<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1 ON FORM F-1 TO FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DRANSFIELD CHINA PAPER CORPORATION
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(Exact name of Registrant as specified in its charter)
Territory of the British Virgin Islands
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(State or other jurisdiction of incorporation or organization)
2676
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(Primary Standard Industrial Classification Code Number)
None Required
------------------------------------
(I.R.S. Employer Identification No.)
36-42 Pok Man Street, 1st & 2nd Floor
Mongkok, Kowloon, Hong Kong
Telephone 011-852-2787-0838
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Copies to:
Thomas J. Kenan, Esq. Horace Yao
Suite 800 1st & 2nd Floor
201 Robert S. Kerr Avenue 36-42 Pok Man Street
Oklahoma City, OK 73102 U.S.A. Mongkok, Kowloon, Hong Kong
Telephone 405-235-2575 Telephone 011-852-2787-0838
- ---------------------------------------------------
(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 effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1993, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Title of Proposed Proposed
each class maximum maximum
of securities offering aggregate Amount of
to be Amount to be price per offering registration
registered registered unit price fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 338,428 $5.00 $1,692,140 $ 513(1)
Common Stock
Purchase
Warrants 946,004 $ 0 $ 0 $ 0(2)
Common Stock 946,004 $5.50 $5,203,022 $1,577(3)
------
$2,090
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) 150,000 of these shares are to be offered by the Company at a price
determined and set at the time this registration statement becomes
effective. The Registrant makes a bona fide estimate that the maximum
offering price for these 150,000 shares shall be $5.00 a share. The
registration fee for these shares is based upon such $5.00 price.
188,428 of these shares are to be offered by selling shareholders from
time to time at fluctuating market prices. The registration fee for
these shares is based on the average of a bid price of $4.___ and an
ask price of $5.___ on May ____, 1997, on the Nasdaq SmallCap Market.
Reg. 230.457(a) and (c).
(2) These 946,004 Common Stock Purchase Warrants are to be offered for
resale, from time to time, by certain selling Warrant Holders. 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 946,004 underlying shares
of Common Stock (see footnote 3).
(3) These 946,004 shares underlie the 946,004 Common Stock Purchase
Warrants described in footnote (2). The registration fee is based upon
the $5.50 exercise price of the Warrants. Reg. 230.457(g)(1).
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 or dates as the Commission, acting pursuant to Section
8(a), may determine.
<PAGE> 3
DRANSFIELD CHINA PAPER CORPORATION
AMENDMENT NO. 1 ON FORM F-1 TO FORM S-4
CROSS-REFERENCE SHEET
PART I - INFORMATION REQUIRED IN THE PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
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Page Item Location
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ITEM 1. FOREPART OF REGISTRATION STATEMENT AND OUTSIDE
FRONT COVER PAGE OF PROSPECTUS.
i S-K 501(a): approximate date of proposed sale to public, Facing page
and delaying amendment legend
1 S-K 501(b)(1): name of registrant Outside front cover
1 S-K501(b)(2): securities offered Outside front cover
1 S-K501(b)(3): selling security holders Outside front cover
1 S-K501(b)(4): cross-reference to risk factors Outside front cover
1 S-K501(b)(5): cautionary statement Outside front cover
S-K501(b)(6): estimates of price and number of shares Not applicable
1 S-K501(b)(7): table Outside front cover
S-K501(b)(8): "Subject to completion" statement Not applicable
S-K501(b)(9): state legends Not applicable
1 S-K501(b)(10): date Outside front cover
1 S-K501(b) - Instruction 5: other expenses Outside front cover
ITEM 2. INSIDE FRONT AND OUTSIDE BACK COVER PAGES OF
PROSPECTUS.
2, 49 S-K502(a): available information Inside front cover
2 S-K502(a)(1): registrant subject to informational Inside front cover
requirements
49 S-K502(a)(2): inspection and copying of reports and Additional Information
other information of registrant (including address of
facility)
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
S-K502(a)(3): national securities exchange on which Not applicable
registrant's securities are listed
2 S-K502(b): reports to security holders Inside front cover
S-K502(c): incorporation by reference statement Not applicable
S-K502(d)(1): stabilization statement Not applicable
S-K502(d)(2): passive market making Not applicable
51 S-K502(e): delivery of prospectuses by dealers Outside back cover
11 S-K502(f): enforceability of civil liabilities against Enforcement of Civil Liabilities
foreign persons and Certain Foreign Issuer
Considerations
51 S-K502(g): table of contents Outside back cover
ITEM 3. SUMMARY INFORMATION, RISK FACTORS AND RATIO OF
EARNINGS TO FIXED CHARGES.
4 S-K503(a): summary Prospectus Summary
4 S-K503(b): address and telephone number Prospectus Summary - The Company
6 S-K503(c): risk factors Risk Factors
S-K503(d): ratio of earnings to fixed charges Not applicable
10 ITEM 4. USE OF PROCEEDS. S-K504 Use of Proceeds
ITEM 5. DETERMINATION OF OFFERING PRICE.
43,44 S-K505(a): common equity Description of Securities -
Warrants; Determination of
exercise price of the Callable
Warrants
35 S-K505(b): warrants, rights and convertible securities Registration for Selling
Securityholders
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C>
ITEM 6. DILUTION. S-K506 Not applicable
35 ITEM 7. SELLING SECURITY HOLDERS. S-K507 Registration for Selling
Securityholders
ITEM 8. PLAN OF DISTRIBUTION.
S-K508(a): underwriters and underwriting obligation Not applicable
S-K508(b): new underwriters Not applicable
35 S-K508(c): other distributions Registration for Selling
Securityholders
S-K508(d): offerings on exchange Not applicable
S-K508(e): underwriters' compensation Not applicable
S-K508(f): underwriters' representative on board of Not applicable
directors
S-K508(g): indemnification of underwriters Not applicable
35 S-K508(h): dealers' compensation Registration for Selling
Securityholders
35 S-K508(i): finders Registration for Selling
Securityholders
S-K508(j): discretionary accounts Not applicable
S-K508(k): passive market making Not applicable
ITEM 9. DESCRIPTION OF SECURITIES TO BE REGISTERED.
42 S-K202(a): capital stock Description of Securities
S-K202(b): debt securities Not applicable
43 S-K202(c): warrants and rights Description of Securities -
Warrants
S-K202(d): other securities Not applicable
S-K202(e): market information for securities other than Not applicable
common equity
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3
<PAGE> 6
<TABLE>
<S> <C> <C>
S-K202(f): American Depositary Receipts Not applicable
48 ITEM 10. INTEREST OF NAMED EXPERTS AND COUNSEL. Interest of Named Expert and
Counsel
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT.
26 Form 20-F Item 1. Description of Business. Business
28 Form 20-F Item 2. Description of Property. Business - Properties
30 Form 20-F Item 3. Legal Proceedings. Business - Legal Proceedings
34 Form 20-F Item 4. Control of Registrant. Principal Shareholders
34 Form 20-F Item 5. Nature of Trading Market. Nature of Trading Market
46,42 Form 20-F Item 6. Exchange Controls and Other Exchange Rate Information;
Limitations Affecting Security Holders. Description of Securities
44,42 Form 20-F Item 7. Taxation. Taxation; Description of
Securities
14 Form 20-F Item 8. Selected Financial Data. Selected Financial Data
16 Form 20-F Item 9. Management's Discussion and Analysis Management's Discussion and
of Financial Condition and Results of Operations. Analysis
30 Form 20-F Item 10. Directors and Officers of Registrant. Management - Executive Officers,
Directors and Key Personnel
32 Form 20-F Item 11. Compensation of Directors and Management - Compensation of
Officers. Directors and Officers
32 Form 20-F Item 12. Options to Purchase Securities from Management - Stock Option Plan
Registrant or Subsidiaries.
33 Form 20-F Item 13. Interest of Management in Certain Management - Certain
Transactions. Transactions
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4
<PAGE> 7
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49 Form 20-F Item 18. Financial Statements. Index to Financial Statements
ITEM 12. DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.
11 S-K510 Enforcement of Civil Liabilities
and Certain Foreign Issuer
Considerations
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PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
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Page Item Location
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II-1 ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Part II - Other Expenses of
Issuance and Distribution
II-1 ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Part II - Indemnification of
Directors and Officers
II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Part II - Recent Sales of
Unregistered Securities
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
II-6 S-K601(a): exhibits and index required Part II - Exhibits and Financial
Statement Schedules
S-K601(b): description of exhibits:
S-K601(b)(1): underwriting agreement Not applicable
S-K601(b)(2): plan of acquisition Exhibit 2
S-K601(b)(3)(i): articles of incorporation Exhibit 3(i)
S-K601(b)(3)(ii): bylaws Exhibit 3(ii)
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5
<PAGE> 8
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<S> <C> <C>
S-K601(b)(4): instruments defining rights of security Exhibit 4
holders, including indentures
S-K601(b)(5): opinion re legality Exhibit 5
S-K601(b)(8): opinion on tax matters Exhibit 8
S-K601(b)(9): voting trust agreement Not applicable
S-K601(b)(10): material contracts Exhibits 10 - 10.9
S-K601(b)(11): statement re computation of per-share Not required: easily determined
earnings from material in registration
statement
S-K601(b)(12): statements re computation of rations Not applicable
S-K601(b)(15): letter re unaudited interim financial Exhibit 15
information
S-K601(b)(16): letter re change in certifying accountant Not applicable
S-K601(b)(21): subsidiaries of the registrant Exhibit 21
S-K601(b)(23): consents of experts and counsel Exhibit 23
S-K601(b)(24): power of attorney Not applicable
S-K601(b)(25): statement of eligibility of trustee Not applicable
S-K601(b)(27): Financial Data Schedule Exhibit 27
S-K601(b)(99): additional exhibits Exhibit 99
ITEM 17. UNDERTAKINGS.
II-9 S-K512(a): Rule 415 offering: post-effective amendment Undertakings
including prospectus
S-K512(b): filings incorporating subsequent Exchange Act Not applicable
documents by reference statement
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6
<PAGE> 9
<TABLE>
<S> <C> <C>
S-K512(c): warrants and rights offerings statement Not applicable
S-K512(d): competitive bids statement Not applicable
S-K512(e): incorporated annual and quarterly reports Not applicable
statement
S-K512(f): equity offerings of nonreporting registrants Not applicable
statement
S-K512(g): registration on Form S-4 or F-4 securities Not applicable
offered for resale statement
II-9 S-K512(h): request for acceleration of effective date or Undertakings
filing of registration statement on Form S-8 statement
S-K512(i): Rule 430A statement Not applicable
S-K512(j): qualification of trust indentures under the Not applicable
Trust Indenture Act of 1939 for delayed offerings
statement
</TABLE>
7
<PAGE> 10
DRANSFIELD CHINA PAPER CORPORATION
338,428 SHARES OF COMMON STOCK
946,004 CALLABLE COMMON STOCK PURCHASE WARRANTS
946,004 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE CALLABLE WARRANTS
Dransfield China Paper Corporation (the "Company") is offering 150,000
shares of its Common Stock, no par value, at $_______ a share (the "Company
Shares"). Certain selling shareholders, are offering 188,428 shares of the
Company's Common Stock from time to time at fluctuating market prices (the
"Selling Securityholders Shares"). The Company Shares and the Selling
Securityholders Shares are referred to herein as the "Shares." Certain selling
warrantholders are offering 946,004 Callable Common Stock Purchase Warrants
(the "Callable Warrants") of the Company. This Prospectus also relates to the
946,004 shares of Common Stock issuable upon exercise of the Callable Warrants.
The Shares and the Callable Warrants may be purchased separately and will trade
separately.
The selling shareholders and the selling warrantholders are referred
to herein as "Selling Securityholders." See "Registration for Selling
Securityholders."
Each Callable Warrant entitles the registered holder thereof to
purchase one share of Common Stock of the Company at a price of $5.50 during
the period that expires August 26, 1998. The Callable Warrants are subject to
call by the Company (that is, an acceleration of the expiration date) on not
less than 30 days' notice provided that the closing bid price of the Common
Stock as reported on the Nasdaq Stock Market (or the last sale price, if quoted
on a national securities exchange) averages $8.00 a share or above for the ten
consecutive trading days ending on the day prior to the date on which the
notice of call is given. The holders of the Callable Warrants shall have
exercise rights until the close of the business day immediately preceding the
date fixed for the call. See "Description of Securities - Callable Warrants"
and "Registration for Selling Securityholders").
The Shares are listed and quoted on the Nasdaq SmallCap Market under
the symbol DCPCF. See "Risk Factors - Absence of Seasoned Public Market;
Possible Volatility of Market Price."
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of the 188,428 Selling Securityholders Shares or the
Callable Warrants but will receive the proceeds from the sale of the 150,000
Company Shares and the 946,004 shares of Common Stock issuable upon the
exercise of the Callable Warrants. See "Description of Securities - Callable
Warrants" and "Registration for Selling Securityholders."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. PURCHASERS SHOULD CONSIDER
CAREFULLY THE MATTERS DESCRIBED UNDER "RISK FACTORS" ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 11
<TABLE>
<CAPTION>
=====================================================================================================================
Proceeds to Selling
Underwriting Discounts Securityholders
Price to Public and Commissions or to Company(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Company Share.......... $______ $_____(2) $______(3)
Total.................. $______________ $_____________ $_______________(3)
Per Selling Securityholders (4) (5) (6)
Share......................
Per Callable Warrant ...... (4) (5) (6)
Per Share Underlying
Callable Warrants ......... $5.50 0 $5,203,022(3)
Total .................... $5,203,022(7) 0 $5,203,022(3)
=====================================================================================================================
</TABLE>
(1) Before deducting expenses of the offering payable entirely by the
Company estimated at $50,090.
(2) The Company is offering the 150,000 Company Shares both directly and
through broker-dealers who are members of the National Association of
Securities Dealers, Inc. No underwriting discounts or commissions will
be paid on Company Shares sold directly by the Company. A five percent
commission will be paid on shares sold through NASD broker-dealers.
See "Plan of Distribution" for information concerning indemnification
of such broker-dealers and other matters.
(3) These proceeds would be received by the Company.
(4) Sales by the Selling Securityholders may be effected from time to time
in transactions (which may include block transactions by or for the
account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, through the writing of options on the
securities, a combination of such methods of sale, or otherwise. Sales
may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices.
(5) The Selling Securityholders may effect such transactions by selling
their securities directly to a purchaser, through broker-dealers
acting as agents for the Selling Securityholders or to broker-dealers
who may purchase the securities as principals and thereafter sell the
securities from time to time in the over-the-counter market, in
negotiated transactions or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchaser for
whom such broker-dealers may act as agents or to whom they may sell as
principals (which compensation as to a particular broker-dealer may be
in excess of customary commissions).
(6) These proceeds would be received by the Selling Securityholders.
(7) This total relates only to the proceeds from the sale of the shares of
Common Stock that are issuable upon exercise of the Callable Warrants.
The date of this Prospectus is ________________________.
2
<PAGE> 12
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), applicable to foreign
private issuers and, in accordance therewith, files reports, including annual
reports on Form 20-F, and other information with the Securities and Exchange
Commission (the "Commission"). However, as a "foreign private issuer," the
Company will be exempt from the rules under the Exchange Act prescribing
certain disclosure and procedural requirements for proxy solicitations and the
Company's officers, directors and principal shareholders will be exempt from
the reporting and "short-swing" profit recovery provisions contained in Section
16 of the Exchange Act and the rules thereunder, with respect to their
purchases and sales of shares of Common Stock and Warrants. In addition, the
Company will not be required under the Exchange Act to file periodic reports
and financial statements with the Commission as frequently or as promptly as
United States companies whose securities are registered under the Exchange Act.
However, the Company intends to furnish its shareholders with annual reports
containing financial statements (prepared in accordance with generally accepted
accounting principles in the United States ("U.S. GAAP")) which will be
examined and reported on, with an opinion expressed by, an independent public
accounting firm.
The Company prepares its financial statements in accordance with U.S.
GAAP. The Company publishes its financial statements in Hong Kong dollars
("HK$"), the lawful currency of Hong Kong. Translations of amounts from Hong
Kong dollars to United States Dollars are for the convenience of the reader and
for reference only and, except as provided herein, have been made in this
Prospectus at the noon buying rate in New York City for cable transfers in
foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York on March 31, 1996, of HK$7.7353 = $1.00. No representation is
made that Hong Kong dollar amounts could have been, or could be, converted into
United States Dollars at that rate or at any other certain rate. All references
in this Prospectus to "$" are to United States Dollars, references to "HK$" are
to Hong Kong Dollars and "Rmb" to Renminbi Yuan, the lawful currency of the
People's Republic of China ("PRC").
IN CONNECTION WITH THIS OFFERING OF CALLABLE WARRANTS, CERTAIN MARKET
MAKERS OF THE COMPANY'S COMMON STOCK MAY ACQUIRE SOME OF THE CALLABLE WARRANTS
AND ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ
IN ACCORDANCE WITH RULE 103 OF REGULATION M OF THE SECURITIES AND EXCHANGE
COMMISSION.
3
<PAGE> 13
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
Financial Statements (including the Notes thereto) appearing elsewhere in this
Prospectus. All financial statements set forth herein for the Company have
been prepared in accordance with U.S. generally accepted accounting principles
("U.S. GAAP").
THE COMPANY
Dransfield China Paper Corporation (which, together with its
subsidiaries, is referred to herein as the "Company") is a Hong Kong-based
company with operations in Hong Kong, Macau, and the People's Republic of China
("PRC"). It was incorporated as an International Business Company under the
laws of the British Virgin Islands (the "B.V.I.") on June 24, 1996. On February
26, 1997, it merged with Dransfield Paper Holdings Limited, another B.V.I.
international business company, which had been incorporated on March 11, 1994,
and had succeeded to, and expanded, the business of A Dransfield & Co., Ltd.,
conducted since 1975, of distributing in Hong Kong and Macau paper
handkerchiefs under the brand name of "Tempo." The Tempo products were
manufactured by Vereinigte Papierwerke, a Swiss company, which product rights
were sold to Proctor & Gamble in 199__.
Based on the Company's surveys and management estimates, Tempo's
market share of paper handkerchiefs in Hong Kong and Macau was 46% when the
Company ceased distribution of this product in June 1997 in anticipation of
commencing distribution in July 1997 of its own manufactured and branded paper
products - paper handkerchiefs, tissues, napkins and toilet rolls.
In November 1994 the Company's predecessor, Dransfield Paper Holdings
Limited, initiated a planned expansion of its business to become a vertically
integrated, consumer hygienic paper manufacturing and distribution company.
Four paper mills are planned to be built in China; two are under construction;
one is partially operational.
Some 96% of the equity of the Company is owned by Dransfield Holdings
Limited, a Hong Kong-based Cayman Islands company listed on the Hong Kong Stock
Exchange since April 1993.
The Company's mailing address is 36-42 Pok Man Street, 1st and 2nd
Floors, Mongkok, Kowloon, Hong Kong. Its direct dial telephone number (from the
United States) is 011-852-2787-0838.
RISK FACTORS
Certain risk factors should be considered in evaluating the Company
and its business before purchasing the securities offered hereby. Such factors
include, among others, the unseasoned public market for the Company's
securities, the Company's ability to implement its expansion strategy, the
volatility of the price of pulp, risks associated with operating in the PRC,
and the Company's dependence upon key personnel. For a discussion of these and
certain other factors, see "Risk Factors."
4
<PAGE> 14
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by
Selling Securityholders . . . . 188,428 shares of Common Stock
and
946,004 Callable Common Stock Purchase Warrants ("Callable Warrants")
Securities Offered by the Company . . . . 150,000 shares of Common Stock and 946,004 shares of Common Stock
underlying the Callable Warrants
Public Offering Price for the
150,000 Company Shares . . . . . $5.00 a Share
Public Offering Price by Selling
Securityholders . . . . . . . At market prices prevailing at the time of sale or at negotiated
prices
Callable Warrants:
Outstanding. . . . . . . . 946,004
Exercise Terms . . . . . . . Each Callable Warrant entitles the holder to purchase one share of
Common Stock for $5.50 and expires August 26, 1998. See "Description
of Securities - Callable Warrants."
Call Feature . . . . . . . The Callable Warrants are callable by the Company (that is, the
Company may accelerate the expiration date) on not less than 30 days'
notice provided that the closing bid price of the Common Stock as
reported on the Nasdaq Stock Market averages $8.00 a share or higher
for the ten consecutive trading days ending the day before the date
notice of the call is given. See "Description of Securities -
Callable Warrants."
Common Stock:
Outstanding . . . . . . . 13,250,000 shares
Use of Proceeds(1) . . . . . . . Purchase of equipment for proposed and planned Paper Mills Nos. 3 and
4 in the Tianjin area in northern China and in the Sichuan area in
western China.
</TABLE>
5
<PAGE> 15
<TABLE>
<S> <C>
Nasdaq Stock Market Symbols:
Common Stock . . . . . . . DCPCF
Callable Warrants . . . . . . . No symbol
</TABLE>
_________________________
(1) The Selling Securityholders receive all the proceeds from the sale of
the 188,428 Selling Securityholders Shares of Common Stock and 946,004
Callable Warrants offered herein. The Company will receive, however,
all the proceeds, less any commissions, or a minimum of
$_______________ from the sale of the 150,000 Company Shares of Common
Stock and all the proceeds from the exercise of the 946,004 Callable
Warrants, which proceeds, should all the Callable Warrants be
exercised, would be $5,203,022. The use of proceeds described above
refers to the proceeds that might be received by the Company from the
sale of all 150,000 Company Shares of Common Stock and from the
exercise of all 946,004 Callable Warrants.
RISK FACTORS
An investment in the Securities offered hereby is speculative in
nature and involves a high degree of risk. In addition to the other information
contained in this Prospectus, prospective investors should carefully consider
the following risk factors before purchasing the Securities offered hereby.
1. Unseasoned Public Market. The Company's Common Stock was only
recently listed on the Nasdaq National Market. Trading volume has been light.
No assurance is given that recent or current trading prices will reflect the
prices the Common Stock will trade at in the future.
2. No Assurance of Success of Planned Business Expansion. The
Company is engaged in an effort to effectuate an ambitious plan to expand its
operations to those of a vertically integrated paper manufacturer and
distributor of paper products. There is, and can be, no assurance that this
business expansion will be realized. A considerable part of the capital
expenditures required for this business expansion have been obtained or made
available by the Company's corporate parent. Additional funds, not yet
obtained, are required. There is and can be no assurance that these additional
funds will be obtained. Further, the success of this planned business expansion
can be affected by many other factors which are not in the Company's control,
such as political and economic decisions made by the Chinese government and
economic developments affecting the paper manufacturing industry throughout the
world. The planned expansion is complex in conception. Its parts are
interdependent. Delays in one area can create delays in other areas. The
Company has no prior experience in paper manufacturing as a company, even
though it has acquired experienced personnel to effectuate this expansion.
Further, execution of the entire plan over the next several years requires that
the Company obtain the manufacture, by other companies in the PRC, of certain
equipment now being
6
<PAGE> 16
imported by the Company from the United States and Europe. While the Company
believes such equipment manufacture in the PRC can be achieved, no assurance
can be given that it will be. A failure to achieve such equipment manufacture
in the PRC should be expected to materially and adversely affect the cost of
the planned business expansion, by reason of recent actions of the Chinese
government in significantly raising import duties on some of the equipment to
be needed in the future. A projection, updated from earlier projections, is
made herein of the timing of the planned business expansion, but no assurance
is or can be given that the timing can be met; indeed, it has been and will be
subject to periodic revisions caused by unanticipated delays. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
3. Reliance on Key Personnel. The Company will be reliant on the
continued services of several key personnel. The loss of any of them could have
a materially adverse effect on the future operations of the Company. These
persons are Horace Yao, deputy chairman and chief executive officer of the
Company; Warren Ma, treasurer and secretary; Jeremy Lu, assistant to Mr. Yao;
James Madison, general manager for deinked pulp and tissue; Peter Keatinge,
manager for maintenance and engineering; Yeung Chee Chow, plant manager of
Guangzhou Dransfield Paper Ltd.; Manuel Alvarez, general manager for paper
converting operations; and Terry Burton, general manager of the Fine Paper
Division. For example, an illness to Mr. Alvarez in early 1996 caused a delay
of two months in commencing operations at the Company's paper converter
facility at Paper Mill No. 1 in Conghua in the PRC. Two experienced persons had
to be recruited to fill Mr. Alvarez's position during his absence (Mr. Alvarez
expects to return to full-time employment in September 1997). The Company is
continually identifying and sourcing experienced paper industry personnel,
particularly in the United Kingdom and the United States, but there can be no
assurance, particularly because of its efforts at expansion, that the loss of
key personnel will not materially and adversely affect its operations and,
particularly, its expansion. See "Management Information - Directors, Executive
Officers and Significant Employees."
4. Volatility of Price of Pulp. The profitability of the
Company's paper making operations can be severely affected by the price of pulp
used in the manufacture of paper. In the recent past, the price of pulp has
been most unstable and subject to significant increases and decreases within a
single year's period. Even though conservative inventory practices may be
followed, some raw materials must be purchased in advance to assure a continued
supply. Until such time as a planned, vertically-integrated paper business is
achieved, which integration can tend to offset increased costs of raw materials
by higher prices obtainable for finished goods, the Company's profitability can
be affected quarter to quarter by the volatility of pulp prices.
5. 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
7
<PAGE> 17
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 A: The People's
Republic of China."
6. Economic Considerations. The economy of China differs
significantly from the United States economy in such respects as structure,
level of development, gross national product, growth rate, capital
reinvestment, resource allocation and self-sufficiency, rate of inflation and
balance of payments position, among others. Since the early 1950s, the economy
of China has been a planned economy subject to five-year and annual plans
adopted by central authorities which set forth production goals. Only recently
has the Chinese government encouraged substantial private economic activity.
The Chinese economy has experienced significant growth in the past five years,
but such growth has been uneven among various sectors of the economy. There can
be no guarantee that the government's pursuit of economic reforms will be
consistent or effective. Action by the central government of China could have a
significant adverse effect on economic conditions in China. Further, much of
the economic activity is export driven and, therefore, affected by developments
in the economies of China's principal trading partners. See generally "Appendix
A: The People's Republic of China".
7. Legal System. In December 1982, the National People's Congress
of China amended the Constitution of China to authorize foreign investment and
to guarantee the "lawful rights and interests" of foreign investors in China.
