AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-------------------
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------
BERMUDA 2082 UNIT A1, 1/F, VITA TOWER 72-1323940
(JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL 29 WONG CHUK HANG (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION) CLASSIFICATION CODE NUMBER) ABERDEEN, HONG KONG
011-8522-580-2506
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 664-1666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
LAWRENCE A. DARBY, III, ESQ. COPIES TO: LAWRENCE B. FISHER, ESQ.
HOWARD, DARBY & LEVIN ORRICK, HERRINGTON & SUTCLIFFE
1330 AVENUE OF THE AMERICAS 666 FIFTH AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10103
(212) 841-1000 (212) 506-5000
------------------------
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
1933 (the 'Securities Act') 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: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SECURITY(2) PRICE FEE
Common Stock, par value
US$0.01 per share........... 1,533,333(3) US$6.00 US$ 9,199,998.00 US$3,172.41
Redeemable Common Stock
Purchase Warrants........... 1,533,333(4) US$0.10 US$ 153,333.30 US$ 52.87
Common Stock, par value
US$0.01 per share,
underlying Redeemable Common
Stock Purchase Warrants..... 1,533,333 US$9.00 US$13,799,997.00 US$4,758.62
Representative's
Warrants(5)................. 133,333 US$0.0001 US$ 13.33 --
Common Stock, par value
US$0.01 per share,
underlying Representative's
Warrants(5)................. 133,333 US$9.00 US$ 1,199,997.00 US$ 413.79
Redeemable Common Stock
Purchase Warrants,
underlying Representative's
Warrants(5)................. 133,333 US$0.15 US$ 19,999.95 US$ 6.90
Common Stock, par value
US$0.01 per share,
underlying Redeemable Common
Stock Purchase Warrants,
underlying Representative's
Warrants(5)................. 133,333 US$9.00 US$ 1,199,997.00 US$ 413.79
------------
Total Registration Fee........ US$8,818.38
(1) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Redeemable Common Stock Purchase Warrants, the Representative's
Warrants (defined below) and the Redeemable Common Stock Purchase Warrants
underlying the Representative's Warrants.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act.
(3) Includes 200,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(4) Includes 200,000 Redeemable Common Stock Purchase Warrants that the
Underwriters have the option to purchase to cover over-allotments, if any.
(5) In connection with the Registrant's sale of the securities offered hereby,
the Registrant is granting to the representative of the several
Underwriters' warrants (the 'Representative's Warrants') to purchase 133,333
shares of Common Stock, par value US$0.01 per share, and/or 133,333
Redeemable Common Stock Purchase Warrants.
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
________________________________________________________________________________
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
CROSS-REFERENCE SHEET
ITEM NUMBER AND HEADING IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------------------------- ------------------------------------
1. Forepart of the Registration Statement and Outside Front Cover Page of Outside Front Cover Page
Prospectus...........................................................
2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Prospectus Summary; Risk Factors;
Charges.............................................................. The Company
4. Use of Proceeds........................................................ Prospectus Summary; Use of Proceeds;
Business
5. Determination of Offering Price........................................ Outside Front Cover Page; Risk
Factors; Underwriting
6. Dilution............................................................... Risk Factors; Dilution
7. Selling Security Holders............................................... *
8. Plan of Distribution................................................... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered............................. Outside Front Cover Page; Prospectus
Summary; Capitalization;
Description of Securities
10. Interests of Named Experts and Counsel................................. *
11. Information with Respect to the Registrant............................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; The
Company; Use of Proceeds; Dividend
Policy; Capitalization; Dilution;
Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Principal
Stockholders; Certain
Transactions; Description of
Securities; Certain Foreign Issuer
Considerations; Taxation; Shares
Eligible for Future Sale;
Consolidated Financial Statements;
Outside Back Cover Page
12. Disclosure of Commission Position on Indemnification for Securities Act *
Liabilities..........................................................
- ------------
* Item is inapplicable or response thereto is in the negative.
SUBJECT TO COMPLETION, DATED JUNE 14, 1996
PROSPECTUS
[LOGO]
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
1,333,333 SHARES OF COMMON STOCK AND
1,333,333 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering (the 'Offering') of 1,333,333 shares
(the 'Shares') of common stock, par value US$0.01 per share ('Common Stock'),
and 1,333,333 Redeemable Common Stock Purchase Warrants (the 'Warrants') of
American Craft Brewing International Limited, a Bermuda corporation (the
'Company' or 'AmBrew International'). The Shares and Warrants are sometimes
hereinafter collectively referred to as the 'Securities.' The Shares and
Warrants may be purchased separately and will be transferable separately
immediately following completion of this Offering. Each Warrant entitles the
registered holder thereof to purchase one share of Common Stock at an exercise
price of $ [150% of the initial public offering price] per share at any
time during the period commencing six months from the date of this Prospectus
and terminating five (5) years from the date of this Prospectus. The Warrant
exercise price is subject to adjustment under certain circumstances. Commencing
eighteen (18) months after the date of this Prospectus, the Company may redeem
all, but not less than all, of the Warrants at $0.10 per Warrant on thirty (30)
days' prior written notice to the warrantholders, if the per share closing bid
quotation of the Common Stock as reported on the Nasdaq SmallCap Market
('Nasdaq') equals or exceeds 160% of the initial public offering price per Share
for any twenty (20) trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the notice of redemption.
The Warrants will be exercisable until the close of business on the day
immediately preceding the date fixed for redemption. See 'Description of
Securities -- Warrants.'
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that such a market will develop
after the consummation of this Offering or, if developed, that it will be
sustained. It is currently anticipated that the initial public offering prices
will be between US$5.00 and US$6.00 per Share and US$0.10 per Warrant. For
information regarding the factors considered in determining the initial public
offering prices of the Shares and Warrants and the terms of the Warrants, see
'Risk Factors' and 'Underwriting.' It is anticipated that upon consummation of
this Offering, the Shares and Warrants will be included for quotation on Nasdaq
and for listing on the BSE and will trade separately immediately after the
Offering under the symbols and , respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE 'RISK FACTORS'
COMMENCING ON PAGE 8 AND 'DILUTION.'
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PUBLIC UNDERWRITING DISCOUNT(1) PROCEEDS TO COMPANY(2)
Per Share................................. $ $ $
Per Warrant............................... $0.10 $ $
Total(3).................................. $ $ $
(1) Does not include additional compensation to National Securities Corporation,
the representative of the Underwriters (the 'Representative'), in the form
of (i) a non-accountable expense allowance of 3% of the gross proceeds of
this Offering, (ii) warrants (the 'Representative's Warrants') to purchase
up to 133,333 shares of Common Stock at $ per share [150% of the initial
public offering price] and/or up to 133,333 warrants to purchase Common
Stock at US$0.15 per warrant. In addition, see 'Underwriting' for
information concerning indemnification and contribution arrangements with
the Underwriters and other compensation payable to the Representative.
(2) Before deducting estimated expenses of $625,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within 45
days after the date of this Prospectus to purchase up to an aggregate of
200,000 additional shares of Common Stock and/or 200,000 additional Warrants
upon the same terms and conditions as set forth above, solely to cover
over-allotments, if any (the 'Over-allotment Option'). If such
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See 'Underwriting.'
