by
the Board of Directors of Dransfield Holdings Limited.
There are presently outstanding 461,572 shares of Common Stock of the
Company, all of which are held of record by SuperCorp, and 38,428 shares of
Series B Preferred Stock of the Company, which are held of record by two
persons, one of whom is the president and sole director of the Company and the
other is a finder. Their vote or consent approving the Merger is assured.
There are presently outstanding 80 shares of Common Stock of Dransfield
Paper and 2,300,000 shares of its Series A Preferred Stock, all of which
capital stock is held of record by one shareholder, Dransfield Holdings. Each
share is entitled to one vote on the proposed Merger. A vote approving the
Merger by the directors of Dransfield Holdings is not assured.
DISSENTERS' RIGHTS OF APPRAISAL. No dissenters' rights of appraisal are
involved. The three shareholders of the Company have agreed to vote as a bloc
and to give their written consent to the Merger. As for Dransfield Paper, all
the capital stock of Dransfield Paper is held by one shareholder, Dransfield
Holdings, which will vote either to approve or to disapprove the Merger, and a
vote to disapprove
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<PAGE> 102
the Merger results in the Merger being rejected with no attendant dissenters'
rights of appraisal.
PERSONS MAKING THE SOLICITATION. Call of a directors meeting for a vote
on the Merger by the shareholder of Dransfield Paper will be made by Horace
Yao, chief executive officer of Dransfield Paper and one of the directors of
Dransfield Holdings, the sole shareholder of Dransfield Paper. Solicitation of
the unanimous written consents of the three shareholders of the Company shall
be made by T.E. King, president and sole director of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows information as of August 20, 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 Warrants and the conversion into Common Stock by
Dransfield Paper of its 2,300,000 shares of Series A Convertible Preferred
Stock (12,986,004 shares):
<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)
Meridyne Corporation
1205 Tedford Way Com. 0 0 13,393
Oklahoma City, Options 8,000 8 40,000(2)
------
OK 73116 53,393 *
John E. Adams
1205 Tedford Way Com. 0 0 53,393(3) *
Oklahoma City,
OK 73116
Marilyn C. Kenan Trust(4)
8511 Glenwood Com. 0 100 26,786
Oklahoma City, Options 4,000 4 20,000(2)
-------
OK 73114 46,786 *
Thomas J. Kenan
8511 Glenwood Ave. Com. 461,572(5) 100 0 0
Oklahoma City,
OK 73114
</TABLE>
74
<PAGE> 103
<TABLE>
<S> <C> <C> <C> <C> <C>
T.E. King
49 Strawberry Lane,
Suite 200
Palos Verdes Com. 461,572(5) 100 26,786
Peninsula, Ser. B Pref. 11,642 30 11,642
CA 90274 Options 50,000 45 250,000(2)
-------
288,428 2
J. Douglas Bowey
2127 Sawtelle Blvd.,
Suite D Ser. B Pref. 26,786(6) 70 26,786
Los Angeles, Options 6,000 6 30,000
------
CA 90025 56,786 *
Albert L. Welsh
3828 N.W. 69th
Oklahoma City, Com. 461,572(5) 100 26,786
OK 73116 Options 8,000 8 40,000(2)
------
66,786 *
Marjorie J. Cole(7)
6500 N. Grand Blvd. Com. 0 0 26,786
Oklahoma City, Options 8,000 8 40,000(2)
------
OK 73116 66,786 *
George W. Cole Com. 461,572 100 0 0
6500 N. Grand Blvd.
Oklahoma City,
OK 73116
Officers and Directors
as a Group (1 person Com. 461,572 100 26,786
before Merger, 0 Ser. B Pref. 11,642 60 11,642
persons after Merger) Options 50,000 50 250,000(2)
-------
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 share
available for rounding up fractional shares.
(2) Assumes exercise of the U.S. Warrants at $8.00 a Warrant.
(3) These shares are the same shares which will be owned by Meridyne
Corporation, of which Mr. Adams is an officer and director.
(4) This 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 disclaims any
beneficial interest in shares of capital stock of the Company owned by
this trust, which is a testamentary
75
<PAGE> 104
trust established in the 1980s by the estates of her deceased parents.
(5) 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.
(6) 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.
(7) Marjorie J. Cole, is the spouse of George W. Cole, an officer and
director of SuperCorp. Mr. Cole disclaims any beneficial interest in
shares of capital stock of the Company owned by Mrs. Cole, who exercises
her independent judgment with respect to voting and investment decisions
with respect to such stock.
<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 9,686,004(1)
Series A Pref. 2,300,000 100 2,300,000
----------
11,986,004 91
Officers and Com. 80 100 9,686,004(1)
Directors Series A Pref. 2,300,000 100 2,300,000
----------
as a group 11,986,004 91
(8 persons)
</TABLE>
- ------------------------
(1) Assumes exercise of the 386,000 Merger 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.
76
<PAGE> 105
<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
Stephen LEE Hung Bui, 47 General Manager February 1996 August 1997
Distribution
Jeremy LU Yuen Tong, 38 Assistant to February 1996 August 1997
Chief Executive
Officer
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 Manger July 1996 August 1997
of Fine Paper
Division
</TABLE>
- --------------------------
(1) Subject to earlier removal without cause by the directors of Dransfield.
THE COMPANY:
<TABLE>
<S> <C> <C> <C>
T.E. King, 61 President, 1996 5-97
Secretary and 1996 5-97
Director 1996 5-97
</TABLE>
77
<PAGE> 106
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.
STEPHEN LEE HUNG BUI. Mr. Lee has more than 20 years of experience in
professional accounting, finance, administration, and general management. He
has an MBA degree and is a fellow of the Hong Kong Society of Accountants and a
fellow of the Chartered Association of Certified Accountants as well as being a
member of the British Institute of Management.
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.
78
<PAGE> 107
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.
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 & 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. King & Assoc.
currently services the corporate finance and investor relations requirements of
approximately 68 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 during 1996 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.
79
<PAGE> 108
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 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 10 persons to purchase 100,000 shares of Common Stock of
the Company at US$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 Common Stock Purchase Warrants ("the U.S. 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, John E. Adams,
Meridyne Corporation, Nita Kay Adams, Marjorie J. Cole, the Marilyn C. Kenan
Trust and its trustee, Marilyn C. Kenan, and the directors of SuperCorp - T.E.
King, George W. Cole, 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, all as set forth above under "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 prorata with all
other shareholders of SuperCorp. To the extent that any of such promoters owns
Preferred Stock of the Company, he paid
80
<PAGE> 109
$0.001 a share for such Preferred Stock, was permitted to purchase such
Preferred Stock by the directors of SuperCorp 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. To the extent that any of such
promoters is the owner of Options of the Company, which Options shall be
exchanged for U.S. 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 organizing the Company and contributing to the
consummation of the Agreement of Merger with Dransfield Paper. Should any of
the U.S. Warrants held by any of such promoters be exercised by him, the
Company shall receive $8.00 a share for each share purchased pursuant to an
exercise of the U.S. 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, 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.
81
<PAGE> 110
APPENDIX A
AGREEMENT OF MERGER
This Agreement of Merger ("the Agreement") is made and
entered into as of August 1, 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.
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<PAGE> 111
2. Memorandum and Articles of Association. The Memorandum of
Association and the Articles of Association of the Surviving 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 80 shares of Common Stock of Dransfield Paper which
shall be issued and outstanding on the Record Date (August 31, 1996)
shall, on the Effective Date, be cancelled and exchanged for 9,300,000
shares of Common Stock ("the Merger Shares") and 386,004 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").
83
<PAGE> 112
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 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 886,004 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$8. 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$12 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>
<CAPTION>
Number of Par value
Class Series Shares of shares
----- ------ --------- ---------
<S> <C> <C> <C>
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 and Warrants of the Company
to be distributed pursuant to the provisions of paragraph 5 above shall,
prior to the distribution thereof, be registered with the U.S. Securities
and Exchange Commission ("SEC") and approved for issuance by the Hong
Kong Stock Exchange Limited as may be necessary.
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.
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
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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
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<PAGE> 115
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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<PAGE> 116
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.
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<PAGE> 117
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 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
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supply, serious bottle-neck problems in transport infrastructure, excessive
increases in the prices of some consumer goods and the costs 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$382 billion had been established. In 1990, foreign investment
enterprises constituted approximately 4.3% of the PRC's total industrial
production value. Since 1978, the PRC Government has afforded even greater
flexibility to foreign parties in relation to the industries in which
investments may be made, access to domestic markets, and management of foreign
investment enterprises, including greater latitude in the hiring and dismissal
of employees, in setting levels of wages, bonuses and allowances, and in
purchasing raw materials and marketing products.
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FOREIGN INVESTMENT IN THE PRC FROM 1979 TO 1993.
(excluding joint stock limited companies)
<TABLE>
<CAPTION>
1979-84 1985-89 1990 1991 1992 1993
------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Number of contracts 3,248 18,530 7,273 12,978 48,764 83,437
Contractual value
(in US$ billions) 10.41 26.46 6.60 11.98 58.1 111.4
</TABLE>
- ---------------------
Source: State Statistical Bureau of the PRC.
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.
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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 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
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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.
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
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<PAGE> 123
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.
(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.
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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 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.
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PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
There is set forth in the Proxy Statement 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.
EXHIBITS.
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.
3(i) - Memorandum of Association of Dransfield China
Paper Corporation.
3(ii) - 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
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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.
8 - Opinion of Thomas J. Kenan, Esq., as to tax
matters and tax consequences.
8.1 - Opinion of Harney, Westwood & Riegels as to
matters concerning British Virgin Islands
law.
10.1 - Escrow Agreement among Dransfield China Paper
Corporation; SuperCorp Inc., and Liberty
Bank & Trust Company of Oklahoma City, N.A.
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.
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.
23.1 - Consent of Ernst & Young LLP, independent
auditors of Dransfield Paper Holdings
Limited
23.2 - Consent of Hogan & Slovacek independent auditors
of Dransfield China Paper Corporation.
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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. (To be filed by amendment).
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. (To be filed by amendment).
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. (To be filed by amendment).
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.
99 - Designation of T.E. King as the authorized
representative in the United States of
Dransfield China Paper Corporation.
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.
99
<PAGE> 128
3. File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
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 and
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: September 5, 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: September 5, 1996 /s/ T.E. King
------------------------------------
T.E. King, president, sole director,
principal financial officer, and
authorized representative in the
United States of the registrant
100
<PAGE> 129
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2 - Agreement of Merger of August 1, 1996, between
Dransfield China Paper Corporation and
Dransfield Paper Holdings Limited.
3(i) - Memorandum of Association of Dransfield China
Paper Corporation.
3(ii) - 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.
8 - Opinion of Thomas J. Kenan, Esq., as to tax
matters and tax consequences.
8.1 - Opinion of Harney, Westwood & Riegels as to
matters concerning British Virgin Islands
law.
10.1 - Escrow Agreement among Dransfield China Paper
Corporation; SuperCorp Inc., and Liberty
Bank & Trust Company of Oklahoma City, N.A.
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.
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.
23.1 - Consent of Ernst & Young LLP, independent
auditors of Dransfield Paper Holdings
Limited
23.2 - Consent of Hogan & Slovacek independent auditors
of Dransfield China Paper Corporation.
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. (To be filed by amendment).
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. (To be filed by amendment).
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. (To be filed by amendment).
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.
99 - Designation of T.E. King as the authorized
representative in the United States of
Dransfield China Paper Corporation.
</TABLE>
<PAGE> 1
EXHIBIT 2
AGREEMENT OF MERGER
This Agreement of Merger ("the Agreement") is made and
entered into as of August 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. This
Agreement supercedes all previous agreements among the parties hereto
relating to the Merger.