Despite the subsequent activity and progress in developing the legal system,
China does not have a comprehensive system of laws. Enforcement of existing
laws may be uncertain and sporadic and implementation and interpretation
thereof inconsistent. The Chinese judiciary is relatively inexperienced in
enforcing the laws that exist, leading to a higher than usual degree of
uncertainty as to the outcome of any litigation. Even where adequate law exists
in China, it may be impossible to obtain swift and equitable enforcement of
such law or to obtain enforcement of a judgment by a court of another
jurisdiction. See "Enforceability of Civil Liabilities".
While Chinese law expressly protects the status and rights of
Sino-foreign joint venture enterprises, including their right to use land
during the term of their respective joint venture contracts, the state reserves
the right, in extreme and exceptional circumstances, to terminate the joint
venture and provide compensation therefor. In such an event, a joint venture's
right to use land would terminate and all plant and facilities would revert to
the state in exchange for just compensation.
8. Government Control of Currency Conversion and Exchange Rate
Risks. The Company receives its revenues in the PRC in Renminbi, which is not
freely convertible into foreign exchange. However, the Company requires foreign
currency to fund a portion of its operations. For example, the Company
requires, and expects to require in the future, U.S. dollars to purchase
equipment for expansion projects. In addition, revenues will need to be
converted into United States dollars, Hong Kong
8
<PAGE> 18
dollars and other currencies in the amounts needed for the Company to discharge
obligations denominated in foreign currency.
The PRC Government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign imports.
In general, domestic enterprises operating in the PRC must price and
sell their goods and services in the PRC in Renminbi and are also required,
with certain exceptions, to sell all their foreign exchange revenues to
designated foreign exchange banks in the PRC. In addition, domestic enterprises
must provide satisfactory evidence of their need for foreign currency before
converting Renminbi to foreign currency through designated foreign exchange
banks. However, according to regulations which took effect on July 1, 1996,
foreign investment enterprises may be able to access foreign exchange from both
designated foreign exchange banks and swap centers, provided that such foreign
exchange will be used for current account transactions.
Prior to January 1, 1994, there was significant volatility in the
exchange rate of Renminbi to U.S. dollars. Although the Renminbi to U.S.
dollar exchange rate has been relatively stable since January 1, 1994 and the
PRC Government has stated its intention to intervene in the future to support
the value of the Renminbi, there can be no assurance that exchange will not
again become volatile or that the Renminbi will not devalue significantly
against the U.S. dollar. See "Exchange Rate Information." Exchange rate
fluctuations may adversely affect the Company's financial performance and
ability to meet its obligations because of its current and future foreign
currency denominated liabilities and may materially adversely affect the value,
translated into U.S. dollars, of the Company's net fixed assets, earnings and
any declared dividends.
The current restrictions and uncertainties relating to the currency
conversion system in the PRC give rise to risks affecting the ability of the
Company to obtain adequate foreign exchange at acceptable rates to meet its
foreign exchange needs.
9. Environmental Liability Exposure. The Company is subject to
PRC national and local environmental protection regulations which currently
impose fees for the discharge of waste substances, require the payment of fines
for pollution, and provide for the closure by the PRC Government of any
facility that fails to comply with orders requiring it to cease or improve upon
certain activities causing environmental damage. Due to the nature of the
Company's business, the Company produces significant amounts of waste water and
solid waste materials during the course of its production. The Company has
established environmental protection systems to treat such waste materials and
to safeguard against accidents. The Company believes its environmental
protection facilities and systems are adequate for it to comply with the
existing national, provincial, and local environmental protection regulations.
However, there can be no assurance that the PRC national, provincial, or local
authorities will not impose additional or more stringent regulations which
would require additional expenditure on environmental matters or changes in the
Company's processes or systems. See "Information About Dransfield Paper -
Properties - Environmental Controls."
9
<PAGE> 19
10. Dividends Not Likely. For the foreseeable future it is
anticipated that any earnings which may be generated from operations of the
Company will be used to finance the growth of the Company, and cash dividends
will not be paid to holders of the Common Stock.
11. Impact of Inflation. Although the Company has not attempted to
calculate the effect of inflation, management does not believe inflation has
had a material effect on its results of operations. Material increases in costs
and expenses, particularly packaging, raw material and labor costs, in the
future, could have a significant impact on the Company's operating results to
the extent that the effect of such increases cannot be transferred to its
customers.
12. Forward-Looking Information. The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for certain forward-looking
statements made by the Company in its disclosures to the public. There is
certain information contained herein, in the Company's press releases and in
oral statements made by authorized officers of the Company which are
forward-looking statements, as defined by such Act. When used herein, in the
Company's press releases and in such oral statements, the words "estimate,"
"project," "anticipate," "expect," "intend," "believe," "plans," and similar
expressions are intended to identify forward-looking statements. See the
paragraph immediately before "Business" for a discussion of the risks and
uncertainties which could cause actual results to differ materially from the
forward- looking information.
13. Rollout of New Product; Termination of Distributorship of
Proctor & Gamble Product. The Company has been dependent since inception upon
revenue received from the distribution of Tempo-brand paper handkerchiefs
manufactured by Proctor & Gamble. In June 1997, by agreement with Proctor &
Gamble, the Company ceased distribution of the Tempo product. The cessation was
prompted by the Company's intention to commence distribution in July 1997 of
its own manufactured brand of four paper products - handkerchiefs, tissues,
napkins and toilet rolls. While the Company's margin on sales of its own
manufactured products is expected to be significantly higher than its margin on
sales of Tempo-brand paper handkerchiefs, there can be no assurance - and none
is given - that there will be consumer acceptance of the Company's own branded
products or that the Company will be able to bring to market these new products
without unforeseen delays. Proctor & Gamble will continue to market its
Tempo-brand product through its own distribution network and other
sub-distributors and will compete with the Company's new products.
USE OF PROCEEDS
No funds will be raised for the Company through the sale by the
Selling Securityholders of the 188,428 shares of Common Stock and 946,004
Callable Warrants offered herein. However, should all 150,000 Company Shares of
Common Stock be sold and should all the Callable Warrants be exercised, the
Company would receive $______________ (assuming five percent commissions are
paid) from the sale of the 150,000 Company Shares and $5,203,022 from the sale
of the 946,004 shares of Common Stock underlying the Callable Warrants, which
funds would be used as part of the capital requirements for Dransfield Paper's
planned Paper Mills Nos. 3 and 4. See
10
<PAGE> 20
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has no plans to pay dividends on its Common Stock in the
foreseeable future and intends to use earnings for business expansion purposes
(see "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources").
NATURE OF TRADING MARKET AND
DETERMINATION OF OFFERING PRICE
The Company's Common Stock trades on the Nasdaq SmallCap Market. The
Callable Warrants do not trade. There is no established foreign public trading
market for either the Common Stock or the Callable Warrants.
The range of high and low bid information for the Company's Common
Stock since trading commenced on April 2, 1997, is _________ high and 2-1/2
low, as reported initially on the NASD OTC Bulletin Board, and, since May 21,
1997, on the Nasdaq SmallCap Market. Such over-the-counter market quotations
reflect interdealer prices, without retail mark-up, mark-down, or commission
and may not necessarily reflect actual transactions. The bid price of the
Common Stock on [the latest practicable date] was __________.
Less than five percent of the outstanding 13,250,000 shares of Common
Stock of the Company are held in the United States, and 52.9 percent of the
outstanding 946,004 Callable Warrants are held in the United States. There are
approximately 1,350 record holders of the Common Stock and nine record holders
of the Callable Warrants.
The exercise price of the Callable Warrants was established by
negotiation between the Selling Securityholders and management of Dransfield
Holdings Limited, a Cayman corporation which owns 95% of the equity of the
Company.
ENFORCEMENT OF CIVIL LIABILITIES AND
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The Company is incorporated in the Territory of the British Virgin
Islands as an international business company and has no assets there. All but
two of the Company's directors and officers and certain experts named herein
reside outside the United States either in Hong Kong, in the Peoples Republic
of China (the "PRC") or in the British Virgin Islands, and virtually all the
assets of the Company and of such persons are or may be located outside the
United States. Therefore, with respect to the enforcement by investors of civil
liabilities under the U.S. Federal securities laws, it may not be 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
11
<PAGE> 21
Commission ("the Commission"), and other actions, which result in foreign court
judgments, could (assuming such actions are not required by PRC law and the
Company's Articles of Association to be arbitrated) only be enforced in the PRC
if such judgments or rulings do not violate the basic principles of the law of
the PRC or the sovereignty, security and public interest of the society of the
PRC, as determined by a people's court of the PRC which has jurisdiction for
recognition and enforcement of judgments. Finally, the Company has been advised
by Harney, Westwood & Riegels, solicitors in the British Virgin Islands, that
there is uncertainty as to whether the courts of the British Virgin Islands
would enforce (i) judgments of United States courts obtained against the
Company or such persons predicated solely upon the civil liability provisions
of the Federal securities laws or (ii), in original actions brought in the
British Virgin Islands, liabilities against the Company or such persons
predicated solely upon the Federal securities laws. With respect to judgments
of U.S. courts obtained against the Company, Harney, Westwood & Riegels advises
that a final and conclusive monetary judgment obtained against the Company in a
U.S. court would be treated by the courts of the British Virgin Islands as a
cause of action in itself, provided that (a) such U.S. court had jurisdiction
in the matter and the Company either submitted to such jurisdiction or was
resident and/or carrying on business within the jurisdiction and was duly
served with process; (b) the judgment given was not in respect of penalties,
taxes, fines or other fiscal obligations of the Company; (c) there was no fraud
on the part of the judgment creditor in obtaining judgment; (d) enforcement of
the judgment would not be contrary to public policy; and (e) the proceedings
pursuant to which judgment was obtained were not contrary to public policy.
Under the laws of most jurisdictions in the United States, majority
and controlling shareholders generally have certain "fiduciary"
responsibilities to the minority shareholders. Shareholder action must be taken
in good faith, and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. British Virgin Islands law
protecting the interests of minority shareholders may not be as protective in
all circumstances as the law protecting minority shareholders in United States
jurisdictions.
While British Virgin Islands law does permit a shareholder of a
British Virgin Islands company to sue its directors derivatively (i.e., in the
name of and for the benefit of the Company) and to sue the Company and its
directors for his benefit and the benefit of others similarly situated, the
circumstances in which any such action may be brought, and the procedures and
defenses that may be available in respect of any such action, may result in the
rights of shareholders of a British Virgin Islands company being more limited
than those rights of shareholders of a corporation incorporated in the United
States.
Under the British Virgin Islands International Business Companies Act,
subject to the Articles of Association of the Company, the members
(shareholders) of an International Business Company are required to vote on a
merger or consolidation of the Company. Members' consent is also required where
the Company intends to sell, dispose of or transfer more than 50% of its assets
where such sale, disposal or transfer takes place other than in the usual or
ordinary course of the business of the Company.
12
<PAGE> 22
As in most United States jurisdictions, the board of directors of a
British Virgin Islands company is charged with the management and affairs of
the company and, subject to any limitations to the contrary in the Articles of
Association of the Company, the Board of Directors is entrusted with the power
to manage the business and affairs of the Company and has all powers of the
Company that are not given to the members. In most United States jurisdictions,
directors owe a fiduciary duty to the company and its shareholders, including a
duty of care, pursuant to which directors must properly apprise themselves of
all reasonably available information, and a duty of loyalty, pursuant to which
they must protect the interests of the company and refrain from conduct that
injures the company or its shareholders or that deprives the company or its
shareholders of any profit or advantage. Many United States jurisdictions have
enacted various statutory provisions which permit the monetary liability of
directors to be eliminated or limited. Under British Virgin Islands law,
liability of a director to the company is basically limited to cases of wilful
malfeasance in the performance of his duties or to cases where the director has
not acted honestly and in good faith and with a view to the best interests of
the company. However, under its Memorandum and Articles of Association, the
Company is authorized to indemnify any person who is made or threatened to be
made a party to a legal or administrative proceeding by virtue of being a
director, officer or liquidator of the Company, provided such person acted
honestly and in good faith and with a view to the best interests of the Company
and, in the case of a criminal proceeding, such person had no reasonable cause
to believe that his conduct was unlawful. The Company's Memorandum and Articles
of Association also permits the Company to indemnify any director, officer or
liquidator of the Company who was successful in any proceeding against expenses
and judgments, fines and amounts paid in settlement and reasonably incurred in
connection with the proceeding, where such person met the standard of conduct
described in the preceding sentence.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Company has obtained directors' and officers' liability insurance
against any liability asserted against such person incurred in the capacity of
director or officer or arising out of such status, whether or not the Company
would have the power to indemnify such person.
13
<PAGE> 23
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended March
31, 1996, are derived from the audited consolidated financial statements of
Dransfield Paper Holdings Limited, with whom the Company merged on February 26,
1997. The financial data for the six-month period ended September 30, 1996 and
1995 are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which Dransfield Paper considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the six months ended September 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending March 31,
1997. The data should be read in conjunction with the consolidated financial
statements and the related notes, which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Six month period
ended
Years ended March 31, September 30,
------------------------------------------------------------ ----------------
1992 1993 1994 1995 1996 1996 1995 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net Sales(1) 74,391 65,322 78,387 94,359 307,047 39,701 169,441 89,965
Income before interest and
income taxes and minority 4,354 2,049 4,809 6,951 13,443 1,738 15,227 2,259
interests
Interest income/(expenses),
net(1) (491) (131) 60 (198) (5,603) (724) (2,871) (2,119)
Provision for income taxes (637) (336) (960) (1,130) (1,391) (180) (1,986) (94)
Income after income
taxes but before minority
interests 3,226 1,582 3,909 5,623 6,449 834 10,370 46
Net income(1) 3,226 1,582 3,909 5,215 5,034 651 7,234 382
Pro forma income per share ($) N/A N/A N/A N/A 0.38 0.05 N/A 0.03
</TABLE>
14
<PAGE> 24
<TABLE>
<CAPTION>
As at March 31, As at September 30,
------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1995 1996
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 US$'000 HK$'000 HK$'000
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Fixed assets(2) 12,644 12,644 12,780 25,467 57,880 7,484 40,611 72,975
Total assets(2) 52,389 41,629 69,216 91,518 176,577 22,831 201,286 162,859
Long term liabilities(3) - - - - 73,459 9,499 428 48,733
</TABLE>
_________________________
(1) For a discussion of the reasons for the significant changes in certain
selected financial data between fiscal years 1995 and 1996, see below,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the subsections thereof as follows: for "Net
Sales" in the table above, see "Sales" below; for "Interest
income/(expenses), net" above, see "Interest Expense" below; and for
"Net income" above, see "Net income" below.
(2) Total assets increased by US$11 million from US$11.8 million in 1995 to
US$22.8 million in 1996. The increase is mainly attributable to
increased accounts receivable of US$5.4 million, increased inventories
of US$1.2 million and fixed assets acquisition of US$3.7 million.
(3) Long-term liabilities are composed mainly of US$8.7 million which is
not repayable within one year. In 1995 this loan was classified as a
current liability.
The following table sets forth certain information concerning exchange
rates between Hong Kong dollars and U.S. dollars for the periods presented,
expressed in HK$ per US$:
<TABLE>
<CAPTION>
Period Period End Average High Low
------ ---------- ------- ---- ---
<S> <C> <C> <C> <C>
1991 7.7800 7.7713 7.8025 7.7155
1992 7.7430 7.7412 7.7765 7.7237
1993 7.7280 7.7348 7.7650 7.7230
1994 7.7375 7.7284 7.7530 7.7225
1995 7.7323 7.7354 7.7665 7.7300
1996 7.7330 7.7348 7.7440(1) 7.7310(1)
- -------------------------
</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.
(1) Average High and Low are through 9/17/96; average highs and lows are no
longer published and, therefore, not available for 12/31/96.
15
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and the accompanying notes thereto and is
qualified entirely by the foregoing and by other more detailed financial
information appearing elsewhere. See "Financial Statements." All dollar amounts
are in U.S. dollars unless otherwise noted.
OVERVIEW
The Company had no business until it merged on February 26, 1997, with
Dransfield Paper Holdings Limited ("Dransfield Paper"). The financial
statements included in this Prospectus (see "Financial Statements") and the
references below to the Company's business operations refer to Dransfield
Paper's financial statements and business operations before the merger, to
which the Company succeeded upon its merger with Dransfield Paper. Further, the
financial information appearing in the 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 the Company, and relate almost entirely to
the paper distribution business conducted that year by A. Dransfield & Co. Ltd.
Dransfield Paper succeeded to this business and then merged with the Company.
Certain vertical integration activities (see "Outlook" below) are reflected in
the statements of operation and cash flows for the fiscal years ended March 31,
1995 and 1996.
RESULTS OF OPERATIONS.
The following table presents, as a percentage of sales, certain
selected consolidated financial data for each of the three years in the period
ended March 31, 1996:
<TABLE>
<CAPTION>
Year ended March 31 1994 1995 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 77.0 80.9 89.6
----------------------------------
Gross margin 23.0 19.1 10.4
----------------------------------
Selling, general and
administrative expenses 16.9 11.5 7.7
Interest expense 0.0 0.1 1.8
Other income and expenses, net 1.1 2.0 (0.7)
----------------------------------
18.0 13.6 8.8
----------------------------------
Net income 5.0% 5.5% 1.6%
----------------------------------
</TABLE>
SALES.
Sales for 1996 increased approximately $27.5 million or 225% over the
prior year as compared with an increase of $2 million or 20% in 1995 over 1994.
The increases were due to the institution of paper merchanting activities, in
an effort to obtain experience and establish business contacts for a planned
expansion into hygienic paper manufacturing, which activities were commenced in
November 1994, and amounted to $3.1 million
16
<PAGE> 26
in the five months of operations in fiscal 1995 and then increased by $26.8
million, or 851%, in 1996. Sales of the Tempo brand handkerchief remained
steady for the two years. The Company's paper handkerchief market share in the
Hong Kong area is approximately 46%, down from approximately 48% two years ago.
Its nearest competitive brand has an approximate market share of 26%.
INTERIM RESULTS. Sales of $11.6 million for the first six months of
fiscal year 1997 (which fiscal year ends March 31, 1997) decreased by $10.3
million, or 47%, from the first six months sales of $21.9 million in fiscal
year 1996. This reflects the Company's paper merchanting activities and the
volatility of paper prices in fiscal 1996. The price of pulp reached $980 a
metric ton and then collapsed to a low of $380 a metric ton in March 1996. In
December 1996 pulp prices appeared to settle at approximately $580 a metric
ton.
Sales in paper merchanting decreased by 63.7% - from $16.8
million to $6.1 million. Sales of Tempo brand handkerchiefs increased by 9
percent, however - from $5 million to $5.5 million, due to increased sales in
Hong Kong.
GROSS MARGIN.
Gross margin increased by $1.8 million in 1996 or 78% over 1995 as
compared with a decrease of $34,000 or 1% in 1995 from 1994. As a percentage of
sales, however, the 1996 gross margin decreased to 10.4% of sales from 19.1% of
sales in 1995 and 23.3% of sales in 1994. The decreases reflect the lower
margins inherent in the paper merchanting activities which commenced in
November 1994.
INTERIM RESULTS. Gross margin for the first six months of fiscal 1997
decreased to 9 percent from 12 percent in the first six months of fiscal 1996.
The decrease was due largely to increased costs associated with preparing for
sale finished products produced by the paper converting plant at Paper Mill No.
1.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses increased $1.7 million in
1996 or 119% over 1995. In 1995 these expenses decreased by $316,000 or 18.4%
from 1994. The 1996 increase was attributable to expenses involving travel,
hiring new personnel, negotiating joint venture agreements, and surveying the
world's used paper-making equipment for purchase - all with respect to
expanding the Company's paper business to that of a vertically-integrated,
hygienic paper producer and distributor. The 1995 decrease was attributable to
a reduction in advertising expenses, which reduction for part of 1995 was due
to Proctor & Gamble's assumption of Tempo marketing expenses after it acquired
the Tempo line of paper handkerchiefs from the former owner, and to a decrease
in sales of the Tempo brand handkerchief.
INTERIM RESULTS. Selling, general and administrative expenses
decreased by $30,000, or by 2.3 percent in the first half of fiscal 1997 from
the same period of fiscal 1996.
17
<PAGE> 27
INTEREST EXPENSE.
The interest expense of fiscal 1996 and fiscal 1997 was attributable
mainly to the financing of the Company's paper merchanting activities. The
substantial increase in interest expense in fiscal 1996 over fiscal 1995 was
due to the substantial increase in such trading.
INTERIM RESULTS. Interest expense in the first half of fiscal 1997 was
$278,000, a decrease of 26 percent from $378,000 in the same period in fiscal
1996. This decrease reflects a reduction in bank loans from $13 million to $6
million during these comparable periods, the reduction reflecting reduced
activities in paper merchanting.
NET INCOME.
Income before interest expense, income taxes and provision for
minority interests increased by $839,000 from 1995 to $1,738,000 in 1996, but
interest expense of $724,000 (see "Interest expense" immediately above), income
taxes of $180,000 and provision for minority interests of $183,000 resulted in
a reduction in net income from 1995 to 1996 of $23,000 or 3.4% from 1995 as
compared with an increase of $169,000 or 33.4% in 1995 over 1994. Net income
expressed as a percentage of sales began dropping sharply in November 1994 when
paper merchanting activities were commenced, due to the low margins inherent in
paper merchanting and the high volume of paper merchanting sales as compared to
the sales derived from marketing the Tempo paper handkerchiefs.
INTERIM RESULTS. Net income during the first half of fiscal 1997 was
$49,000, a 95 percent decrease from net income of $935,000 in the first half of
fiscal 1996. This significant reduction reflects losses in paper merchanting
activities not overcome by modest gains in profits from sales of Tempo paper
handkerchiefs. The Company's management has reduced its paper merchanting
activities to the initial needs of its planned paper mills. Yet the activities,
begun in November 1994 and conducted during a period of great volatility in
prices, are believed by the Company to have been successful in establishing its
credibility and business contacts among suppliers of waste paper. Sourcing raw
materials will be a critical part of the Company's planned vertical integration
of its paper business.
BALANCE SHEET ITEMS. Significant changes in several balance sheet items
occurred from 1995 to 1996, in particular accounts receivable, inventories,
fixed assets, and liabilities. These changes reflect the impact on the
Company's operations of the high volume, large inventory, and low gross margin
paper merchanting activities, and the acquisition of plant and equipment for
Paper Mill Nos. 1 and 2.
INTERIM RESULTS. Accounts receivable during the first half of fiscal
1997 decreased by 62 percent from the same period in fiscal 1996 - from $12.9
million to $4.9 million. Similarly, inventories decreased by 81 percent - from
$6.9 million to $1.3 million. These reductions were caused by reductions in
paper merchanting activities, tightened collection of receivables, better
control over purchasing, and more emphasis on pre-sold orders. Accordingly,
bank loans decreased significantly.
18
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES.
The Company had negative cash flows from operations of $0.7 million in
1996, $1.4 million in 1995 and $1.1 million in 1994. The acquisition of fixed
assets and equipment for its planned paper business expansion (see "Outlook"
below) reduced cash flow by $772,000 in 1996 and $497,000 in 1995. The
shortfalls in liquidity were provided by advances from Dransfield Holdings and
bank loans, with loans from one also being used to pay down the other in
succeeding years. Significant capital expenditures have been both made and
committed with respect to the acquisition, refurbishment, and installation of
equipment, land and buildings for the Company's planned paper business
expansion. Additional capital expenditures of $12 million must be made to
complete the first two paper mills, and additional capital expenditures of
approximately $25 million, not yet obtained or committed, must be made should
the Company be able to complete its proposed third and fourth paper mills, as
follows:
<TABLE>
<CAPTION>
$000s
----------------------------------------
To Be
Capital Requirement Purchased Purchased Timing
- ------------------- --------- --------- ------
<S> <C> <C> <C>
MILL NO. 1:
Used Deink Line (Belgium) Apr 96
Used Paper Making Machine (USA) Nov 96-Apr 97
Used Paper Converting (USA, Japan) Jan 96
Land & Building (USA) Jan 95-Oct 95
-------
Sub-Total $ 7,020
New Auxiliary Equipment (China) $ 1,900 Nov 96-Apr 97
New Environmental Control
Equipment (China/USA) 1,400 Jan 97-May 97
Infrastructure (China) 2,000 Dec 96-Apr 97
-------
Sub-Total $ 5,300
MILL NO. 2:
Used Deink Line (USA) Jan 96
Used Paper Making Machine (Belgium) Jan 96
Used Paper Converting (USA, Japan) Apr 96
Land & Building (USA) Sep 96-Dec 97
Sub-Total $ 4,900
New Auxiliary Equipment (China) $ 3,200 Nov 96-Feb 97
New Environmental Control
Equipment (China/USA) 2,000 Jan 97-Mar 97
Infrastructure (China) 1,500 Nov 96-Feb 97
-------
Sub-Total $ 6,700
MILL NO. 3:
Used Paper Making Machine $ 1,000 Nov 96-Apr 97
-------
(USA)
Sub-Total $ 1,000
MILL NO. 4:
Used Paper Making Machine $ 1,000 Nov 96-Apr 97
-------
(USA)
Sub-Total $ 1,000
-------
TOTAL $13,920 $12,000
</TABLE>
19
<PAGE> 29
The source of funds for these capital expenditures for Paper Mill Nos.
1 and 2 was as follows:
o $10 million advance from parent, Dransfield Holdings in
November 1996 and April 1997, and
o $5 million advance from Dransfield Holdings from January
through May 1997.
The proposed sources of funds for Paper Mill Nos. 3 and 4 are as
follows:
o $2.75 million by September 1997 from the exercise of 500,000
U.S. Callable Warrants distributed to 8 persons in the
Spinoff-Merger transaction between Dransfield Paper and the
Company,
o $2.45 million by December 1997 from the exercise of 446,004
Merger Callable Warrants distributed to Dransfield Holdings in
the Spinoff-Merger transaction between Dransfield Paper and
the Company, and
o $25 million by December 1997 from the sale of shares of the
Company in a rights offering with standby underwriters.
Of the advances from Dransfield Holdings to complete Paper Mills Nos.
1 and 2, $5 million were converted into Common Stock of the Company in May 1997
at $5 a share. The proposed source of funds for Plant Nos. 3 and 4 would
involve the issuance of equity securities by the post-merger Company and,
accordingly, represent potential dilution to the Company's shareholders.
INTERIM RESULTS. The Company continued to require advances from
Dransfield Holdings and bank loans to maintain positive cash flow - $2.3
million in the first half of fiscal 1997 compared to $10.4 million in the first
half of fiscal 1996.
OUTLOOK.
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may vary
materially.