The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment at the
offices of National Securities Corporation, Seattle, Washington on or about
, 1996.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[Inside front and outside back cover pages of Prospectus contain two labeled
advertisements used by the Company, one picture of the Company's South China
Brewery and one picture of the Company's products and raw materials used therein
accompanied by the following text: 'AT LAST...Hong Kong has its own Independent
Micro-Brewery. South China Brewery is proud to introduce its Flagship Beer,
CROOKED ISLAND ALE, a light, golden ale with a fresh clean nose and crisp
finish. The ale is hand-crafted in small batches in Hong Kong with pale malted
barley from Great Britain and hops from the United States.']
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
SEE PAGES 6, 11 AND 12 FOR DISCUSSION OF THE RISKS ASSOCIATED WITH THE
COMPANY'S INCORPORATION IN BERMUDA, THE LOCATION OF ASSETS IN FOREIGN
JURISDICTIONS AND THE DIFFICULTIES ASSOCIATED WITH SERVICE OF PROCESS AND OTHER
MATTERS.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements of American Craft
Brewing International Limited, which include the results of operations of the
South China Brewing Company Limited, a Hong Kong company ('South China'), and
SCBC Distribution Company Limited, a Hong Kong company ('SCBC,' and collectively
with South China, the 'South China Brewery'), and Notes thereto included
elsewhere in this Prospectus. Except as set forth in the Consolidated Financial
Statements and unless otherwise indicated in this Prospectus, all information in
this Prospectus reflects, effective prior to the date of this Prospectus, (i)
the exchange (the 'Share Exchange'), of substantially all of the issued and
outstanding shares of capital stock of South China and SCBC, by the stockholders
thereof for 23,750 shares of capital stock of Craft Brewing Holdings Limited, a
British Virgin Islands company ('Craft'), (ii) the issuance of 1,250 shares of
capital stock of Craft to certain investors in Hong Kong (the 'Hong Kong
Placement'), (iii) the eighty-for-one stock split by Craft (the 'Share Split')
and (iv) the amalgamation of Craft into the Company (the 'Merger', and together
with the Share Exchange, the Hong Kong Placement and the Share Split, the
'Reorganization'). The information in this Prospectus also assumes that none of
the Over-allotment Option, the Warrants or the Representative's Warrants will be
exercised. See 'The Company' and Note 16 of Notes to the Consolidated Financial
Statements. Unless otherwise required by the context, the terms 'AmBrew
International' and the 'Company' refer to American Craft Brewing International
Limited and its subsidiaries. All references in this Prospectus to '$' shall
mean United States dollars.
The Securities offered hereby involve a high degree of risk and immediate
substantial dilution. See 'Risk Factors' and 'Dilution.'
THE COMPANY
AmBrew International owns and operates the South China Brewery, the first
in a series of international breweries based on the concept of American-style
micro-breweries. The South China Brewery, the first American-style micro-brewery
in Hong Kong, produces fresh, high-quality, preservative-free, hand-crafted
beers using state-of-the-art American-manufactured brewing equipment.
Hand-crafted beers are distinguishable by their full flavor which results from
traditional brewing styles. The Company believes that American-style
micro-brewing has growth potential in other key world markets and that the South
China Brewery is a model that can be adapted to other markets.
The American-style micro-brewery concept has developed over the past ten
years into the fastest growing segment of the American beer industry.
American-style micro-breweries produce less than 15,000 barrels per year of
hand-crafted beers in a variety of styles. The Company believes that the growing
demand for micro-brewed beers in the United States is part of a broader shift in
preferences on the part of a certain segment of consumers away from
mass-produced products and toward high-quality, distinctive foods and beverages.
While craft beers currently account for less than 2% of total United States beer
consumption, sales volume of these beers grew by 50% in 1995 and had an annual
growth rate of approximately 47% during the period from 1985 through 1994.
AmBrew International believes that the demand for craft beers is not limited to
the United States and is committed to the production of a variety of craft beers
designed to appeal to a growing number of consumers in global markets.
The Company exported the American-style micro-brewery concept to Hong Kong
with the establishment of the South China Brewery in June 1995. With only one
head brewer and six other employees, the South China Brewery produces,
distributes and markets two full-flavored beers marketed under South China's own
brand names, Crooked Island Ale and Dragon's Back India Pale Ale, and custom
produces beers for local Hong Kong establishments in accordance with their
individual specifications to market under their own labels. The South China
Brewery is designed to permit small and economical production runs of
differentiated products to meet special tastes or other custom requirements and
for sale in niche markets. Increased consumer demand for high quality,
full-flavored beers has allowed the South China Brewery to achieve a price
premium relative to mass-produced domestic beer producers and to set its prices
at the upper end of the premium import market.
3
The Company's senior management and Board of Directors have extensive
experience in the international beverage alcohol industry. The Company expects
to utilize this experience to identify new markets receptive to the
American-style micro-brewery concept and to seek out strategic local partners to
co-invest in new micro-breweries in such markets. The Company plans to establish
and operate, either through wholly-owned subsidiaries or through majority-owned
joint venture arrangements with strategic local partners, a series of
micro-breweries similar in concept to the South China Brewery. The Company
expects that these partners will use their knowledge of local regulation and
markets to facilitate the establishment and acceptance of the Company's
micro-breweries and their products. In pursuing its expansion strategy, the
Company will move into both markets dominated by mass-market breweries and
markets in which high-quality beer producers will be the Company's primary
competition. In markets where mass-produced beers are sold to a broad consumer
profile, AmBrew International intends to develop craft beers as locally produced
premium product alternatives. In markets in which there are already a number of
traditional high-quality beer producers, the Company intends to produce
distinctive micro-brewed products for niche market segments. The Company has
preliminarily identified seven locations in which it is considering establishing
breweries by the end of 1997, subject to more extensive feasibility studies:
Shanghai, Tecate (Mexico), Warsaw, Zurich, Budapest, Singapore and Prague.
The Company expects to achieve greater economies of scale as it expands.
For example, the Company intends to enter into a contract with Micro Brew
Systems Company, Limited ('Micro Brew Systems') which supplied the equipment for
the South China Brewery, or another comparable provider of state-of-the-art
brewing equipment, to purchase, at discounted prices, the necessary brewing
equipment for its proposed new breweries. In addition, the Company believes that
it can benefit from volume discounts on purchases of equipment and ingredients.
Based on the growth of its South China Brewery to date, the Company believes it
is well-positioned to establish similar American-style micro-breweries in other
markets.
4
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
AND IMMEDIATE DILUTION TO NEW INVESTORS. SEE 'RISK FACTORS' AND 'DILUTION.'
THE OFFERING
Securities Offered.................................... 1,333,333 Shares and 1,333,333 Warrants. Each Warrant
entitles the registered holder thereof to purchase one
share of Common Stock. The Shares and the Warrants may be
purchased separately and will be transferable separately
immediately following completion of this Offering. See
'Description of Securities' and 'Underwriting.'
Offering Price........................................ $[ ] per Share and $[ ] per Warrant
Common Stock Outstanding:
Prior to the Offering(1)......................... 2,000,000 shares of Common Stock
After the Offering(2)............................ 3,355,151 shares of Common Stock
Warrant Exercise Price................................ $ per Share [150% of the initial public offering
price per Share], subject to adjustment in certain
circumstances. See 'Description of Securities --
Warrants.'