Exhibit 2
Page 1 of 5 pages
1
<PAGE> 2
2. Memorandum and Articles of Association. The Memorandum of
Association and the Articles of Association of the Surviving 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 single share of Common Stock of Dransfield Paper
which shall be issued and outstanding on the Record Date (August 31,
1996) shall, on the Effective Date, be cancelled and exchanged for
9,300,000 shares of Common Stock ("the Merger Shares") and 386,004 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").
Exhibit 2
Page 2 of 5 pages
2
<PAGE> 3
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 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 886,004 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$8. 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$12 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>
<CAPTION>
Number of Par value
Class Series Shares of shares
----- ------ --------- ---------
<S> <C> <C> <C>
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 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.
Exhibit 2
Page 3 of 5 pages
3
<PAGE> 4
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 above shall, prior
to the distribution thereof, be registered with the U.S. Securities and
Exchange Commission ("SEC").
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.
8. Listing of the Company Common Stock on 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, either on the Nasdaq Stock Market's National Market or the American
Stock Exchange, at the choice of Dransfield Paper.
Exhibit 2
Page 4 of 5 pages
4
<PAGE> 5
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
Exhibit 2
Page 5 of 5 pages
5
<PAGE> 1
EXHIBIT 3(i)
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP. 291)
MEMORANDUM OF ASSOCIATION
OF
DRANSFIELD CHINA PAPER CORPORATION
NAME
1. The name of the Company is Dransfield China Paper Corporation.
REGISTERED OFFICE
2. The registered office of the Company will be at Craigmuir Chambers, P.O.
Box 71, Road Town, Tortola, British Virgin Islands.
REGISTERED AGENT
3. The registered agent of the Company will be HWR Services Limited of P.O.
Box 71, Road Town, Tortola, British Virgin Islands.
GENERAL OBJECTS AND POWERS
4. (1) The object of the Company is to engage in any act or activity that
is not prohibited under any law for the time being in force in the
British Virgin Islands.
(2) The Company may not
(a) carry on business with persons resident in the British Virgin
Islands;
(b) own an interest in real property situate in the British
Virgin Islands, other than lease referred to in paragraph (e)
of subclause (3);
(c) carry on banking or trust business unless it is licensed to
do so under the Banks and Trust Companies Act, 1990;
(d) carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed
under an enactment authorizing it to carry on that business;
(e) carry on the business of company management, unless it is
licensed under the Company Management Act, 1990; or
Exhibit 3(i)
Page 1 of 9 pages
1
<PAGE> 2
(f) carry on the business of providing the registered office or
the registered agent for the companies incorporated in the
British Virgin Islands.
(3) For purposes of paragraph (a) of subclause (2), the Company shall
not be treated as carrying on business with persons resident in the
British Virgin Islands if
(a) it makes or maintains deposits with a person carrying on
banking business within the British Virgin Islands;
(b) it makes or maintains professional contact with solicitors,
barristers, accountants, bookkeepers, trust companies,
administration companies, investment advisers or other
similar persons carrying on business within the British
Virgin Islands;
(c) it prepares or maintains books and records within the British
Virgin Islands;
(d) it holds, within the British Virgin Islands, meetings of its
directors or members;
(e) it holds a lease of property for use as an office from which
to communicate with members or where books and records of the
Company are prepared or maintained;
(f) it holds share, debt obligations or other securities in a
company incorporated under the International Business
Companies Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the Company
are owned by any person resident in the British Virgin
Islands or by any company incorporated under the
International Business Companies Act or under the Companies
Act.
(4) The Company shall have all such powers as are permitted by law for
the time being in force in the British Virgin Islands, irrespective
of corporate benefit, to perform all acts and engage in all
activities necessary or conducive to the conduct, promotion or
attainment of the object of the Company.
CURRENCY
5. Shares in the Company shall be issued in the currency of the United
States of America.
Exhibit 3(i)
Page 2 of 9 pages
2
<PAGE> 3
AUTHORIZED CAPITAL
6. The authorized capital represented by the shares of the Company is
US$50,000.00.
CLASSES, NUMBER AND PAR VALUE OF SHARES
7. The total number of shares of the capital stock which the Company has
authority to issue is 50,000,000, divided into 40,000,000 shares of
common stock without par value ("Common Stock"), and 10,000,000 shares of
preferred stock without par value ("Preferred Stock").
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES
8.(a). COMMON STOCK. Subject to all of the rights of the Preferred
Stock as expressly provided herein, by law or by the directors pursuant to this
paragraph 8, the Common Stock of the Company shall possess all such rights and
privileges as are afforded to capital stock by applicable law in the absence of
any express grants or rights or privileges herein.
8(b). PREFERRED STOCK. 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.
8(c). SERIES A CONVERTIBLE PREFERRED STOCK. There is hereby
described, as if this action were taken by the directors, the "Series A
Convertible Preferred Stock," including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms, as follows:
8(c)9. DESIGNATION AND INITIAL NUMBER. The class of shares of
Preferred Stock hereby classified shall be designated the "Series A Convertible
Preferred Stock." The initial number of authorized shares of the Series A
Convertible Preferred Stock shall be 2,300,000.
8(c)10. DIVIDENDS. 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
Exhibit 3(i)
Page 3 of 9 pages
3
<PAGE> 4
dividends set apart or paid on other capital stock on the same basis as the
holders of the Company's Common Stock.
8(c)11. LIQUIDATION OR DISSOLUTION. 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 US$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 prorata 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 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 Preferred Stock shall be regarded as having
converted into Common Stock their shares of Series A Preferred Stock in
accordance with the provisions of paragraph 8(c)4 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
Exhibit 3(i)
Page 4 of 9 pages
4
<PAGE> 5
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" within the meaning of
this paragraph 8(c)3.
8(c)12. CONVERSION PRIVILEGE. Series A Convertible Preferred Stock
shall be convertible into Common Stock as hereinafter provided 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 hereinafter provided, the conversion rate shall be one
share of Common Stock for each share of Series A Convertible Preferred Stock so
converted.
(ii) In order to convert Series A Convertible Preferred
Stock into Common Stock, the holder thereof shall on any business day surrender
at the office of the Company the certificate or certificates representing such
shares, duly endorsed to the Company or in blank, and give written notice to
the Company at said office of the number of said shares which such holder
elects to convert. Series A Convertible Preferred Stock shall be deemed to
have been converted immediately prior to the close of business on the day of
such surrender for conversion, and the person or persons entitled to receive
the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the date of any conversion, the Company
shall issue and deliver a certificate or certificates representing the number
of shares of Common Stock issuable upon such conversion, together with cash in
lieu of any fraction of a share, to the person or persons entitled to receive
same. In case of the conversion of only a part of the shares of any holder of
Series A Convertible Preferred Stock, the Company shall also issue and deliver
to such holder a new certificate of Series A Convertible Preferred Stock not
converted by such holder.
(C) The conversion rate as hereinabove provided shall be subject
to adjustment as follows:
Exhibit 3(i)
Page 5 of 9 pages
5
<PAGE> 6
(i) 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 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. An adjustment made pursuant to this subparagraph
8(c)4(C)(i) shall be made whenever any such events shall happen, but shall
become effective retroactively after such record date or such effective date,
as the case may be, as to shares of Series A Convertible Preferred Stock
converted between such record date or effective date and the date of happening
of any such event.
(D) The Company shall at all times reserve and keep available out
of its authorized Common Stock, for the purpose of effecting the conversion of
the issued and outstanding Series A Convertible Preferred Stock, the full
number of shares of Common Stock then deliverable in the event and upon the
conversion of all of the Series A Convertible Preferred Stock then issued and
outstanding.
8(c)9. 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.
8(c)10. 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.
8(c)11. NOTICES. All notices required or permitted to be given by
the Company with respect to the Series A Convertible Preferred Stock shall be
in writing, and if delivered by mail, postage prepaid, to the holders of the
Series A Convertible Preferred Stock at their last addresses as they shall
appear upon the books of the Company, shall be conclusively presumed to have
Exhibit 3(i)
Page 6 of 9 pages
6
<PAGE> 7
been duly given, whether or not the shareholder actually receives such notice.
8(d). SERIES B PREFERRED STOCK. There is hereby described, as if
this action were taken by the directors, the "Series B Preferred Stock,"
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms, as
follows:
8(d)1. DESIGNATION AND INITIAL NUMBER. The class of shares of
Preferred Stock hereby classified shall be designated the "Series B Preferred
Stock." The initial number of authorized shares of the Series B Preferred
Stock shall be 100,000.
8(d)2. LIQUIDATION OR DISSOLUTION. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of the
Company, and after payment or provision for payment has been made for the
holders of the Company's Series A Convertible Preferred Stock, as described in
paragraph 8(c)3 above, the holders of the issued and outstanding Series B
Preferred Stock shall be entitled to receive US$1.00 for each share of Series B
Preferred Stock before any distribution of the assets of the Company shall be
made to the holders of any other capital stock. After such payment shall have
been made in full to the holders of the issued and outstanding Series B
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 B
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 B Preferred Stock shall be distributed prorata 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 B 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 B Preferred Stock and the other capital stock
then issued and outstanding according to the proportion by which their
respective record ownership of shares of Series B Preferred Stock and such
capital stock bears to the total number of shares of the Series B Preferred
Stock and such capital stock then
Exhibit 3(i)
Page 7 of 9 pages
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<PAGE> 8
issued and outstanding. Subject to the senior rights of the holders of the
Company's Series A Convertible Preferred Stock as described in paragraph 8(c)3
above, if upon such liquidation, dissolution, or winding-up, the assets of the
Company distributable, as aforesaid, among the holders of the Series B
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 B 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" within the meaning of this paragraph
8(d)2.
8(d)3. VOTING RIGHTS. Each share of Series B 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.
VARIATIONS OF CLASS RIGHTS
9. If at any time the authorized capital is divided into different classes
or series of shares, the rights attached to any class or series (unless
otherwise provided by the terms of the issue of the shares of that class
or series) may, whether or not the Company is being wound up, be varied
with the consent in writing of the holders of not less than three-fourths
of the issued shares of that class or series and of the holders not less
than three-fourths of the issued shares of any other class or series of
shares which may be affected by such variation.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
10. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of the issue of the shares of that class, be deemed
to be varied by the creation or issue of further shares ranking pari
passu therewith.
REGISTERED SHARES
11. Shares in the Company may only be issued as registered shares and may not
be exchanged for shares issued to bearer.
AMENDMENT OF MEMORANDUM AND ARTICLES
12. The Company may amend its Memorandum of Association and Articles of
Association annexed hereto (the "Articles of Association") by a
resolution of members or by a resolution of directors.
Exhibit 3(i)
Page 8 of 9 pages
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DEFINITIONS
13. The meanings of words in this Memorandum of Association are as defined in
the Articles of Association.
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 this Memorandum of Association the 24th day of June, 1996 in the
presence of:
Witness Subscriber
/s/ Witness /s/ Ali Mudeen
- ---------------------- ------------------------
Craigmuir Chambers Authorized Signatory
Road Town, Tortola HWR Services Limited
Exhibit 3(i)
Page 9 of 9 pages
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<PAGE> 1
EXHIBIT 3(ii)
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;
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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.
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<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
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<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.
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<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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<PAGE> 6
(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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<PAGE> 7
(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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<PAGE> 9
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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<PAGE> 10
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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<PAGE> 16
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
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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
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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
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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
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(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.
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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. 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.
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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
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<PAGE> 1
EXHIBIT 3.1(i)
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(NO. 8 OF 1984)
MEMORANDUM OF ASSOCIATION
OF
DRANSFIELD PAPER HOLDINGS LIMITED
NAME
1. The Name of the Company is DRANSFIELD PAPER HOLDINGS LIMITED.
REGISTERED OFFICE
2. The registered office of the Company will be P.O. Box 71, Craigmuir
Chambers, Road Town, Tortola, British Virgin Islands.
REGISTERED AGENT
3. The registered agent of the Company will be HWR Services Limited of
P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin
Islands.