The Company's ability to consistently sell more than 40 percent of the
paper handkerchiefs sold in Hong Kong represented, to management, a base from
which continued, significant growth in volume of the Tempo-brand product would
be difficult but an excellent base from which a vertically-integrated,
several-products, consumer hygienic paper manufacturing and distribution
business could be built. Such a business expansion began to be planned in 1993,
business contacts in the buying and selling of
20
<PAGE> 30
unfinished paper were made, business alliances for two plants in China were
made, material capital expenditures were both made and committed, and the first
paper converting plant is operational.
Paper merchanting activities were started in November 1994 for the
purpose of establishing business contacts and acquiring skill in buying raw
materials, the quality and mix of which would bear directly on the Company's
competitiveness and profitability later in recycling waste paper into pulp,
making tissue paper, converting tissue paper into finished hygienic paper
products and selling the products to consumers. After a year - fiscal 1996 - of
high volume in sales and highly volatile paper prices, the Company reduced its
paper merchanting activities to the initial needs of its planned paper mills.
From average monthly turnover volume of $2.5 million in 1996, the Company had
monthly turnover of only $397,000 in November 1996. Yet the activities were
successful in establishing credibility and business contacts among suppliers of
office waste paper.
The Company's vertical integration plans embrace the following
activities, one of which is operational but all of which are still in the
development stage:
o Recycled pulp production. Waste paper will be processed into
recycled pulp. Until needed for its own further processing,
approximately half of this would be offered for sale to other
companies in China with paper mills and approximately half
would be supplied to Dransfield Paper's own paper making
operation.
o Paper making. Paper making machines will process recycled pulp
into jumbo rolls. Until needed for its own further processing,
approximately half of the production would be offered for sale
to other companies in China with paper converting plants and
approximately half would be supplied to Dransfield Paper's own
paper converting plants.
o Paper converting. Jumbo rolls of paper will be converted into
finished paper products, such as bathroom tissue, facial
tissue, napkins and handkerchiefs, which finished paper
products will be packaged and distributed to customers.
TIMING OF THE EXPANSION. The business expansion is planned to take
place in two phases, Phase One being the development and completion of Paper
Mills No. 1 and No. 2 and Phase Two being the development and construction of
Paper Mills No. 3 and No. 4. The projected dates for the completion and
commencement of operations of the plants in each of the four paper mills are as
follows:
<TABLE>
<CAPTION>
Recycled Pulp Paper Paper
Production Making Converting
------------ ------ ----------
<S> <C> <C>
Phase 1: Under construction
- ---------------------------
Paper Mill No. 1 February 1998 March 1988 Operational
Paper Mill No. 2 November 1997 November 1997 January 1998
Phase 2: Planned. Not under construction
- ----------------------------------------
Paper Mill No. 3 December 1998 December 1998 December 1998
Paper Mill No. 4 March 1999 March 1999 March 1999
</TABLE>
21
<PAGE> 31
PAPER MILL NO. 1. The Company invested $6 million in
establishing a paper conversion plant, a conference center, and a research and
development center in Conghua in the city of Guangzhou, Guangdong Province in
southern China. The paper conversion plant tested production in August 1996, is
anticipated to be on stream by July 1997, and converts jumbo rolls of paper
into such products as toilet tissue, paper handkerchiefs, napkins and facial
tissue. Its maximum capacity is approximately 30 metric tons a day. It will
also serve as a training and as a research and development center to develop
the Company's paper business. An expert plant manager with 30 years' experience
was brought from the U.S. to manage and supervise this plant and to develop a
capable production team to spearhead Dransfield's expansion.
Distribution of paper products from the paper conversion plant will
commence in July 1997 under the Company's brand name "D&F." Distribution of
Proctor & Gamble's "Tempo"-brand paper handkerchiefs ceased in June 1997 due to
the conflict in interest which would exist once distribution of D&F products
should commence. The Company cannot provide assurance that this transition from
distributing a product manufactured by another company to manufacturing and
distributing its own branded products will be successful or that profitable
operations, if achieved, will come quickly.
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 November 1997 with an output capacity of approximately 90 metric
tons a day. The targeted customers for half of the recycled pulp production of
this plant are located in the Pearl River delta area, which is within 8 miles
from this mill, which customers have present annual demand exceeding 800,000
metric tons.
PAPER MILL NO. 2. The Company will invest approximately $13
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 the Company, 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 the Company and
20 percent owned by Broadsino. The Company has agreed to provide Broadsino's
equity contribution (approximately $1.8 million) to the joint venture through a
loan to Broadsino bearing compound interest at the rate of 6% a year.
The project site is located adjacent to a tributary of the Yangtze
River, which tributary will supply water to the paper mill. The Chinese
partners are contributing a 12,000-kilowatt-hour, coal-fired, power plant for
their 40% interest in the joint venture. The power plant is currently
22
<PAGE> 32
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. The Company will
also make use of other grades of waste paper to reduce its cost of production.
A used 120-metric-tons-a-day de-inking plant for recycled pulp
production has been purchased from Georgia Pacific Company in the U.S., and a
used 28-metric-tons-a-day paper making plant has been purchased from VPK in
Belgium. Both arrived in China in May and July 1996.
Until needed for its own end products, it is estimated that less than
half of the 120-metric tons-a-day recycled pulp production will be used in
Paper Mill No. 2's own tissue paper plant and more than half of the production
shall be offered for sale to other paper mills in the Jiangsu and Zhejiang
Provinces, which have an annual demand of 1,400,000 metric tons.
Operations are scheduled to commence at the recycled pulp production
plant by November 1997, at the paper conversion plant by January 1998, and at
the paper making plant by November 1997.
PAPER MILLS NO. 3 AND 4. Complete paper mills - plants for
recycled pulp production, paper making, and paper conversion - are planned for
two other areas. One is in northern China in the Tianjin area, and the other is
in western China in the Sichuan area. These two paper mills will be installed
after the first two mills, now under construction, are operational. Subject to
funding, the Company's plans envision the commencement of full operations at
Paper Mills No. 3 and 4 by the last quarter of 1998 and the first quarter of
1999, respectively. Considerable equipment has already been acquired for the
paper conversion plants for Paper Mills No. 3 and No. 4.
The Company's plans include recycling waste paper into pulp, which is
against the trend in China of importing virgin fiber. The Company estimates
that, until needed for its own end products, approximately half of its recycled
paper will be allocated to its own paper converting and tissue making
facilities and half will be allocated for sale to other China paper mills that
produce packaging grade cartons and hygienic paper. The Company's survey
indicates that the present annual demand for recycled pulp and jumbo rolls,
such as the Company expects to produce, in the areas that would be served by
its 4 planned paper mills, and the annual production of these 4 planned paper
mills, are as follows:
23
<PAGE> 33
<TABLE>
<CAPTION>
DCPC's Planned
Potential Maximum
Demand Production
Phase I Province/City (Metric Tons) (Metric Tons)
- ------- ------------- ------------- -------------
<S> <C> <C> <C>
No. 1 Guangdong Province 861,022 60,000
No. 2 Jiangsu Province 767,050 72,000
No. 2 Zhejiang Province 679,100
No. 2 Shanghai Municipality 234,547
--------- -------
Total 2,541,719 132,000
DCPC's Planned
Potential Maximum
Demand Production
Phase II Province/City (Metric Tons) (Metric Tons)
- -------- ------------- ------------- -------------
No. 3 Tianjin Municipality 221,400 60,000
No. 3 Beijing Municipality 101,000
No. 3 Heibei Province 128,000
No. 4 Sichuan Province 238,750 60,000
------- -------
Total 689,150 120,000
</TABLE>
The Company's planned production represents only 4 percent of the
annual requirements of the targeted markets.
Over recent years the price of virgin pulp has ranged from $390 to
$960 a metric ton. The price of office waste paper in the U.S. has ranged from
$20 to $250 a metric ton. For instance, prices in September 1996 were $610
(cost and freight from U.S. West Coast to China) for virgin pulp plus $12.20
duty, or $622.20 a metric ton, compared with $165 (cost, freight and duty) for
office waste paper. Recycling costs in China are estimated to average $200 a
ton and not to exceed $250 a metric ton. There is little recycled fiber in
China, which fiber sells at prices 5 to 10 percent cheaper than virgin fiber.
The Company expects that the net operating margin of its paper recycling
division will range from 10 to 15 percent.
The Company has purchased equipment and is planning to make, into
jumbo rolls, various grades of hygienic paper from approximately half of its
recycled pulp. Until needed for its own end products of consumer hygienic
paper, it plans to offer for sale to other paper mills in China approximately
half of the production of jumbo rolls of hygienic paper it makes. It expects
that the net operating margin of this division will range from 11 to 16
percent.
With reference to the volatility of the prices of virgin pulp and
office waste paper and the plans of the Company to offer to other China paper
mills, until required for its own needs, approximately half of its production
both of recycled fiber and of jumbo rolls of hygienic paper, the table below
illustrates, pro forma, how its planned integrated facilities would dampen the
effects of price volatility with respect to profit margins:
24
<PAGE> 34
<TABLE>
<CAPTION>
($ a Metric Ton)
August 1995 March 1996 October 1996
----------- ---------- ------------
<S> <C> <C> <C> <C>
1. Virgin Pulp Cost $960 $390 $580
2. Secondary Fiber
-Raw Material
(Office Waste) $170-250 $ 20-70 $ 70-120
-Freight Cost 80 80 80
-Processing Cost
(Average) 200 200 200
-------- -------- --------
$450-530 $300-350 $350-400
3. Profit Margin
-Recycled Pulp(1) High Low Medium
-Jumbo Roll(1) Medium Low Medium
-Finished Products Low High Medium
</TABLE>
- --------------------------
(1) Until needed for its own production of consumer hygienic paper
products, approximately half of this production is planned to be
available for sale to other paper mills in China.
In the past eighteen months, the price of virgin pulp has experienced
the most volatility in the last thirty years.
Finally, the Company's paper converting facility in Plant No. 1 is
operational and the equipment for Plant No. 2's paper converting facility has
been purchased and is expected to be operating in January 1998. It plans to
convert and market relatively high grade hygienic paper, using the distribution
channels it developed for the Tempo paper handkerchiefs and expanding its
distribution network through working with small paper converter companies who
have established distribution networks for lower grade products. The Company
expects its net operating margin in this division to range from 18 to 23
percent.
The expansion into manufacturing and distribution commencing July 1997
of its own branded paper products will be the first exposure in the market
place for the Company's long-planned and partially-executed vertical business
expansion. It is accompanied by the cessation of the distribution of Proctor &
Gamble's Tempo-brand paper handkerchief, which has been the backbone of the
Company's business since inception.
The Company's branded products initially will be manufactured by it in
its Paper Mill No. 1. Four products will be made for distribution by the
Company, with the mill capacity for each product initially set as follows:
<TABLE>
<CAPTION>
Product Percent
------- -------
<S> <C>
Paper handkerchiefs 9
Tissues 21
Napkins 18
Toilet rolls 52
</TABLE>
25
<PAGE> 35
The Company expects its gross margins on sales to be greater than the margins
it received distributing Proctor & Gamble's manufactured Tempo-brand paper
handkerchief. Further, the Company will be distributing four products, not one.
In any event, past operating results, which are based on distributing Tempo
products, are not indicative of future results, which will be influenced to a
major extent by still unproven manufacturing operations.
The Company's future results of operations and the other
forward-looking statements contained in this Outlook, in particular the
statements regarding achievement of its expansion plans, capital spending,
costs of office waste paper and virgin fiber, and marketing, involve a number
of risks and uncertainties. In addition to the factors discussed above, among
the other factors that could cause actual results to differ materially are the
following: volatility of prices of office waste paper and virgin fibers, risk
of nonpayment of accounts receivable, inability of the Company to obtain its
necessary capital, political instability in China, inflation, unforeseen
competition, weather, loss of personnel as a result of accident or for health
reasons, funding delays, supply interruption, currency fluctuation, market
changes, government interference, or change of laws.
BUSINESS
GENERAL
The Company is a 97%-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 conducted by the Company, which
bought and sold a Proctor & Gamble brand-name paper handkerchief, which the
Company distributed to retailers until June 1997, and which business division
is expanding its operations to include paper manufacturing and distribution of
its own brand-name paper products; a food and beverage division which has
breweries in China and the United Kingdom, an edible oil factory in China, and
which distributes alcoholic and non-alcoholic beverages in Hong Kong; and a
logistics and services division which provides warehousing, deliveries, repair,
exhibition and buying-program services to affiliated and non- affiliated
companies in Hong Kong and China.
The Company's parent, Dransfield Holdings, has been listed on the Hong
Kong Stock Exchange since April 1993.
The business of the Company was conducted until February 26, 1997, by
Dransfield Paper Holdings Limited, which merged with the Company on that date.
The purpose of the merger was to transfer, from the Hong Kong Stock
Exchange to the Nasdaq Stock Market in the U.S., Dransfield Holdings' equity in
its paper business division. The paper business dates back to 1975, when A
Dransfield & Co. Ltd., a wholly-owned subsidiary of Dransfield Holdings Limited
(the parent of the Company), secured the exclusive distribution for Tempo paper
handkerchiefs from Vereinigte Papierwerke in
26
<PAGE> 36
Hong Kong and Macau. In 1994 Dransfield Paper, before its merger with the
Company, succeeded to this business from its sister company and continued to
develop a substantial distribution network principally through supermarkets,
drug stores and newspaper stands for Tempo handkerchiefs.
Based on the Company's surveys and management estimates, Tempo's
market share of paper handkerchiefs in Hong Kong and Macau was approximately
46% when the Company ceased distributing the Tempo product in June 1997 in
preparation for the Company's manufacture and distribution of its own branded
paper products in July 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Outlook."
In November 1994, the Company undertook to establish business contacts
and to gain experience in buying waste paper, which it did both on an indent
basis (a pre-sold basis) or on an agency basis, all in support of a plan to
expand its business to that of an integrated manufacturer and distributor of
hygienic paper products for consumers. See above, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Sales, and
Outlook." This paper merchanting operation was organized through the formation
of a subsidiary company named C.S. Paper Holdings (International) Ltd., which
conducts 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.
In August 1996, the Company's predecessor, Dransfield Paper, commenced
testing production runs on a paper converting facility it established situated
in Conghua in the city of Guangzhou, Guangdong Province in Southern China -
another step in its plan to expand its operations to those of a
vertically-integrated hygienic paper producer and distributor in some of the
largest population and fastest growing economies of China as well as in Hong
Kong. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Outlook."
THE PAPER INDUSTRY IN CHINA
China has more than 5,000 paper mills with the majority of them
producing less than 10,000 metric tons a year. In 1992 there were 16.2 million
metric tons of paper and paper boards produced and 1.2 million metric tons of
hygienic paper produced by these paper mills.
Annual per capita consumption of hygienic paper in China is only a
small fraction of that in the West. For instance, the annual per capita
consumption of hygienic paper in the U.S. is 18.6 kilograms, in Hong Kong is 5
kilograms, and in China is less than 1 kilogram.
It is the Company'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. The Company is building two paper mills
27
<PAGE> 37
that target the medium- and premium-quality paper products markets in which
there is little competition. The only competition in these markets from an
international company is Scott Shanghai (now owned by Kimberly-Clark), which
has a plant with an output of 14,000 metric tons a year.
Despite recent double-digit economic growth in China and projected
annual growth of 8%, the Company'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, the Company proposes to position itself in the premium-priced
products market at the same time it develops the medium-priced and
medium-quality market, because of the huge size of these two markets. The paper
market targeted by the Company covers 10% of the population of China, which is
equivalent to a market base almost half the size of that of the U.S.
PROPERTIES.
CONGHUA - PAPER MILL NO. 1.
The Company has the land use rights to 16,011 square meters in a
development zone in Conghua, Guangzhou, PRC on which it has constructed a paper
conversion plant and warehouse, a conference center, and a 52-room guest house.
The recycled pulp production and paper making facilities are planned to be
located on a tract of approximately 35,000 square meters in Xinhui, near
Guangzhou, on a major river with ready access to road and river transportation
facilities, near other manufacturers of tissue and industrial grades of paper,
and with an abundant supply of electricity.
JIANGYIN - PAPER MILL NO. 2.
The Company and its joint venture partners have a 50-year land use
agreement with the local authority in Jiangyin for a 65,000 square meters tract
on which Paper Mill No. 2 is being constructed. The tract is adjacent to a
navigable river, accessible to a nearby major highway, near other manufacturers
of industrial grade papers, and adequate to meet medium-term expansion needs.
Electricity is provided by Jiangsu Huaxi Holdings Corporation, a PRC government
corporation, one of the joint venture partners.
OFFICE FACILITIES.
The Company rents office facilities in Hong Kong from another
subsidiary corporation of its parent, Dransfield Holdings, and shares these
facilities with other subsidiary corporations of Dransfield Holdings.
DEPENDENCE ON MAJOR CUSTOMERS AND SUPPLIERS. The Company 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. The Company did depend
entirely on Proctor & Gamble and its manufacturers for its supply of Tempo
paper handkerchiefs the Company distributed, but this business activity ceased
in June 1997.
28
<PAGE> 38
As for business in the PRC, because raw materials are subject to
import duty, profits could be affected for a short period of time when the
government raises the duty. However, the current direction of the PRC
government is for a reduction in duties, not an increase.
RESEARCH AND DEVELOPMENT. The Company has not incurred any significant
expenditures on research and development activities.
ENVIRONMENTAL CONTROLS. It is anticipated that the Chinese Government will
increase its requirements for environmental controls. With this in mind, the
Company is installing and employing environmental control standards that meet
U.S. standards, which are higher than those currently required by the PRC.
With respect to Paper Mill No. 2, the environmental controls proposed
by and being installed by the Company have been approved by the Provincial
authorities and the Central Government. The paper mills will use an enzymatic
process as the deinking agent, which employs a biological agent rather than the
traditional chemical process. Approximately 90% less chemicals will be used.
The entire deinking process has been designed by in-house U.S. and European
experts assisted by an independent consultant. The effluent output is mostly
clay, which can be used as a construction material, and the effluent water will
be treated in lagoons. Similar environmental controls are proposed for Paper
Mill No. 1 and are expected to be approved by the Provincial authorities and
the Central Government.
The effluent water, after treatment, will meet the standards set by
the Chinese Government for biological oxygen demand (BOD), chemical oxygen
demand (COD), suspended solids (SS) and pH.
The Company's waste treatment process and plants have been designed by
specialists in the U.S. but are built locally in China.
The Company does not anticipate having to pay any significant
environmental clean-up costs in its operations other than as part of its
regular operating requirements, because prior to actual installation of the
equipment, the company's environmental procedures will have met the local
authority requirements and approval.
NUMBER OF EMPLOYEES. On March 31, 1996 the Company employed 30 persons. Once
the operation in Conghua goes into full operation, the number of employees will
increase substantially, as it will when installation of the deinking and tissue
making operations commence at the paper mills.
VENUE OF SALES. Less than 10% of sales during the year ended March 31, 1996
were attributable to exports to China. Most of the sales for the last three
fiscal years were in Hong Kong.
PATENTS, COPYRIGHTS AND INTELLECTUAL PROPERTY.
The Company holds no patents, copyrights or intellectual property
other than trade marks established for its new paper products for the consumer
market. The Company is not aware of any patents, trademarks, licenses,
franchises and concessions that would affect its business and production
described herein.
29
<PAGE> 39
LEGAL PROCEEDINGS.
Neither the Company nor any of its property is a party to or the
subject of any material pending legal proceedings other than ordinary routine
litigation incidental to its business.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
Set forth below are the names, and terms of office of each of the
directors, executive officers and significant employees of the Company and a
description of the business experience of each.
<TABLE>
<CAPTION>
Office
Held Term of
Person Office Since Office(1)
- ------ ------ ----- ------
<S> <C> <C> <C>
Horace YAO Yee Cheong, 50 Deputy Chairman Apr 1994 Apr 1998
and Chief Executive
Officer
Warren MA Kwok Hung, 39 Treasurer and Apr 1994 Apr 1998
Secretary, Director
Jeremy LU Yuen Tong, 38 Assistant to Feb 1996 Apr 1998
Chief Executive
Officer, Director
Stephen MO, 38 Director Apr 1997 Apr 1998
Thomas J. KENAN, 65 Director Mar 1997 Apr 1998
Jan YANG, Ph.D., 36 Director Apr 1997 Apr 1998
James MADISON, 46 General Manager May 1996 Apr 1998
Deinked Pulp
and Tissue
Peter KEATINGE, 61 Manager, May 1996 Apr 1998
Maintenance
and Engineering
CHOW Yeung Chee, 54 Plant Manager of Jan 1996 Apr 1998
Guangzhou Dransfield
Paper Ltd.
Manuel ALVAREZ, 60 General Manager Apr 1995 Apr 1998
for paper con-
verting operations
Terry BURTON, 53 General Manager Jul 1996 Apr 1998
of Fine Paper
Division
Eddy WU, 37 General Manager, Dec 1996 Apr 1998
Hygienic Paper
(Pacific Basin)
Joseph PANKRATZ, 41 Manager of Pulp Sep 1996 Apr 1998
and Paper Making
</TABLE>
__________________________
(1) Subject to earlier removal without cause by the directors of
Dransfield.
30
<PAGE> 40
EXECUTIVE DIRECTORS.
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.
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.
STEPHEN MO. Mr. Mo has over 17 years experience in general management,
personnel and administration with a professional auditing background. He holds
a degree in Accountancy from Hong Kong Polytechnic, is a Fellow of the
Chartered Association of Certified Accountants and Hong Kong Society of
Accountants, and is an Associate of the Institute of Chartered Secretaries and
Administrators.
NONEXECUTIVE DIRECTORS.
THOMAS J. KENAN. Mr. Kenan has 34 years experience as a practicing
attorney in the United States, primarily in securities, corporation, and
business reorganization law. He holds a master's of comparative laws degree
from New York University.
JAN YANG, PH.D. Dr. Yang is the founder, president and technical
director of EDT, a bioindustrial company based in Georgia specializing in
providing products and technical service to the pulp and paper industry. Dr.
Yang holds a bachelor of science degree in chemical engineering from Tianjin
University of Light Industry in China, and a doctor of philosophy degree in
biotechnology from Royal (Swedish) Institute of Technology. He
31
<PAGE> 41
has published over 20 scientific articles and holds numerous patents related to
pulp and paper manufacturing. He is also an honorary professor at Tianjin
University of Light Industry.
SENIOR EXECUTIVES.
JAMES MADISON. Mr. Madison has more than 24 years experience in tissue
paper making and converting. He holds a bachelor of science degree in
mechanical engineering from a university in the U.S.
PETER KEATINGE. Mr. Keatinge has more than 43 years of project
management experience in pulp and paper, engineering and energy conservation.
He holds a bachelor of science degree from London University and is a Chartered
Engineer and a member of the Institute of Electrical Engineers as well as the
Institute of Mechanical Engineers in the United Kingdom.
CHOW YEUNG CHEE. Mr. Chow has more than 31 years experience chemical
engineering and managing manufacturing plants. He has a bachelor of science
degree in chemistry.
MANUEL ALVAREZ. Mr. Alvarez has more than 30 years experience in the
paper converting business in the U.S. Prior to joining the Group, he was the
Vice President of Production of a major paper company in the U.S.
TERRY BURTON. Mr. Burton has over 30 years commercial experience in
the European paper trade including one of Europe's largest paper merchandising
groups and a Spanish recycled paper mill.
EDDY WU. Mr. Wu has a master's of business administration degree and
more than 13 years' experience in managing factories and being responsible for
sales and marketing for several Chinese consumer product companies, the last of
which was a large company listed on the Hong Kong Stock Exchange.
JOE PANKRATZ. Mr. Pankratz has more than 24 years' experience in
recycled pulp and paper making, working for Fort Howard Paper and for Pope &
Talbot. He specializes in the design of effluent treatment processes.
COMPENSATION OF DIRECTORS AND OFFICERS
The directors and officers of the Company 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. There are no present plans, arrangements,
or understandings concerning any change in compensation for them. The Company
has no pension, retirement or similar benefits for directors and officers
pursuant to a plan contributed to by the Company.
STOCK OPTION PLAN
The Company has adopted a stock option plan ("the Plan"), the major
provisions of which Plan are as follows:
Nontransferable options may be granted by the directors to employees
and executive officers of the Company. The options are for 4-year terms
32
<PAGE> 42
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. Some 625,000
options have been granted under the Plan by the Company in April 1997 at an
exercise price of $2.80.
CERTAIN TRANSACTIONS
Since its inception in March 1994, the Company's predecessor,
Dransfield Paper, and since the merger on February 26, 1997, between Dransfield
Paper and the Company, the Company have had transactions with fellow subsidiary
companies (that is, companies which are subsidiaries of Dransfield Holdings
Limited) in which Mr. Horace Yao, chief executive officer and a director
earlier of Dransfield Paper and now of the Company, 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 and now the Company 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
the Company.
Similarly, the Company and its predecessor have had, since April 1996,
and still have, transactions with Dransfield Trading Limited, a subsidiary of
Dransfield Holdings Limited which employs and accounts for the activities of
the sales personnel and for the distribution in Hong Kong and Macau not only of
the Company's Tempo products but of the consumer products distributed by other
business divisions of Dransfield Holdings Limited (see "Business - General").
Dransfield Trading Limited allocates its costs and overhead plus a profit for
itself to its sister companies, including the Company, in proportion to the
amount of its activities devoted to the distribution of the products sold by
each sister company. The Company believes that its use of Dransfield Trading
Limited in this manner results in lower distribution costs for a sales force.
The Company will continue to make use of Dransfield Trading Limited for the
sales and distribution of its own D&F-branded paper products when distribution
of these products commences in July 1997.
Mr. Jan Yang was elected a director of the Company in May, 1997. He is
the president of EDT (Enzymatic Deinking Technologies) of Norcross, Georgia.
EDT is a specialty chemical provider to the pulp and paper industry. It
produces and sells naturally occurring enzymatic products for specific
applications in pulp and paper mills with emphasis on the deinking process. The
Company, after consideration of EDT's products and different products offered
by EDT's competitors, initially proposes to use EDT's enzymatic products in the
Company's paper mills. To the knowledge of the
33
<PAGE> 43
Company, EDT's enzymatic product cannot be obtained elsewhere in the volume
expected to be needed. Other, competing types of chemicals are available at
less cost per pound but generally at more total cost, due to the need for more
pounds of product to achieve a desired result. No purchases have yet been made
by the Company of EDT's enzymatic products.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of the date of
this Prospectus and as adjusted to reflect the sale of the 150,000 Company
Shares offered herein and the exercise of all 946,004 Callable Warrants offered
hereby, with respect to the beneficial ownership of shares of Common Stock, by
(i) each person known to the Company to beneficially own more than 10% of the
Company's Common Stock, and (ii) all directors and officers as a group.