Warrant Exercise Period............................... The period commencing six months after the date of this
Prospectus and terminating five years from the date of
this Prospectus.
Redemption............................................ Commencing 18 months after the date of this Prospectus,
the Company may redeem all, but not less than all, of the
Warrants at a price of $0.10 per Warrant, on not less
than 30 days' prior written notice to current holders, if
the per Share closing bid quotation as reported on Nasdaq
equals or exceeds $ per Share [160% of the initial
public offering price per Share] for any twenty (20)
trading days within a period of thirty (30) consecutive
trading days ending on the fifth trading day prior to the
date on which the Company gives notice of redemption. The
Warrants will be exercisable until the close of business
on the day immediately preceding the date fixed for
redemption in such notice. See 'Description of
Securities -- Warrants.'
5
Use of Proceeds....................................... To repay up to $887,000 in debt; for capital expenditures
of approximately $5 million relating to the establishment
of proposed expansion breweries including $2.8 million
for the purchase of micro-brewing equipment; and for
working capital and general corporate purposes. See 'Use
of Proceeds,' 'Business -- Proposed Expansion Markets'
and 'Certain Transactions.'
Proposed Nasdaq and BSE Symbols....................... Shares --
Warrants --
- ------------
(1) Excludes (i) 300,000 shares of Common Stock reserved for future issuance
pursuant to options available for grant under the Company's 1996 Stock
Option Plan (the 'Stock Option Plan'), and (ii) 500,000 shares of Common
Stock reserved for future issuance pursuant to $370,000 principal amount of
notes issued to certain investors in Singapore and Hong Kong (the 'Bridge
Notes') and warrants issued in connection with the Bridge Notes (the 'Bridge
Warrants'). See 'Management -- Stock Option Plan,' 'Certain Transactions'
and 'Underwriting.'
(2) Includes the issuance of 21,818 shares of Common Stock upon the consummation
of this Offering assuming an initial public offering price per Share of
$5.50 and no conversion of the convertible Bridge Notes (112,727 shares of
Common Stock assuming full conversion of the convertible Bridge Notes) and
excludes 300,000 shares of Common Stock reserved for future issuance
pursuant to options available for grant under the Stock Option Plan and
21,818 shares of Common Stock reserved for future issuance pursuant to the
Bridge Warrants assuming an initial public offering price per Share of $5.50
and no conversion of the convertible Bridge Notes (112,727 shares of Common
Stock assuming full conversion of the convertible Bridge Notes). See
'Certain Transactions.'
------------------------
THE COMPANY IS ORGANIZED UNDER THE LAWS OF THE ISLANDS OF BERMUDA. CERTAIN
OF THE COMPANY'S DIRECTORS, OFFICERS AND CONTROLLING PERSONS, AS WELL AS CERTAIN
OF THE EXPERTS NAMED IN THIS PROSPECTUS, RESIDE OUTSIDE THE UNITED STATES. ALL
OR A SUBSTANTIAL PORTION OF THEIR ASSETS AND THE ASSETS OF THE COMPANY ARE
LOCATED OUTSIDE THE UNITED STATES. AS A RESULT, IT MAY NOT BE POSSIBLE FOR
INVESTORS TO EFFECT SERVICE OF PROCESS WITHIN THE UNITED STATES UPON SUCH
PERSONS OR TO ENFORCE JUDGMENTS AGAINST THE COMPANY OR SUCH PERSONS OBTAINED IN
UNITED STATES COURTS PREDICATED UPON THE CIVIL LIABILITY PROVISIONS OF THE
FEDERAL OR STATE SECURITIES LAWS OF THE UNITED STATES. THE COMPANY HAS BEEN
ADVISED BY APPLEBY, SPURLING & KEMPE, BERMUDA COUNSEL TO THE COMPANY, THAT THE
ENFORCEMENT OF JUDGMENTS OF UNITED STATES COURTS OBTAINED IN ACTIONS AGAINST THE
COMPANY OR SUCH PERSONS PREDICATED UPON THE CIVIL LIABILITY PROVISIONS OF THE
FEDERAL OR STATE SECURITIES LAWS AND THE ENFORCEABILITY, IN ORIGINAL ACTIONS, OF
LIABILITIES AGAINST THE COMPANY OR SUCH PERSONS PREDICATED SOLELY UPON THE
FEDERAL OR STATE SECURITIES LAWS OF THE UNITED STATES WOULD REQUIRE THE
COMMENCEMENT OF A SEPARATE ACTION IN THE BERMUDA COURTS. THE COMPANY HAS
IRREVOCABLY APPOINTED CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK
10019, AS ITS AUTHORIZED AGENT TO RECEIVE SERVICE OF PROCESS IN ANY LEGAL ACTION
OR PROCEEDING AGAINST IT BASED UPON THE FEDERAL OR STATE SECURITIES LAWS OF THE
UNITED STATES AND/OR ARISING OUT OF OR RELATING TO THIS OFFERING, AND WILL
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE
COURT LOCATED IN THE CITY OF NEW YORK, NEW YORK.
6
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data of the
Company. For a description of the Consolidated Financial Statements from which
the following financial data have been derived, see the introduction to
'Selected Consolidated Financial Data.' The summary consolidated financial data
set forth below should be read in conjunction with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
THREE MONTHS
YEAR ENDED THREE MONTHS ENDED ENDED
OCTOBER 31, 1995 OCTOBER 31, 1995 JANUARY 31, 1996
---------------- ---------------------- ----------------
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $ 63,707 $ 56,952 $ 124,544
Cost of sales.......................................... (55,266) (35,620) (22,599)
---------------- ----------- ----------------
Gross profit....................................... 8,441 21,332 101,945
Selling, general and administrative expenses........... (276,582) (97,682) (89,810)
Interest expense, net.................................. (17,838) (15,377) (12,219)
Other expenses, net.................................... (2,265) (1,137) (379)
---------------- ----------- ----------------
Loss before income taxes........................... (288,244) (92,864) (463)
Income tax benefit..................................... 47,560 15,323 76
---------------- ----------- ----------------
Net loss............................................... $ (240,684) $ (77,541) $ (387)
Net loss per common share.............................. $ (0.12) $ (0.04) $ --
Number of shares outstanding(1)........................ 2,000,000 2,000,000 2,000,000
JANUARY 31, 1996
------------------------------------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA(1)(2) ADJUSTED(2)(3)
---------------- ---------------------- ----------------
BALANCE SHEET DATA:
Total current assets................................... $150,534 $ 615,334 $5,538,834
Total assets........................................... $885,146 $1,349,946 $6,273,446
Total current liabilities.............................. $249,754 $ 619,754 $ 67,754
Total liabilities...................................... $673,333 $1,043,333 $ 95,833
Total shareholders' equity............................. $211,813 $ 306,613 $6,177,613
- ------------
(1) Assumes the consummation of the Reorganization and excludes (i) 300,000
shares of Common Stock reserved for future issuance pursuant to options
available for grant under the Stock Option Plan and (ii) 500,000 shares of
Common Stock reserved for future issuance pursuant to the Bridge Notes and
the Bridge Warrants. See 'Management -- Stock Option Plan,' 'Certain
Transactions' and 'Underwriting.'