GENERAL OBJECTS AND POWERS
4. The Objects for which the Company is established are to engage in any
act or activity that is not prohibited under any law for the time
being in force in the British Virgin Islands including but not limited
to:-
(1) To purchase or otherwise acquire and undertake the whole or
any part of the business, goodwill, assets and liabilities of
any person, firm or company; to acquire an interest in,
amalgamate with or enter into partnership, joint venture or
profit-sharing arrangement with any person, firm or company,
to promote, sponsor, establish, constitute, form, participate
in, organise, manage, supervise and control any corporation,
company, syndicate, fund, trust, business or institution.
(2) To import, export, buy, sell (wholesale and retail), exchange,
barter, let on hire, distribute and otherwise deal in and turn
to account goods, materials, commodities, produce and
merchandise generally in their prepared, manufactured,
semi-manufactured and raw state.
(3) To purchase or otherwise acquire and hold, in any manner and
upon any terms, and to underwrite and deal in shares, stocks,
debentures, debenture stock, annuities and foreign exchange,
foreign currency deposits and commodities, and from time to
time to vary any of the same, and to exercise and enforce all
rights and powers incidental to the Company's interest therein,
and to carry on business as an investment trust, and to invest
or deal with the moneys of the Company not immediately required
for its operations in such manner as the Company may think fit.
(4) To enter into, carry on and participate in financial
transactions and operations of all kinds.
(5) To manufacture, construct, assemble, design, repair, refine,
develop, alter, convert, refit, prepare, treat, render
marketable, process and otherwise produce materials, fuels,
chemicals, substances and industrial, commercial and consumer
products of all kinds.
(6) To apply for, register, purchase or otherwise acquire and
protect, prolong, and renew, in any part of the world, any
intellectual and industrial property and technology of
whatsoever kind or nature and licences, protections and
concessions therefor, and to use, turn to account, develop,
manufacture, experiment upon, test, improve and license the
same.
(7) To purchase or otherwise acquire and to hold, own, license,
maintain, work, exploit, farm, cultivate, use, develop,
improve, sell, let, surrender, exchange, hire, convey or
otherwise deal in lands, mines, natural resources, and
mineral, timber and water rights, wheresoever situate, and any
interest, estate and rights in any real, personal or mixed
property and any franchises, rights, licences or privileges,
and to collect, manage, invest, reinvest, adjust, and in any
manner to dispose of the income, profits, and interest arising
therefrom.
(8) To improve, manage, develop, sell, let, exchange, invest,
reinvest, settle, grant licences, easements, options,
servitudes and other rights over, or otherwise deal with all or
any part of the Company's property, undertaking and assets
(present and future) including uncalled capital, and any of
the Company's rights, interests and privileges.
(9) To acquire, sell, own, lease, let out on hire, administer,
manage, control, operate, construct, repair, alter, equip,
furnish, fit out, decorate, improve and otherwise undertake and
deal in engineering and construction works, buildings,
projects, offices and structures of all kinds.
(10) To carry on business as consulting engineers in all fields
including without limitation civil, mechanical, chemical,
structural, marine, mining, industrial, aeronautical,
electronic and electrical engineering, and to provide
architectural, design and other consultancy services of all
kinds.
<PAGE> 2
(11) To purchase or otherwise acquire, take in exchange, charter,
hire, build, construct, own, work, manage, operate and otherwise
deal with any ship, boat, barge or other waterborne vessel,
hovercraft, balloon, aircraft, helicopter or other flying
machine, coach, wagon, carriage (however powered) or other
vehicle, or any share or interest therein.
(12) To establish, maintain, and operate sea, air, inland waterway
and land transport enterprises (public and private) and all
ancillary services.
(13) To carry on the business of advisers, consultants, researchers,
analysts and brokers of whatsoever kind or nature in all
branches of trade, commerce, industry and finance.
(14) To provide or procure the provision of every and any service or
facility required by any person, firm or company.
(15) To provide agency, corporate, office and business services to
any person, firm or company, and to act as nominee or custodian
of any kind and to act as trustee under deeds of trust and
settlement and as executor of wills and to receive assets into
custody on behalf of clients and to manage, administer and
invest such assets in accordance with any deed of trust or
settlement, will or other instruments pursuant to which such
assets are held.
(16) To carry on all or any of the businesses of shippers and
ship-owners, ship and boat-builders, charterers, shipping and
forwarding agents, ship managers, wharfingers, lightermen,
stevedores, packers, storers, fishermen and trawlers.
(17) To carry on all or any of the businesses of hoteliers and
restaurateurs and sponsors, managers and licensees of all kinds
of sporting, competitive, social and leisure activities and of
clubs, associations and social gatherings of all kinds and
purposes.
(18) To carry on business as auctioneers, appraisers, valuers,
surveyors, land and estate agents.
(19) To carry on business as farmers, graziers, dealers in and
breeders of livestock, horticulturists and market gardeners.
(20) To carry on all or any of the businesses of printers,
publishers, designers, draughtsmen, journalists, press and
literary agents, tourist and travel agents, advertisers,
advertising and marketing agents and contractors, personal and
promotional representatives, artists, sculptors, decorators,
illustrators, photographers, film makers, producers and
distributors, publicity agents and display specialists.
(21) To establish and carry on institutions of education,
instruction or research and to provide for the giving and
holding of lectures, scholarships, awards, exhibitions, classes
and meetings for the promotion and advancement of education or
the dissemination of knowledge generally.
(22) To carry on business as jewellers, goldsmiths, silversmiths and
bullion dealers and to import, export, buy, sell and deal in
(wholesale and retail) jewellery, gold, silver and bullion, gold
and silver plate, articles of vertu, objects of art and such
other articles and goods as the company thinks fit, and to
establish factories for culturing, processing and manufacturing
goods for the above business.
(23) To design, invent, develop, modify, adapt, alter, improve and
apply any object, article, device, appliance, utensil or product
for any use or purpose whatsoever.
(24) To develop, acquire, store, license, apply, assign, exploit all
and any forms of computer and other electronic software,
programs and applications and information, databases and
reference material and computer, digital and other electronic
recording, retrieval, processing and storage media of whatsoever
kind and nature.
(25) To engage in the provision or processing of communications and
telecommunications services, information retrieval and delivery
and electronic message and database services.
(26) To enter into any commercial or other arrangements with any
government, authority, corporation, company or person and to
obtain or enter into any legislation, orders, charters,
contracts, decrees, rights, privileges, licenses, franchises,
permits and concessions for any purpose and to carry out,
exercise and comply with the same and to make, execute, enter
into, commence, carry on, prosecute and defend all steps,
contracts, agreements, negotiations, legal and other
proceedings, compromises, arrangements, and schemes and to do
all other acts, matters and things which shall at any time
appear conducive or expedient for the advantage or protection of
the Company.
(27) To take out insurance in respect of any and all insurable
risks which may affect the Company or any other company or
person and to effect insurance (and to pay the premiums
therefor) in respect of the life of any person and to effect
re-insurance and counter-insurance, but no business amounting to
fire, life or marine insurance business may be undertaken.
(28) To lend and advance money and grant and provide credit and
financial or other accommodation to any person, firm or
company.
(29) To borrow or raise money in such manner as the Company shall
think fit and in particular by the issue (whether at par or at a
premium or discount and for such consideration as the Company
may think fit) of bonds, debentures or debenture stock (payable
to bearer or otherwise), mortgages or charges, perpetual or
otherwise, and if the Company thinks fit charged upon all or any
of the Company's property (both present and future) and
undertaking including its uncalled capital and further, if so
thought fit, convertible into any stock or shares of the Company
or any other company, and collaterally or further to secure any
obligations of the Company by a trust deed or other assurance.
<PAGE> 3
(30) To guarantee or otherwise support or secure, either with or
without the Company receiving any consideration or advantage and
whether by personal covenant or by mortgaging or charging all or
part of the undertaking, property, assets and rights (present
and future) and uncalled capital of the Company or by both such
methods or by any other means whatsoever, the liabilities and
obligations of and the payment of any moneys whatsoever
(including but not limited to capital, principal, premiums,
interest, dividends, costs and expenses on any stocks, shares or
securities) by any person, firm or company whatsoever including
but not limited to any company which is for the time being the
holding company or a subsidiary of the Company or of the
Company's holding company or is otherwise associated with the
Company in its business, and to act as agents for the
collection, receipt or payment of money, and to enter into any
contract of indemnity or suretyship (but not in respect of fire,
life and marine insurance business).
(31) To draw, make, accept, endorse, negotiate, discount, execute,
issue, purchase or otherwise acquire, exchange, surrender,
convert, make advances upon, hold, charge, sell and otherwise
deal in bills of exchange, cheques, promissory notes, and other
negotiable instruments and bills of lading, warrants, and other
instruments relating to goods.
(32) To give any remuneration or other compensation or reward (in
cash or securities or in any other manner the Directors may
think fit) to any person for services rendered or to be rendered
in the conduct or course of the Company's business or in placing
or procuring subscriptions of or otherwise assisting in the
issue of any securities of the Company or any other company
formed or promoted by the Company or in which the Company may be
interested or in or about the formation or promotion of the
Company or any other company as aforesaid.
(33) To grant or procure pensions, allowances, gratuities and other
payments and benefits of whatsoever nature to or for any person
and to make payments towards insurances or other arrangements
likely to benefit any person or advance the interests of the
Company or of its Members, and to subscribe, guarantee or pay
money for any purpose likely, directly or indirectly, to further
the interests of the Company or of its Members or for any
national, charitable, benevolent, educational, social, public,
general or useful object.
(34) To pay all expenses preliminary or incidental to the formation
and promotion of the Company or any other company and the
conduct of the business of the Company or any other company.
(35) To procure the Company to be registered or recognised in any
territory.
(36) To cease carrying on and wind up any business or activity of
the Company, and to cancel any registration of and to wind up
and procure the dissolution of the Company in any territory.
(37) To distribute any part of the undertaking, property and assets
of the Company among its creditors and Members in specie or in
kind but so that no distribution amounting to a reduction of
capital may be made without the sanction (if any) for the time
being required by law.
(38) To appoint agents, experts and attorneys to do any and all of
the above matters and things on behalf of the Company or any
thing or manner for which the Company acts as agent or is in any
other way whatsoever interested or concerned in any part of the
world.
(39) To do all and any of the above matters or things in any part of
the world and either as principal, agent, contractor, trustee,
or otherwise and by or through trustees, agents or otherwise and
either alone or in conjunction with others, and generally upon
such terms and in such manner and for such consideration and
security (if any) as the Company shall think fit including the
issue and allotment of securities of the Company in payment or
part payment for any property acquired by the Company or any
services rendered to the Company or as security for any
obligation or amount (even if less than the nominal amount of
such securities) or for any other purpose.
(40) To carry on any other business or activity and do any act or
thing which in the opinion of the Company is or may be capable
of being conveniently carried on or done in connection with any
of the above, or likely directly or indirectly to enhance the
value of or render more profitable all or any part of the
Company's property or assets or otherwise to advance the
interests of the Company or its Members.
(41) To have all such powers as are permitted by law for the time
being in force in the British Virgin Islands, irrespective of
corporate benefit, to perform all acts and engage in all
activities necessary, conducive or incidental to the conduct,
promotion or attainment of the above objects of the Company or
any of them.
And it is hereby declared that the intention is that each of the objects
specified in each paragraph of this clause shall, except where otherwise
expressed in such paragraph, be an independent main object and be in nowise
limited or restricted by reference to or inference from the terms of any other
paragraph or the name of the Company.