Percentage of Beneficial Ownership
<TABLE>
<CAPTION>
Before Sale of After Sale of
Amount and Nature of Company Shares and Company Shares and
Beneficial Owner Beneficial Ownership Exercise of Warrants Exercise of Warrants
---------------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Dransfield Holdings Limited 12,600,000(1) 95.1% 87.8%
Officers and Directors as a 12,626,786 95.3% 88.0%
Group (12 Persons)
</TABLE>
- -------------------------
(1) Represents sole voting and investment powers with respect to these
shares.
NATURE OF TRADING MARKET
OUTSIDE THE UNITED STATES
There is currently no trading market outside the United States for the
Company's Common Stock or its Callable Warrants.
INSIDE THE UNITED STATES
The Company's Common Stock is listed for trading on the Nasdaq
SmallCap Market under the symbol DCPCF. There is no trading market for the
Callable Warrants.
The Common Stock commenced trading in the U.S. on April 2, 1997. The
reported high and the low sales prices ranged from $2.50 to $__________ from
April 2 to June ____, 1997. The volume of trading was light, and it should not
be assumed that an assured or mature market in the Common Stock has developed.
There have been no reported trades in the Company's Callable Warrants.
Of the 13,250,000 outstanding shares of Common Stock, 550,000 shares
are held in the United States by approximately 1,350 record holders and
12,700,000 shares are held in Hong Kong by three shareholders, one of whom,
34
<PAGE> 44
Dransfield Holdings Limited, a Cayman corporation, owns 12,600,000 shares. Of
the 946,004 Callable Warrants, 500,000 warrants are held in the United States
by eight record holders and 446,004 warrants are held in Hong Kong by one
record holder, Dransfield Holdings Limited.
REGISTRATION FOR SELLING SECURITYHOLDERS
The registration statement of which this prospectus forms a part
relates to (i) 26,786 shares of Common Stock acquired by J. Douglas Bowey, a
"finder," and 11,642 shares of Common Stock acquired by T. E. King, a
"promoter," prior to the Company's merger on February 26, 1997, with Dransfield
Paper Limited (see "Business - General"), (ii) 50,000 shares of Common Stock
acquired in early June 1997 at $5.00 a share by 37 persons, none of whom have
ever had any material relationship with the Company, its predecessors or
affiliates, (iii) 100,000 shares of Common Stock acquired in early June 1997 at
$5.00 a share by two persons, each of whom is affiliated with investment
banking firms in Hong Kong that have acted as investment bankers for Dransfield
Holdings Limited, the majority shareholder of the company, (iv) 500,000
Callable Warrants owned by eight persons, each of whom may be deemed to be a
"promoter" of the Company prior to such merger with Dransfield Paper Limited,
and (v) 446,004 Callable Warrants owned by the Company's parent, Dransfield
Holdings Limited, and acquired by it as part of the terms of the merger between
Dransfield Paper and the Company. All of such persons are the Selling
Securityholders - the persons offering the securities offered herein other than
the 150,000 Company Shares.
All 188,428 shares of Common Stock and 946,004 Callable Warrants
offered for sale by the Selling Securityholders may be deemed to be "restricted
securities" (as such term is defined in Regulation D of the Securities and
Exchange Commission) in the hands of the present holders. The 946,004 shares of
Common Stock issuable upon exercise of the Callable Warrants are not registered
for sale to the present holders, should they exercise the Callable Warrants,
but are registered for sale to persons to whom the Selling Securityholders sell
the Callable Warrants pursuant to this Prospectus or to their transferees.
It is likely that sales of the 188,428 Selling Securityholders Shares
of Common Stock offered hereby, the 946,004 Callable Warrants, or the shares of
Common Stock underlying the Callable Warrants, or even the potential of such
sales at any time, would have an adverse effect on the market price of the
Common Stock and the Callable Warrants. See "Risk Factors - Unseasoned Public
Market."
The tables below set forth certain information with respect to the
Selling Securityholders. The Company will not receive any of the proceeds from
the sale by the Selling Securityholders of their securities but will receive
proceeds from the exercise of the Callable Warrants.
35
<PAGE> 45
<TABLE>
<CAPTION>
Shares of Common Shares of Common
Relationship Stock Owned Shares Stock Owned
Selling Securityholder With Company Prior to Offering Offered After the Offering
---------------------- ------------ ----------------- ------- ------------------
<S> <C> <C> <C> <C>
J. Douglas Bowey Finder 26,786 26,786 0
2127 Sawtell Blvd., Suite D
Los Angeles, CA 90025
T.E. King Promoter and 38,428 11,642 26,428
49 Strawberry Lane, Suite 200 former President
Palos Verdes Peninsula, CA 90274 and former sole
Director
Kingsway Securities Holdings Limited Investment Banker 50,000 50,000 0
10 ice House Street
Hong Kong
Ko Kin Hang Investment Banker 50,000 50,000 0
China Resources Bldg., Room 1808
26 Harbour Road
Wanchai, Hong Kong
Brooke Bell None 1,000 1,000 0
P. O. Box 668484
Charlotte, NC 28266
Fred Bell None 8,000 8,000 0
P. O. Box 668484
Charlotte, NC 28266
William Burroughs None 2,000 2,000 0
6916 Folger Drive
Charlotte, NC 28270
Carol Cotton None 1,000 1,000 0
2812 Cross Point Cir. #25
Matthews, NC 28105
Florence Cour None 1,000 1,000 0
1000 West 117th Street
Marionette, IL 60655
Michael Davidson None 500 500 0
P. O. Box 241894
Charlotte, NC 28224
Jerry Dennis None 5,000 5,000 0
423 Janice Avenue
High Point, NC 28277
Dub Evins None 1,000 1,000 0
5904 Alexa Road
Charlotte, NC 28277
Mark Ferguson None 1,000 1,000 0
120 Misty Woods Private
Drive #2
Blountville, TN 37617
</TABLE>
36
<PAGE> 46
<TABLE>
<S> <C> <C> <C> <C>
Margaret Gentzle None 1,000 1,000 0
2401 Merrywood Road
Charlotte, NC 28210
Louis Greer None 1,000 1,000 0
8832 Taunton Drive
Huntersville, NC 28078
Sally Holt None 2,000 2,000 0
4215 Firwood Lane
Charlotte, NC 28209
Charles Jordan None 1,000 1,000 0
412 Parallel Drive
Charlotte, NC 28075
Paul McLean None 2,000 2,000 0
Route 2, Box 480
Lillington, NC 27548
Jamie Meekins None 500 500 0
157 North Canterbury Road
Charlotte, NC 28211
Edward Nicholson None 1,000 1,000 0
4425 Old Forge Road
Gastonia, NC 28056
Patricia Osborne None 2,000 2,000 0
301 Bass Lane
Charlotte, NC 28270
Gary Pigg None 500 500 0
1115 D5 Arbor Drive
China Grove, NC 28023
Sarah Ritter None 500 500 0
425 Kelford Lane
Charlotte, NC 28270
Michael Slemp None 2,000 2,000 0
405 Keller Lane
Marion, VA 24354
Don Smith None 500 500 0
1812 Edgewater Drive
Charlotte, NC 28210
Wayne Smith None 2,000 2,000 0
4325 Duck Haven Lane
Lake Wylie, SC 29710
Eugene Tinker None 500 500 0
4919 Hardwicke Road
Charlotte, NC 28211
Aldaberto Torres None 1,000 1,000 0
345 Fairgreen Drive
Charlotte, NC 28277
</TABLE>
37
<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C>
William Wells None 500 500 0
HC 71, Box 70E
Graysville, TN 37338
Kathy White None 4,000 4,000 0
6401 Camel Road, #100
Charlotte, NC 28276
Wiley White None 2,000 2,000 0
6401 Camel Road, #100
Charlotte, NC 28276
Michale Wilkes None 500 500 0
7530 Caswell Road
Stanley, NC 28164
Ruby Wilks None 2,000 2,000 0
Route 2, Box 185
Bellevue, TX 76228
Grady Williams None 500 500 0
2600 Kendrick Avenue
Charlotte, NC 28269
Franz J. Schubert None 500 500 0
P. O. Box 2034
Madison, TN 37116
Lillard T. Walker, Jr. and None 500 500 0
Lillard T. Walker, III, Jt Ten
425 Northcrest Drive
Nashville, TN 37211
Henry H. Quimby and Ruth H. Quimby, None 500 500 0
Tenants in Common
327 Suburban Road
Knoxville, TN 37923
Robert B. Johnson, Personal None 500 500 0
Representative, Estate of Annette B.
Johnson
966 Williamson County Line Road
Fairview, TN 37076
Robert B. Johnson None 500 500 0
966 Williamson County Line Road
Fairview, TN 37062-7002
</TABLE>
38
<PAGE> 48
<TABLE>
<CAPTION>
Callable Warrants Callable Warrants
Owned Prior Owned After
to Offering the Offering
----------- ------------
Relationship
------------
Selling Securityholder with Company Amount Percent Amount Percent
---------------------- ------------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Dransfield Holdings Limited Controlling 446,004 47.1% 0 0%
36-42 Pok Man Street, 1st & 2nd Floor Shareholder
Mongkok, Kowloon, Hong Kong
T.E. King Former 250,000 26.4% 0 0%
49 Strawberry Lane, Suite 200 President and
Palos Verdes Peninsula, CA 90274 Director
J. Douglas Bowey Finder 30,000 3.2% 0 0%
2127 Sawtelle Blvd., Suite D
Los Angeles, CA 90025
Albert L. Welsh Former 40,000 4.2% 0 0%
3828 NW 69th Street President and
Oklahoma City, OK 73116 Director
George W. Cole(1) None 40,000 4.2% 0 0%
6500 North Grand Boulevard
Oklahoma City, OK 73116
John E. Adams(2) None 40,000 4.2% 0 0%
1205 Tedford Way
Oklahoma City, OK 73116
Gary E. Bryant None 40,000 4.2% 0 0%
3 Gavina
Monarch Beach, CA 92629
Robert G. Rader(3) None 40,000 4.2% 0 0%
7009 North Shawnee
Oklahoma City, OK 73116
Thomas J. Kenan(4) Director and 20,000 2.1% 0 0%
8511 Glenwood Avenue U.S. securities
Oklahoma City, OK 73114 law counsel
</TABLE>
_________________________
(1) These Callable Warrants are held of record by Marjorie J. Cole, Mr.
Cole's spouse.
(2) These Callable Warrants are held of record by Meridyne Corporation, of
which Mr. Adams is an officer and director.
(3) These Callable Warrants are held of record by Judith Rader, Mr.
Rader's spouse.
(4) These Callable Warrants are held of record by the Marilyn C. Kenan
Trust, a testamentary trust of which Marilyn C. Kenan, Mr. Kenan's
spouse, is the trustee and beneficiary.
39
<PAGE> 49
PLAN OF DISTRIBUTION
The 150,000 Company Shares of Common Stock are offered directly by the
Company and also through broker-dealer firms which are members of the National
Association of Securities Dealers, Inc. ("NASD"). As of the date of this
Prospectus, only one such firm, Birchtree Financial Services, Inc., has advised
the Company of its intention to solicit purchasers of such Shares. No
solicitations to purchase the 150,000 Company Shares have been made prior to
the date of this Prospectus, and no assurance is given that any of them will be
sold. Should Birchtree Financial Services, Inc. or any other NASD-member firm
sell any of the 150,000 Company Shares, it shall receive from the Company a
five percent sales commission on all Shares sold but no other compensation or
any reimbursement of expenses. No commission will be paid to any person with
respect to Company Shares sold directly to purchasers by the Company.
The Company will indemnify any NASD-member firm that sells any of the
150,000 Company Shares against liabilities under the Securities Act caused by
misstatements of material facts, or omissions to state material facts in this
Prospectus or the Registration Statement of which this Prospectus is a part.
Sales by the Selling Securityholders may be effected from time to time
in transactions (which may include block transactions by or for the account of
the Selling Securityholders) in the over-the-counter market or in negotiated
transactions, through the writing of options on the securities, a combination
of such methods of sale, or otherwise. Sales may be made at fixed prices which
may be changed, at market prices prevailing at the time of sale, or at
negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to a purchaser, through broker-dealers acting as
agents for the Selling Securityholders or to broker-dealers who may purchase
the securities as principals and thereafter sell the securities from time to
time in the over-the-counter market, in negotiated transactions or otherwise.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchaser
for whom such broker-dealers may act as agents or to whom they may sell as
principals (which compensation as to a particular broker-dealer may be in
excess of customary commissions).
The Selling Securityholders and broker-dealers, if any, acting in
connection with any such sale might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
With respect to the plan of distribution for the sale by the Selling
Securityholders as stated above, (i) to the extent that the securities are sold
at a fixed price or by option at a price other than the prevailing market
price, such price would need to be set forth in this Prospectus; (ii) if the
securities are sold in block transactions and the purchaser wishes to resell
the securities purchased, such arrangements would need to
40
<PAGE> 50
be described in this Prospectus; and (iii) if the compensation paid to
broker-dealers is other than usual and customary discounts, concessions or
commissions, disclosure of the terms of the transaction in this Prospectus
would be required. The Company has been advised that the Selling
Securityholders understand the prospectus delivery requirements for sales made
pursuant to this Prospectus and that, if there are changes to the stated plan
of distribution, including arrangements either individually or as a group that
would constitute an orchestrated distribution of the securities or if
additional information as noted above is needed, a post-effective amendment
with current information would need to be filed before offers are made and no
sales could occur until such amendment is declared effective.
Should sales of the Callable Warrants be made to broker-dealers who
make a market in the Company's Common Stock, their market-making activities
(until disposition of the warrants) would have to be conducted in accordance
with the "passive market making" restrictions of Regulation M of the Securities
and Exchange Commission. Such restrictions, in general, severely limit the
daily activity of a passive market maker, require that a passive market maker
not bid for or purchase shares of the Company's Common Stock at prices higher
than that of the highest independent bid for the Common Stock, require that a
passive market maker lower its bid price to the bid price of the highest
independent bid should the independent bidders lower their bids, require that
the passive market maker display on the electronic quotation system its status
as a passive market maker, and require that a passive market notify the
National Association of Securities Dealers in advance of its intention to
engage in passive market making and report information concerning its
purchases.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 13,250,000 shares of Common Stock outstanding. Of
these shares, 461,572 are freely tradeable without restriction or further
registration required under the Securities Act. Should the 150,000 Company
Shares of Common Stock offered herein and the 188,428 Selling Securityholders
Shares of Common Stock offered herein by the Selling Securityholder be sold,
there would be 800,000 shares of Common Stock freely tradeable without
restriction or further registration required under the Securities Act. This
number would be increased to 1,746,004 should all the Callable Warrants be sold
and then exercised.
The Company has 946,004 Callable Warrants outstanding and has reserved
for issuance 946,004 shares of Common Stock upon exercise of the Callable
Warrants. Purchasers of these Callable Warrants pursuant to this Prospectus
shall receive freely tradeable Callable Warrants without restriction or further
registration required under the Securities Act, and they (or their transferees)
will receive freely tradeable shares of Common Stock if they exercise the
Callable Warrants pursuant to this Prospectus or another Prospectus of the
Company in effect at the time of such exercise.
All 188,428 Selling Securityholders Shares of Common Stock and 946,004
Callable Warrants offered herein, while owned by the current shareholders of
the Company, are "Restricted Securities" within the meaning of Rule 144 under
the Securities Act, and, together with any shares of Common Stock
41
<PAGE> 51
which are purchased by affiliates of the Company, as the term is defined in
Rule 144, may be sold only by the respective holders thereof pursuant to an
effective registration statement under the Securities Act or in accordance with
one or more other exemptions under the Securities Act (including Rule 144).
In general, Rule 144 as currently in effect, provides that an
affiliate of the Company or a person (or persons whose sales are aggregated)
who has beneficially owned Restricted Securities for at least one year is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then-outstanding shares (132,500 shares at the
time of this offering) or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not deemed to have been an "affiliate" of the
Company at any time during the three months preceding a sale, and who has
beneficially owned Restricted Securities for at least two years, would be
entitled to sell his shares under Rule 144 without regard to the volume
limitations, manner-of-sale provisions, notice or current public information
requirements.
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. The Company has 13,250,000 shares of Common Stock issued
and outstanding.
VOTING RIGHTS. Holders of the shares of Common Stock are entitled to
one vote per share on all matters submitted to a vote of the shareholders,
including proposals to merge or consolidate the Company with another
corporation or to sell more than 50% of its assets in a transaction not in the
ordinary course of business. Shares of Common Stock do not have cumulative
voting rights, which means that the holders of a majority of the shares voting
for the election of the board of directors can elect all members of the board
of directors.
DIVIDEND RIGHTS. Holders of record of shares of Common Stock are
entitled to receive dividends when and if declared by the board of directors
out of funds of the Company legally available therefor.
42
<PAGE> 52
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up,
holders of shares of Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to shareholders, subject to
the prior satisfaction of the liquidation rights of the holders of outstanding
shares of Preferred Stock.
PREEMPTIVE RIGHTS. Holders of Common Stock do not have any preemptive
rights to subscribe for or to purchase any stock, obligations or other
securities of the Company.
REGISTRAR AND TRANSFER AGENT. Liberty Bank and Trust Company of
Oklahoma City serves as the transfer agent and registrar of the Common Stock of
the Company.
DISSENTERS' RIGHTS. Under current British Virgin Islands law, a
shareholder is afforded dissenters' rights which if properly exercised may
require the corporation to repurchase its shares. Dissenters' rights commonly
arise in extraordinary transactions such as mergers, consolidations,
reorganizations, substantial asset sales, liquidating distributions, and
certain amendments to the company's memorandum and articles of association.
PREFERRED STOCK. The Company is authorized to issue 10 million shares of
Preferred Stock, no par value. The Preferred Stock may be issued from time to
time by the directors as shares of one or more series. The description of
shares of each series of Preferred Stock, including any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption shall be set forth in
resolutions adopted by the directors. There are no shares of Preferred Stock
issued or outstanding.
WARRANTS. The Company has authorized the issuance of 946,004 Callable Warrants,
each of which Callable Warrants entitles the holder to purchase 1 share of
Common Stock of the Company for $5.50. All of the authorized Callable Warrants
have been issued. Each warrant expires August 26, 1998, but is subject to call
by the Company on 30-days notice at such time as the Company's common stock has
traded at or above an $8 closing price for ten consecutive trading days.
CALL FEATURE OF THE CALLABLE WARRANTS. Should the Company be able to
exercise its right to call the Warrants, as described above, holders of the
Callable Warrants will forfeit their rights to exercise the Warrants unless the
rights are exercised before the call date set in a notice of the call.
Notice of a call of the Warrants shall be made by the Company (i) to
the record holders of the Warrants by registered mail or other means of mail
that provides a record of delivery, to the extent such means are available in
the countries of the record holders of the Warrants, and, should the Warrants
be widely distributed, (ii) publication of the notice of the call in Hong Kong
in the Hong Kong English and Chinese Newspaper and in the U.S. in the national
edition of the Wall Street Journal no less than once a week for four weeks
prior to the date of the call, and (iii) continuously during the period of the
call through the electronic facilities of Nasdaq or the NASD.
43
<PAGE> 53
DETERMINATION OF EXERCISE PRICE OF THE CALLABLE WARRANTS.
There was no public market for the Company's Common Stock at the time the
exercise price was set for the Callable Warrants. The exercise price was
arbitrarily determined by negotiation between the Company and Dransfield Paper
Holdings Limited, which was merged into the Company in February 1997. Among
other factors considered in determining the exercise price were the earnings
and certain other financial and operating information of Dransfield Paper (now
part of the Company) in recent periods, its future prospects and its expansion
plans. There can be no assurance that the Company's Common Stock will sell in
the public market at or above the exercise price of the Callable Warrants.
REGISTRAR AND TRANSFER AGENT. Liberty Bank and Trust Company
of Oklahoma City is the registrar and transfer agent of the Company's Callable
Warrants.
TAXATION
EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH HIS OWN TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE SECURITIES, INCLUDING THE EFFECTS OF APPLICABLE UNITED
STATES FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, AS WELL AS POSSIBLE
CHANGES IN THE TAX LAWS.
The following discussion is a summary of certain anticipated tax
consequences 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 is incorporated under the International Business Companies
Ordinance of the British Virgin Islands. It conducts no business operations in
the British Virgin Islands. Such Ordinance provides an exemption for the
Company from income tax on all income arising to it and on all distributions
made by it to persons who are not resident in the British Virgin Islands.
44
<PAGE> 54
U.S. FEDERAL INCOME TAXATION.
TAXATION OF THE COMPANY.
The Company will not be a "controlled foreign corporation" and
will be subject to U.S. Federal income tax only to the extent that it has
U.S.-source income. Currently the Company has no U.S.-source income and
anticipates none after the Merger.
TAXATION OF SHAREHOLDERS.
The following discussion addresses the U.S. Federal income
taxation of a U.S. person (that is a U.S. citizen or resident, a U.S.
corporation, a U.S. partnership, or an estate or trust subject to U.S. tax on
all of its income regardless of source) ("a U.S. investor") who makes an
investment in the securities of the Company. This discussion does not address
the U.S. tax treatment of certain types of investors (that is, individual
retirement and other tax-deferred accounts, life insurance companies and
tax-exempt organizations) or of persons other than U.S. investors, all of whom
may be subject to tax rules that differ significantly from those summarized
below.
TAX ON DIVIDENDS. A U.S. investor receiving a distribution on
the Common Stock will be required to include such distribution in gross income
as a taxable dividend to the extent such distribution is paid from earnings and
profits of the Company as determined under U.S. Federal income tax law.
Distributions in excess of the earnings and profits of the Company will first
be treated, for U.S. Federal income tax purposes, as a nontaxable return on
capital to the extent of the U.S. investor's basis in the Common Stock and then
as gain from the sale or exchange of a capital asset, provided that the shares
constitute a capital asset in the hands of the U.S. investor. Dividend income
with respect to the Common Stock will generally be subject to the separate
limitations for "passive income" for purposes of the foreign tax credit
limitation. Shareholders who are corporations will not be eligible for the
corporate dividends received deduction.
SALE OR OTHER DISPOSITION. With certain exceptions, gain or
loss on the sale or exchange of the shares will be treated as capital gain or
loss (if the shares are held as a capital asset). Such capital gain or loss
will be long-term capital gain or loss if the U.S. investor has held the shares
for more than one year at the time of the sale or exchange.
HONG KONG TAXES.
TAX ON DIVIDENDS. No tax will be payable in Hong Kong in respect of
dividends paid by the Company.
PROFITS TAX. No tax will be imposed in Hong Kong in respect of gains
from the sale of the Shares if the Shares are listed on the Nasdaq Stock
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 Nasdaq Stock Market.
45
<PAGE> 55
STAMP DUTY. No stamp duty will be payable in Hong Kong in respect of
the Shares provided that the share register is located outside of Hong Kong and
that the Shares are listed on the Nasdaq Stock 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.
The Company'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.
EXCHANGE RATE INFORMATION
The business of the Company is conducted in and from Hong Kong and the
People's Republic of China ("the PRC") in Hong Kong dollars and the PRC
Renminbi. Periodic reports will be made to U.S. shareholders (see "Additional
Information - Reports to Shareholders") and will be expressed in U.S. dollars
using the then-current exchange rates.
The PRC Government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign
exchange and through restrictions on foreign trade. The conversion of the
Renminbi into U.S. dollars must be based on the PBOC Rate. The PBOC Rate is set
based on the previous day's PRC interbank foreign exchange market rate and with
reference to current exchange rates on the world financial markets. In line
with the unification of the two exchange rates, the Renminbi was revalued at
HK$1.00=RMB1.12 and US$1.00=RMB8.70 on January 3, 1994. Since revaluation, the
exchange rate has fluctuated between a range of US$1.00 = RMB8.30 and US$1.00 =
RMB8.70.
46
<PAGE> 56
The following table sets forth certain information concerning exchange
rates between Renminbi and U.S. dollars for the periods indicated:
<TABLE>
<CAPTION>
NOON BUYING RATE(1)
-----------------------------------------
PERIOD PERIOD END AVERAGE(2) HIGH LOW
- ------ ---------- ------- ---- --------
(EXPRESSED IN RMB PER US$)
<S> <C> <C> <C> <C>
1989 4.7339 3.8149 4.7339 3.7314
1990 5.2352 4.8175 5.2352 4.7334
1991 5.4478 5.3431 5.4478 5.2352
1992 5.7662 5.5309 5.9007 5.4124
1993 5.8145 5.7769 5.8245 5.7076
1994 8.6044 8.6402 8.7128 8.5999
1995 8.3374 8.3692 8.3993 8.3543
1996 8.3284 8.3395
</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 U.S. dollar. Since
October 17, 1983, the Hong Kong dollar has been linked to the U.S. dollar at
the rate of HK$7.80 to US$1.00. The central element in the arrangements which
give effect to the link is an agreement between the Hong Kong government and
the three Hong Kong banknote issuing banks, the Hongkong and Shanghai Banking
Corporation Limited, Standard Chartered Bank and the Bank of China, whereby
certificates of indebtedness, which are issued by the Hong Kong Government
Exchange Fund to the banknote issuing bank to be held as cover for their
banknote issues, are issued and redeemed only against payment in U.S. dollars,
at the fixed exchange rate of US$1.00 = HK7.80. When the banknotes are
withdrawn from circulation, the banknote issuing banks surrender the
certificates of indebtedness to the Hong Kong Government Exchange Fund and are
paid the equivalent of U.S. dollars at the fixed rate. Exchange rates between
the Hong Kong dollar and other currencies are influenced by the linked rate
between the U.S. dollar and the Hong Kong dollar.
47
<PAGE> 57
The market exchange rate of the Hong Kong dollar against the U.S.
dollar continues to be determined by the forces of supply and demand in the
foreign exchange market. However, against the background of the fixed rate
system which applies to the issue of Hong Kong currency in the form of
banknotes, as described above, the market exchange rate has not deviated
significantly from the level of HK$7.80 to US$1.00. See "Selected Financial
Data." The Hong Kong government has stated its intention to maintain the link
at that rate. The Hong Kong government has stated that is has no intention of
imposing exchange controls in Hong Kong and that the Hong Kong dollar will
remain freely convertible into other currencies (including the U.S. dollar).
The PRC and the United Kingdom agreed in 1984 pursuant to the Joint Declaration
of the Government of the United Kingdom of Great Britain and Northern Ireland
and the Government of the People's Republic of China on the Question of Hong
Kong ("the Joint Declaration") that, after Hong Kong becomes a special
administrative region of the PRC on July 1, 1997 (an "SAR"), the Hong Kong
dollar will continue to circulate and remain freely convertible. However, no
assurance can be given that the Hong Kong government, or the successor SAR
government, will maintain the link at HK$7.80 to US$1.00, if at all.