(2) Gives pro forma effect to (i) the issuance of $370,000 principal amount of
Bridge Notes and (ii) the receipt in February 1996 of $94,800 of the
$300,000 of aggregate proceeds from the Hong Kong Placement. See 'Certain
Transactions.'
(3) Adjusted to give effect to (at an assumed initial public offering price of
$5.50 per Share and $0.10 per Warrant) (i) the receipt of the estimated net
proceeds of this Offering and the initial application of such estimated net
proceeds as described herein, and (ii) assuming that the Bridge Note holders
elect to be repaid with the proceeds of this Offering instead of converting
their Bridge Notes into shares of Common Stock as provided by the terms of
the Bridge Notes, (a) the issuance to the Bridge Note holders of 21,818
shares of Common Stock and Bridge Warrants to purchase an equal number of
shares of Common Stock and (b) the recognition of a non-recurring, non-cash
interest expense of $100,000 for the unamortized portion of the original
issue discount relating to the repayment of the Bridge Notes. In the event
that the holders of the Bridge Notes elect to convert each of the
convertible Bridge Notes into shares of Common Stock upon consummation of
this Offering (at an assumed initial public offering price of $5.50 per
Share), they will be entitled to receive 112,727 shares of Common Stock and
Bridge Warrants to purchase an additional 112,727 shares of Common Stock.
See 'Use of Proceeds' and 'Certain Transactions.'
7
RISK FACTORS
An investment in the Securities involves a high degree of risk. The
following risk factors should be considered carefully in addition to the other
information in this Prospectus before purchasing the Securities. Prospective
investors should be in a position to risk the loss of their entire investment.
BUSINESS RISKS
Limited Operating History. Since the South China Brewery commenced
commercial operations in June 1995, investors will not have a full fiscal year
of results on which to base an investment decision. The Company had a net loss
of $240,684 for the period ended October 31, 1995 and a net loss of $387 for the
quarter ended January 31, 1996. The results of the Company for the three months
ended January 31, 1996 may not be indicative of the Company's results for the
fiscal year ended October 31, 1996 and the Company expects that it will have a
net loss for the six months ended April 30, 1996. The Company's operations are
subject to all the risks inherent in an emerging business enterprise. These
include, but are not limited to, high expense levels relative to production,
complications and delays frequently encountered in connection with the
development and introduction of new products, the ability to recruit and retain
accomplished management personnel, competition from established breweries, the
need to expand production and distribution and the ability to establish and
sustain product quality. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
No Assurance of Ability to Establish Additional Breweries. The Company's
strategy includes the development of micro-breweries in the Pacific Rim, Europe
and Mexico through wholly-owned subsidiaries or through majority-owned joint
venture arrangements. Successful expansion will require management of various
factors associated with the construction of new facilities in geographically and
politically diverse locations. Factors include site selection, local land use
requirements, obtaining governmental permits and approvals, adequacy of
municipal infrastructure, environmental uncertainties, possible cost estimation
errors or overruns, additional financing, construction delays, weather problems
and other factors, many of which are beyond the Company's control. There can be
no assurance that the Company will be successful in establishing and operating
additional breweries. See 'Business -- Proposed Expansion Markets.'
No Assurance of Ability to Finance Additional Breweries; Effect of Start-Up
Expenses. Based on current estimates, the Company believes that the net
proceeds of this Offering will be sufficient to establish only five of seven
micro-breweries the Company intends to develop and operate by the end of 1997.
The Company currently plans that strategic local partners will purchase minority
equity interests in certain of the proposed breweries and also intends to
utilize debt financing so that the expected aggregate equity investment in each
brewery is approximately 50% of the total capitalization. There is no assurance
that the Company will be successful in locating local joint venture partners and
debt financing may not be available when needed or on terms acceptable to the
Company. Moreover, such debt financing will likely contain restrictive covenants
and result in security interests being granted in the assets of the Company and
its subsidiaries. If adequate financing is not available, the Company may be
required to delay expansion beyond that funded by the net proceeds of this
Offering. The Company anticipates that salaries, other overhead costs and
capital expenditures associated with such capacity expansion will be
significant. The Company does not expect that such additional capacity, when
available, will immediately be fully utilized. As a result, the Company's
results of operations are likely to be adversely affected in future periods as
it incurs start-up expenses in connection with new facilities that are operating
below maximum capacity. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' and 'Business -- Proposed Expansion
Markets.'
Brand Concentration; Development of New Brands. The sale of one brand of
beer accounted for approximately 19% of the South China Brewery's sales during
the quarter ended January 31, 1996. There can be no assurance that this brand
will achieve market acceptance or maintain its customer following. The Company
believes that its future growth will depend, in part, on its ability to
anticipate changes in consumer preferences and develop and introduce, in a
timely manner, new brands that adequately address such changes. There can be no
assurance that the Company will be successful in
8
developing, introducing and marketing new brands on a timely and regular basis.
If the Company is unable to introduce new brands or if the Company's new brands
are not successful, the Company's sales may be adversely affected as customers
seek competitive products. In addition, the introduction or announcement of new
brands by the Company could result in reduction of sales of the Company's
existing brands, requiring the Company to manage carefully product introductions
in order to minimize disruption in sales of existing beers. There can be no
assurance that the introduction of new product offerings by the Company will not
cause consumers to reduce purchases or consumption of existing Company products.
Such reduction of purchases or consumption could have a material adverse effect
on the Company's business, results of operations and financial condition. See
'Business -- Products.'
No Assurance of Market Acceptance; Unpredictable Trends in Consumer
Preferences and Spending. The products of micro-breweries are generally not
established in the consumer markets of the Pacific Rim, Europe and Mexico. No
assurance can be given that specialty beers will be accepted in the markets into
which the Company intends to expand. Changes in consumer spending can affect
both the quality and the price of the Company's products and may therefore
affect the Company's operating results. For example, reduced consumer confidence
and spending may result in reduced demand for the Company's products,
limitations on its ability to increase or maintain prices and increases in
required levels of selling, advertising and promotional expenses. Demographics
of a market area may also affect spending patterns. In addition, consumer tastes
may change over time or may vary in the markets which the Company plans to enter
and there is no assurance that the same level of sales and operating margins can
be maintained in the Company's existing market or achieved in new markets.
Similarly, there can be no assurance that the Company's products will be
successful in its existing market or will penetrate new markets. See
'Business -- Proposed Expansion Markets.'
Risk of Third Party Claims of Infringement of Intellectual Property. The
Company will rely on a combination of trade secret, copyright and trademark
laws, non-disclosure and other arrangements to protect its proprietary rights.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or obtain and use information that the Company
regards as proprietary. There can be no assurance that the steps taken by the
Company to protect its proprietary information will prevent misappropriation of
such information and such protections may not preclude competitors from
developing confusingly similar brand names or promotional materials or
developing products with taste and other qualities similar to the Company's
beers. See 'Business -- Intellectual Property.'