<PAGE> 4
5. EXCLUSIONS
(i) The Company may not:
(a) carry on business with persons resident in the British Virgin
Islands;
(b) own an interest in real property share in the British Virgin
Islands, other than a lease referred to in paragraph 5(ii)e
of subclause 5(ii);
(c) carry on banking or trust business, unless it is licensed to
do so under the Banks and Trust Companies Act, 1990;
(d) carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed under
an enactment authorising it to carry on that business;
(e) carry on business of company management, unless it is licensed
under the Company Management Act, 1990; or
(f) carry on the business of providing the registered office or the
registered agent for companies incorporated in the British
Virgin Islands;
(ii) For purposes of paragraph 5(i)e of subclause 5(i), the Company shall not
be treated as carrying on business with persons resident in the British
Virgin Islands if:
(a) it makes or maintains deposits with a person carrying on banking
business within the British Virgin Islands;
(b) it makes or maintains professional contact with solicitors,
barristers, accountants, bookkeepers, trust companies,
administration companies, investment advisers or other similar
persons carrying on business within the British Virgin Islands;
(c) it prepares or maintains books and records within the British
Virgin Islands;
(d) it holds, within the British Virgin Islands, meetings of its
directors or members;
(e) it holds a lease of property for use as an office from which to
communicate with members or where books and records of the
Company are prepared or maintained;
(f) it holds shares, debt obligations or other securities in a
company incorporated under the International Business Companies
Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the Company are
owned by any person resident in the British Virgin Islands or by
any company incorporated under the International Business
Companies Act or under the Companies Act.
LIMITATION OF LIABILITY
6. The liability of members of the Company is limited.
CURRENCY
7. Shares in the Company shall be issued in the currency of the United
States of America.
AUTHORISED CAPITAL
8. The authorised capital of the Company is US$50,000.00.
<PAGE> 5
"CLASSES, NUMBER AND PAR VALUE OF SHARES
9. The total number of shares of the capital stock which the
Company has authority to issue is 6,500,000, divided into 4,000,000 shares of
common stock of US$0.0125 par value ("Common Stock"), and 2,500,000 shares of
preferred stock without par value ("Preferred Stock").
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES
10(a). Common Stock. Subject to all of the rights of the
Preferred Stock as expressly provided herein, by law or by the directors
pursuant to this paragraph 10, the Common Stock of the Company shall possess all
such rights and privileges as are afforded to capital stock by applicable law in
the absence of any express grants or rights or privileges herein.
10(b). Preferred Stock. 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 the resolutions adopted by the directors.
10(c). Series A Convertible Preferred Stock. There is hereby
described, as if this action were taken by the directors, the "Series A
Convertible Preferred Stock," including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms, as follows:
10(c)1. Description and Initial Number. The class of shares of
Preferred Stock hereby classified shall be designated the "Series A Convertible
Preferred Stock." The initial number of authorized shares of the Series A
Convertible Preferred Stock shall be 2,300,000.
10(c)2. Dividends. 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.
<PAGE> 6
10(c)3. Liquidation or Dissolution. 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 US$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 prorata 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 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 Preferred Stock shall be regarded as having converted into Common Stock their
shares of Series A Preferred Stock in accordance with the provisions of
paragraph 10(c)4 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" within the meaning of
this paragraph 10(c)3.
10(c)4. Conversion Privilege, Series A Convertible Preferred
Stock shall be convertible into Common Stock as hereinafter provided and, when
so converted, shall be cancelled and retired and shall not be reissued as such;
<PAGE> 7
(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 hereinafter provided, the conversion rate
shall be one share of Common Stock for each share of Series A Convertible
Preferred Stock so converted.
(ii) In order to convert Series A Convertible
Preferred Stock into Common Stock, the holder thereof shall on any business day
surrender at the office of the Company the certificate or certificates
representing such shares, duly endorsed to the Company or in blank, and give
written notice to the Company at said office of the number of said shares which
such holder elects to convert. Series A Convertible Preferred Stock shall be
deemed to have been converted immediately prior to the close of business on the
day of such surrender for conversion, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the date of any conversion, the Company
shall issue and deliver a certificate or certificates representing the number
of shares of Common Stock issuable upon such conversion, together with cash in
lieu of any fraction of a share, to the person or persons entitled to receive
same. In case of the conversion of only a part of the shares of any holder or
Series A Convertible Preferred Stock, the Company shall also issue and deliver
to such holder a new certificate of Series A Convertible Preferred Stock not
converted by such holder.
(C) The conversion rate as hereinabove provided shall be
subject to adjustment as follows:
(i) 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 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. An adjustment made
pursuant to this subparagraph 10(c)4(C)(i) shall be made whenever any such
events shall happen, but shall become effective retroactively after such record
date or effective date and the date of happening of any such event.
<PAGE> 8
(D) The Company shall at all times reserve and keep
available out of its authorized Common Stock, for the purpose of effecting the
conversion of the issued and outstanding Series A Convertible Preferred Stock,
the full number of shares of Common Stock then deliverable in the event and
upon the conversion of all of the Series A Convertible Preferred Stock then
issued and outstanding.
10(c)5. 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.
10(c)6. 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.
10(c)7. Notices. All notices required or permitted to be given
by the Company with respect to the Series A Convertible Preferred Stock shall
be in writing, and if delivered by mail, postage prepaid, to the holders of the
Series A Convertible Preferred Stock at their last addresses as they shall
appear upon the books of the Company, shall be conclusively presumed to have
been duly given, whether or not the shareholder actually receives such notice."
VARIATION OF CLASS RIGHTS
11. If at any time the authorised capital is divided into different classes
or series of shares, the rights attached to any class or series (unless
otherwise provided by the terms of issue of the shares of that class or
series) may, whether or not the Company is being wound up, be varied
with the consent in writing of the holders of not less than
three-fourths of the issued shares of that class of series and of the
holders of not less than three-fourths of the issued shares of any other
class or series of shares which may be affected by such variation.
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
12. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed to
be varied by the creation or issue of further shares ranking pari passu
therewith.
<PAGE> 9
REGISTERED SHARES AND BEARER SHARES
13. Shares may be issued as registered shares or to bearer as may be
determined by a resolution of directors.
EXCHANGE OF REGISTERED SHARES AND BEARER SHARES
14. Registered shares may be exchanged for bearer shares and bearer shares
may be exchanged for registered shares.
TRANSFER OF REGISTERED SHARES
15. Subject to the provisions of Regulation 48 of the Articles of
Association annexed hereto ("the Articles of Association"), registered
shares in the Company may be transferred subject to the prior or
subsequent approval of the Company as evidenced by a resolution of
directors or by a resolution of members.
SERVICE OF NOTICE ON HOLDERS OF BEARER SHARES
16. Where shares are issued to bearer, the bearer, identified for this
purpose by the number of the shares certificate, shall be requested to
provide the Company with the name and address of an agent for service of
any notice, information or written statement required to be given to
members, and service upon such agent shall constitute service upon the
bearer of such shares until such time as a new name and address for
service is provided to the Company. In the absence of such name and
address being provided it shall be sufficient for the purposes of
service for the Company to publish the notice, information or written
statement or a summary thereof in one or more newspapers published or
circulated in the British Virgin Islands and in such other place, if
any, as the Company shall from time to time by a resolution of directors
or a resolution of members determine. The directors of the Company must
give sufficient notice of meetings to members holding shares issued to
bearer to allow a reasonable opportunity for them to acquire or exercise
the right or privilege, that is the subject of the notice other than the
right or privilege to vote, as to which the period of notice shall be
governed by the Articles of Association. What amounts to sufficient
notice is a matter of fact to be determined after having regard to all
the circumstances.
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION
17. The Company may amend its Memorandum of Association and Articles of
Association by a resolution of members or by a resolution of directors.
DEFINITIONS
18. The meanings of words in this Memorandum of Association are as defined
in the Articles of Association.
<PAGE> 10
We, HWR SERVICES LIMITED, of P.O. Box 71, 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 this Memorandum of Association the 3rd day of
January, 1994.
SUBSCRIBER HWR SERVICES LIMITED
--------------------------------
(Sd.) E.T. POWELL
Authorised Signatory
--------------------------------
in the presence of: WITNESS (Sd.) Fandy Tsoi
903 Ruttonjee House
11 Duddell Street, Central
Hong Kong
Administrative Assistant
<PAGE> 1
EXHIBIT 3.1(ii)
TERRITORY OF THE BRITISH VIRGIN ISLANDS
The International Business Companies Act
(No. 8 of 1984)
ARTICLES OF ASSOCIATION
OF
DRANSFIELD PAPER HOLDINGS LIMITED
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 convened and
directors 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;
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 convened and
members 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;
<PAGE> 2
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.
the Act The International Business Companies Act (No. 8 of 1984)
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 in the Company that were previously issued but
shares 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 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.
BEARER SHARES
10. Subject to a request for the issue of bearer shares and to the payment
of the appropriate consideration for the shares to be issued, the
Company may, to the extent authorised by the Memorandum, issue bearer
shares to, and at the expense of, such person as shall be specified in
the request. Bearer shares may not be issued for debt obligations,
promissory notes or other obligations to contribute money or property
and registered shares issued for debt obligations, promissory notes or
other obligations to contribute money or property shall not be exchanged
for bearer shares unless such debt obligations, promissory notes or
other obligations to contribute money or property have been satisfied.
The Company may also upon receiving a request in writing accompanied by
the share certificate for the shares in question, exchange registered
shares for bearer shares or may exchange bearer shares for registered
shares. Such request served on the Company by the holder of bearer
shares shall specify the name and address of the person to be registered
and unless the request is delivered in person by the bearer shall be
authenticated as hereinafter provided. Such request served on the
Company by the holder of bearer shares shall also be accompanied by any
coupons or talons which at the date of such delivery have not become due
for payment of dividends or any other distribution by the Company to the
holders of such shares. Following such exchange the share certificate
relating to the exchanged shares shall be delivered as directed by the
member requesting the exchange.
11. Bearer share certificates shall be under the Seal and shall state that
the bearer is entitled to the shares therein specified, and may provide
by coupons, talons or otherwise for the payment of dividends or other
moneys on the shares included therein.
<PAGE> 3
12. Subject to the provisions of the Act and of these Articles, the bearer
of a bearer share certificate shall be deemed to be a member of the
Company and shall be entitled to the same rights and privileges as he
would have had if his name had been included in the share register of
the Company as the holder of the shares.
13. Subject to any specific provisions in these Articles, in order to
exercise his rights as a member of the Company, the bearer of a bearer
share certificate shall produce the bearer share certificate as
evidence of his membership of the Company. Without prejudice to the
generality of the foregoing, the following rights may be exercised in
the following manner:
(a) for the purpose of exercising his voting rights at a meeting,
the bearer of a bearer share certificate shall produce such
certificate to the chairman of the meeting;
(b) for the purpose of exercising his vote on a resolution in
writing, the bearer of a bearer share certificate shall cause
his signature to any such resolution to be authenticated as
hereinafter set forth;
(c) for the purpose of requisitioning a meeting of members, the
bearer of a bearer share certificate shall address his
requisition to the directors and his signature thereon shall
be duly authenticated as hereinafter provided; and
(d) for the purpose of receiving dividends, the bearer of a bearer
share certificate shall present at such places as may be
designated by the directors any coupons or talons issued for
such purpose, or shall present the bearer share certificate to
any paying agent authorised to pay dividends.
14. The signature of the bearer of a bearer share certificate shall be
deemed to be duly authenticated if the bearer of the bearer share
certificate shall produce such certificate to a notary public or a bank
manager or a director or officer of the Company (herein referred to as
an "authorised person") and if the authorised person shall endorse the
document bearing such signature with a statement:
(a) identifying the bearer share certificate produced to him by
number and date and specifying the number of shares and the
class of shares (if appropriate) comprised therein;
(b) confirming that the signature of the bearer of the bearer share
certificate was subscribed in his presence and that if the
bearer is representing a body corporate he has so acknowledged
and has produced satisfactory evidence thereof, or
(c) specifying the capacity in which he is qualified as an
authorised person and, if a notary public, affixing his seal
thereto or, if a bank manager, attaching an identifying stamp of
the bank of which he is a manager.