LEGAL MATTERS
The validity of the Shares being offered hereby and certain legal
matters in connection with this offering with respect to British Virgin Islands
law will be passed upon for the Company by Harney, Westwood & Riegels, British
Virgin Islands counsel to the Company. Certain legal matters in connection with
this offering with respect to United States law will be passed upon for the
Company by Thomas J. Kenan of Oklahoma City, Oklahoma, as United States counsel
to the Company.
EXPERTS
The consolidated balance sheet of the predecessor of the Company,
Dransfield Paper Holdings Limited, as of March 31, 1996, and the related
consolidated statements of income, cash flows, and changes in shareholders'
equity for each of the years in the three-year period ended March 31, 1996,
have been included herein in reliance on the report of Ernst & Young, Hong
Kong, independent public accountants, given on the authority of that firm as
experts in auditing and accounting. The balance sheet of the Company as of
November 30, 1996, which was before the Company's merger with Dransfield Paper
Holdings Limited, is included herein in reliance on the report of Hogan &
Slovacek, independent public accountants, given on the authority of that firm
as experts in auditing and accounting.
INTEREST OF NAMED EXPERT AND COUNSEL
Certain legal matters in connection with this offering with respect to
United States law will be passed upon for the company by Thomas J. Kenan of
Oklahoma City, Oklahoma. Mr. Kenan is a director of the Company and his spouse,
Marilyn C. Kenan, is the trustee and beneficiary of the Marilyn C. Kenan Trust
which is the record owner of 26,786 shares of Common Stock of the Company and
20,000 Callable Warrants of the Company, which Callable Warrants are part of
the securities being offered herein. Mr. Kenan disclaims any beneficial
interest in the securities owned by his spouse's trust.
48
<PAGE> 58
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 securities offered by
this Prospectus. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits listed in the Registration Statement. The Registration Statement
can be examined at the Public Reference Room of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies may be
obtained upon payment of the prescribed fees. The Company is an electronic
filer, and the Securities and Exchange Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
On February 26, 1997, the Company merged with Dransfield Paper
Holdings Limited ("Dransfield Paper"). Prior to the merger, the Company was a
corporate shell and not an operating entity. The merger was accounted for as if
Dransfield Paper recapitalized. The historical financial statements of the
Company became, at the time of the merger, those of Dransfield Paper.
On the following pages there appear the financial statements of
Dransfield Paper and of the Company as they were prior to the February 26,
1997, merger. The notes to the financial statements of Dransfield Paper
reflect, as subsequent events, the merger and certain issuances of Common Stock
of the post-merger Company.
<TABLE>
<S> <C>
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES:
Report of Independent Auditors F-1
Consolidated Balance Sheets as of March 31, 1995 and
March 31, 1996 F-2
Consolidated Statements of Income for the years ended
March 31, 1994, March 31, 1995, and March 31, 1996 F-3
Consolidated Statements of Cash Flows for the years ended
March 31, 1994, March 31, 1995, and March 31, 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 1994, March 31, 1995,
and March 31, 1996 F-5
Notes to Consolidated Financial Statements F-6
Consolidated Balance Sheets as of March 31, 1996
and September 30, 1996 (unaudited) F-23
Consolidated Statements of Income (unaudited) for the six
months ended September 30, 1995 and September 30,
1996 F-24
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 1995 and
September 30, 1996 (unaudited) F-25
Notes to Consolidated Financial Statements (unaudited) F-26
DRANSFIELD CHINA PAPER CORPORATION:
Independent Auditors' Report for the Company
prior to its merger with Dransfield
Paper Holdings Limited F-31
Balance Sheet November 30, 1996 F-32
Notes to Balance Sheet November 30, 1996 F-33
</TABLE>
49
<PAGE> 59
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO SUCH PERSON IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY
BE MADE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Nature of Trading Market and Determination
of Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Enforcement of Civil Liabilities and
Certain Foreign Issuer Considerations . . . . . . . . . . . . . . . . . . 11
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . 16
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Nature of Trading Market . . . . . . . . . . . . . . . . . . . . . . . . . 34
Registration for Selling Securityholders . . . . . . . . . . . . . . . . . 35
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . 41
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . 42
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Exchange Rate Information . . . . . . . . . . . . . . . . . . . . . . . . 46
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Interest of Named Expert and Counsel . . . . . . . . . . . . . . . . . . . 48
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Appendix A - The People's Republic of China
("PRC") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
------------------
UNTIL ______________________, 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 60
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-1
<PAGE> 61
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$.0125 each,
4,000,000 shares authorized;
80 issued, and fully paid up 1 1 --
Contributed surplus 3,000 3,000 388
Retained earnings/(accumulated deficit) 11 (2,966) 2,068 267
-------- ------- ------
Total shareholders' equity 35 5,069 655
-------- ------- ------
Total liabilities and shareholders'
equity 91,518 176,577 22,831
======== ======= ======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-2
<PAGE> 62
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1994, MARCH 31, 1995 AND MARCH 31, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Notes 1994 1995 1996 1996
HK$ HK$ HK$ US$
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales:
Paper handkerchiefs
- third parties 65,656 64,693 68,011 8,794
- fellow subsidiaries 15 12,731 5,314 7,480 967
Other paper products
to third parties -- 24,352 231,556 29,940
------- -------- -------- -------
78,387 94,359 307,047 39,701
Cost of sales:
Paper handkerchiefs (60,132) (54,099) (61,086) (7,898)
Other paper products -- (22,266) (213,917) (27,660)
------- -------- -------- -------
(60,132) (76,365) (275,003) (35,558)
Gross profit 18,255 17,994 32,044 4,143
Commission income -- -- 5,644 730
Selling, general and
administrative expenses 3
- third parties (5,352) (2,471) (12,938) (1,673)
- fellow subsidiaries 15 (7,930) (8,366) (10,822) (1,399)
------- -------- -------- -------
(13,282) (10,837) (23,760) (3,072)
Interest income 11 66 284 94 12
Interest expense 11 (6) (482) (5,697) (736)
Other expenses, net (164) (206) (485) (63)
------- -------- -------- -------
Income before income taxes 4,869 6,753 7,840 1,014
Provision for income taxes: 5
- Current (1,569) (1,113) (965) (125)
- Deferred 609 (17) (426) (55)
------- -------- -------- -------
(960) (1,130) (1,391) (180)
------- -------- -------- -------
Income before minority
interests 3,909 5,623 6,449 834
Minority interests -- (408) (1,415) (183)
------- -------- -------- -------
Net income 3,909 5,215 5,034 651
======= ======== ======== =======
Earnings per share 2 48.86 65.19 62.93 8.14
======= ======== ======== =======
Pro forma earnings per common and
common equivalent share
(unaudited) (dollars) 2 N/A N/A 0.38 0.05
======= ======== ======== =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-3
<PAGE> 63
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1994, MARCH 31, 1995 AND MARCH 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
1994 1995 1996 1996
HK$ HK$ HK$ US$
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income 3,909 5,215 5,034 651
Adjustments to reconcile income to net
cash provided by operating activities:
Minority interests -- 408 1,415 183
Depreciation 62 192 456 58
Deferred income taxes (609) 17 426 55
Loss on disposal of fixed assets 135 -- 113 15
Other -- -- 209 27
(Increase) decrease in current assets:
Accounts receivable (1,675) (21,881) (41,286) (5,338)
Inventories (12,250) 5,583 (9,165) (1,185)
Prepaid expenses 361 5,335 (1,406) (182)
Due from fellow subsidiaries (1,860) (1,268) 5,736 742
Increase (decrease) in current liabilities:
Accounts payable and accrued liabilities 1,329 (3,235) 17,550 2,269
Income tax payable 234 212 704 91
Due to fellow subsidiaries 1,957 (1,481) 14,587 1,886
------- ------- ------- ------
Net cash provided by operating
activities (8,407) (10,903) (5,627) (728)
------- ------- ------- ------
Cash flows from investing activities:
Acquisition of fixed assets (220) (3,844) (5,013) (648)
Payment of deposit for purchase of fixed
assets -- -- (1,510) (196)
Proceeds from disposal of other assets 105 -- 557 72
------- ------- ------- ------
Net cash used in investing activities (115) (3,844) (5,966) (772)
------- ------- ------- ------
Cash flows from financing activities:
Capital contribution from a minority
shareholder of a subsidiary -- 5,000 -- --
Advances from a minority shareholder -- 1,000 6,000 776
Advances from holding company 531 27,053 19,930 2,577
Repayment of loan to holding company (9,918) (9,335) (40,320) (5,213)
Bank loans and overdrafts, secured 14,720 (11,571) 25,275 3,268
------- ------- ------- ------
Net cash provided by financing activities 5,333 12,147 10,885 1,408
------- ------- ------- ------
Net decrease in cash and cash equivalents (3,189) (2,600) (708) (92)
Cash and cash equivalents, at beginning
of year 7,350 4,161 1,561 202
------- ------- ------- ------
Cash and cash equivalents, at end of year 4,161 1,561 853 110
======= ======= ======= ======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-4
<PAGE> 64
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-5
<PAGE> 65
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
1. ORGANIZATION AND BASIS OF PRESENTATION
Dransfield Paper Holdings Limited ("the Company" and together
with its subsidiaries aggregately referred as the "Group") was
incorporated in the British Virgin Islands on March 11, 1994 and was
inactive until May 19, 1994 when it acquired 100% of the issued share
capital of Grandom Dransfield (International) and Company Limited
("GDI") and Holdsworth Investments Limited ("Holdsworth") from
Dransfield Holdings Limited ("DHL"), a company incorporated in the
Cayman Islands and whose shares are listed for trading on the Hong
Kong Stock Exchange. The Company, in consideration for the above
acquisition, issued 1 common stock at a par value of US$1 to DHL. The
difference between the nominal value of the shares of GDI and
Holdsworth acquired over the nominal value of the Company's share
issued in exchange thereof is accounted for as contributed surplus.
The Company is currently a wholly-owned subsidiary of DHL.
The Group is principally engaged in a single product segment
of trading of various types of paper in Hong Kong, Macau and the
People's Republic of China ("PRC"). In 1994, the Group was mainly
engaged in trading of paper handkerchiefs. From 1995, the Group also
engaged in the trading of fine paper which includes box board, art
paper and woodfree paper.
The principal activities of GDI since April 1, 1994 are
distribution and trading of paper handkerchiefs in Hong Kong. Prior to
April 1, 1994, the business was conducted by A. Dransfield & Company,
Limited ("ADL"), which is also a wholly owned subsidiary of DHL.
The acquisition by the Company of GDI and Holdsworth has been
accounted for as a combination of companies under common control in a
manner similar to a pooling of interests and accordingly, the
historical basis has been used to record the assets and liabilities of
GDI and Holdsworth as of March 31, 1995 and 1996 and retroactive
effect has been given to account for the operations of GDI and
Holdsworth in these financial statements at the historical cost of
DHL. The results of ADL in relation to the distribution and trading of
paper handkerchiefs (hereinafter referred to as the "Paper Business")
for the year ended March 31, 1994 have been accounted for as a
reorganisation under common control. As a result, the consolidated
financial statements has reflected the results of the Paper Business
of ADL for the year ended March 31, 1994 on a manner similar to a
pooling of interests as if ADL's Paper Business has been under the
Company's ownership since April 1, 1993. Intercompany balances and
transactions have been eliminated on consolidation.
F-6
<PAGE> 66
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-7
<PAGE> 67
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Fixed assets and depreciation
Property, machinery and equipment are stated at cost less
accumulated depreciation. Depreciation of property, machinery and
equipment is computed using the straight-line method over the assets'
estimated useful life. The principal annual rates used are as follows:
<TABLE>
<S> <C>
Land and buildings held in the PRC Over the period of the
land use rights
Buildings 4%
Leasehold improvements 20% or over the lease
terms, whichever
is shorter
Furniture, fixtures and office equipment 20%
Machinery and equipment 20 - 50%
Motor vehicles 20 - 25%
</TABLE>
(d) Income taxes
Income taxes are accounted for under Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes", which
requires the use of the liability method of accounting for income
taxes. The liability method measures deferred income taxes by applying
enacted statutory rates in effect at the balance sheet date to the
differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements.
(e) Foreign currency translation
Foreign currency transactions are translated into Hong Kong
dollars at the approximate rates of exchange ruling at the transaction
dates. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into Hong Kong
dollars at the approximate rates of exchange ruling at that date.
Exchange differences are accounted for in the statement of income.
On consolidation, the assets and liabilities of overseas
subsidiaries are translated to Hong Kong dollars at the approximate
rates of exchange ruling at the balance sheet date and the income and
expenses of overseas subsidiaries are translated to Hong Kong dollars
at the average rate. The resulting translation differences are
included in the exchange fluctuation reserve.
(f) Operating leases
Leases where substantially all the rewards and risks of
ownership of assets remain with the leasing company are accounted for
as operating leases. Rentals applicable to such operating leases are
charged to income on the straight-line basis over the lease terms.
F-8
<PAGE> 68
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(g) Revenue recognition
Revenue from sales of goods are recognised on delivery to
customers and acceptance of the goods. Commission income is recognised
as the services are provided.
(h) Advertising expenses
Advertising expenses, net of cooperative advertising
reimbursements, are charged to the profit and loss account when
incurred.
(i) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could
differ from stated estimates.
(j) Earnings per common and common equivalent share
The earnings per share is based on the net income applicable
to common share and on the weighted average of 80 common shares
outstanding during each of the years presented.
The pro forma earnings per common and common equivalent share
(unaudited ) for the year ended March 31, 1996 is based on the net
income applicable to common and common equivalent share of HK$5,034,
the issuance of 2.3 million shares of Series A Convertible Preferred
Stock of the Company on conversion of HK$26,687 (US$3,450) of the
amount due to the holding company on 4 September 1996 (see note 20
(A)), and after giving effect to the merger - spin-off transaction
described in note 20 (B), the issuance of one million shares of Common
Stock of DCPC on conversion of HK$38,685 (US$5,000) of the amount due
to the holding company and the issuance of 2.3 million shares of
Common Stock of DCPC to Dransfield Holdings Limited on conversion of
its 2.3 million shares of Series A Convertible Preferred Stock in DCPC
described in note 20 (C) , the 13.1 million shares of DCPC issued and
outstanding. The 80 shares of Common Stock in the Company were
exchanged for 9.3 million shares of Common Stock in DCPC, one million
shares of Common Stock of DCPC were issued to Dransfield Holdings
Limited on conversion of HK$38,685 (US$5,000) of the amount due to the
holding company and 2.3 million shares of Common Stock of DCPC were
issued to Dransfield Holdings Limited on conversion of its 2.3 million
shares of Series A Convertible Preferred Stock in DCPC, resulting in a
total of 13.1 million shares of Common Stock of DCPC issued and
outstanding. The 2.3 million shares of Series A Convertible Preferred
Stock of the Company issued and outstanding were exchanged for 2.3
million shares of Series A Convertible Preferred Stock of DCPC. Each
share of Preferred Stock of DCPC is convertible into one share of
Common Stock of DCPC. The pro forma earnings per common and common
equivalent share is determined on the assumptions that such a capital
structure existed at 1 April 1995 and that the convertible preferred
shares were converted at that date.
F-9
<PAGE> 69
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
3. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
---- ---- ---- ----
<S> <C> <C> <C> <C>
Selling, general and administrative
expenses:
Depreciation 62 192 456 58
Advertising expenses 5,414 1,383 599 77
Exchange gain, net (20) (36) (680) (88)
====== ====== ==== ===
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest 6 687 6,805 880
Income taxes 1,569 901 149 19
===== ===== ====== =====
Non cash investing and financing
activities:
Loan from a related company
financed by a loan to a
related company - note 10 -- -- 6,230 806
===== ===== ====== =====
Fixed assets paid by
holding company -- 9,035 27,698 3,581
===== ===== ====== =====
</TABLE>
5. INCOME TAXES
The Company was incorporated in the British Virgin Islands
and, under current law of the British Virgin Islands, is not subject
to tax on income or on capital gains.
Grandom Dransfield (International) and Company Limited,
Dransfield Paper (HK) Trading Limited and Central National Hong Kong
Limited were incorporated in Hong Kong and under the current Hong Kong
tax law, any income arising in and deriving from business carried on
in Hong Kong is subject to tax. No tax is charged on dividends
received and capital gains earned.
Dransfield Paper (S.E.A.) Pte Ltd was incorporated in the
Republic of Singapore and is subject to Singapore tax and under the
current Singapore tax law, any income accrued in, derived from or
received in Singapore is subject to tax at a rate of 27%.
F-10
<PAGE> 70
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
5. INCOME TAXES (continued)
Guangzhou Dransfield Paper Limited is a co-operative joint
venture formed in the PRC and Jiang Ying Dransfield Paper Co. Ltd.
("JYDP") is an equity joint venture formed in the PRC and are subject
to PRC income taxes at the applicable tax rate of 33% for Sino-foreign
joint venture enterprises. These two subsidiaries are eligible for
full exemption from joint venture income tax for the first two years
starting from its first profitable year of operations followed by a
50% deduction from the third to fifth year. Under the Income Tax Law
applicable to Sino-foreign joint ventures, no PRC income tax was
levied on the above companies as they have not commenced operation as
at March 31, 1996.
Total income tax expense differs from the amount computed by
applying Hong Kong statutory income tax rate of 16.5% (1995: 16.5% and
1994: 17.5%) to income before taxes as follows:
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C>
Computed expected income taxes (852) (1,114) (1,294) (168)
Non-deductible losses of subsidiaries (72) (31) (126) (16)
Difference between Hong Kong statutory
rate and Singapore statutory tax rate -- -- (10) (1)
Other (36) 15 39 5
------ ------ ------ ----
(960) (1,130) (1,391) (180)
====== ====== ====== ====
</TABLE>
The deferred tax asset arises from temporary difference
associated with the advertising expenses deferred for income tax
purposes.
6. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of:
<TABLE>
<CAPTION>
March 31,
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
Accounts receivable - trade 43,724 85,480 11,053
Less: Allowance for doubtful debts -- -- --
------ ------ ------
Accounts receivable, net 43,724 85,480 11,053
====== ====== ======
</TABLE>
No provision for doubtful debts has been made at March 31, 1996 (1995: nil).
F-11
<PAGE> 71
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
7. INVENTORIES, NET
<TABLE>
<CAPTION>
Inventories are comprised of: March 31,
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
Raw materials -- 1,299 168
Finished goods 12,701 21,269 2,750
Less: Allowance for obsolescence -- (702) (91)
------ ------- ------
Inventories, net 12,701 21,866 2,827
====== ======= ======
Movement of allowance for obsolescence
Balance as at April 1, -- -- --
Provided during the year -- 702 91
------ ------- ------
Balance as at March 31, -- 702 91
====== ======= ======
</TABLE>
8. DUE FROM (TO) FELLOW SUBSIDIARIES
Balances with fellow subsidiaries are unsecured, interest-free
and repayable within one year. The Group utilized the banking
facilities of a fellow subsidiary and the interest incurred on the
banking facilities were reimbursed by the Group.
9. FIXED ASSETS
<TABLE>
<CAPTION>
March 31,
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
Land and buildings 15,955 18,325 2,369
Leasehold improvement 132 132 17
Machinery and equipment 9,083 38,596 4,990
Motor vehicles 610 819 106
Furniture, fixtures and office equipment 540 1,303 169
------- ------- ------
26,320 59,175 7,651
Less: Accumulated depreciation (853) (1,295) (167)
------- ------- ------
25,467 57,880 7,484
======= ======= ======
</TABLE>
The Group's land and buildings are located in the PRC and held
under land use rights of 50 years from December 1, 1992 to November
30, 2041.
During the year, no depreciation was provided on the land and
buildings and machinery and equipment as they have not been put into
use at the balance sheet date.
F-12
<PAGE> 72
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
10. LOAN WITH A RELATED COMPANY
In May 1995, the Company entered into an agreement with a
third party, Broadsino Investment Company Limited ("Broadsino") to
establish Dransfield Broadsino Paper Holdings Limited ("DBPHL"), a
company which is 80% owned by the Company. DBPHL then entered into an
agreement to establish a Sino-foreign equity joint venture company,
JYDP, which is 60% owned by DBPHL and is principally engaged in paper
manufacturing. DBPHL has committed to contribute an amount of US$9.26
million (approximately HK$72 million) to JYDP, to be financed by a
shareholders' loan.
The Company, DBPHL and Broadsino entered into a loan agreement
whereby the Company and Broadsino agreed to make an interest-free
shareholders' loan of US$9.26 million (approximately HK$72 million)
(the "Shareholders' Loan") to DBPHL. Pursuant to another agreement,
the Company agreed to make a loan of US$1,852 (approximately HK$14
million) to Broadsino, bearing compound interest at the rate of 6
percent per annum, to finance its share of the Shareholders' Loan to
DBPHL. DBPHL has pledged all its assets with the Company and Broadsino
for the repayment in full of the Shareholders' Loan. In addition,
DBPHL also undertakes to apply any amounts, including dividends, which
may be distributed by JYDP to it to repay, in full, the Shareholders'
Loan. Broadsino has pledged both its 20 per cent shareholding in DBPHL
and any amount it may receive from DBPHL as repayment of its
proportion of the Shareholders' Loan to secure the repayment, in full,
of the loan from the Company. A promissory note has been issued by a
wholly owned subsidiary of Broadsino in favour of the Company.
As at March 31, 1996, the Company advanced HK$6,230 (US$806)
to Broadsino for the capital injection in JYDP, which is classified as
a loan to a related company. The same amount of HK$6,230 (US$806) is
recorded in the consolidated financial statements as long term loan
payable to Broadsino by DBPHL. The loan to and loan from a related
company have no fixed repayment terms.
F-13
<PAGE> 73
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
11. BANK BORROWINGS
The Company and its principal subsidiaries obtained certain
working capital credit facilities from several banks, representing
short-term loans and overdrafts of HK$8 million (US$1,034) and letters
of credit and letters of guarantee of HK$123 million (US$15.9
million). As at March 31, 1996, the unutilized credit facilities
amounted to HK$90,538 (US$11,705), representing short-term loans and
overdrafts of HK$3,627 (US$469) and letters of credit and letters of
guarantee of HK$86,911. The credit facilities are collateralized by:
(a) corporate guarantees given by DHL to the extent of HK$95,850
(US$12,391);
(b) personal guarantees given by a minority shareholder of a
subsidiary to the extent of HK$48,150 (US$6,225); and
(c) a charge over a bank deposit of HK$3 million (US$388) plus
accrued interest held by the above minority shareholder of a
subsidiary.
Pursuant to the letters of undertaking with a banker to obtain
general banking facilities, CS Paper Holdings (International) Limited
("CSP"), a subsidiary of the Company, undertakes not to declare
dividends at more than 50% of the profits without the bank's prior
written approval and to maintain its net assets value, plus
shareholders' loans, at not less than HK$30 million (US$3,878). The
amount of consolidated retained earnings restricted pursuant to this
undertaking is not material.
In addition, the Company and its principal subsidiaries also
obtained working capital credit facilities from several banks which
are shared with DHL and certain of the Company's fellow subsidiaries
(the "Shared Facilities"). These facilities comprise short-term loans
and overdrafts of HK$35,158 (US$4,545) and letters of credit of
HK$41,498 (US$5,365). As at March 31, 1996, the unutilized amount of
the Shared Facilities amounted to HK$40,992 (US$5,299) representing
short-term loans and overdrafts of HK$5,678 (US$734) and letters of
credit of HK$35,314 (US$4,565). As at March 31, 1996, the Company and
its subsidiaries have not drawn down the Shared Facilities. The Shared
Facilities are collateralized by:
(a) a corporate guarantee given by DHL to the extent of HK$40
million (US$5,171);
(b) a corporate guarantee given by a fellow subsidiary to the
extent of HK$21 million (US$2,715); and
(c) unlimited cross guarantees given by a subsidiary of the
Company and certain fellow subsidiaries.
F-14
<PAGE> 74
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
11. BANK BORROWINGS (continued)
The weighted average interest rates on bank borrowings as at
the balance sheet date are as follows:
<TABLE>
<CAPTION>
March 31,
1995 1996
<S> <C> <C>
Interest on bank loans and overdrafts 8% 9%
</TABLE>
Interest expense on bank loans, net of the amounts capitalized, is as
follows:
<TABLE>
<CAPTION>
Year ended March 31,
1994 1995 1996 1996
HK$ 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>
12. DUE TO HOLDING COMPANY
The long term liability balance, which is used to finance the
Group's capital investment, is unsecured and interest-free. The
holding company has agreed that it will not demand payment of the
amount prior to April 1, 1997. The Group utilized the banking
facilities of the holding company and the interest incurred on the
banking facilities were reimbursed by the Group.
The current balance is unsecured, interest-free and has no
fixed term of repayment.
13. DUE TO A MINORITY SHAREHOLDER
The balance represents loans from a minority shareholder and a
director of a subsidiary, amounting to HK$5 million (US$646) and HK$2
million (US$259), respectively at March 31, 1996. The balances are
unsecured, interest-free and are repayable in full in May to June 1996
by three instalments (March 31, 1995: HK$1 million due to a minority
shareholder of a subsidiary is unsecured and interest-free).
F-15
<PAGE> 75
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
14. COMMITMENTS AND CONTINGENCIES
Capital commitments
As of March 31, 1996, the Group had outstanding capital
commitments in respect of its contribution to a subsidiary in the PRC
of approximately HK$43 million (US$5.5 million) and capital
expenditure of HK$10 million (US$1,293).
Contingencies
A subsidiary provided guarantee to DHL and DHL group of
companies to certain banks for an unlimited amount as at March 31,
1996. The amount of banking facilities utilised by DHL group of
companies as at March 31, 1996 is HK$36 million (US$4.6 million).
Besides, another subsidiary also provided guarantee to a bank for a
supplier for an amount of HK$4 million (US$517) and HK$2.3 million
(US$297) was utilized by the supplier as at March 31, 1996.
15. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS
The major related party transactions are described in further
detail below. Management believes that the methods used in allocating
costs are reasonable.