No Assurance of Availability of Raw Materials. The South China Brewery
relies upon a single supplier (other than for labels) for each of the raw
materials used to make and package its beers. Although to date the South China
Brewery has been able to obtain adequate supplies of these ingredients and other
raw materials in a timely manner from those sources, if the South China Brewery
were unable to obtain adequate quantities of ingredients or other raw materials,
delays or reductions in product shipments could occur which would have an
adverse effect on the South China Brewery's business, results of operations and
financial condition. As with most agricultural products, the supply and price of
raw materials used to produce the South China Brewery's beers can be affected by
factors beyond the control of the South China Brewery, such as drought, frost,
other weather conditions, economic factors affecting growing decisions, various
plant diseases and pests. If any of the foregoing were to occur, the Company's
business, results of operations and financial condition would be adversely
affected. In addition, the Company's results of operations are dependent upon
its ability to accurately forecast its requirements of raw materials. Any
failure by the Company to accurately forecast its demand for raw materials could
result in the Company either being unable to meet higher than anticipated demand
for its products or producing excess inventory, either of which may adversely
affect the Company's business, results of operations and financial condition.
See 'Business -- Brewing Operations' and ' -- Suppliers.'
Highly Competitive Market. The beer industry is intensely competitive.
While there are no other craft brewers in Hong Kong, the South China Brewery
competes directly with premium import beers as well as with mass-produced beers
marketed by a number of much larger producers. Some much larger United States
beer producers are currently marketing their beers in the United States as craft
beers. There can be no assurance that, in the future, the Company will not face
competition from mass-
9
produced beer marketed internationally as craft beer. Similarly, the Company may
face competition from brewers or other investors who wish to establish
American-style micro-breweries in Hong Kong or in areas in which the Company
plans to locate proposed breweries. See 'Business -- Competition.'
Dependence on Key Personnel. Management of the Company's business is at
this time substantially dependent on the services of the Company's Chairman,
Peter W. H. Bordeaux, its Deputy Chairman, Federico G. Cabo Alvarez, its
Executive Vice President and Chief Operating Officer, James L. Ake, and its
Managing Director for Hong Kong Operations, David K. Haines. Competition for
qualified executive personnel in the beverage alcohol industry is intense and
the Company will compete with public and private organizations and other
companies for the services of such personnel. Although the Company has
employment agreements with Messrs. Ake and Haines, there can be no assurance
that they will remain with the Company. Loss of the services of Messrs.
Bordeaux, Ake, Haines or of any other key management employee could have an
adverse effect on the Company's business. Expansion will require recruiting and
hiring additional key employees, including sales representatives. There can be
no assurance that the Company will be able to hire such persons when needed or
on favorable terms or that any such new employees will be successfully
assimilated into the Company's management. See 'Management.'
Product Liability Risk. The Company's operations are subject to certain
hazards and liability risks faced by all brewers, such as potential
contamination of ingredients or products by bacteria or other external agents
that may be wrongfully or accidentally introduced into products or packaging.
There can be no assurance that any such contamination will not occur. The
occurrence of such a problem could result in a costly product recall and serious
damage to the Company's reputation for product quality. In addition, the
Company's products are not pasteurized and have a 90-day shelf life. The
Company's operations are also subject to certain injury and liability risks
normally associated with the operation and possible malfunction of brewing and
other equipment. Although the Company maintains insurance against certain risks
under various general liability and product liability insurance policies, there
can be no assurance that the Company's insurance will be adequate. See
'Business -- Brewing Operations,' ' -- South China Facility' and
' -- Insurance.'
Single Wholesale Production Facility and Uninsured Losses. The Company
currently utilizes one production facility for which it has obtained
comprehensive insurance, including liability, fire and extended coverage, as is
customarily obtained for businesses similar to the Company's. Certain types of
losses of a catastrophic nature, however, such as losses resulting from floods,
tornadoes, thunderstorms and earthquakes, are either uninsurable or not
economically insurable to the full extent of potential losses. No assurance can
be given that such 'Acts of God,' work stoppages, regulatory actions or other
events interrupting production would not have an adverse effect on the Company's
business, financial condition and results of operations. See
'Business -- Insurance.'
Variability of Margins and Operating Results. The Company anticipates that
in the future its profit margins will fluctuate and may decline as a result of
many factors, including disproportionate depreciation and other fixed and
semi-variable operating costs during periods when the Company's breweries are
producing below maximum designed production capacity; increased shipping, sales
personnel and marketing costs as the Company penetrates additional markets;
fluctuating prices; increasing competition; possible increases in the cost of
packaging materials and brewing ingredients; changes in product sales mix;
potential increases in Hong Kong excise taxes or taxes in other jurisdictions in
which the Company expands or distributes products; and start-up, overhead and
other costs resulting from establishment of new breweries and distribution of
the Company's products. In addition, the Company has historically operated with
little or no backlog, and its ability to predict sales for an upcoming quarter
is limited. Due to its reliance on Company-owned and/or operated breweries, a
significant portion of the Company's overhead will not be susceptible to
short-term adjustment in response to sales below management's expectations, and
an excess of production capacity could therefore have a significant negative
impact on the Company's operating results. A variety of other factors may also
lead to significant fluctuations in the Company's quarterly results of
operations, including timing of new brewery introductions, seasonality of
demand, and general economic conditions.
10
RISKS OF INTERNATIONAL OPERATIONS
The Company currently intends to establish its micro-breweries only in
locations outside the United States. Accordingly, the Company will be subject to
various political, economic and other risks present in conducting international
operations. Such risks include the following:
Hong Kong -- Transfer of Sovereignty. Substantially all the Company's
assets are currently located in Hong Kong. As a result, the Company's
business, results of operations and financial condition may be influenced
by the political situation in Hong Kong and by the general state of the
Hong Kong economy. On July 1, 1997, sovereignty over Hong Kong will be
transferred from the United Kingdom to the People's Republic of China, and
Hong Kong will become a Special Administrative Region of China (an 'SAR').
As provided in the Sino-British Joint Declaration on the Question of Hong
Kong and the Basic Law of the Hong Kong SAR of China (the 'Basic Law'), the
Hong Kong SAR will have a high degree of autonomy except in foreign and
defense affairs. Under the Basic Law, the Hong Kong SAR is to have its own
legislature, legal and judicial system and full economic autonomy for 50
years. However, there can be no assurance that the transfer of sovereignty
and changes in political or other conditions will not result in an adverse
impact on the Company's business, results of operations or financial
condition.
Risks Relating to China. The Company plans to establish a
micro-brewery in China either through a wholly-owned subsidiary or a
majority-owned joint venture and to increase direct sales in China of beer
brewed at its Hong Kong facility. As a consequence, the Company's results
of operations and financial condition may be influenced by the economic,
political, legal and social conditions in China. China is in the process of
implementing a 'socialist market economy' in which market forces are
expected to have a significant role, subject to policies and macro-economic
regulations established by the Chinese government. Economic growth in China
has been uneven among various sectors of the economy and among geographic
regions. Many of the economic reform measures which have been implemented
are experimental and may be subject to change or repeal. Other political,
economic and social factors can also lead to further readjustment of the
reform measures. There is no assurance that the current government and
economic system will remain stable. The legislative trend in China over the
past decade has been to enhance the protection afforded to foreign
investment and allow for more active control by foreign parties of foreign
invested enterprises. There can be no assurance, however, that legislation
directed towards promoting foreign investment and experimentation will
continue.