15. Notwithstanding any other provisions of these Articles, at any time, the
bearer of a bearer share certificate may deliver the certificate for
such shares into the custody of the Company at its registered office,
whereupon the Company shall issue a receipt therefor under the Seal
signed by a director or officer identifying by name and address the
person delivering such certificate and specifying the date and number of
the bearer share certificate so deposited and the number of shares
comprised therein. Any such receipt may be used by the person named
therein for the purpose of exercising the rights vested in the shares
represented by the bearer share certificate so deposited including the
right to appoint a proxy. Any bearer share certificate so deposited
shall be returned to the person named in the receipt or his personal
representative if such person be dead and thereupon the receipt issued
therefor shall be of no further effect whatsoever and shall be returned
to the Company for cancellation or, if it has been lost or mislaid, such
indemnity as may be required by resolution of directors shall be given
to the Company.
16. The bearer of a bearer share certificate shall for all purposes be
deemed to be the owner of the shares comprised in such certificate and
in no circumstances shall the Company or the Chairman of any meeting of
members or the Company's registrars or any director or officer of the
Company or any authorised person be obliged to inquire into the
circumstances whereby a bearer share certificate came into the hands of
the bearer thereof, or to question the validity or authenticity of any
action taken by the bearer of a bearer share certificate whose signature
has been authenticated as provided herein.
17. If the bearer of a bearer share certificate shall be a corporation, then
all the rights exercisable by virtue of such shareholding may be
exercised by an individual duly authorized to represent the corporation
but unless such individual shall acknowledge that he is representing a
corporation and shall produce upon request satisfactory evidence that he
is duly authorised to represent the corporation, the individual shall
for all purposes hereof be regarded as the holder of the shares in any
bearer share certificate held by him.
18. The directors may provide for payment of dividends to the holders of
bearer shares by coupons or talons and in such event the coupons or
talons shall be in such form and payable at such time and in such place
or places as the directors shall resolve. The Company shall be entitled
to recognise the absolute right of the bearer of any coupon or talon
issued as aforesaid to payment of the dividend to which it relates and
delivery of the coupon or talon to the Company or its agents shall
constitute in all respects a good discharge of the Company in respect of
such dividend.
<PAGE> 4
19. If any bearer share certificate, coupon or talon be worn out or defaced,
the directors may, upon the surrender thereof for cancellation, issue a
new one in its stead, and if any bearer share certificate, coupon or
talon be lost or destroyed, the directors may upon the loss or
destruction being established to their satisfaction, and upon such
indemnity being given to the Company as it shall by resolution of
directors determine, issue a new bearer share certificate in its stead,
and in either case on payment of such sum as the Company may from time
to time by resolution of directors require. In case of loss or
destruction the person to whom such new bearer share certificate, coupon
or talon is issued shall also bear and pay to the Company all expenses
incidental to the investigation by the Company of the evidence of such
loss of destruction and to such indemnity.
SHARES, AUTHORISED CAPITAL,
CAPITAL AND SURPLUS
20. 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.
21. No share in the Company may be issued until the consideration in
respect thereof is fully paid, and when issued the share is for 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.
22. 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.
23. 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.
24. 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.
25. 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.
26. 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.
27. Upon the issue by the Company of a share without par value, if an amount
is stated in the Memorandum to be authorised 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.
28. 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.
29. 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.
30. 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.
<PAGE> 5
31. 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 59;
(c) by virtue of the provisions of Section 83 of the Act, or
(d) pursuant to an order of the Court.
32. 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.
33. 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.
34. 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.
35. 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
36. 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.
37. 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 charges; and
(c) the date on which the aforesaid particulars are entered in the
share register.
38. Where particulars of a mortgage or charge are registered, such
particulars shall be cancelled
(a) with the consent of the named mortgagee or chargee or anyone
authorised 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.
39. 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 charges or anyone authorized to act on
his behalf.
FORFEITURE
40. When shares issued for a promissory note or other written obligation
for payment of a debt have been issued subject to forfeiture, the
provisions set forth in the following four regulations shall apply.
41. 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.
42. 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.
43. 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.
<PAGE> 6
44. 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
45. 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
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.
46. 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.
47. 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 authorise 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
48. 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.
49. 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.
50. Subject to any limitations in the Memorandum, the Company must on the
application of the transferor or transferee of a registered 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
51. 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.
52. 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.
<PAGE> 7
administrator, guardian or trustee in bankruptcy.
53. 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.
54. 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.
55. 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 AUTHORISED
CAPITAL OR CAPITAL
56. The Company may by a resolution of directors amend the Memorandum to
increase or reduce its authorised capital and in connection 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.
57. 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.
58. The capital of the Company may be a resolution of directors be increased
by transferring an amount of the surplus of the Company to capital.
59. 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.
60. 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.
61. 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 realisable 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 realisable value of the
assets of the Company is conclusive, unless a question of law is
involved.
MEETINGS AND CONSENTS OF MEMBERS
62. 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.
63. 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.
64. 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.
65. 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.
66. 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.
<PAGE> 8
67. 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.
68. A member may be represented at a meeting of members by a proxy who may
speak and vote on behalf of the member.
69. 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.
70. 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
- -------------------------
Member
71. 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.
72. 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.
73. 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.
74. 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.
75. 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.
76. 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.
77. 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.
78. 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.
<PAGE> 9
79. Any person other than an individual which is a member of the Company
may by resolution of its directors or other governing body authorise
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 power on behalf of
the person which he represents as that person could exercise if it were
an individual member of the Company.
80. 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.
81. 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.
82. 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.
DIRECTORS
83. The first directors of the Company shall be appointed by the subscriber
to the Memorandum; and thereafter, the directors shall be elected by the
members for such term as the members determine.
84. The minimum number of directors shall be one and the maximum number
shall be 12.
85. Each director shall hold office for the term, if any, fixed by
resolution of members or until his earlier death, resignation or
removal.
86. A director may be removed from office, with or without cause, by a
resolution of members or, with cause, by a resolution of directors.
87. 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.
88. 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.
89. 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.
90. 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.
91. 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.
92. A director shall not require a share qualification, and may be an
individual or a company.
POWERS OF DIRECTORS
93. 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
authorised 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.
94. 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.
95. 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.
96. Any director which is a body corporate may appoint any person its duly
authorised representative for the purpose of representing it at meetings
of the Board of Directors or with respect to unanimous written consents.
<PAGE> 10
97. The continuing directors may not 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 summoning a meeting of members.
98. The directors may be 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.
99. 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.
100. The Company may determine by resolution of directors to maintain at its
registered office a register of mortgages, charges and other
encumbrances in which there shall be entered the following particulars
regarding each mortgage, charge or other encumbrance:
(a) the sum secured;
(b) the assets secured;
(c) the name and address of the mortgagee, chargee or
other encumbrance;
(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.
101. 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
102. 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.
103. 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.
104. 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.
105. 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.
106. 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.
107. 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 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.
108. 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.
109. 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.
<PAGE> 11
110. The directors shall cause the following corporate records to be
kept:
(a) minutes of all meetings of directors, members,
committee 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.
111. 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.
112. The directors may, by resolution of directors, designate one or
more committees, each consisting of one or more directors.
113. 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.
114. 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
115. The Company may by resolution of directors appoint officers of
the Company at such time 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.
116. 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.
117. The emoluments of all officers shall be fixed by resolution of
directors.
118. 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
119. 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 agreement or transaction are disclosed in
good faith or are known by the other directors.
120. 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
121. 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
<PAGE> 12
(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.
122. 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.
123. 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.
124. 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.
125. 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.
126. 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 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
127. 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
authorised from time to time by resolution of directors. Such
authorisation 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 authorised 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
128. 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 authorising the dividends, a
fair and proper value for the assets to be so distributed.
129. 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.
130. 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 apart as a reserve fund upon such
securities as they may select.
131. 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 realisable 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
realisable value of the assets of the Company is conclusive, unless a
question of law is involved.
132. Notice of any dividend that may have been declared shall be given to
each member in manner hereinafter mentioned and all dividends unclaimed
for 3 years after having been declared may be forfeited by resolution
of directors for the benefit of the Company.
133. 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.
<PAGE> 13
134. 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.
135. In the case of a dividend of authorised 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.
136. In the case of a dividend of authorised 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.
137. 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
138. 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 or 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.
139. The Company may by resolution of members call for the accounts to be
examined by auditors.
140. The first auditors shall be appointed by resolution of directors;
subsequent auditors shall be appointed by a resolution of members.
141. 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.
142. 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;
(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.
143. 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 or 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.
144. 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.
145. 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.
146. 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
147. 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 and in the case of members holding shares issued to
bearer, in the manner provided in the Memorandum.
148. 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.
<PAGE> 14
149. 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.
PENSION AND SUPERANNUATION FUNDS
150. 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 hold 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
151. 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.
152. 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
153. 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 directors.
CONTINUATION
154. 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.
<PAGE> 15
We, HWR SERVICES LIMITED, of P.O. Box 71, 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 3rd day of
January, 1994.
SUBSCRIBER HWR SERVICES LIMITED
----------------------------
(Sd.) E.T. POWELL
Authorised Signatory
in the presence of: WITNESS ----------------------------
(Sd.) Fandy Tsoi
903 Ruttonjee House
11 Duddell Street, Central
Hong Kong
Administrative Assistant
<PAGE> 1
EXHIBIT 4
8(c). SERIES A CONVERTIBLE PREFERRED STOCK. There is hereby
described, as if this action were taken by the directors, the "Series A
Convertible Preferred Stock," including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms, as follows:
8(c)9. DESIGNATION AND INITIAL NUMBER. The class of shares of
Preferred Stock hereby classified shall be designated the "Series A Convertible
Preferred Stock." The initial number of authorized shares of the Series A
Convertible Preferred Stock shall be 2,300,000.
8(c)10. DIVIDENDS. 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.
8(c)11. LIQUIDATION OR DISSOLUTION. 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 US$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 prorata 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
Exhibit 4
Page 1 of 4 pages
1
<PAGE> 2
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 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 Preferred
Stock shall be regarded as having converted into Common Stock their shares of
Series A Preferred Stock in accordance with the provisions of paragraph 8(c)4
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" within the meaning of
this paragraph 8(c)3.
8(c)12. CONVERSION PRIVILEGE. Series A Convertible Preferred Stock
shall be convertible into Common Stock as hereinafter provided 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 hereinafter provided, the conversion rate
shall be one share of Common Stock for each share of Series A Convertible
Preferred Stock so converted.
Exhibit 4
Page 2 of 4 pages
2
<PAGE> 3
(ii) In order to convert Series A Convertible
Preferred Stock into Common Stock, the holder thereof shall on any business day
surrender at the office of the Company the certificate or certificates
representing such shares, duly endorsed to the Company or in blank, and give
written notice to the Company at said office of the number of said shares which
such holder elects to convert. Series A Convertible Preferred Stock shall be
deemed to have been converted immediately prior to the close of business on the
day of such surrender for conversion, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock at such time. As
promptly as practicable on or after the date of any conversion, the Company
shall issue and deliver a certificate or certificates representing the number
of shares of Common Stock issuable upon such conversion, together with cash in
lieu of any fraction of a share, to the person or persons entitled to receive
same. In case of the conversion of only a part of the shares of any holder of
Series A Convertible Preferred Stock, the Company shall also issue and deliver
to such holder a new certificate of Series A Convertible Preferred Stock not
converted by such holder.
(C) The conversion rate as hereinabove provided shall be
subject to adjustment as follows:
(i) 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 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. An adjustment made pursuant to
this subparagraph 8(c)4(C)(i) shall be made whenever any such events shall
happen, but shall become effective retroactively after such record date or such
effective date, as the case may be, as to shares of Series A Convertible
Preferred Stock converted between such record date or effective date and the
date of happening of any such event.