<TABLE>
<CAPTION>
Year ended March 31,
Nature of transactions Notes 1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C> <C>
Revenue:
Sales of products (a) 12,731 5,314 7,480 967
====== ===== ====== =====
Expenses:
Electronic data processing and
accounting services charges (b) 1,514 1,425 2,312 299
Storage and delivery charges (c) 4,877 4,436 7,069 914
Equipment rental (d) -- 434 105 13
Operating lease rental for land
and building (e) 1,539 2,071 1,336 173
------ ----- ------ -----
7,930 8,366 10,822 1,399
====== ===== ====== =====
</TABLE>
(a) Sales of products
The Group sold products to Victorison Marketing Limited and
Dransfield Pacific Limited, fellow subsidiaries of the Company at cost
plus 3% (3% to 6% in 1994 and 1995).
F-16
<PAGE> 76
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
15. RELATED PARTY TRANSACTIONS AND ARRANGEMENTS (continued)
(b) Electronic data processing and accounting services charges
Dransfield Secretarial & Administrative Services Limited, a
fellow subsidiary of the Company, provides various administrative
services to the Group including electronic data processing,
accounting, shipping, personnel, legal and general administrative
services. The service fee charged by the fellow subsidiary is based on
apportioned salary costs on the basis of estimated time incurred and
cost of other resources consumed to provide these services to the
Group.
(c) Storage and delivery charges
Victorison Services Limited and Victorison Delivery Limited,
two fellow subsidiaries of the Company, provide storage and delivery
services to the Group at agreed prices, which, in the opinion of the
management, approximate prices negotiated with third parties on an
arm's length basis.
(d) Equipment rental
The equipment rental is paid to A. Dransfield & Company,
Limited, a fellow subsidiary of the Company, at the rate equivalent to
the depreciation of the equipment over its estimated useful live.
(e) Operating lease rental for land and building
The rental under operating leases is paid to Well Assessed
Limited, a fellow subsidiary of the Company based on the actual floor
area occupied by the Group at agreed rates, which, in the opinion of
the management, approximate rates negotiated with third parties on an
arm's length basis.
16. FINANCIAL INSTRUMENTS
The carrying amount of the Company's cash and bank balances
approximate their fair value because of the short maturity of those
instruments. The carrying amounts of the Company's borrowings
approximate their fair value based on the borrowing rates currently
available for borrowings with similar terms and average maturities,
except for the loans from holding company, which, due to their nature,
the fair value is not determinable.
The carrying amount reported in the balance sheet for accounts
receivable and accounts payable approximate their fair value.
F-17
<PAGE> 77
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
17. CONCENTRATION OF RISK
Concentration of credit risk:
The Group's principal activities are distribution of fine
paper and paper handkerchiefs. The Group has long standing
relationships with most of its customers. The Group performs ongoing
credit evaluation of its customers' financial conditions and,
generally does not require collateral.
The allowance for doubtful accounts the Group maintains is
based upon the expected collectibility of all accounts receivable.
Current vulnerability due to certain concentrations:
The Group has investment in the PRC. The value of the Group's
investment may be adversely affected by significant political,
economic and social uncertainties in the PRC. Although the PRC
government has been pursuing economic reform policies for the past 17
years, no assurance can be given that the PRC government will continue
to pursue such policies or that such policies may not be significantly
altered, especially in the event of a change in leadership, social or
political disruption or unforeseen circumstances affecting the PRC's
political, economic and social life. There is also no guarantee that
the PRC government's pursuit of economic reforms will be consistent or
effective.
18. PENSION SCHEME
The Group is a member of a defined contribution pension scheme
of DHL (the "Scheme"). All the full time permanent staff, after
completion of one year's service, are eligible to join the Scheme. The
participants contribute 5% of their basic monthly salaries to the
Scheme while the Group contributes 5% to 6.5% of the basic monthly
salaries of the participants depending on the number of years of
employment of individual participants and such contributions are
charged to the profit and loss account as they become payable in
accordance with the rules of the Scheme. When an employee leaves the
Scheme prior to his/her interest in the Group employer contributions
vesting fully, the ongoing contributions payable by the Group may be
reduced by the relevant amount of forfeited contributions. Pension
scheme expenses, net of forfeited contributions, is HK$93 (US$12),
HK$62 (US$8), HK$44 (US$6) for the years ended March 31, 1994, 1995
and 1996.
F-18
<PAGE> 78
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
19. SEGMENT REPORTING AND MAJOR SUPPLIERS
The Group operates in three industry segments, paper
distribution, paper merchanting and paper manufacturing. Operations in
paper distribution include the distribution of paper handkerchiefs.
Operations in paper merchanting include the buying and selling of
paper both on an indent basis and on an agency basis. Management
believes that the operations in paper merchanting activities are
incidental to the core business. The Group is in the process of
setting up a paper manufacturing facility and operations have not
commenced.
Operating profit is total revenue less operating expenses,
excluding interest expense and general corporate expenses.
Identifiable assets by industry segment include assets directly
identified with those operations. Corporate assets consist primarily
of prepayments and deposits. Information about the Group's operations
in different industry segments were as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1996
HK$ HK$ HK$ US$
--- --- --- ---
<S> <C> <C> <C> <C>
NET SALES AND OTHER INCOME
Distribution of paper
handkerchiefs
- third parties 65,722 64,829 68,062 8,800
- fellow subsidiaries 12,731 5,314 7,480 967
------- ------- -------- -------
78,453 70,143 75,542 9,767
Paper merchanting -- 24,500 237,243 30,676
------- ------- -------- -------
TOTAL REVENUE 78,453 94,643 312,785 40,443
======= ======= ======== =======
OPERATING PROFIT
Distribution of paper
handkerchiefs 4,875 5,706 4,296 555
Paper merchanting -- 1,529 9,241 1,195
------- ------- -------- -------
TOTAL OPERATING PROFIT 4,875 7,235 13,537 1,750
Interest expense (6) (482) (5,697) (736)
------- ------- -------- -------
INCOME BEFORE INCOME TAXES 4,869 6,753 7,840 1,014
======= ======= ======== =======
</TABLE>
F-19
<PAGE> 79
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except number of shares and per share data)
19. SEGMENT REPORTING AND MAJOR SUPPLIERS (continued)
<TABLE>
<CAPTION>
1994 1995 1996 1996
HK$ HK$ HK$ US$
--- --- --- ---
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Distribution of paper
handkerchiefs 56,654 35,967 20,499 2,650
Paper merchanting -- 29,990 90,574 11,711
Paper manufacturing 12,562 25,561 64,308 8,315
------ ------- ------- ------
69,216 91,518 175,381 22,676
General corporate assets -- -- 1,176 155
------ ------- ------- ------
TOTAL ASSETS 69,216 91,518 176,577 22,831
------ ------- ------- ------
DEPRECIATION AND AMORTIZATION
Distribution of paper
handkerchiefs 62 185 143
Paper merchanting -- 7 313
CAPITAL EXPENDITURES
Distribution of paper
handkerchiefs -- 679 6
Paper merchanting -- 73 381
Paper manufacturing -- 12,999 32,468
</TABLE>
The Group's business is conducted 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-20
<PAGE> 80
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)
(A) Pursuant to a resolution passed by the board of
directors on August 20, 1996, the authorized share capital of
the Company increased from 50,000 shares of Common Stock of
US$1 par value to 4,000,000 shares of Common Stock of US$.0125
par value and 2,500,000 shares of Preferred Stock without par
value. The one share of Common Stock of US$1 par value at the
balance sheet date was split into 80 shares of Common Stock of
US$.0125 par value. The above has been reflected in the
financial statements for the three-year period ended March 31,
1996 as if the split had taken place at the beginning of the
periods presented.
2,300,000 shares of the Preferred Stock were
designated as Series A Convertible Preferred Stock. The
holders of Series A Convertible Preferred Stock are entitled
to receive, out of surplus, a cumulative dividend at the rate
of US$.15 per share per annum and, after the payment of this
dividend, they are entitled to participate in dividends set
apart or paid on other capital stock of the Company on the
same basis as the holders of the Company's Common Stock. In
case of liquidation of the Company, these Preferred Stock
holders shall be entitled to receive US$1.50 for each share of
the Series A Convertible Preferred Stock before any
distribution of the assets of the Company to other capital
stock holders, plus all accrued and unpaid dividends declared
hereon and other considerations before the other capital
stockholders share in the liquidation of the assets. This
class of Preferred Stock is convertible at the option of the
holders into one share of Common Stock of the Company and has
equal voting rights with the Common Stockholders.
On September 4, 1996, the Company issued 2.3 million
shares of Series A Convertible Preferred Stock on conversion
of HK$26,687 (US$3,450) of the amount due to the holding
company.
(B) Merger - spin-off
Pursuant to an agreement executed on August 20, 1996
and amended on November 15, 1996 (the "Merger Agreement") with
Dransfield China Paper Corporation ("DCPC") and SuperCorp Inc.
("SuperCorp"), the then controlling shareholder of DCPC, the
Company merged with DCPC on February 26, 1997. The officers
and directors of the Company became the officers and directors
of DCPC, the surviving corporation. Prior to the merger, DCPC
registered with the Securities and Exchange Commission 461,572
shares of its no par value Common Stock and distributed these
shares to its shareholders in the U.S., which created the
basis for a trading market in the Common Stock of DCPC. DCPC
has an authorized share capital of 40 million shares of Common
Stock with no par value and 10 million shares of Preferred
Stock with no par value. 461,572 shares of Common Stock of
DCPC were distributed to the shareholders of SuperCorp in its
spin-off as described above, and 38,428 shares of Common Stock
of DCPC were issued to two individuals prior to the
F-21
<PAGE> 81
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) Merger - spin-off (continued)
merger at $1.00 per share. On February 26, 1997, Dransfield
Holdings Limited exchanged its 80 shares of stock in the
Company for a total of 9.3 million shares of Common Stock in
DCPC and the 2.3 million shares of Series A Convertible
Preferred Stock of the Company issued and outstanding were
exchanged for 2.3 million shares of Series A Convertible
Preferred Stock of DCPC, which have the equivalent terms as
the Preferred Stock of the Company.
Prior to the merger, DCPC issued 500,000 Callable
Common Stock Purchase Warrants which entitle the registered
holders to purchase Common Stock of DCPC at a price of US$5.50
per share at any time on or before August 23, 1998. 446,004
Common Stock Purchase Warrants of DCPC were issued to
Dransfield Holdings Limited on February 26, 1997 in accordance
with the terms of the Merger Agreement. The Callable Warrants
are subject to call by DCPC on not less than 30 days' notice
provided that the closing bid price of the Common Stock of
DCPC as reported on the Nasdaq Stock Market (or the last sale
price, if quoted on a national securities exchange) averages
US$8.00 a share or above for the ten consecutive trading days
ending on the day prior to the date on which the notice of
call is given.
Because DCPC was only a corporate shell prior to the
merger and not an operating entity, the 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) On May 30,1997, DCPC issued 2.3 million shares of
Common Stock of DCPC to Dransfield Holdings Limited on
conversion of its 2.3 million shares of Series A Convertible
Preferred Stock in DCPC. On the same date, DCPC issued one
million shares of Common Stock of DCPC to Dransfield Holdings
Limited at US$5.00 per share on conversion of HK$38,685
(US$5,000) of the amount due to the holding company.
(D) In early June 1997, DCPC issued 150,000 new shares
of Common Stock to independent third parties at US$5.00 per
share. DCPC is currently planning a public offering of 150,000
additional new shares of Common Stock of DCPC at a price to be
determined. DCPC will file a registration statement on Form
F-1 with the Securities and Exchange Commission to register
these 300,000 new shares of Common Stock of DCPC, 38,428
shares of Common Stock of DCPC held by two shareholders,
946,004 Callable Common Stock Purchase Warrants of DCPC and
946,004 shares of Common Stock of DCPC issuable upon exercise
of the Callable Common Stock Purchase Warrants of DCPC.
F-22
<PAGE> 82
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND SEPTEMBER 30, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Notes 3/31/96 9/30/96 9/30/96
HK$ HK$ US$
--- --- ---
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and bank balances 853 2,611 337
Accounts receivable 85,480 37,671 4,870
Inventories, net 3 21,866 10,412 1,346
Prepaid expenses 2,392 3,293 426
Due from fellow subsidiaries - 26,825 3,468
-------- -------- -------
Total current assets 110,591 80,812 10,447
Fixed assets 57,880 72,975 9,434
Loan to a related company 6,230 8,191 1,059
Deposit for fixed assets 1,510 - -
Deferred tax asset 166 681 88
Other assets 200 200 26
-------- -------- -------
176,577 162,859 21,054
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank loans and overdrafts, secured 40,530 46,355 5,993
Accounts payable and accrued liabilities 22,939 10,245 1,324
Income tax payable 1,028 1,362 176
Due to holding company 4 1,884 13,873 1,793
Due to fellow subsidiaries 17,724 607 78
Due to a minority shareholder 7,000 3,782 489
------ ------ ------
Total current liabilities 91,105 76,224 9,853
Minority interests 6,944 5,767 745
Due to holding company 67,229 40,542 5,243
Loan from a related company 6,230 8,191 1,059
-------- -------- -------
171,508 130,724 16,900
Shareholders' equity:
Common Stock, par value US$.0125 each,
4,000,000 shares authorized;
80 issued, and fully paid up 5 1 1 -
Preferred Stock, no par value,
2,500,000 shares authorized;
2,300,000 issued, and fully paid up 5 - 26,687 3,450
Contributed surplus 3,000 3,000 388
Retained earnings 2,068 2,447 316
------ ------- ------
Total shareholders' equity 5,069 32,135 4,154
------ ------- ------
Total liabilities and shareholders'
equity 176,577 162,859 21,054
======== ======== =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-23
<PAGE> 83
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
Six Six Six
months months months
ended ended ended
Notes 9/30/95 9/30/96 9/30/96
HK$ HK$ US$
--- --- ---
<S> <C> <C> <C> <C>
Net sales:
Paper handkerchiefs
- third parties 33,956 - -
- fellow subsidiaries 5,392 42,747 5,526
Other paper products 130,093 47,218 6,104
--------- --------- ---------
169,441 89,965 11,630
Cost of sales:
Paper handkerchiefs ( 31,641) ( 36,811) ( 4,759)
Other paper products (116,042) ( 45,009) ( 5,818)
--------- --------- ---------
(147,683) ( 81,820) ( 10,577)
Gross profit 21,758 8,145 1,053
Commission income 3,871 3,966 513
Selling, general and
administrative expenses
- third parties ( 4,438) ( 7,193) ( 930)
- fellow subsidiaries ( 5,716) ( 2,731) ( 353)
--------- --------- ---------
( 10,154) ( 9,924) ( 1,283)
Interest income 50 30 4
Interest expense ( 2,921) ( 2,149) ( 278)
Other income/(expenses), net ( 248) 72 9
--------- --------- ---------
Income before income taxes 6 12,356 140 18
Provision for income taxes:
- Current ( 1,825) ( 614) ( 80)
- Deferred ( 161) 520 68
--------- --------- ---------
( 1,986) ( 94) ( 12)
--------- --------- ---------
Income before minority
interests 10,370 46 6
Minority interests ( 3,136) 336 43
--------- --------- ---------
Net income 7,234 382 49
========= ========= =========
Earnings per share (dollars) 7 90,425 1.13 0.14
========= ========= =========
Shares used in computation of
earnings per share 7 80 339,424 339,424
========= ========= =========
Pro forma earnings per common
and common equivalent share (cents) 7 N/A 2.92 0.37
========= ========= =========
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-24
<PAGE> 84
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Six Six
months months months
ended ended ended
9/30/95 9/30/96 9/30/96
HK$ HK$ HK$
--- --- ---
<S> <C> <C> <C>
Net cash provided by/(used for) operating
activities ( 69,791) 835 109
Cash flows from investing activities:
Acquisition of fixed assets ( 15,353) ( 13,673) ( 1,768)
Proceeds from disposal of other assets 557 - -
--- -- -
Net cash used in investing activities ( 14,796) ( 13,673) ( 1,768)
--------- -------- -------
Cash flows from financing activities:
Advances from a minority shareholder 4,000 - -
Repayment of loan to a minority shareholder - (3,218) (416)
Advances from holding company - 11,989 1,550
Repayment of loan to holding company ( 4,848) - -
Bank loans and overdrafts, secured 85,067 5,825 752
--------- -------- -------
Net cash provided by financing activities 84,219 14,596 1,886
--------- -------- -------
Net increase/(decrease) in cash and
cash equivalents ( 368) 1,758 227
Cash and cash equivalents, at beginning
of period 1,561 853 110
--------- -------- -------
Cash and cash equivalents, at end of period 1,193 2,611 337
========= ======== =======
</TABLE>
The accompanying notes form an integral part of these
consolidated financial statements.
F-25
<PAGE> 85
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six month period ended September 30, 1996
are not necessarily indicative of the results that may be expected for
the year ending March 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto for the year
ended March 31, 1996 included elsewhere in this Registration
Statement.
2. FOREIGN CURRENCY EXCHANGE
The financial information has been prepared in Hong Kong
dollars ("HK$"), the official currency of Hong Kong. Solely for the
convenience of the reader, the financial statements have been
translated into United States dollars prevailing on March 31, 1996
which was US$1.00 = HK$7.7353. No representation is made that the Hong
Kong dollar amounts could have been, or could be, converted into
United States dollars ("US$") at that rate or any other certain rate
on March 31, 1996.
3. INVENTORIES, NET
<TABLE>
<CAPTION>
Inventories are comprised of:
(Unaudited) (Unaudited)
3/31/96 9/30/96 9/30/96
HK$ HK$ US$
<S> <C> <C> <C>
Raw materials 1,299 1,375 178
Finished goods 21,269 11,020 1,424
Less: Allowance for obsolescence ( 702) ( 1,983) ( 256)
------ ------- -----
Inventories, net 21,866 10,412 1,346
====== ======= =====
</TABLE>
4. DUE TO HOLDING COMPANY
The long term liability balance, which is used to finance the
Group's capital investment, is unsecured and interest-free. The
holding company has agreed that it will not demand payment of the
amount prior to April 1, 1998.
The current balance is unsecured, interest-free and has no
fixed term of repayment.
F-26
<PAGE> 86
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
5. NUMBER OF SHARES OUTSTANDING
Pursuant to a resolution passed by the board of directors on
August 20, 1996, the authorized share capital of the Company increased
from 50,000 shares of Common Stock of US$1 par value to 4,000,000
shares of Common Stock of US$.0125 par value and 2,500,000 shares of
Preferred Stock without par value. The one share of Common Stock of
US$1 par value at that date was split into 80 shares of Common Stock
of US$.0125 par value. The above has been reflected in the financial
statements for the periods ended September 30, 1995 and 1996 as if the
split had taken place at the beginning of the periods presented.
2,300,000 shares of the Preferred Stock were designated as
Series A Convertible Preferred Stock. The holders of Series A
Convertible Preferred Stock are entitled to receive, out of surplus, a
cumulative dividend at the rate of US$.15 per share per annum and,
after the payment of this dividend, they are entitled to participate
in dividends set apart or paid on other capital stock of the Company
on the same basis as the holders of the Company's Common Stock. In
case of liquidation of the Company, these Preferred Stock holders
shall be entitled to receive US$1.50 for each share of the Series A
Convertible Preferred Stock before any distribution of the assets of
the Company to other capital stock holders, plus all accrued and
unpaid dividends declared hereon and other considerations before the
other capital stockholders share in the liquidation of the assets.
This class of Preferred Stock is convertible at the option of the
holders into one share of Common Stock of the Company and has equal
voting rights with the Common Stockholders.
On September 4, 1996, the Company issued 2.3 million shares of
Series A Convertible Preferred Stock on conversion of HK$26,687
(US$3,450) of the amount due to the holding company.
F-27
<PAGE> 87
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
6. EARNINGS PER SHARE
The earnings per common share for the period ended September
30, 1995 is based on the net income applicable to common share and on
the weighted average of common shares outstanding during the period.
The earnings per common and common equivalent share for the
period ended September 30, 1996 were computed by dividing net income
by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year. The convertible
preferred stock has been considered to be the equivalent of common
stock from its issuance on September 4, 1996. Each share of Preferred
Stock is convertible into one share of Common Stock. The number of
shares issuable on conversion of preferred stock was added to the
number of common shares.
The pro forma earnings per common and common equivalent share
for the period ended September 30, 1996 is based on the net income
applicable to common and common equivalent share of HK$186, the
issuance of 2.3 million shares of Series A Convertible Preferred Stock
of the Company on conversion of HK$26,687 (US$3,450) of the amount due
to the holding company on 4 September 1996, and after giving effect to
the merger - spin-off transaction, the issuance of one million shares
of Common Stock of Dransfield China Paper Corporation ("DCPC") on
conversion of HK$38,685 (US$5,000) of the amount due to the holding
company and the issuance of 2.3 million shares of Common Stock of DCPC
to Dransfield Holdings Limited on conversion of its 2.3 million shares
of Series A Convertible Preferred Stock in DCPC described in note 7,
the 13.1 million shares of DCPC issued and outstanding. The 80 shares
of Common Stock in the Company were exchanged for 9.3 million shares
of Common Stock in DCPC, one million shares of Common Stock of DCPC
were issued to Dransfield Holdings Limited on conversion of HK$38,685
(US$5,000) of the amount due to the holding company and 2.3 million
shares of Common Stock of DCPC were issued to Dransfield Holdings
Limited on conversion of its 2.3 million shares of Series A
Convertible Preferred Stock in DCPC, resulting in a total of 13.1
million shares of Common Stock of DCPC issued and outstanding. The 2.3
million shares of Series A Convertible Preferred Stock of the Company
issued and outstanding were exchanged for 2.3 million shares of Series
A Convertible Preferred Stock of DCPC. Each share of Preferred Stock
of DCPC is convertible into one share Common Stock of DCPC. The pro
forma earnings per common and common equivalent share is determined on
the assumptions that such a capital structure existed at 1 April 1995
and that the convertible preferred shares were converted at that date.
F-28
<PAGE> 88
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
7. SUBSEQUENT EVENTS
(A) Merger - spin-off
Pursuant to an agreement executed on August 20, 1996 and
amended on November 15, 1996 (the "Merger Agreement") with Dransfield
China Paper Corporation ("DCPC") and SuperCorp Inc. ("SuperCorp"), the
then controlling shareholder of DCPC, the Company merged with DCPC on
February 26, 1997. The officers and directors of the Company became
the officers and directors of DCPC, the surviving corporation. Prior
to the merger, DCPC registered with the Securities and Exchange
Commission 461,572 shares of its no par value Common Stock and
distributed these shares to its shareholders in the U.S., which
created the basis for a trading market in the Common Stock of DCPC.
DCPC has an authorized share capital of 40 million shares of Common
Stock with no par value and 10 million shares of Preferred Stock with
no par value. 461,572 shares of Common Stock of DCPC were distributed
to the shareholders of SuperCorp in its spin-off as described above,
and 38,428 shares of Common Stock of DCPC were issued to two
individuals prior to the merger at $1.00 per share. On February 26,
1997, Dransfield Holdings Limited exchanged its 80 shares of stock in
the Company for a total of 9.3 million shares of Common Stock in DCPC
and the 2.3 million shares of Series A Convertible Preferred Stock of
the Company issued and outstanding were exchanged for 2.3 million
shares of Series A Convertible Preferred Stock of DCPC, which have the
equivalent terms as the Preferred Stock of the Company.
Prior to the merger, DCPC issued 500,000 Callable Common Stock
Purchase Warrants which entitle the registered holders to purchase
Common Stock of DCPC at a price of US$5.50 per share at any time on or
before August 23, 1998. 446,004 Common Stock Purchase Warrants of DCPC
were issued to Dransfield Holdings Limited on February 26, 1997 in
accordance with the terms of the Merger Agreement. The Callable
Warrants are subject to call by DCPC on not less than 30 days' notice
provided that the closing bid price of the Common Stock of DCPC as
reported on the Nasdaq Stock Market (or the last sale price, if quoted
on a national securities exchange) averages US$8.00 a share or above
for the ten consecutive trading days ending on the day prior to the
date on which the notice of call is given.
Because DCPC was only a corporate shell prior to the merger
and not an operating entity, the merger will be accounted for as if
the Company recapitalized. Additionally, the historical financial
statements for DCPC prior to the merger will be those of the Company.
F-29
<PAGE> 89
DRANSFIELD PAPER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, unless otherwise stated and
except number of shares and per share data)
7. SUBSEQUENT EVENTS (continued)
(B) On May 30, 1997, DCPC issued 2.3 million shares of Common
Stock of DCPC to Dransfield Holdings Limited on conversion of its 2.3
million shares of Series A Convertible Preferred Stock in DCPC. On the
same date, DCPC issued on million shares of Common Stock of DCPC to
Dransfield Holdings Limited at US$5.00 per share on conversion of
HK$38,685 (US$5,000) of the amount due to the holding company.
(C) In early June 1997, DCPC issued 150,000 new shares of Common
Stock to independent third parties at US$5.00 per share. DCPC is
currently planning a public offering of 150,000 additional new shares
of Common Stock of DCPC at a price to be determined. DCPC will file a
registration statement on Form F-1 with the Securities and Exchange
Commission to register these 300,000 new shares of Common Stock of
DCPC, 38,428 shares of Common Stock of DCPC held by two shareholders,
946,004 Callable Common Stock Purchase Warrants of DCPC and 946,004
shares of Common Stock of DCPC issuable upon exercise of the Callable
Common Stock Purchase Warrants of DCPC.
F-30
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
To the Director and Stockholder
Dransfield China Paper Corporation
We have audited the balance sheet of Dransfield China Paper
Corporation (a Territory of the British Virgin Islands corporation), a
majority-owned subsidiary of Supercorp, Inc. and a development stage company,
as of November 30, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the balance sheet. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall balance sheet presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly,
in all material respects, the financial position of Dransfield China Paper
Corporation as of November 30, 1996, in conformity with generally accepted
accounting principles in the United States of America.
/s/ HOGAN & SLOVACEK
Oklahoma City, Oklahoma
December 13, 1996
F-31
<PAGE> 91
DRANSFIELD CHINA PAPER CORPORATION
(A Development Stage Company)
BALANCE SHEET
NOVEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash - on deposit in trust account US $ 500
=====
STOCKHOLDER'S EQUITY
Preferred Stock - Authorized 10,000,000 shares,
no par value -
Series A - 2,300,000 shares authorized, unissued
Series B - 100,000 shares authorized, 38,428 issued US $ 38
Common Stock - 40,000,000 shares authorized,
no par value, 461,572 shares issued 462
-----
US $ 500
=====
</TABLE>
The accompanying notes are an integral part
of this balance sheet.