Foreign Exchange and Exchange Rate Risks. If the Company successfully
acquires interests in joint ventures or establishes new breweries located
in the Pacific Rim, Europe or Mexico, the Company expects that a
substantial portion of the revenues of such breweries, as well as revenues
generated by its South China Brewery, will be denominated in local
currency. A portion of such revenues will need to be converted to U.S.
dollars in order for the Company to pay dividends in U.S. dollars. Both the
conversion of local currencies into U.S. dollars and the remittance of
local currencies abroad, depending on the local laws where such brewery
operates, may require government approval. There can be no assurance that
the breweries will be able to obtain expatriate currency for such purposes
or that the Company will be able to convert such currency into U.S.
dollars.
Risk of Governmental Regulation. The Company's operations require and
will require various licenses, permits and approvals in Hong Kong and in
other locations. The loss or revocation of any existing licenses, permits
or approvals or the failure to obtain any necessary licenses, permits or
approvals in new jurisdictions where the Company intends to do business
would have an adverse effect on the ability of the Company to conduct its
business and/or on its ability to expand into such jurisdictions.
Authorization to commence brewing operations will be required in each
country in which the Company intends to operate breweries. No assurance can
be given that the Company will obtain such authorization, licenses or other
necessary approvals. In addition, countries in which the Company wishes to
operate breweries may have regulatory schemes that impose other impediments
on the operation of breweries. There can be no assurance that the Company
will be able to profitably operate breweries in light of these
restrictions. See 'Business -- Government Regulation.'
11
Risks of Foreign Legal Systems. Many of the countries where the
Company plans to operate have legal systems that differ from the United
States legal system and may provide substantially less protection for
foreign investors.
STRUCTURAL, MARKET AND CORPORATE GOVERNANCE RISKS
Rights of Stockholders under Bermuda Law. The Company is incorporated
under the laws of the Islands of Bermuda. Principles of law relating to such
matters as the validity of corporate procedures, the fiduciary duties of the
Company's management, directors and controlling stockholders, and the rights of
its stockholders, including those persons who will become stockholders of the
Company in connection with this Offering, are governed by Bermuda law and the
Company's Memorandum of Amalgamation and Bye-laws. Such principles of law may
differ from those that would apply if the Company were incorporated in a
jurisdiction in the United States. In addition, the Company has been advised by
Appleby, Spurling & Kempe, its Bermuda counsel, that there is uncertainty as to
whether the courts of Bermuda would enforce (i) judgments of United States
courts obtained against the Company or its officers and directors resident in
foreign countries predicated upon the civil liability provisions of the
securities laws of the United States or any state or (ii) in original actions
brought in Bermuda, liabilities against the Company or such persons predicated
upon the securities laws of the United States or any state. See 'Description of
Securities -- Bermuda Law.'
Effect of Issuance of Preferred Stock. The Company's Memorandum of
Amalgamation authorizes the issuance of 500,000 shares of 'blank check'
preferred stock, with designations, rights and preferences that may be
determined from time to time by the Board of Directors. At the time of this
Offering, none of the shares of preferred stock will be issued and outstanding.
However, the Board of Directors is empowered, subject to the consent of the
Representative for a period of thirteen (13) months from the date of this
Prospectus, to issue the preferred stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of the Common Stock. In addition, such charter provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Company's Common Stock and may have the effect of
delaying or preventing a change in control of the Company. The issuance of
preferred stock could also decrease the amount of earnings and assets available
for distribution to the holders of the Common Stock. There can be no assurance
that the Company will not issue preferred stock at some time in the future. See
'Description of Securities -- Preferred Stock.'
Effect of Stock Options. In accordance with the Stock Option Plan, the
Company has reserved a total of 300,000 authorized but unissued shares of Common
Stock for issuance to executive employees and directors. The committee
administering the Stock Option Plan will have sole authority and discretion to
grant options under the Stock Option Plan. Options granted will be exercisable
during the period specified by the committee administering the Stock Option Plan
except that options will become immediately exercisable in the event of a Change
in Control (as defined in the Stock Option Plan) of the Company and in the event
of certain mergers and reorganizations of the Company. The existence of such
options could limit the price that certain investors might be willing to pay in
the future for shares of the Company's Common Stock and may have the effect of
delaying or preventing a change in control of the Company. The exercise of such
options could also decrease the amount of earnings and assets available for
distribution to the holders of the Common Stock. See 'Management -- Stock Option
Plan.'
Shares Eligible for Future Sale. The Shares and Warrants will be freely
tradeable unless acquired by affiliates of the Company. The market price of the
Common Stock and/or the Warrants of the Company could be adversely affected by
the sale of substantial amounts of Common Stock in the public market following
this Offering. No prediction can be made as to the effect that future sales of
Common Stock and of the availability of the shares of Common Stock for future
sale will have on the market prices of the Common Stock and the Warrants
prevailing from time to time. The Company and the existing stockholders (and any
holders of outstanding securities exercisable or exchangeable for or convertible
into shares of Common Stock) have agreed not to, directly or indirectly, issue,
offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option
for purchase or sale of, pledge, hypothecate or otherwise dispose of any
beneficial interest in such securities for a period of thirteen (13) months from
the date of this Prospectus without the prior written consent of the Company and
the
12
Representative other than, in the case of such stockholders, (i) shares of
Common Stock transferred pursuant to bona fide gifts when the transferee agrees
in writing to be similarly bound or (ii) securities transferred through the law
of descent, and in the case of the Company, (a) pursuant to options existing on
the date of this Prospectus and pursuant to the exercise of the Warrants and the
Representative's Warrants or pursuant to the terms of the Bridge Notes and the
Bridge Warrants or (b) debt securities issued to non-affiliated third parties in
connection with bona fide business acquisitions and/or expansion consistent with
the Company's business plans as generally described in this Prospectus. The
registration, sale or issuance of Common Stock after that thirteen month period
could have an adverse impact on the market prices of the Shares and/or the
Warrants. Sales of substantial amounts of Common Stock or the perception that
such sales could occur could adversely affect the prevailing market prices for
the Common Stock and/or the Warrants. Upon expiration of this period, all such
shares may be sold subject to the limitations of, and in accordance with, Rule
144 under the Securities Act of 1933 (the 'Securities Act'). Additional shares
of Common Stock, including shares issuable upon exercise of options issued
pursuant to the Stock Option Plan and shares underlying the Representative's
Warrants, Bridge Warrants and the Warrants will also become eligible for sale in
the public market from time to time in the future. See 'Certain Transactions,'
'Description of Securities,' 'Shares Eligible for Future Sale' and
'Underwriting.'