(D) The Company shall at all times reserve and keep
available out of its authorized Common Stock, for the purpose of effecting the
conversion of the issued and outstanding Series A
Exhibit 4
Page 3 of 4 pages
3
<PAGE> 4
Convertible Preferred Stock, the full number of shares of Common Stock then
deliverable in the event and upon the conversion of all of the Series A
Convertible Preferred Stock then issued and outstanding.
8(c)9. 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.
8(c)10. 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.
8(c)11. NOTICES. All notices required or permitted to be given by the
Company with respect to the Series A Convertible Preferred Stock shall be in
writing, and if delivered by mail, postage prepaid, to the holders of the
Series A Convertible Preferred Stock at their last addresses as they shall
appear upon the books of the Company, shall be conclusively presumed to have
been duly given, whether or not the shareholder actually receives such notice.
Exhibit 4
Page 4 of 4 pages
4
<PAGE> 1
EXHIBIT 4.1
8(d). SERIES B PREFERRED STOCK. There is hereby described, as if
this action were taken by the directors, the "Series B Preferred Stock,"
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms, as
follows:
8(d)1. DESIGNATION AND INITIAL NUMBER. The class of shares of
Preferred Stock hereby classified shall be designated the "Series B Preferred
Stock." The initial number of authorized shares of the Series B Preferred
Stock shall be 100,000.
8(d)2. LIQUIDATION OR DISSOLUTION. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the affairs of the
Company, and after payment or provision for payment has been made for the
holders of the Company's Series A Convertible Preferred Stock, as described in
paragraph 8(c)3 above, the holders of the issued and outstanding Series B
Preferred Stock shall be entitled to receive US$1.00 for each share of Series B
Preferred Stock before any distribution of the assets of the Company shall be
made to the holders of any other capital stock. After such payment shall have
been made in full to the holders of the issued and outstanding Series B
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 B
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 B Preferred Stock shall be distributed prorata 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 B 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 B Preferred Stock and the other capital stock
then issued and outstanding according to the proportion by which their
respective record ownership of shares of Series B Preferred Stock and such
capital stock bears to the total number of shares of the Series B Preferred
Stock and such capital stock then issued and outstanding. Subject to the senior
rights of the holders of the Company's Series A Convertible Preferred Stock as
described
Exhibit 4.1
Page 1 of 2 pages
1
<PAGE> 2
in paragraph 8(c)3 above, if upon such liquidation, dissolution, or winding-up,
the assets of the Company distributable, as aforesaid, among the holders of the
Series B 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 B 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" within the meaning of this paragraph
8(d)2.
8(d)3. VOTING RIGHTS. Each share of Series B 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.
Exhibit 4.1
Page 2 of 2 pages
2
<PAGE> 1
EXHIBIT 4.2
The following persons are granted options to purchase, at $0.50 a
share, the following number of shares of Common Stock of the Company, such
options to expire, if not earlier exercised, at 5:00 p.m., central standard
time, December 31, 1997: T.E. King - 50,000 options, Meridyne Corporation of
Oklahoma City, OK - 8,000 options, Marilyn C. Kenan Trust of Oklahoma City, OK
- - 4,000 options, J. Douglas Bowey - 6,000 options, Albert L. Welsh of Oklahoma
City, OK - 8,000 options, Marjorie J. Cole of Oklahoma City, OK - 8,000
options, Gary Bryant of Bermuda Dunes, California - 4,000 options, Suzanne Kerr
of Monarch Beach, California - 4,000 options, Judith Rader of Oklahoma City, OK
- - 8,000.
Exhibit 4.2
Page 1 of 1 page
<PAGE> 1
EXHIBIT 5
[FULLER, TUBB & POMEROY LETTERHEAD]
August 21, 1996
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Dear Mr. King:
In connection with the preparation and filing of a Form S-4
Registration Statement under the Securities Act of 1933, to be filed by
Dransfield China Paper Corporation for the purpose of registering 9,300,000
shares of its Common Stock ("the Merger Shares"), 2,300,000 shares of its
Series A Preferred Stock ("the Merger Preferred Shares"), 386,004 Common Stock
Purchase Warrants ("the Merger Warrants"), and 386,004 shares of Common Stock
underlying the Merger Warrants ("the Warrant Shares"), all of which are to be
available for a proposed merger with Dransfield Paper Holdings Limited, a
British Virgin Islands corporation, and in connection with the preparation and
filing of a Form S-1 Registration Statement under the Securities Act of 1933,
to be filed by Dransfield China Paper Corporation for the purpose of
registering for a secondary distribution 461,572 shares of its Common Stock
("the Spinoff Shares"), 38,428 shares of its Common Stock ("the Escrow
Shares"), 500,000 Common Stock Purchase Warrants ("the U.S. Warrants") and
500,000 shares of its Common Stock underlying the U.S. Warrants ("the U.S.
Shares"), we have acted as counsel to Dransfield China Paper Corporation ("the
Company") in the organization of the Company and the preparation of the S-1 and
S-4 Registration Statements. We advise you that we are familiar with the
originals or copies, certified or otherwise identified to our satisfaction, of
documents, corporate records, or other instruments relating to the
incorporation of the Company, the authorization and the issuance of the Merger
Shares, the Merger Preferred Shares, the Merger Warrants, the Warrant Shares,
the Spinoff Shares, the Escrow Shares, the U.S. Warrants, and the U.S. Shares
including the following:
(a) Memorandum of Association of the Company;
Exhibit 5
Page 1 of 4 pages
1
<PAGE> 2
(b) Articles of Association of the Company;
(c) Corporate proceedings and filings reflected in the minutes of
the Company as certified to by the secretary of the Company;
(d) Specimen certificates representing the Merger Shares, the
Merger Preferred Shares, the Merger Warrants, the Merger
Shares, and the Spinoff Shares, the Escrow Shares, the U.S.
Warrants, and the U.S. Shares;
(e) The S-1 and S-4 Registration Statements relating to the
Merger Shares, the Merger Preferred Shares, the Merger
Warrants, the Warrant Shares, the Spinoff Shares, the Escrow
Shares, the U.S. Warrants, and the U.S. Shares to be filed
with the Securities and Exchange Commission under the
Securities Act of 1933, as amended; and
(f) A letter of British Virgin Islands counsel who assisted in
the incorporation of the Company and who has opined to me on
the matters described herein insofar as they rest or depend
upon the laws of the British Virgin Islands.
Based solely on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the British Virgin Islands.
2. The Company has corporate power to conduct the business now
being conducted and is duly authorized and in good standing
to do business in the jurisdiction in which its ownership of
property or the conduct of its business legally requires that
authorization.
3. The Company has an authorized capitalization as set forth in
the Registration Statements, and the Merger Shares, the
Merger Preferred Shares, the Merger Warrants, the Warrant
Shares, the Spinoff Shares, the Escrow Shares, the U.S.
Warrants, and the U.S. Shares conform to the statements
concerning them in the Registration Statements.
4. The Merger Shares, the Merger Preferred Shares, the Merger
Warrants, the Warrant Shares, the Spinoff
Exhibit 5
Page 2 of 4 pages
2
<PAGE> 3
Shares, the Escrow Shares, the U.S. Warrants, and the U.S.
Shares have been duly and validly authorized, and the Spinoff
Shares and the outstanding Series B Preferred Shares have
been validly issued. The Merger Shares, the Merger Preferred
Shares, the Merger Warrants, the Warrant Shares, the Escrow
Shares, the U.S. Warrants, and the U.S. Shares, when issued,
will be, legally issued, fully paid and non-assessable.
5. No consent, approval, authorization, or other order of any
regulatory authority or third party is legally required for
the valid issuance of the Merger Shares, the Merger Preferred
Shares, the Merger Warrants, the Warrant Shares, the Escrow
Shares, the U.S. Warrants, and the U.S. Shares, other than
the order making effective the registration of the Merger
Shares, the Merger Preferred Shares, the Merger Warrants, the
Warrant Shares, the Escrow Shares, the U.S. Warrants, and the
U.S. Shares, which order must be issued by the Securities and
Exchange Commission.
6. The Agreement of Merger between the Company and Dransfield
Paper Holdings Limited has been duly authorized by all
necessary corporate action of the Company and of Dransfield
Paper Holdings Limited and is a valid and binding agreement
on the part of the Company and of Dransfield Paper Holdings
Limited, subject, however, to the approval of their
shareholders.
7. The consummation of the transactions contemplated in the
Registration Statements will not result in a breach of any of
the terms and provisions of, or constitute a default under,
any notes, indenture, mortgage, deed of trust, or other
agreement or instrument to which the Company to its knowledge
is now a party, or the Memorandum of Association of and
Articles of Association of the Company.
8. I do not know, and you have advised me that you do not know,
of any legal or governmental proceeding pending or threatened
to which the Company is a party, or of which the property of
the Company is the subject, of a character required to be
disclosed in the Registration Statements that is not
disclosed and properly described in this document; and you
and I do not know of any contracts of a character to be
disclosed in the
Exhibit 5
Page 3 of 4 pages
3
<PAGE> 4
Registration Statements that are not disclosed, filed and
properly summarized in such document.
9. The Registration Statements and any further amendments and
supplements to these documents made by the Company prior to
the effective date of the Merger described in the Forms S-1
and S-4 Registration Statements comply as to form in all
material respects with the requirements of the Securities Act
of 1933, as amended, and the applicable rules and regulations
of the Securities and Exchange Commission. I have no reason
to believe that the Registration Statements contain an untrue
statement of a material fact or omit to state any material
fact required to be stated in these documents or necessary to
make the statements in them not misleading.
Very truly yours,
/s/ Thomas J. Kenan
Thomas J. Kenan
TJK:ss
Exhibit 5
Page 4 of 4 pages
4
<PAGE> 1
EXHIBIT 8
[FULLER, TUBB & POMEROY LETTERHEAD]
August 21, 1996
T.E. King, President
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Re: Dransfield China Paper Corporation; merger
and spinoff transactions 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") to be filed
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, 38,428
shares of its Common Stock ("the Escrow Shares"), which shares would become
owned by two shareholders of the Company, 500,000 Common Stock Purchase
Warrants ("the U.S. Warrants"), and the 500,000 shares of Common Stock
underlying the U.S. Warrants ("the U.S. Shares"), and in connection with the
preparation and filing of a Form S-4 Registration Statement under the Act, to
be filed by the Company for the purpose of registering 9,300,000 shares of its
Common Stock ("the Merger Shares"), 2,300,000 shares of Series A Preferred
Stock ("the Merger Preferred Shares"), 386,004 Common Stock Purchase Warrants
("the Merger Warrants"), and the 386,004 shares of Common Stock underlying the
Merger Warrants ("the Merger Warrants Underlying Shares") to be available for a
proposed merger with Dransfield Paper Holdings Limited, a British Virgin
Islands corporation ("Dransfield Paper"), 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, the Form
S-4 Registration Statement, 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
Exhibit 8
Page 1 of 4 pages
1
<PAGE> 2
Paper and SuperCorp effective August 20, 1996, and an escrow agreement entered
into on August 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 should 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, the step transaction doctrine might
be applied and the Company might be considered a continuation of Dransfield
Paper with only a change of name or place of incorporation, a type "F"
reorganization. In either case, there should 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 would have a carryover tax basis
and a tacked holding period for the stock received by them in the Company.