F-32
<PAGE> 92
DRANSFIELD CHINA PAPER CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO BALANCE SHEET
NOVEMBER 30, 1996
(1) ORGANIZATION
Dransfield China Paper Corporation (the Company) was organized in
accordance with The International Business Companies Act of the Territory of
the British Virgin Islands on June 24, 1996 for the purpose of merging (the
merger) with a wholly-owned subsidiary, Dransfield Paper Holdings Limited
(Dransfield Paper), of Dransfield Holdings Limited (Dransfield Holdings), a
Cayman Islands corporation whose shares are listed for trading on the Hong
Kong Stock Exchange. The Company has no business operations or significant
capital and has no intention of engaging in any active business until it
merges with Dransfield Paper. Should the merger not occur, the Company would
seek other business opportunities, and if none were found, could be
dissolved within 18 months by a vote of the majority of its common
stockholders. The Company is a development stage company organized for the
merger described below.
The former sole director of the Company is a director of Supercorp,
Inc., the Company's parent. While in this office, this director was
responsible for the formation of the Company. The current sole director of
the Company is Supercorp, Inc.'s president.
Stock of the Company is owned by Supercorp, Inc. and will be distributed
to its shareholders upon the effectiveness of the registration statements to
be filed with the Securities and Exchange Commission and a favorable vote of
Supercorp, Inc.'s shareholders on the proposed merger. The distributed stock
will initially be held in escrow according to an Escrow Agreement dated
August 20, 1996 between Supercorp, Inc., the Company and the Liberty Bank
and Trust Company of Oklahoma City, N.A.
(2) MERGER AGREEMENT
The Company agreed to merge with Dransfield Paper on November 20, 1996.
Dransfield Paper is an operating company acting as a paper merchant and
distributing Proctor & Gamble's "Tempo" brand paper products in Hong Kong
and China. Dransfield Paper plans to build four paper product mills in
China, one of which started operations in May, 1996 (see financial
information of Dransfield
F-33
<PAGE> 93
Paper filed with this registration statement). The Company will be the
surviving corporation (Survivor), but Dransfield Paper will elect all
directors and officers of the Survivor. All currently outstanding stock of
Dransfield Paper in the hands of its parent will be cancelled and converted
into 9,300,000 shares of common and 2,300,000 shares of Series A Preferred
stock of the Company, all authorized but unissued, to be owned by the parent
of Dransfield Paper, along with 446,004 of warrants when the merger is
effective. The merger of Dransfield Paper and the Company should qualify as
a nontaxable reorganization under the tax laws of the Territory of the
British Virgin Islands.
The merger is contingent upon the effectiveness of the registration
statements, and upon the shareholders of the Company and of Dransfield Paper
approving the proposed merger. Because the Company is only a corporate shell
and not an operating entity, the proposed merger will be accounted for as if
Dransfield Paper recapitalized. Additionally, the historical financial
statements for the Company prior to the merger will be those of Dransfield
Paper. Upon completion of the proposed merger, Dransfield Holdings will own
9,300,000 shares of Common Stock and 2,300,000 shares of Series A Preferred
Stock of the Company or 95.87% of its voting shares. The fiscal year of the
Company will be March 31.
(3) COMMON STOCK OPTIONS AND WARRANTS
By action of the sole director, the Company granted on August 20, 1996
100,000 common stock options to insiders, exercisable at US $.50 per share
and expiring if not exercised on December 31, 1997. These common stock
options are to be cancelled and exchanged for 500,000 Stock Purchase
Warrants of the Company on the effective date of the merger. An additional
446,004 shares of Common Stock Purchase Warrants of the Company are to be
issued to the parent of Dransfield Paper on the effective date of the merger
and all warrants issued by the Company are to purchase Company common stock
at a price of US $5.50 per share and expire 18 months from the effective
date of the merger.
The sole director also approved of the Share Option Scheme (Plan) of the
Company whereby, at the discretion of the directors, invited employees of
the Company will have the option of subscribing to common shares of the
Company based on a price determined by the Plan for common shares which in
total may not exceed 10% of the share capital of the Company. No options
have been granted in accordance with this Plan.
(4) PREFERRED STOCK
The Series A Convertible Preferred Stock to be issued in connection with
the merger shall be entitled to receive, out of Surplus, a cumulative
dividend at the rate of US $.15 per share per annum and, after the payment
of this dividend, share in any other dividends declared and paid on other
capital stock of the Company on the same basis as the holders of the
Company's Common
F-34
<PAGE> 94
Stock. In case of liquidation of the Company, these Preferred Stock holders
are to receive US $1.50 for each share owned of the Series A Convertible
Preferred Stock before any distribution to other capital stockholders,
accrued and unpaid dividends and other considerations before the other
capital stockholders share in the liquidation of the assets. This class of
Preferred Stock is convertible into one share of Common Stock of the Company
and has equal voting rights with the Common stockholders.
The Series B Preferred Stock of the Company has the same voting rights
as the Common stockholders and is entitled to receive in liquidation US
$1.00 per share after satisfaction of the liquidation of the Series A
Convertible Preferred Stock. The current outstanding Series B Preferred
Stock is to be exchanged for Common Stock of the Company in connection with
the merger.
F-35
<PAGE> 95
APPENDIX A
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.
The Chinese Communist Party ("CCP") plays a leading role in formulating
policy and selecting and providing personnel at all levels of the State
structure.
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Administratively, the PRC is divided into 23 provinces (which includes
Taiwan), three municipalities (Beijing, Shanghai and Tianjin) and five
autonomous regions. At the local level, administrative entities derive their
authority from, and are accountable to, the People's Congresses at the
provincial and municipal levels.
ECONOMIC REVIEW
ECONOMIC STRUCTURE.
The PRC's economy contains four major sectors: state-owned enterprises,
collectively-owned enterprises, individually-owned enterprises and other
enterprises including enterprises with foreign capital. The proportion of
industrial output attributable to state-owned enterprises has been decreasing,
but state-owned enterprises still play a leading role in the economy. In 1993,
state-owned enterprises accounted for approximately 43% of the PRC's output and
enterprises owned by collectives and individuals accounted for 38.4% and 8.4%,
respectively. The fastest growing sector of the economy is other types of
enterprises, including enterprises with foreign capital, which accounted for
10.2% of the total industrial output in 1993, representing an increase of
approximately 43.7% over 1992 figures.
A recent reform has been the conversion of selected state-owned
enterprises into limited liability shareholding companies and the issue of
shares to public and private investors (including employees). Several of these
state-owned enterprises, after being converted into limited liability
shareholding companies, have been granted approval to list on the Shanghai
Stock Exchange and the Shenzhen Stock Exchange, the two emerging stock markets
in the PRC.
Collectively-owned enterprises are predominately located in rural areas
and concentrated in industries with lower demands for capital and technology or
with greater consumer orientation. Collectively-owned enterprises are not
subject to strict control but are only under the guidance of the State Plan.
This allows them more operational flexibility than state-owned enterprises but
entitles them to fewer state subsidies. In 1992, collectively-owned enterprises
accounted for approximately 38% of total industrial production value in the
PRC.
Individually-owned enterprises are typically family-run small
businesses. Individually-owned and other enterprises generally engage in
service industries or retail businesses and are not covered by the State Plan.
ECONOMIC PLANS AND DEVELOPMENT.
The development of the PRC's economy has been characterized by the
adoption, since 1953, of Five Year Plans. Implementation of the plans 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.
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<PAGE> 97
One objective for the Plan is for the PRC's output to grow at an
average annual rate of growth of about 8%. From 1980 to 1990, the PRC had an
average GNP growth rate of approximately 9%.
The Plan also calls for the establishment of an economic structure
consistent with a socialist planned economy based on public ownership and
market regulation. In addition, emphasis is placed on the further opening of
the PRC to the outside world by expanding economic and technological exchanges
with other countries. The Plan also seeks to relieve supply problems which have
arisen from rapid growth during the 1980s and to allocate resources to the
priority areas of agriculture, energy, transportation, telecommunications and
basic materials industries.
ECONOMIC REFORMS.
In 1978, the PRC began implementing an economic reform program in an
effort to revitalize the economy and improve the standard of living. Since that
time, the PRC Government's economic policies have allowed for an increasing
degree of liberalization from a centrally-planned economy to a more
market-oriented economy. At the fourteenth Party Congress held in October 1992,
the Congress called for a "socialist market economy" in which full rein should
be given to market forces with the government limiting its role to setting and
implementing broad macro-economic policies. This was later endorsed by the
eighth session of the NPC amending the Constitution. As part of the economic
reforms, managers of enterprises have been granted more decision-making powers
and responsibilities in relation to matters such as production, marketing, use
of funds, and employment and disciplining of staff.
The PRC Government is gradually relaxing many of its controls over
product prices. Although some products are still controlled and distributed by
the PRC Government at planned prices, the range of products subject to planned
prices has been substantially reduced, particularly in 1992 and the first half
of 1993. Products which are not subject to the State Plan are generally sold at
prices determined by market conditions. In addition, a state-owned enterprise
which has fulfilled its production obligations under the State Plan may obtain
additional raw materials and sell products which it has produced in excess of
the State Plan at market prices in both the international and domestic markets.
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The following table sets out major economic indicators of the PRC from
1989 to 1993:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross national product
% change 4.4 4.1 8.2 13.4 13.2
Industrial output
% change 8.5 7.8 14.8 27.5 28.0
Light industries 8.2 9.2 13.0 26.1 n/a
Heavy industries 8.9 6.2 14.5 29.0 n/a
Per capita GNP
% change 2.8 9.0 12.8 19.1 27.2
Inflation rate
% change in Retail
Price Index 17.8 2.1 2.9 5.4 13.2
Gross industrial output value
% change 8.5 7.8 14.8 27.5 28.0
Merchandise exports
US$ billion 52.5 62.1 71.9 85.0 91.8
% change 10.6 18.2 15.7 18.2 8.0
Merchandise imports
US$ billion 59.1 53.4 63.8 80.6 104.0
% change 7.0 -9.8 19.6 26.4 29.0
Trade balance
US$ billion -6.6 8.7 8.1 4.4 -12.2
</TABLE>
- -----------------------
Source: State Statistical Bureau of the PRC China Statistical Yearbook 1994;
As indicated in the table above, industrial output in the PRC has grown
rapidly since 1988. The last decade of economic reform has resulted in a great
change in the PRC's industrial pattern. In the first three decades after 1949,
the PRC placed great emphasis on heavy industry rather than light industry and
as a result the growth rate of heavy industry consistently out-performed that
of light industry. In recent years growth in industrial output has become
relatively balanced between light industry and heavy industry.
The PRC's economic reform has had its problems. Overheating of the
economy, inflation and stagnation in its basic infrastructure development
prompted the government to implement policies to curb inflation from time to
time during the 1980s. An austerity policy in 1988, in particular, led to two
years of stagnant markets and an economic downswing. Starting in early 1992,
boosted by Deng Xiaoping's calls for faster economic development during his
visit to southern China, the pace of the PRC's economic reform has accelerated.
At present, the PRC is in another period of very fast economic
development. However, economic problems are being encountered mainly due to
over-investment in fixed assets, rapid growth in the monetary supply, serious
bottle-neck problems in transport infrastructure, excessive increases in the
prices of some consumer goods and the costs 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
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plan included raising interest rates, calling in speculative loans, cutting
government expenditure and suspending some price reform measures. The challenge
facing the PRC's economic planners is to ensure that the economy continues to
grow but that this growth takes place in a stable and non-inflationary
environment.
FOREIGN TRADE.
The PRC's foreign trade has grown rapidly since 1987. Trading partners
now include about 170 countries and regions. From 1978 to 1993, the value of
total trade grew from US$20.6 billion to US$195.7 billion.
In 1993, the PRC's foreign trade yielded a trade deficit of US$12.2
billion. Exports reached US$91.8 billion, representing an increase of 8% over
those of 1992, and imports reached US$103.95 billion, representing an increase
of 29%.
The PRC currently enjoys Most Favored Nation ("MFN") trading status
with the United States, which status is subject to renewal on an annual basis.
The PRC's MFN status means that the PRC maintains those trading privileges
enjoyed by all normal trading partners of the United States. The PRC has
retained MFN privileges since 1980. Rescission of MFN status would subject PRC
exports to the United States to significantly higher tariffs.
FOREIGN INVESTMENT.
Since 1978, the number of enterprises with foreign investment has
increased rapidly in the PRC. By the end of 1993, about 167,507 foreign
investment enterprises with an aggregate amount of contracted investment of
about US$382 billion had been established. In 1990, foreign investment
enterprises constituted approximately 4.3% of the PRC's total industrial
production value. Since 1978, the PRC Government has afforded even greater
flexibility to foreign parties in relation to the industries in which
investments may be made, access to domestic markets, and management of foreign
investment enterprises, including greater latitude in the hiring and dismissal
of employees, in setting levels of wages, bonuses and allowances, and in
purchasing raw materials and marketing products.
FOREIGN INVESTMENT IN THE PRC FROM 1979 TO 1993.
(excluding joint stock limited companies)
<TABLE>
<CAPTION>
1979-84 1985-89 1990 1991 1992 1993
------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Number of contracts 3,248 18,530 7,273 12,978 48,764 83,437
Contractual value (in U.S.$ billions) 10.41 26.46 6.60 11.98 58.1 111.4
</TABLE>
- --------------------
Source: State Statistical Bureau of the PRC.
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LEGAL SYSTEM
The legal system of the PRC is based principally on written laws and
regulations as supplemented by State Council Commission and Ministry level
measures, rules, interpretations, procedures and directives. Government
departments under the State Council in charge of state planning, economic
restructuring, foreign trade and investment, tax, customs and environmental
protection in particular have broad powers to establish binding legal rules
applicable to all industrial and commercial enterprises. Decided court cases
have no generally binding effect, although such cases are used for the purposes
of judicial reference and guidance. To date, court decisions have not played a
significant role in the interpretation of the PRC legislation relating to the
economy.
As stated above, the NPC is responsible for enacting national laws in
the PRC. The People's Congresses at the provincial and municipal levels have
power to promulgate rules and regulations which are effective only within the
relevant provinces and municipalities. The State Council, certain government
agencies under the State Council and the People's Congresses at the provincial
and municipal levels have authority to issue administrative measures, but such
administration measures, rules, regulations, decisions and directives must not
be in conflict with national laws.
The PRC is still in the course of developing a comprehensive system of
laws since its adoption of the economic opening-up policy and reform in 1978.
It has promulgated a series of laws and regulations principally on various
economic matters and foreign investment in the PRC. Such laws and regulations
mainly deal with foreign investments in the PRC, taxation, foreign trade,
economic contracts between PRC entities and foreign parties, technology
transfer and the protection of certain intellectual property rights. The PRC
Constitution was amended in December 1982 to permit investment by foreign
entities and individuals in the PRC and guarantee protection of the lawful
rights and interests of foreign investors in the PRC.
THE JUDICIAL SYSTEM.
The PRC judicial system is composed of four levels of court: the
Supreme People's Court, the Higher People's Court, the Intermediate People's
Court and the Basic People's Court. The People's Court is established with
criminal, civil and economic tribunals. In addition to these three tribunals,
the People's Court may establish other tribunals (such as an intellectual
property rights tribunal) if necessary. A higher-level People's Court and
People's Procuratorate are both responsible for the supervision of a
lower-level People's Court. The Supreme People's Court is the highest judicial
authority in the PRC judicial system and exercises supervisory power over the
various levels of People's Courts. The PRC adopts a two-tier final appeal
system for ordinary civil cases. Such cases are first heard by a People's Court
of first instance and then subject to appeal to the People's Court of 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.
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The PRC legal system is based on statutes, and court cases do not
constitute binding precedents. The National People's Congress and its standing
committee, the Supreme People's Court, the Supreme People's Procuratorate and
the State Council may give opinions on the interpretation of laws and
regulations so as to resolve uncertainties and ambiguities. Interpretations
made by legislative bodies carry general legal effect. Interpretations made by
the Supreme People's Court and the Supreme People's Procuratorate are divided
into specific interpretations, which are binding interpretations in respect of
specific cases and general interpretations, which carry general legal effect.
Interpretations made by the State Council carry general legal effect but their
scope is restricted to administrative rules, regulations and provisions.
For civil cases, if a party fails to comply with a legally binding
judgment, ruling or settlement agreement, the other party to the dispute may
apply to the court of jurisdiction for enforcement. There are time limits
imposed on the right to apply for such enforcement. If at least one of the
parties to the dispute is an individual, the time limit is one year. If both
parties to the dispute are legal persons or other institutions, the time limit
is six months.
Foreign judgments and rulings will be recognized and enforced by the
People's Courts, if there is an international treaty or other reciprocal
enforcement between the PRC and the relevant foreign country and the
enforcement will not violate the public security, state sovereignty, public
interests or basic principles of law of the PRC.
ARBITRATION AND ENFORCEMENT OF ARBITRATION AWARDS.
The Arbitration Law of the People's Republic of China became effective
September 1, 1995. The Arbitration Law provides that it is applicable to trade
disputes involving foreign parties. The parties thereto may, pursuant to their
arbitration agreement, submit their dispute to arbitration before an
arbitration committee constituted in accordance with the Arbitration Law. The
arbitration rules to be applied by the arbitration committee shall be
formulated in accordance with Arbitration Law and the PRC Civil Procedure Law.
The China International Economic and Trade Arbitration Commission
("CIETAC") is one of the arbitration institutions in the PRC, whose
jurisdiction covers foreign related disputes arising from "international
economic and trade transactions" where the parties have reached an arbitration
agreement selecting CIETAC to be the venue of the arbitration.
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
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entered into an international treaty or other reciprocal enforcement
arrangement with China. An application for enforcement shall be submitted to
the Intermediate People's Court.
In 1987, China acceded to the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the "New York
Convention"). Because Hong Kong participates in the New York Convention by
virtue of the United Kingdom being a signatory to the New York Convention, an
award by an arbitration organization in Hong Kong can generally be enforced in
the PRC. However, the PRC's accession is subject to the reservation that (a)
the PRC will recognize and enforce foreign arbitration awards on the principles
of reciprocity, and (b) the PRC will only abide by the New York Convention in
disputes considered to be arising from contractual and non-contractual
mercantile legal relations under Chinese laws.
EXCHANGE CONTROL
On December 28, 1993, the People's Bank of China, authorized by the
State Council of the PRC, announced that the dual exchange rate system for
Renminbi against foreign currencies would be replaced by a unified exchange
rate system, with effect from January 1, 1994. The PRC's foreign exchange
control system has been in a state of flux since that time. Numerous rules and
regulations and implementation measures have been issued. To the extent that
existing provisions stipulated in previous regulations do not contradict new
regulations as mentioned above, the existing regulations should remain valid.
Set out below is a summary of these regulations which remain valid and
effective:
(1) Foreign exchange dealings are centralized and administered by
the State Administration for Exchange Control and its branches
("SAEC"). Foreign exchange transactions are to be carried out
under the approval of SAEC in the PRC through authorized banks
and other financial institutions, including certain designated
foreign banks.
(2) PRC residents and foreigners residing in the PRC with foreign
exchange incomes may deposit the foreign exchange in banks or
sell the foreign exchange to banks.
(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
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be sold to designated banks authorized to deal in foreign exchange. However,
enterprises with foreign equity interests and enterprises allowed to have
foreign exchange bank accounts are allowed to retain their foreign exchange
earnings.
Control on the purchase of foreign exchange is also relaxed.
Enterprises which require foreign exchange for their ordinary trading
activities may purchase foreign exchange from designated foreign exchange banks
if the applicant is supported by proper import contracts and payment notices.
For import activities which require quotas, import licenses and registration,
foreign exchange may be purchased if the applications are supported by import
contracts and payment notices. For import activities which require quotas,
import licenses and registration, foreign exchange may be purchased if the
applications are supported by import contracts and the relevant required
documents. For non-trading activities, any application for purchase of foreign
exchange needs to be supported by payment contracts or payment notices from
relevant overseas organizations. According to Article 14 of the Provisional
Regulations on the Sale, Purchase and Payment of Foreign Exchange, the payment
of dividends to foreign shareholders is one of the activities permitting the
purchase of foreign exchange through the banking system.
A unified foreign exchange inter-bank market among designated foreign
banks is to be established, to be supervised and administered by the People's
Bank of China through the SAEC.
A single exchange rate system has been set up to replace the official
rate and the swap center rate. Based on market conditions and supply and
demand, and based on the PRC interbank foreign exchange market rate on the
previous day, with reference to current exchange rates in the world financial
markets, the People's Bank of China announces each day an exchange rate which
is to be followed by all designated foreign exchange banks within the permitted
range.
Further, foreign investment enterprises may distribute profit to their
foreign investors with funds in their foreign exchange bank 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
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are all expenses of this issuance and distribution.
Brokers' commissions will be paid equal to five percent of the gross proceeds
from the sale of 150,000 shares of Common Stock being offered by the Registrant
to the extent any of such shares are sold by NASD broker-dealers rather than
directly by the Registrant. All expenses are being paid by the Company.
<TABLE>
<CAPTION>
Item Amount
------
<S> <C>
Registration fees $ 2,090
Printing and engraving 3,000
Legal 35,000
Accounting & auditors 10,000
--------
$ 50,090
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
There is set forth in the Prospectus under "Enforcement of Civil
Liabilities and Certain Foreign Issuer Considerations" 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.
The Company has 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 of the
Company.
To the extent of the indemnification rights provided by the Territory
of the British Virgin Islands statutes and provided by the Company's Memorandum
and Articles of Association, and to the extent of the Company's abilities to
meet such indemnification obligations, the officers, directors and agents of
the Company would be beneficially affected.
RECENT SALES OF UNREGISTERED SECURITIES.
Certain issuances of securities by the Registrant have been made
either in contemplation or in effectuation of a merger-spinoff transaction
involving the Registrant and Dransfield Paper Holdings Limited (which merger
occurred on February 26, 1997), and SuperCorp, Inc., an Oklahoma corporation,
which created a public market for the Registrant's Common Stock by distributing
on February 13, 1997, to its shareholders (the "spinoff") 461,572 shares of
Common Stock of the Registrant. The spinoff part of the merger-spinoff
transaction was registered with the Commission on a Form S-1 Registration
Statement which became effective on February 12, 1997 (Commission File No.
333-11637).
On June 30, 1996 the Registrant issued 461,572 shares of its common
stock to its corporate parent, SuperCorp Inc., an Oklahoma corporation, for a
cash consideration of $462, or $0.001 a share, and on August 15, 1996
II-1
<PAGE> 105
issued 26,786 shares of its Series B Preferred Stock to J. Douglas Bowey and
11,642 shares of its Series B Preferred Stock to T.E. King for a cash
consideration of $38, or $0.001 a share, which shares were exchanged on
February 13, 1997, for 38,428 shares of Common Stock of the Company.
On August 15, 1996 the Registrant issued to 9 persons, for services
rendered, options to purchase 100,000 shares of its Common Stock at $0.50 a
share, each option expiring December 31, 1997. These options were exchanged on
February 13, 1997, for 500,000 Callable Warrants. The persons to whom the
shares of Series B Preferred Stock and the options were issued have the
following relationships with the Registrant:
<TABLE>
<CAPTION>
Shares of
Position with Series B Number
Company or Preferred of
Insider SuperCorp Stock Options(1)
- ------- --------- ----- -------
<S> <C> <C> <C>
J. Douglas Bowey Finder 26,786(2) 6,000
T.E. King Company president and 11,642(2) 50,000
sole director; Super-
Corp president and
director
Thomas J. Kenan Company counsel; 0 4,000(3)
SuperCorp counsel;
SuperCorp officer
and director
Albert L. Welsh SuperCorp officer 0 8,000
and director
George W. Cole None 0 8,000(4)
John E. Adams None 0 8,000(5)
Robert G. Rader None 0 8,000(6)
Gary E. Bryant None 0 8,000(7)
</TABLE>
- ---------------------
(1) On February 13, 1997, and immediately prior to the Company's merger
with Dransfield Paper Holdings Limited, 500,000 Callable Warrants were
exchanged for the 100,000 options that were issued to the 8 insiders
listed above as partial payment for the services described immediately
below. The options entitled the option holders to purchase 100,000
shares of Common Stock of the Company at $0.50 a share and would have
expired if not exercised on December 31, 1997. Each Callable Warrant
entitles the holder to purchase 1 share of the Company's Common Stock
for $5.50 and expires 18 months from the effective date of the Merger
with Dransfield Paper. The Warrants are callable by the Company on 30
days notice at such time as the Company's Common Stock has traded at
$8 a share for 10 consecutive days.
II-2
<PAGE> 106
(2) Immediately prior to the merger between the Company and Dransfield
Paper, shares of Common Stock were received by the holders in exchange
for an equal number of shares of Series B Preferred Stock of the
Company that were issued to the two insiders listed above as partial
payment for the services described immediately below. The Series B
Preferred Stock had the same rights as the Company's Common Stock and,
in addition, was entitled to receive in liquidation $1 a share before
liquidating distributions are made to the Common Stock holders.
(3) These warrants are held by the Marilyn C. Kenan Trust, of which trust
Mr. Kenan's spouse, Marilyn C. Kenan, is the trustee and sole
beneficiary.
(4) These warrants are held by Marjorie J. Cole, Mr. Cole's spouse.
(5) These warrants are held by Meridyne Corporation, of which Mr. Adams is
an officer and director.
(6) These warrants are held by Judith Rader, Mr. Rader's spouse.
(7) Half of these warrants are held by Suzanne Kerr, Mr. Bryant's wife.
SERVICES RENDERED BY INSIDERS.
Mr. Bowey's finder services consisted of introducing Mr. King to
SuperCorp in 1995, and the Company securities he will receive represent
compensation to him for these services.
Mr. King developed personal contacts with officers of Dransfield Paper
in 1995 and, together with Messrs. Kenan and Welsh during a due diligence trip
to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper. Subsequent to the November 1995 due
diligence trip and throughout 1996, Mr. King has done additional due diligence
services, financial and economic analyses, economic projections with respect to
the business of Dransfield Paper and near-daily liaison with officers of
Dransfield Paper. Mr. King was the sole officer and director of the Company
prior to the Merger, and is and will be the Company's agent for service of
process after the Merger. For these services, Mr. King has received $45,000
from Dransfield Paper and will receive the securities listed above.
Mr. Kenan, together with Messrs. King and Welsh during a due diligence
trip to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper and throughout 1996 has done additional due
diligence services and has performed legal services in organizing the Company
and registering the Spinoff transaction with the Securities and Exchange
Commission ("the Commission"). For these services and for additional legal
services Mr. Kenan is to perform with respect to the Commission should the
Merger be approved by Dransfield Paper, Mr. Kenan has been paid $60,000 by
Dransfield Paper and will receive the securities listed above.
Mr. Welsh, together with Messrs. King and Kenan during a due diligence
trip to Hong Kong and China in November 1995, negotiated the merger-spinoff
transaction with Dransfield Paper.