Control by Existing Stockholders; Benefits of Offering to Existing
Stockholders. Following this Offering, the Company's directors, officers and
principal (greater than 5%) stockholders, and certain of their affiliates, will
beneficially own approximately 57% of the outstanding shares of Common Stock,
including 21,818 shares of Common Stock issuable upon consummation of this
Offering pursuant to the terms of Bridge Notes assuming an initial public
offering price per Share of $5.50 and no conversion of the convertible Bridge
Notes. As a result of such ownership, these stockholders will be able to control
the election of all directors and other actions submitted to a vote of the
Company's stockholders. Certain former and existing stockholders provided,
respectively, a guarantee and letters of credit in connection with a Promissory
Note issued to Hibernia National Bank on March 31, 1995 with principal payments
due on September 30, 1996 and March 31, 1997 (the 'Hibernia Note') and an
existing stockholder made a direct loan to the Company pursuant to a Limited
Recourse Promissory Note issued to BPW Holding LLC on March 5, 1996 (the 'BPW
Note'). A portion of the net proceeds of this Offering will be used to retire
both the Hibernia Note and the BPW Note. In addition, a portion of the net
proceeds of this Offering will be used to retire up to $370,000 of Bridge Notes
at the consummation of this Offering. The existing stockholders will benefit
from the use of the proceeds of this Offering. See 'Use of Proceeds,'
'Dilution,' 'Principal Stockholders' and 'Certain Transactions.'
Potential Adverse Effects of the Exercise of Warrants. The Warrants
offered hereby grant the holders the right to purchase 1,333,333 shares of
Common Stock commencing six months from the date hereof at 150% of the initial
public offering price per share of Common Stock. The Company will also grant, in
connection with this Offering, the Representative's Warrants which entitle the
Representative to purchase up to 133,333 shares of Common Stock at a price of
150% of the initial public offering price per share and up to 133,333 warrants
each entitling the holder thereof to purchase one share of Common Stock at a
price of 150% of the initial public offering price per Share, at an exercise
price of $0.15 per warrant, for a period of four years commencing on the first
anniversary of the date hereof. In addition, the Company has granted the Bridge
Warrants entitling the holders thereof the right to purchase, in the aggregate,
up to that number of shares of Common Stock equal to the sum of (i) the quotient
obtained by dividing 120,000 by the initial public offering price per Share and
(ii) the quotient obtained by dividing the principal amount of the Bridge Notes
converted into shares of Common Stock upon the consummation of this Offering by
the product of 0.5 and the initial public offering price per Share in each case
commencing six months from the date hereof at 150% of the initial public
offering price per Share. Assuming an initial public offering price per Share of
$5.50 and no conversion of the Bridge Notes convertible into shares of Common
Stock upon the consummation of this Offering, the Bridge Warrants will, in the
aggregate, entitle the holders thereof to purchase up to 21,818 shares of Common
Stock (112,727 shares of Common Stock assuming full conversion of the
convertible Bridge Notes). The existence of the Warrants, the Representative's
Warrants and the Bridge Warrants may prove to be a hinderance to future
financing by the Company. In addition, the exercise of any such warrants may
further dilute the net tangible book value of the Shares. For the term of the
Warrants, the
13
Representative's Warrants and the Bridge Warrants, the holders thereof will have
the opportunity to profit from a rise in the market price of the Common Stock
without assuming risk of ownership, with a resulting dilution in the interest of
other security holders. As long as the Warrants, the Representative's Warrants
and the Bridge Warrants remain unexercised, the Company's ability to obtain
additional equity capital might be adversely affected. Moreover, the holders may
be expected to exercise such warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital through a new offering of its
securities on terms more favorable than those provided by the currently
outstanding warrants. The Company has agreed that, under certain circumstances,
it will register under federal and state securities laws the shares of Common
Stock and warrants underlying the Representative's Warrants. These registration
obligations could involve substantial expense to the Company and may adversely
affect the terms upon which the Company may obtain additional financing. See
'Certain Transactions,' 'Description of Securities' and 'Underwriting.'
Necessity of Future Registration of Warrants and State Blue Sky
Registration; Exercise of Warrants. The Warrants are separately transferable
immediately upon issuance. Although the Warrants will not knowingly be sold to
purchasers in jurisdictions in which the Warrants are not registered or
otherwise qualified for sale or exempt, purchasers may buy Warrants in the
after-market in, or may move to, jurisdictions in which the Warrants and the
Common Stock underlying the Warrants are not so registered or qualified or
exempt. In this event, the Company would be unable lawfully to issue Common
Stock to those persons desiring to exercise their Warrants (and the Warrants
would not be exercisable by those persons) unless and until the Warrants and the
underlying Common Stock are registered, or qualified for sale in jurisdictions
in which such purchasers reside, or an exemption from such registration or
qualification requirement exists in such jurisdictions. There can be no
assurance that the Company will be able to effect any required registration or
qualification.
The Warrants will not be exercisable unless the Company maintains a current
effective registration statement under the Securities Act either by filing
post-effective amendments to the Registration Statement of which this Prospectus
is a part or by filing a new registration statement with respect to the exercise
of the Warrants. The Company has agreed to use its reasonable efforts to file
and maintain, so long as the Warrants are exercisable, a current effective
registration statement relating to the Warrants and the shares of Common Stock
underlying the Warrants. However, there can be no assurance that it will be able
to do so or that the Warrants or such underlying Common Stock will be or
continue to be so registered.
The value of the Warrants could be adversely affected if a then-current
prospectus covering the Common Stock issuable upon exercise of the Warrants is
not available pursuant to an effective registration statement or if such Common
Stock is not registered or qualified for sale or exempt from registration or
qualification in the jurisdictions in which the holders of the Warrants reside.
See 'Description of Securities -- Warrants.'
Relationship of Representative to Trading; Possible Limitation on Market
Making Activities. The Representative may act as a broker-dealer with respect
to the purchase or sale of the Shares and the Warrants in the market where each
will trade and may solicit exercise of the Warrants. In addition, the
Representative and its designees may exercise their registration rights with
respect to the Common Stock or warrants underlying the Representative's
Warrants. Unless granted an exemption by the Securities and Exchange Commission
(the 'Commission') from Rule 10b-6 ('Rule 10b-6') under the Securities Exchange
Act of 1934 (the 'Exchange Act'), the Representative and any other soliciting
broker-dealers will be prohibited from engaging in any market making activities
or solicited brokerage activities with respect to the Company's securities
during periods prescribed by exemptions (xi) and (xii) to Rule 10b-6 (i) before
the solicitation of the exercise of any Warrants until the later of the
termination of such solicitation activity or the termination of any right the
Representative may have to receive commissions for further solicitation of
Warrants and (ii) during any distribution of the Common Stock and Warrants
underlying the Representative's Warrants as well as during any other
distribution of the Company's securities in which the Representative is
participating. As a result, the Representative and any other soliciting
broker-dealers and participants in any distribution of the Company's securities
may be unable to continue to make a market for the Company's securities during
certain periods while the Warrants are exercisable and during any distribution
of the Company's securities in which the
14
Representative is participating. Such a limitation, while in effect, could
impair the liquidity and market price of the Securities. See 'Underwriting.'
Potential Adverse Effect of Redemption of Warrants. Commencing eighteen
(18) months after the date of this Prospectus, all, but not less than all, of
the Warrants are subject to redemption at $0.10 per Warrant on thirty (30) days
prior written notice to the warrantholders if the per share closing bid
quotation of the Shares as reported on Nasdaq equals or exceeds 160% of the
initial public offering price per share of Common Stock for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. If the
Warrants are redeemed, holders of the Warrants will lose their rights to
exercise after the expiration of the 30-day notice of redemption period. Upon
receipt of the notice of redemption, holders would be required to: (i) exercise
the Warrants and pay the exercise price at a time when it may be disadvantageous
for them to do so, (ii) sell the Warrants at the current market price, if any,
when they might otherwise wish to hold the Warrants, or (iii) accept the
redemption price which is likely to be substantially less than the market value
of the Warrants at the time of redemption. Warrantholders whose Warrants are
redeemed would also lose the potential for appreciation in the Common Stock
underlying the Warrants. See 'Description of Securities -- Warrants.'