Further, Dransfield Paper would 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
Exhibit 8
Page 2 of 4 pages
2
<PAGE> 3
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 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
Exhibit 8
Page 3 of 4 pages
3
<PAGE> 4
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
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 would appear that the
step-transaction or substance-versus-form doctrines should 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
Exhibit 8
Page 4 of 4 pages
4
<PAGE> 1
EXHIBIT 8.1
[HARNEY, WESTWOOD & RIEGELS LETTERHEAD]
Your Ref:
RAP/jbt/002-3468.02 29th August, 1996
Our Ref:
Fuller, Tubb & Pomeroy
800 Bank of Oklahoma Plaza
201 Robert S. Kerr Avenue,
Oklahoma City,
Oklahoma 73102-4292
Dear Sirs,
RE: DRANSFIELD CHINA PAPER CORPORATION
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 Registration Statement Form S-4
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/ Richard A. Peters
Richard A. Peters
Exhibit 8.1
Page 1 of 1 Page
<PAGE> 1
EXHIBIT 10.1
ESCROW AGREEMENT
THIS AGREEMENT ("the Escrow Agreement") is entered into on
August 20, 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 BY DCPC. DCPC represents as follows:
1.1. DCPC is preparing for filing Forms S-1 and S-4
Registration Statements ("the S-1 and S-4") with the Securities and Exchange
Commission ("the Commission"). A copy of the most recent drafts of the S-1 and
S-4 are delivered herewith to Liberty Bank, and DCPC undertakes to deliver to
Liberty Bank the final forms of the S-1 and S-4 as filed with the Commission
and any amendments thereto.
1.2. DCPC and Dransfield Paper Holdings Limited, a British
Virgin Islands corporation, have entered into an agreement of merger ("the
Agreement of Merger"), which merger is described in the S-1 and S-4.
1.3. DCPC has three shareholders - SuperCorp, which is the
owner of record of 461,572 shares of DCPC's common stock ("the Spinoff
Shares"), and two individuals who, together, own 38,428 shares of DCPC's Series
B Preferred Stock. These 38,428 shares are to be exchanged for 38,428 shares
of Common Stock ("the Escrow Shares") of DCPC as part of the transaction
described in the S-1 and S-4.
1.4 DCPC has issued certain stock options to several
individuals, aggregating 100,000 options ("the Options"), which Options are to
be exchanged for 500,000 stock purchase warrants ("the U.S. Warrants") as part
of the transaction described in the S-1 and the S-4.
2. REPRESENTATIONS BY SUPERCORP. As soon as permitted by law or
regulation or as soon as possible after the Commission has declared effective
the S-1 and S-4, SuperCorp shall vote its 461,572 Spinoff Shares to approve the
proposed merger described in the Agreement of Merger. Immediately thereafter,
SuperCorp shall declare a dividend to its shareholders of the 461,572 Spinoff
Shares.
3. REPRESENTATIONS OF LIBERTY BANK. Liberty Bank
Exhibit 10.1
Page 1 of 6 pages
1
<PAGE> 2
represents that it is an "insured depository institution," as that term is
defined in Section 3(c)(2) of the Federal Deposit Insurance Act.
4. ESCROW OF SPINOFF SHARES. The 461,572 Spinoff Shares, the
38,428 Escrow Shares, and the 500,000 U.S. Warrants shall be escrowed with
Liberty Bank pursuant to the following terms and conditions:
4.1. After declaration by SuperCorp of the dividend to its
shareholders of the 461,572 Spinoff Shares, either SuperCorp or its
registrar-transfer agent shall deliver to Liberty Bank stock certificates
representing the 461,572 Spinoff Shares, the 38,428 Escrow Shares, and the
500,000 U.S. Warrants, which certificates shall evidence on their faces the
identity of the owners of the shares represented by each certificate.
4.2. Until such time as the escrowed certificates are
released from escrow in accordance with the terms of this Escrow Agreement,
DCPC shall declare no cash dividends on the shares represented by such
certificates.
4.3. Liberty Bank shall hold the escrowed certificates
solely for the benefit of the owners of the shares represented by such
certificates, which owners shall have all voting rights with respect to such
shares as are provided by British Virgin Islands law. However, no transfer or
other disposition of the escrowed securities or any interest related to such
securities shall be permitted by DCPC or recognized by Liberty Bank other than
by will or the law of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986 as
amended or to Title 1 of the Employee Retirement Income Security Act.
5. RELEASE OF THE ESCROWED SECURITIES. The certificates placed in
escrow with Liberty Bank shall be released from escrow and delivered by Liberty
Bank to DCPC's stock registrar-transfer agent for delivery by it to the owners
of the certificates at such time as or after Liberty Bank has received a signed
representation from DCPC, together with any other evidence acceptable to
Liberty Bank, that the conditions and requirements set forth either in
paragraph 5.1 or 5.2 below have been met.
5.1. Should the merger described in the Agreement of
Merger be approved by the shareholders of DCPC, and should the necessary merger
documents be filed with the Registrar of companies' documents in the British
Virgin Islands, DCPC shall so represent this to Liberty Bank and shall state
the date the merger became effective.
5.2. Should the proposed merger described in the Plan of
Exhibit 10.1
Page 2 of 6 pages
2
<PAGE> 3
Merger not be approved and effected, DCPC proposes to search for an alternative
merger partner or for a suitable business or assets to be acquired. At such
time as DCPC should execute an agreement of merger or for the acquisition of a
business or assets that would constitute the business of DCPC, DCPC shall file
a post-effective amendment to the S-1 and S-4 disclosing the information
specified by the S-1 and S-4 registration statement form and Industry Guides,
including financial statements of DCPC and the company to be acquired, and the
post-effective amendment must become effective at the Commission. Then, the
alternative merger or acquisition of a business or assets must be approved and
legally effected, at which time DCPC shall represent to Liberty Bank that this
has occurred and that all requirements of the Commission for the release from
escrow of the certificates have been met.
6. TERM OF ESCROW AGREEMENT. This Escrow Agreement shall
terminate 18 months after the effective date of the initial S-1 and S-4, unless
the certificates have been earlier released from escrow according to the
provisions set forth above. Should no such release from escrow have occurred
by the termination date, Liberty Bank shall deliver, for cancellation, all
escrowed stock certificates to DCPC's stock registrar-transfer agent.
7. DEPOSITORY DUTY. Liberty Bank will be liable as a depository
only and will not be responsible for the sufficiency or accuracy of the form,
execution or validity of any certificate or document delivered to Liberty Bank
hereunder or any description of the property or other thing contained therein
or the identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any such certificate or document. Liberty
Bank's duties hereunder are limited to the safekeeping of the instruments or
other documents received, and the delivery of the same in accordance with this
Agreement.
8. STANDARD OF CARE. Liberty Bank will not be liable for any act
or omission done in good faith, or for any claim, demand, loss or damage made
or suffered by any party to this Agreement, excepting such as may arise through
or be caused by Liberty Bank's willful misconduct or gross negligence.
9. RELIANCE. Liberty Bank is authorized to rely on any document
believed by Liberty Bank to be authentic in making any delivery of
certificates, funds or property hereunder.
10. ESCROW CHARGES. A $500 fee will be paid by DCPC to Liberty
Bank for services to be rendered hereunder. Liberty Bank, however, may employ
attorneys for reasonable protection of the escrow property and of itself, and
DCPC will reimburse Liberty Bank on demand. All sums due Liberty Bank under
this Agreement will bear interest at the rate of 10 percent per annum from the
date due until Liberty Bank is reimbursed in full.
Exhibit 10.1
Page 3 of 6 pages
3
<PAGE> 4
11. LIABILITY OF LIBERTY BANK. In accepting any securities or
documents delivered hereunder, it is agreed and understood by the undersigned
that Liberty Bank will not be called on to construe any contract or instrument
deposited herewith and, in the event of a dispute, will be required to act in
respect to the deposit herein made only on the consent in writing of the
undersigned. In the event of its failure to obtain such consent in writing,
Liberty Bank reserves the right to hold all papers in connection with or
concerning this escrow until a mutual agreement in writing has been reached
between all parties and delivered to Liberty Bank or until delivery is legally
authorized and ordered by final judgment or decree of a court of competent
jurisdiction. If Liberty Bank obeys or complies with any judgment, order or
decree of a court of competent jurisdiction, Liberty Bank will not be liable to
any of the parties hereto nor to any other person, firm or corporation by
reason of such compliance, notwithstanding any such judgement, order or decree
be subsequently reversed, modified, annulled, set aside or vacated.
12. RESIGNATION OR REMOVAL OF LIBERTY BANK.
12.1 Liberty Bank may resign hereunder following the
giving of 30 days prior written notice to DCPC.
Similarly, Liberty Bank may be removed and replaced
following the giving of 30 days prior written notice
to Liberty Bank by DCPC. In either event, the duties
of Liberty Bank will terminate 30 days after the date
of such notice (or as of such earlier date as may be
mutually agreeable), and Liberty Bank will then
deliver all certificates then in its possession to a
successor escrow agent as will be appointed by DCPC,
as evidenced by a written notice filed with Liberty
Bank.
12.2 If DCPC shall have failed to appoint a successor
escrow agent prior to the expiration of 30 days
following the date of the notice, resignation or
removal of Liberty Bank, Liberty Bank may petition
any court of competent jurisdiction for the
appointment of a successor escrow agent, or other
appropriate relief, and any such resulting
appointment will be binding upon DCPC. The cost of
such proceeding including attorneys fees will be
reimbursed by DCPC on demand.
12.3 Upon acknowledgement by any successor escrow agent of
the receipt of all certificates that had prior to
such notice been in the possession of Liberty Bank,
Liberty Bank will
Exhibit 10.1
Page 4 of 6 pages
4
<PAGE> 5
be fully released and relieved of all duties,
responsibilities, and obligations under this
agreement.
13. NOTICE. Any request, direction, notice or other service
required or permitted to be made or given by any party hereto will be in
writing and will be deemed sufficiently given or served for all purposes if
delivered in person or via certified mail, return receipt requested, to the
parties hereto at the addresses set forth below or at such other address as any
party will specify, from time to time, by written notice given to the other
party hereto:
(a) To DCPC and to
SuperCorp: Thomas J. Kenan
201 Robert S. Kerr, Suite 800
Oklahoma City, OK 73102
(b) To Liberty Bank: Liberty Bank & Trust Company of
Oklahoma City, N.A.
320 N. Broadway
Oklahoma City, OK 73102
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
-----------------------------
SuperCorp Inc.
By:/s/ T.E. King
-----------------------------
T.E. King, President
Exhibit 10.1
Page 5 of 6 pages
5
<PAGE> 6
RELEASE
All moneys, documents and papers relative to this escrow
deposit have been delivered in accordance with the provisions of this Escrow
Agreement this ______day of __________________, 199_, and Liberty Bank herein
is relieved from all further liability or responsibility with reference hereto.
Dransfield China Paper
Corporation
By:
----------------------------
T.E. King, President
SuperCorp Inc.
By:
-----------------------------
T.E. King, President
Exhibit 10.1
Page 6 of 6 pages
6
<PAGE> 1
EXHIBIT 10.2
SHARE OPTION SCHEME
OF
DRANSFIELD CHINA PAPER CORPORATION
1. The Directors may, at their discretion, invite employees of the
Company (including any executive director of the Company) to take up
options to subscribe for shares at a price calculated in accordance
with paragraph (2) below.
2. The subscription price for Shares under the Share Option Scheme shall
be a price, notified by the Directors to an employee, being not less
than 80% of the average of the closing prices of the Shares on the
American Stock Exchange or Nasdaq as stated in the American Stock
Exchange's or Nasdaq's quotation sheets for the five trading days
immediately preceding the date of the offer of the option or the
nominal value of the Shares, whichever is the higher.
3. The maximum number of Shares in respect of which may be granted
(together with options exercised and options then outstanding) under
the Share Option Scheme and any other scheme may not exceed such
number of Shares as shall represent 10% of the nominal amount of the
issued share capital of the Company from time to time, excluding for
this purpose Shares issued on exercise of options granted under the
Share Option Scheme.
4. No option may be granted to any one person which if exercised in full
would result in the total number of Shares already issued and issuable
to him under the Share Option Scheme exceeding 25% of the aggregate
number of Shares for the time being issued and issuable under the
Share Option Scheme.