II-3
<PAGE> 107
Other than as stated above, none of the insiders has received any
compensation from SuperCorp or the Company with respect to the transaction with
Dransfield Paper. Further, none has received a salary or other compensation
from SuperCorp for his services as an officer or director of SuperCorp.
All of the insiders have performed services for SuperCorp, Messrs.
Kenan and Adams since 1989, Mr. Welsh since 1991, and the others since 1994,
such services being in the nature of searching for and developing candidates,
such as Dransfield Paper, for a spinoff-merger transaction that will benefit
SuperCorp shareholders. These services go uncompensated, and the attendant
expenses in most instances go unreimbursed unless and until an opportunity for
indirect compensation presents itself, such as the 500,000 U.S. Callable
Warrants to be distributed or attributed to the eight insiders. Until such
time, should it ever occur, that the Company's Common Stock should qualify as a
"covered security" under the National Securities Market Improvement Act, the
distribution of these warrants to approximately 2,500 SuperCorp shareholders in
48 states on a pro rata basis would require registration under the state Blue
Sky laws and would be economically prohibitive and, in some states, impossible,
due to state securities laws and regulations. Yet, the distribution and
potential exercise of the 500,000 U.S. Callable Warrants was essential to the
negotiation of the transaction with Dransfield Paper.
There was no underwriter, and none of the above-described securities
were offered to any persons other than the present holders of these securities.
The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and by Regulation D, Rule 506. Each of the 8 persons was a
promoter and insider to the organization of the Registrant and fully informed
as to the details of organization of the Registrant.
On February 26, 1997, the merger between the Registrant and Dransfield
Paper Holdings Limited became effective. The Registrant is the surviving
corporation. Consistent with the terms of the merger agreement (Exhibit 2 to
this Registration Statement), on February 26, 1997, the Registrant issued
9,300,000 shares of its Common Stock, 2,300,000 shares of its Series A
Convertible Preferred Stock, and 446,004 Callable Common Stock Purchase
Warrants to the sole shareholder of Dransfield Paper Holdings Limited,
Dransfield Holdings Limited, and acquired, through the merger, all the assets
and assumed all the liabilities of Dransfield Paper Holdings Limited.
The 2,300,000 shares of Series A Convertible Preferred Stock were
converted into 2,300,000 shares of Common Stock on May 30, 1997, by Dransfield
Holdings Limited. Also on May 30, 1997, the Registrant issued 1,000,000 shares
of its Common Stock to Dransfield Holdings Limited in exchange for the
cancellation of $5,000,000 of debt owed to Dransfield Holdings Limited.
The issuances of the securities in the merger and on May 30, 1997, to
Dransfield Holdings Limited were not registered under the Securities Act of
1933 (i) as not being subject to the provisions of Section 5 of the
II-4
<PAGE> 108
Securities Act of 1933, due to the lack of jurisdiction of the Federal
securities laws over a transaction involving the issuance by a foreign
corporation of securities to another foreign person outside the boundaries of
the United States, and (ii) as exempt from registration in reliance upon the
exemption from registration provided by Regulation S and Regulation D of the
Commission.
In early June 1997 the Registrant sold 150,000 shares of its Common
Stock for cash at $5.00 a share to 37 persons, two of whom are non-U.S. persons
and residents of Hong Kong and the rest are U.S. persons and residents of the
U.S. The securities were not registered under the Securities Act of 1933 in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and by Regulation D, Rule 506.
The names of the 37 persons and the number of shares each bought are
as follows, the first two being the non- U.S. persons and residents of Hong
Kong:
<TABLE>
<CAPTION>
No. of
Name Shares
---- ------
<S> <C>
Kingsway Securities Holdings Limited 50,000
Ko Kim Hang 50,000
Brooke Bell 1,000
Fred Bell 8,000
William Burroughs 2,000
Carol Cotton 1,000
Florence Cour 1,000
Michael Davidson 500
Jerry Dennis 5,000
Dub Evins 1,000
Mark Ferguson 1,000
Margaret Gentzle 1,000
Louis Greer 1,000
Sally Holt 2,000
Charles Jordan 1,000
Paul McLean 2,000
Jamie Meekins 500
</TABLE>
II-5
<PAGE> 109
<TABLE>
<S> <C>
Edward Nicholson 1,000
Patricia Osborne 2,000
Gary Pigg 500
Sarah Ritter 500
Michael Slemp 2,000
Don Smith 500
Wayne Smith 2,000
Eugene Tinker 500
Aldaberto Torres 1,000
William Wells 500
Kathy White 4,000
Wiley White 2,000
Michale Wilkes 500
Ruby Wilks 2,000
Grady Williams 500
Franz J. Schubert 500
Lillard T. Walker, Jr. and
Lillard T. Walker, III, Jt Ten 500
Henry H. Quimby and Ruth H. Quimby,
Tenants in Common 500
Robert B. Johnson, Personal Representative
Estate of Annette B. Johnson 500
Robert B. Johnson 500
</TABLE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Separately bound but filed as part of this Registration Statement are
the following exhibits:
<TABLE>
<CAPTION>
Exhibit Item
------- ----
<S> <C> <C>
1 - Broker's Agency Agreement - by and between Dransfield China Paper Corporation and
Birchtree Financial Services, Inc.
</TABLE>
II-6
<PAGE> 110
<TABLE>
<S> <C> <C>
2 - Agreement of Merger of August 1, 1996, between Dransfield China Paper Corporation and
Dransfield Paper Holdings Limited.*
2.1 - Certificate of Merger issued on February 26, 1997, by the Registrar of Companies of
the British Virgin Islands, evidencing the merger between Dransfield China Paper
Corporation (the Registrant), as the surviving company, and Dransfield Paper Holdings
Limited, as the discontinuing company***
3(i) - Memorandum of Association of Dransfield China Paper Corporation.*
3(ii) - Restated and Amended Articles of Association of Dransfield China Paper Corporation.**
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.*
5 - Opinion of Harney, Westwood & Riegels as to legality of the securities covered by this
Registration Statement.
8 - Opinion by Harney, Westwood & Riegels as to matters concerning British Virgin Islands
law.
10 - 1996 Share Option Scheme, as amended, adopted by Dransfield China Paper Corporation.
10.1 - Chinese-Foreign Equity Joint Venture - Jiang Ying Dransfield Paper Co., Ltd. -
Articles of Association - China Jiangsu Huaxi Holdings Company - Dransfield Broadsino
Paper Holdings Co. Ltd.***
10.2 - Document of Conghua County Foreign Economic Relations & Trade Committee - No.(1993)
334 under characters Cong Wai Jing Mao Yin - Official Reply regarding the Co-operative
Venture - Dransfield Paper (Guangzhou) Ltd.***
10.3 - Document of Conghua City Foreign Economic Relations & Trade Committee - No.(1995) 018
under characters Cong Wai Jing Mao Yin - Official Reply regarding the Second
Supplementary Agreement of the Co-operative Venture Contract for Dransfield Paper
(Guangzhou) Ltd.***
10.4 - Document of Conghua City Foreign Economic Relations & Trade Committee - No.(1995) 097
under characters Cong Wai Jing Mao Yin - Official Reply
</TABLE>
II-7
<PAGE> 111
<TABLE>
<S> <C> <C>
regarding the Third Supplementary Agreement of the Co-operative Venture Contract for
Dransfield Paper (Guangzhou) Ltd.***
10.5 - Document of Conghua City Foreign Economic Relations & Trade Committee - No.(1995) 131
under characters Cong Wai Jing Mao Yin - Official Reply regarding the Fourth
Supplementary Agreement of the Co-operative Venture Contract for Dransfield Paper
(Guangzhou) Ltd.***
10.6 - Document of Conghua City Foreign Economic Relations & Trade Committee - No.(1995) 161
under characters Cong Wai Jing Mao Yin - Official Reply regarding the Fifth
Supplementary Agreement of the Co-operative Venture Contract for Dransfield Paper
(Guangzhou) Ltd.***
10.7 - Document of Conghua City Foreign Economic Relations & Trade Committee - No.(1995) 178
under characters Cong Wai Jing Mao Yin - Official Reply regarding the Sixth
Supplementary Agreement of the Co-operative Venture Contract for Dransfield Paper
(Guangzhou) Ltd.***
10.8 - Distributor's Agreement - By and between Procter & Gamble AG and Grandom Dransfield
Int'l and Co.***
10.9 - Contract on Transfer of Land - Transferor: Xinhui City Sanjiang Town Industry Overall
Company - Transferee: Guangzhou Dransfield Paper Ltd.***
21 - List of all subsidiaries of the Registrant.*
23 - Consent of Ernst & Young, independent auditors of Dransfield Paper Holdings Limited
before its merger with the Company and, since its merger on February 26, 1997, with
the Company, now the independent auditors of the Company.
23.1 - Consent of Harney, Westwood & Riegels, solicitors, to the reference to them as experts
who have passed upon certain information contained in the Registration Statement.
23.2 - 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.
23.3 - Consent of Jan Yang to the reference to him as a director of Dransfield China Paper
Corporation.
</TABLE>
II-8
<PAGE> 112
<TABLE>
<S> <C> <C>
23.4 - Consent of Hogan & Slovacek, independent auditors of Dransfield China Paper
Corporation before its merger with Dransfield Paper Holding Limited.
27 - Financial Data Schedule.
99 - Designation of Thomas J. Kenan as the authorized representative in the United States
of Dransfield China Paper Corporation.
</TABLE>
* Previously filed with the Registrant's Form S-1 (SEC File No.
333-11637); incorporated herein.
** Previously filed with the Registrant's Amendment No. 1 to Form
S-1 (SEC File No. 333-11637); incorporated herein.
*** Previously filed with the Registrant's Form 6-K filed on March
7, 1997; incorporated herein.
UNDERTAKINGS.
Dransfield China Paper Corporation, the undersigned registrant, hereby
undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities
offered (if the total dollar value of
securities offered would not exceed that
which was registered) and any deviation from
the low or high end of the estimated maximum
offering range may be reflected in the form
of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no
more than a 20% change in the maximum
aggregate offering price set forth in the
"Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
II-9
<PAGE> 113
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered that remain
unsold at the termination of the offering.
(4) To file a post-effective amendment to the
registration statement to include any financial statements required by
Regulation 210.3-19 under the Securities Act of 1933 at the start of a delayed
offering or throughout a continuous offering.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing a Form F-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Hong Kong, on the date set forth below.
Date: June 10, 1997 Dransfield China Paper Corporation
By:/s/ Horace Yao Yee Cheong
---------------------------------
Horace Yao Yee Cheong, chief
executive officer
II-10
<PAGE> 114
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: June 10, 1997 /s/ Horace Yao Yee Cheong
-------------------------------------
Horace Yao Yee Cheong, director and
chief executive officer
Date: June 10, 1997 /s/ Jeremy Lu Yuen Tong
-------------------------------------
Jeremy Lu Yuen Tong, director
Date: June 10, 1997 /s/ Warren Ma Kwok Hung
-------------------------------------
Warren Ma Kwok Hung, director, and
principal financial and accounting
officer
Date: June 10, 1997 /s/ Thomas J. Kenan
-------------------------------------
Thomas J. Kenan, director and
authorized representative in
the United States of the
registrant
II-11
<PAGE> 115
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
------- -------
1 - Broker's Agency Agreement - by and between Dransfield China
Paper Corporation and Birchtree Financial Services, Inc.
5 - Opinion of Harney, Westwood & Riegels as to legality of the
securities covered by this Registration Statement.
8 - Opinion by Harney, Westwood & Riegels as to matters concerning
British Virgin Islands law.
10 - 1996 Share Option Scheme, as amended, adopted by Dransfield
China Paper Corporation.
23 - Consent of Ernst & Young, independent auditors of Dransfield
Paper Holdings Limited before its merger with the Company and,
since its merger on February 26, 1997, with the Company, now
the independent auditors of the Company.
23.1 - Consent of Harney, Westwood & Riegels, solicitors, to the
reference to them as experts who have passed upon certain
information contained in the Registration Statement.
23.2 - 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.
23.3 - Consent of Jan Yang to the reference to him as a director of
Dransfield China Paper Corporation.
23.4 - Consent of Hogan & Slovacek, independent auditors of Dransfield
China Paper Corporation before its merger with Dransfield Paper
Holding Limited.
27 - Financial Data Schedule.
99 - Designation of Thomas J. Kenan as the authorized representative
in the United States of Dransfield China Paper Corporation.
<PAGE> 1
EXHIBIT 1
DRANSFIELD CHINA PAPER CORPORATION
BROKER'S AGENCY AGREEMENT
Dear Sirs:
1. Dransfield China Paper Corporation (the "Company") is
offering for sale 150,000 shares of Common Stock ("the Shares") at $5.00 a
Share. The offering is a public offering and is being registered on a Form F-1
with the Securities and Exchange Commission and by coordination in Iowa,
Missouri, Georgia, Oklahoma, and, possibly, other states.
2. The Company proposes to sell the Shares both directly
to purchasers and through broker-dealers who are registered with the Securities
and Exchange Commission ("the Commission") as broker-dealers under the
Securities Exchange Act of 1934 ("the 1934 Act") and are members in good
standing with the National Association of Securities Dealers, Inc. ("NASD").
The Shares are to be offered at a price of $5.00 a Share. Participating
broker-dealers will be entitled to receive commissions equal to 5% of the
proceeds of Shares sold through them and no other compensation or reimbursement
of expenses. The Shares will be offered for a period of 60 days, which period
may be extended an additional 60 days in the discretion of the Company.
3. The Company solicits your firm to participate in this
offering, as an agent, on the terms and conditions set forth in the enclosed
Form F-1 and set forth herein.
4. The Company agrees to indemnify and hold harmless
each participating broker-dealer and each person who controls each
participating broker-dealer within the meaning of Section 15 of the Securities
Act of 1933, and each participating broker-dealer agrees to indemnify and hold
harmless the Company and each person who controls the Company within the
meaning of Section 15 of the Securities Act of 1933, against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act of 1933 or any other
statute or at common law and to reimburse persons indemnified as above for any
legal or other expenses incurred by them in connection with any litigation,
whether or not resulting in any liability, but only insofar (i) with respect to
the Company's indemnification of the participating broker-dealers and their
controlling persons, as such losses, claims, damages, liabilities and
litigation arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the
Exhibit 1
Page 1 of 3 Pages
<PAGE> 2
Form F-1, any amendment thereto, other written materials furnished by the
Company specifically for use in connection with the sale of the Shares, or any
application or other document filed in order to qualify the Shares under the
Blue Sky Laws of the states where filings were made, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, all as of the date of
the prospectus or any amendment to it, and (ii) with respect to the
participating broker-dealers' indemnification of the Company and its
controlling persons, such indemnification shall be the same except it shall be
limited to the extent that such statement or omission was made in reliance upon
information peculiarly within the participating broker- dealers' knowledge and
is furnished in writing to the Company or to the extent that such statements
were made by the participating broker-dealers or their agents and were not
authorized by the prospectus or other written materials furnished by the
Company specifically for use in connection with the sale of the Shares.
5. The participating broker-dealers will not make use of
any written materials other than the prospectus or other written materials
furnished by the Company to the participating broker-dealers specifically for
use in connection with the sale of the Shares.
6. Nothing contained herein shall be deemed to be a
commitment on the part of any participating broker-dealer to sell any of the
Shares.
7. You represent that (i) you are a member in good
standing of the National Association of Securities Dealers and are registered
as a broker-dealer with the Securities and Exchange Commission, (ii) that all
money received from the sale of the securities shall be promptly transmitted to
the Company in accordance with Rule 15c2-4 of the S.E.C., (iii) that because
the offering is subject to no contingency, such as an "all-or-none" offering or
any other contingency whereby all or part of the consideration paid for the
Shares would be refunded to the purchaser, no representations shall be made to
the effect that any such contingency exists, all in accordance with Rule 10b-9
of the SEC, (iv) that you will comply with Rules 2730, 2740, 2420 and 2750 of
the NASD Conduct Rules, (v) that neither you nor any of your associated or
affiliated persons has acquired any unregistered securities of the Company, and
(vi) that there is no contractual or other relationship between you and the
Company other than this agreement.
10. This agreement may be executed in counterpart.
Exhibit 1
Page 2 of 3 Pages
<PAGE> 3
Very truly yours,
DRANSFIELD CHINA PAPER CORPORATION
By /s/ Horace Yao
------------------------------------
Horace Yao, Chief Executive Officer
The undersigned hereby agrees to act as an agent of the issuer, in the
public offering of the Shares described above, in accordance with the terms and
conditions set forth above and in the prospectus. The representations set
forth in paragraph 7 above are true. No commitment is given that any of the
securities offered by the Company will be sold by the undersigned.
BIRCHTREE FINANCIAL SERVICES, INC.
Date May 27, 1997 By /s/ Randy Burch
-------------------------------------
Randy Burch, President
Exhibit 1
Page 3 of 3 Pages
<PAGE> 1
EXHIBIT 5
Harney, Westwood & Riegels
Barristers, Solicitors, Notaries,
Patent and Trade Mark Agents
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands
9 June 1997 SCG/jnw/11-0715.01
Dransfield China Paper Corporation
c/o P. O. Box 71
Road Town, Tortola
British Virgin Islands
Re: DRANSFIELD CHINA PAPER CORPORATION
Dear Sirs:
We are British Virgin Islands counsel to Dransfield China Paper
Corporation, a company incorporated in the British Virgin Islands. We have
reviewed the Amendment on Form F-1 to Form S-4 Registration Statement and are
of the opinion that the securities being registered for resale by the Selling
Securityholders have been legally issued, are fully paid, and are
non-assessable, and that the securities being registered for sale by the
registrant, when issued, will be legally issued, fully paid and non-assessable.
Yours faithfully,
/s/ Harney, Westwood & Riegels
HARNEY, WESTWOOD & RIEGELS
<PAGE> 1
EXHIBIT 8
Harney, Westwood & Riegels
Barristers, Solicitors, Notaries,
Patent and Trade Mark Agents
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands
9 June 1997 SCG/jnw/11-0715.01
Dransfield China Paper Corporation
c/o P. O. Box 71
Road Town
Tortola, British Virgin Islands
Re: DRANSFIELD CHINA PAPER CORPORATION
Dear Sirs:
We are British Virgin Islands counsel to Dransfield China Paper
Corporation, a company incorporated in the British Virgin Islands, and in that
regard we have reviewed its Amendment on Form F-1 to Form S-4 Registration
Statement 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,
/s/ Harney, Westwood & Riegels
HARNEY, WESTWOOD & RIEGELS
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EXHIBIT 10
1996 SHARE OPTION SCHEME
OF
DRANSFIELD CHINA PAPER CORPORATION
1. The Directors may, at their discretion, grant any employee, director,
officer, consultant or advisor of the Company, its corporate parent,
or its subsidiaries, options to purchase shares of Common Stock at a
price calculated in accordance with paragraph (2) below; provided,
that services shall be rendered by consultants and advisors and that
such services shall not be rendered in connection with the offer or
sale of securities in a capital-raising transaction.
2. The purchase price for Shares under the Share Option Scheme shall be a
price, notified by the Directors to a grantee, not less than 80% of
the average of the closing prices of the Shares on a national stock
exchange or The Nasdaq Stock Market for the five trading days
immediately preceding the date of the grant of the option.
3. The maximum number of Shares which may be subject to options (options
already exercised as well as options then outstanding) under the Share
Option Scheme and any other scheme of the Company then in effect may
not exceed ten percent of the number of shares of Common Stock of the
Company then issued and outstanding (excluding from the number of
shares issued and outstanding all shares which were issued upon
exercise of options granted under this Share Option Scheme and any
other scheme of the Company then in effect).
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 issuable under the Share Option Scheme.
5. An option may be exercised, in accordance with all the terms of the
grant and of the Share Option Scheme, including vesting terms, during
the three-year period commencing 12 months after the date on which the
option is granted 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 or serious misconduct, 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
Exhibit 10
Page 1 of 3 pages
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the date of such cessation, which date shall be the last actual
working day or service with the Company whether salary is paid in lieu
of notice or not.
8. If the grantee of an option dies, his or her personal representative
may exercise the option in full (to the extent not already exercised),
without regard to any vesting provisions, 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, his or her option will thereupon
terminate forthwith.
10. While an option remains exercisable, in the event Shares of Common
Stock of the Company are issued at a price less than the exercise
price of the option, or in the event of stock splits or stock
dividends, alterations certified in writing by the auditors of the
Company as fair and reasonable will be made in the outstanding option
with respect to its exercise price and the number of Shares subject to
the option.
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 terminate 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 to purchase
the outstanding Shares of Common Stock of the Company (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
Page 2 of 3 pages
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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 then 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 dividends 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 will remain in force until 2nd April 2003.
Exhibit 10
Page 3 of 3 pages
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EXHIBIT 23
ERNST & YOUNG
10/F Tower III, Gateway Building
25-27 Canton Road
Kowloon, Hong Kong
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated 3 June 1996, with
respect to the consolidated financial statements of Dransfield
Paper Holdings Limited included in the Amendment No. 1 on Form F- 1
to the Form S-4 Registration Statement of Dransfield China Paper
Corporation for the registration of 338,428 shares of Common
Stock, 946,004 Callable Common Stock Purchase Warrants, and
946,004 shares of Common Stock issuable upon exercise of the Callable
Warrants.
/s/ Ernst & Young
ERNST & YOUNG
Hong Kong
5 June 1997
<PAGE> 1
EXHIBIT 23.1
Harney, Westwood & Riegels
Barristers, Solicitors, Notaries,
Patent and Trade Mark Agents
Craigmuir Chambers
P.O. Box 71
Road Town, Tortola
British Virgin Islands
9 June 1997 SCG/jnw/11-0715.01
Dransfield China Paper Corporation
c/o P.O. Box 71
Road Town, Tortola
British Virgin Islands
Re: DRANSFIELD CHINA PAPER CORPORATION
Dear Sirs:
We hereby consent to the inclusion of the name of this firm as an expert
in the Amendment on Form F-1 to Form S-4 Registration Statement to be filed
with the Securities and Exchange Commission and consent to the inclusion
therein of our opinion as to the legality of the securities being registered.
Yours faithfully,
/s/ Harney, Westwood & Riegels
HARNEY, WESTWOOD & RIEGELS
<PAGE> 1
EXHIBIT 23.2
FULLER, TUBB & POMEROY
Attorneys at Law
800 Bank of Oklahoma Plaza
201 Robert S. Kerr Avenue
Oklahoma City, OK 73102
Telephone 405-235-2575
Fax 405-232-8384
May 29, 1997
Horace Yao, Chief Executive Officer
Dransfield China Paper Corporation
36-42 Pok Man Street, 1st & 2nd Fls.
Mongkok, Kowloon, Hong Kong
Dear Mr. Yao:
The undersigned is named in the Amendment No. 1 on Form F-1 to Form S-4
Registration Statement of Dransfield China Paper Corporation ("the Company"), a
British Virgin Islands corporation, which registration statement is to be filed
with the Securities and Exchange Commission in connection with the offer for
sale of shares of Common Stock by the Company and a Selling Securityholder and
the sale of Callable Common Stock Purchase Warrants and their underlying shares
by Selling Securityholders. The capacity in which the undersigned is named in
such Registration Statement is that of counsel to the Company and as a person
who has given an opinion on tax and other legal matters concerning the
registration or offering of the securities described therein.
The undersigned hereby consents to being named in such Registration
Statement in the capacity therein described and consents to the inclusion of
his tax and legality opinion as an exhibit thereto.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
TJK:sa
<PAGE> 1
EXHIBIT 23.3
EDT
Enzymatic Deinking Technologies
5305 Oakbrook Parkway
Norcross, Georgia 30093
Telephone (770) 923-5970
Fax (770) 923-5971
Horace Yao
Dransfield Holdings Limited
36-42 Pok Man Street, 1st & 2nd Floors
Mongkok, Kowloon, HK
Dear Mr. Yao:
The undersigned was recently elected to serve as a director of Dransfield China
Paper Corporation. I have not yet had an opportunity to fully acquaint myself
with the affairs of the Company and prefer not to sign the Form F-1
Registration Statement to be filed soon with the Securities and Exchange
Commission. The undersigned consents to being named in a Form F-1 Registration
Statement to be filed with the Securities and Exchange Commission as a person
who is a director.
Sincerely,
/s/ Jan Yang
Jan Yang
Dated: May 30, 1997
<PAGE> 1
EXHIBIT 23.4
HOGAN & SLOVACEK
A Professional Corporation
Certified Public Accountants
Harvey Parkway
301 N.W. 63rd, Suite 290
Oklahoma City, OK 73116
Office (405) 848-2020 Fax (405) 848-7359
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment on Form F-1 to the Form S-4
Registration Statement of Dransfield China Paper Corporation of our report
dated December 13, 1996, appearing in the Prospectus, which is part of this
Registration Statement.
/s/ HOGAN & SLOVACEK
Oklahoma City, Oklahoma
June 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> HK$
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 0.12928
<CASH> 853
<SECURITIES> 0
<RECEIVABLES> 85,480
<ALLOWANCES> 0
<INVENTORY> 21,866
<CURRENT-ASSETS> 110,591
<PP&E> 59,175
<DEPRECIATION> 1,295
<TOTAL-ASSETS> 176,577
<CURRENT-LIABILITIES> 91,105
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 5,068
<TOTAL-LIABILITY-AND-EQUITY> 176,577
<SALES> 307,047
<TOTAL-REVENUES> 312,691
<CGS> 275,003
<TOTAL-COSTS> 275,003
<OTHER-EXPENSES> 485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,697
<INCOME-PRETAX> 7,840
<INCOME-TAX> 1,391
<INCOME-CONTINUING> 5,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,034
<EPS-PRIMARY> 62,925
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99
Dransfield China Paper Corporation
36-42 Pok Man Street, 1st & 2nd Fls.
Mongkok, Kowloon, Hong Kong
June 11, 1997
Thomas J. Kenan, Esq.
Suite 800
201 Robert S. Kerr Avenue
Oklahoma City, OK 73102-4292
Dear Mr. Kenan:
Dransfield China Paper Corporation is preparing for filing with the
Securities and Exchange Commission an Amendment No. 1 on Form F-1 to 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/ Horace Yao
Horace Yao, Chief Executive Officer
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: May 22, 1997 /s/ Thomas J. Kenan
---------------------------------------
Thomas J. Kenan
Signed and sworn to before me on May 22, 1997, by Thomas J. Kenan.
/s/ Sherie S. Adams
---------------------------------------
Notary Public
My commission expires: 8-19-97
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