5. An option may be exercised in accordance with the terms of the Share
Option Scheme at any time during the three-year period commencing 12
months after the date on which the option is accepted and expiring on
the last day of the three year period or 2nd April, 2003, whichever is
the earlier.
6. An option may not be transferred or assigned and is personal to the
grantee.
7. If the grantee of an option leaves the service of the Company for any
reason other than death, serious misconduct or certain other ground,
the grantee may exercise the option up to the grantee's entitlement at
the date of cessation (to the extent not already exercised) within the
period of one month following the date of such cessation, which date
shall be the last actual working day with the Company whether salary
is paid in lieu of notice or not.
Exhibit 10.2
Page 1 of 3 pages
1
<PAGE> 2
8. If the grantee of an option ceases to be an employee of the Company by
reason of death, his or her personal representative may exercise the
option in full (to the extent not already exercised) within a period
of 12 months thereafter, or such longer period as the Directors may
determine, failing which it will lapse.
9. If the grantee of an option leaves the service of the Company by
reason of serious misconduct or on certain other grounds, his or her
option will thereupon lapse forthwith.
10. In the event of any alteration in the capital structure of the Company
while any option remains exercisable, such corresponding alterations
(if any) certified in writing by the auditors for the time being of
the Company as fair and reasonable will be made in the subject matter
of the option so far as unexercised, the subscription price, and/or
the method of the exercise of the option, provided that any such
alteration will be made on the basis that the proportion of the issued
share capital of the Company to which a grantee is entitled after such
alteration will remain the same as that to which he was entitled
before such alteration and that no Share will be issued at less than
its nominal value.
11. In the event of an effective resolution being passed for the voluntary
winding up of the Company, the grantee of an option (or his or her
legal personal representatives) may by notice in writing to the
Company within 21 days after the date of such resolution elect to be
treated as if the option (to the extent not already exercised) had
been exercised immediately before the passing of such resolution
either to its full extent or to the extent specified in the notice,
such notice to be accompanied by the subscription price for the Shares
in respect of which notice is given, whereupon the grantee will be
entitled to receive out of the assets available in liquidation pari
passu with the holders of Shares such sum as would have been received
in respect of the Shares, the subject of such election. Subject to
the above, an option will lapse automatically (to the extent not
exercised) on the date of commencement of the winding up of the
Company.
12. If a general offer is made to all the holders of Shares (or all such
holders other than the offeror and/or any person controlled by the
offeror and/or any person acting in concert with the offeror) and such
offer becomes or is declared unconditional, the grantee (or his or her
legal personal representatives) shall be entitled to exercise the
option in full (to the extent not already exercised) at any time
within 14 days after the date on which the offer becomes or is
declared unconditional.
Exhibit 10.2
Page 2 of 3 pages
2
<PAGE> 3
13. The Shares to be allotted upon the exercise of an option will be
subject to all the provisions of the Company's memorandum and articles
of association for the time being in force and will rank pari passu
with the fully paid Shares in issue on the date of allotment and
accordingly will entitle the holders to participate in all dividend or
other distributions paid or made on or after the date of allotment
other than any dividends or other distributions previously declared or
recommended or resolved to be paid or made if the record date therefor
shall be before the date of allotment.
14. The Share Option Scheme is conditional on the Listing Committee of the
American Stock Exchange or of the Nasdaq National Market granting
approval of it and any options which may be granted thereunder and the
granting of listing of and permission to deal in the Shares to be
issued as mentioned therein.
15. The Share Option Scheme will remain in force for a period of 10 years.
16. Unless the context otherwise requires, references to "Share Option
Scheme" include shares in the Company of any other nominal amount as
shall result from a sub-division or a consolidation of such shares
from time to time.
Exhibit 10.2
Page 3 of 3 pages
3
<PAGE> 1
EXHIBIT 10.3
[FULLER, TUBB & POMEROY LETTERHEAD]
August 21, 1996
Ms. Suzanne Peterson
424 N.W. 21st Street
Oklahoma City, OK 73103
Re: SuperCorp Inc. and Dransfield Paper Holdings
Limited merger-spinoff
Dear Ms. Peterson:
I earlier advised you of a proposed merger-spinoff transaction
pursuant to an agreement that SuperCorp has entered into with Dransfield Paper
Holdings Limited, a Hong Kong company that manufacturers and distributes
sanitary paper products (toilet paper, facial tissues, and paper napkins) in
Hong Kong and China.
We shall soon be filing the necessary registration statements with the
Securities and Exchange Commission.
There is a requirement that I must address at this time. It concerns
the possibility - which is not the probability - that the shareholders of
Dransfield Paper Holdings Limited should vote to disapprove the merger-spinoff
proposal.
I enclose several pages of the present draft of the registration
statements being prepared for filing with the Securities and Exchange
Commission. You will see a section entitled "Consequences Should the Merger
Not Occur." Described in this section is a rather complex arrangement which is
required by Rule 419 of the Securities and Exchange Commission. Such rule
relates to companies known as "blank check companies." While the company to be
created by SuperCorp (referred to in the enclosed draft as "the Company") is
not a classic "blank check company" as envisioned by the Securities and
Exchange Commission, I do believe that the Company, prior to the merger, falls
under the requirements of Rule 419. Accordingly, it will be necessary to
comply with such rule, and the rule requires that if the Company does not
acquire a business or assets that would constitute a business within eighteen
months after the registration statement becomes effective, the shares of stock
of the Company are not to be let loose into the
Exhibit 10.3
1 Page 1 of 2 pages
<PAGE> 2
public market. I believe that a satisfactory way of complying with the rule is
to have the holders of the majority of the Company's common stock agree at this
time that they will vote to dissolve the Company (remember: the Company is not
SuperCorp but a company created by SuperCorp) if no merger or business
acquisition occurs with eighteen months after the effective date of the
registration statement.
I believe that the enclosed materials explain this matter. A letter
identical to this letter is being sent to persons whose shareholdings of
SuperCorp aggregate more than 50 percent of its outstanding shares and who will
receive more than 50 percent of the shares of the Company whose shares are
being spun off.
I ask that you and each of such persons execute where indicated below
a copy of this letter and return it to me, indicating thereby that, should the
proposed merger between Dransfield China Paper Corporation and Dransfield Paper
Holdings Limited not be effected, and should Dransfield China Paper Corporation
not acquire a business or assets that would constitute a business within
eighteen months after the effective date of the registration statement to be
filed with the Securities and Exchange Commission, you will vote to cause a
dissolution of Dransfield China Paper Corporation or comply with any similar
alternative requirement that might be proposed by the Securities and Exchange
Commission to effect compliance with its Rule 419.
I appreciate your cooperation. Should you not agree to the matters
set forth herein, it is likely that the transaction with Dransfield Paper
Holdings Limited will have to be abandoned.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
TJK:ss
Enclosures
The undersigned agrees to the matters set forth in the above letter.
/s/ Suzanne Peterson
- -------------------------
Suzanne Peterson
Exhibit 10.3
2 Page 2 of 2 pages
<PAGE> 1
EXHIBIT 21
Parent and Subsidiaries
of
Dransfield Paper Holdings Limited
<TABLE>
<CAPTION>
Parent's
Percentage
Ownership
- ----------
<S> <C>
1. Dransfield Holdings Limited (Cayman)
100 2. DRANSFIELD PAPER HOLDINGS LIMITED (BVI)
100 2.1 Grandom Dransfield (Int'l) and Company Limited (HK)
100 2.2 Holdsworth Investments Limited (BVI)
100 2.2.1 Guangzhou Dransfield Paper Ltd. (PRC)
66.7(1) 2.3 CS Paper Holdings (Int'l) Ltd. (BVI)
100 2.3.1 Dransfield Paper (Int'l) Trading Ltd. (BVI)
100 2.3.2 Dransfield Paper (S.E.A.) Pte. Ltd. (SIN)
100 2.3.3 Dransfield Paper (HK) Trading Ltd. (HK)
51(2) 2.3.3.1 Central National Hong Kong Ltd. (HK)
80(3) 2.4 Dransfield Broadsino Paper Holdings Limited (BVI)
60(4) 2.4.1 Jiang Ying Dransfield Paper Co. Ltd. (PRC)
</TABLE>
- --------------------
(1) The remaining 33.3% is owned by Summerhouse Profits, Ltd. (BVI).
(2) The remaining 49% is owned by Central National-Gottesman, Inc. (USA).
(3) The remaining 20% is owned by Broadsino Investment Company Limited (HK).
(4) The remaining 40% is owned by Jiangsu Huaxi Holdings Corporation (PRC).
Key:
- ----
Cayman = Cayman Islands
BVI = British Virgin Islands
HK = Hong Kong
PRC = People's Republic of China
SIN = Singapore
Exhibit 21
Page 1 of 1 page
<PAGE> 1
EXHIBIT 23
[FULLER, TUBB & POMEROY LETTERHEAD]
August 21, 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 Forms S-1 and S-4 Registration
Statements of Dransfield China Paper Corporation ("the Company"), a British
Virgin Islands corporation, which registration statements are 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 and S-4 Registration
Statements is that of counsel to the Company and as a person who has given an
opinion on the validity of the securities being registered and upon other legal
matters concerning the registration or offering of the securities described
therein.
The undersigned hereby consents to being named in such S-1 and S-4
Registration Statements in the capacity therein described.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
TJK:ss
Exhibit 23
Page 1 of 1 page
<PAGE> 1
EXHIBIT 23.1
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 Registration Statement (Form S-4) and related Prospectus of
Dransfield China Paper Corporation for the registration of 500,000 common
shares.
/s/ Ernst & Young
Hong Kong
5 September 1996
Exhibit 23.1
Page 1 of 1 page
<PAGE> 1
EXHIBIT 23.2
[HOGAN & SLOVACEK LETTERHEAD]
August 23, 1996
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Form S-4 Registration Statement of Dransfield
China Paper Corporation of our report dated August 23, 1996, appearing in the
Prospectus, which is part of this Registration Statement.
/s/ Hogan & Slovacek
Exhibit 23.2
Page 1 of 1 page
<PAGE> 1
[HARNEY, WESTWOOD & RIEGELS LETTERHEAD]
EXHIBIT 23.6
Your Ref:
RAP/jbt/002-3468.02 29th August, 1996
Our Ref:
Dransfield China Paper Corporation,
C/O P.O. Box 71,
Road Town, Tortola,
British Virgin Islands.
Dear Sirs,
RE: DRANSFIELD CHINA PAPER CORPORATION
We hereby consent to the inclusion of the name of this firm as an expert in
Registration Statement S-1 and Registration Statement S-4.
Yours faithfully,
HARNEY, WESTWOOD & RIEGELS
/s/ Richard A. Peters
Richard A. Peters
Exhibit 23.6
Page 1 of 1 page
<PAGE> 1
EXHIBIT 99
Dransfield China Paper Corporation
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
August 12, 1996
T.E. King
King & Associates
49 Strawberry Lane, Suite 200
Palos Verdes Peninsula, CA 90274
Dear Mr. King:
Dransfield China Paper Corporation is preparing for filing with the
Securities and Exchange Commission a Form S-1 registration statement and a Form
S-4 registration statement.
It is necessary that this company designate a U.S. resident to be its
authorized representative in the United States. If you are willing to serve as
this representative, please indicate so by signing below where indicated.
Sincerely,
/s/ T.E. King
T.E. King, President
STATE OF OKLAHOMA )
) SS.
COUNTY OF OKLAHOMA )
The undersigned consents to being designated the authorized
representative in the United States of Dransfield China Paper Corporation, a
British Virgin Islands company, and to being named as such representative in
any registration statements filed by such company with the Securities and
Exchange Commission.
Dated: August 12, 1996. /s/ T.E. King
-------------------------------------
T.E. King
Subscribed and sworn to before me on August 12, 1996.
/s/ Suzanne D. Shiff
--------------------------------------
Notary Public
Exhibit 99
Page 1 of 1 page