Limited Underwriting History. Although National Securities Corporation,
the Representative of the several Underwriters, has been in business for over 40
years, the Representative has participated in only seven public offerings as an
underwriter in the last five years. In evaluating an investment in the Company,
prospective investors in the Securities offered hereby should consider the
Representative's limited experience. See 'Underwriting.'
No Prior Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Securities and there can be no
assurance that an active public market for the Securities will develop or
continue after this Offering or that the market prices of the Securities will
not decline below their respective initial public offering prices. The initial
public offering prices of the Securities was determined by negotiations between
the Company and the Representative, and may not be indicative of the market
price for the Securities after this Offering. See 'Underwriting' for factors to
be considered in determining the initial public offering prices. From time to
time after this Offering, there may be significant volatility in the market
prices of the Securities. Quarterly operating results of the Company,
announcements of new breweries or the introduction of new products by the
Company or its competitors, developments in the Company's relationships with its
suppliers, joint venture brewing partners or distributors, regulatory
developments, general market conditions or other developments affecting the
Company or its competitors could cause the respective market prices of the
Securities to fluctuate substantially. The equity markets have, on occasion,
experienced significant price and volume fluctuations that have affected the
market prices for many companies' securities and that have often been unrelated
to the operating performance of these companies. Any such fluctuations that
occur following completion of this Offering may adversely affect the respective
market prices of the Securities.
Immediate and Substantial Dilution. The purchasers of the Shares will
experience immediate and substantial dilution in pro forma net tangible book
value in the amount of $3.66 per Share. The Company's current stockholders
acquired shares of Common Stock for consideration that was substantially less
than the public offering price of the shares of Common Stock offered hereby. As
a result, new investors will bear substantially all of the risks inherent in an
investment in the Company. In the event that the Company issues additional
shares of Common Stock in the future, including shares that may be issued in
connection with future acquisitions, purchasers of shares may experience further
dilution in net tangible book value per share of the Common Stock of the
Company. Three hundred thousand shares of Common Stock have been reserved for
issuance upon exercise of options granted pursuant to the Stock Option Plan,
500,000 shares of Common Stock have been reserved for future issuance pursuant
to the Bridge Notes and the Bridge Warrants and 266,666 shares of Common Stock
have been reserved for issuance pursuant to the Representative's Warrants. The
issuance of Common Stock under the Stock Option Plan or pursuant to the Bridge
Notes, the Bridge Warrants or the Representative's Warrants may result in
further dilution to new investors. Assuming an initial public offering price per
Share of $5.50, the Company could be required to issue up to 225,454 Shares of
15
Common Stock pursuant to the terms of the Bridge Notes and the Bridge Warrants.
See 'Dilution,' 'Management -- Stock Option Plan.'
Management's Broad Discretion in Use of Proceeds. Although the Company
intends to apply the net proceeds of this Offering in the manner described under
'Use of Proceeds,' it has broad discretion within such proposed uses as to the
precise allocation of the net proceeds, the timing of expenditures and all other
aspects of the use thereof. The Company reserves the right to reallocate the net
proceeds of this Offering among the various categories set forth under 'Use of
Proceeds' as it, in its sole discretion, deems necessary or advisable.
Dividend Policy. The Company intends to retain all earnings to finance the
development and expansion of its business and does not intend to pay cash
dividends on the Common Stock in the foreseeable future. Any future declaration
of dividends will depend, among other things, on the Company's results of
operations, capital requirements and financial condition, and on such other
factors as the Company's Board of Directors may, in its discretion, consider
relevant. See 'Dividend Policy.'
THE COMPANY
AmBrew International owns and operates the South China Brewery, Hong Kong,
the first of a series of American-style micro-breweries the Company intends to
establish in selected locations in the Pacific Rim, Europe and Mexico.
AmBrew International was incorporated in Bermuda in June 1996. AmBrew
International is a holding company whose assets following the Reorganization
consist of all of the outstanding shares of the Hong Kong companies comprising
the South China Brewery. See 'Prospectus Summary' and Note 1 to Notes to
Consolidated Financial Statements. The South China Brewery companies were
established in 1994 by a group of investors involved in the alcohol beverage
industry.
AmBrew International's principal executive office is located at Unit A1,
1/F Vita Tower, 29 Wong Chuk Hang, Aberdeen, Hong Kong and its telephone number
is 011-8522-580-2506.
16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby after deducting estimated underwriting discounts and commissions and
expenses payable by the Company in connection with this Offering, are estimated
to be approximately $5.9 million ($6.8 million if the Over-allotment Option is
exercised in full) assuming initial public offering prices of $5.50 per Share
and $0.10 per Warrant.
Up to $370,000 of the net proceeds will be used to retire the Bridge Notes,
due September 1, 1997, with an interest rate of 12% per annum; $452,000 of the
net proceeds will be used to retire the remaining principal amount of the
Hibernia Note, with principal payments due on September 30, 1996 and March 31,
1997 and an interest rate of Citibank prime plus 0.5%; and $65,000 of the net
proceeds will be used to retire the BPW Note, due ten days after the
consummation of this Offering with an interest rate of 5.5% per annum.
Approximately $5 million of the net proceeds will be used to make capital
expenditures in connection with the establishment of certain of the Company's
proposed breweries in the Pacific Rim, Europe and Mexico through wholly-owned
subsidiaries or through majority-owned joint venture arrangements with strategic
local partners, including $2.8 million for the purchase of micro-brewing
equipment from Micro Brew Systems, or another comparable provider of brewing
equipment. The remainder of the net proceeds, if any, will be used for working
capital and other general corporate purposes.
The proceeds of the Bridge Notes were used to finance a portion of the
expenses of this Offering. See 'Certain Transactions.'
The Company believes that the net proceeds of this Offering will be
sufficient to establish five of seven micro-breweries it intends to develop and
operate by the end of 1997. See 'Risk Factors.' The Company currently plans that
strategic local partners will purchase minority equity interests in certain of
the proposed breweries and also intends to utilize debt financing so that the
expected aggregate equity investment in each brewery is approximately 50% of
total capitalization. The Company believes that this financing, if obtained on
acceptable terms, in conjunction with the net proceeds of this Offering, will
enable the Company to establish seven proposed breweries. Pending the
aforementioned uses, the net proceeds from this Offering will be invested in
interest-bearing government securities or short-term investment-grade
securities.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock. The
Company intends to retain all earnings to finance the development and expansion
of its business and does not intend to pay cash dividends on the Common Stock in
the foreseeable future. The payment of any dividends in the future will depend,
among other things, on the Company's results of operations, capital requirements
and financial condition, and on such other factors as the Company's Board of
Directors may, in its discretion, consider relevant.
The amount of dividends payable by the South China Brewery as well as by
future subsidiaries of the Company operating the proposed expansion breweries is
and will be subject to general limitations imposed by the corporate laws of the
respective jurisdictions of incorporation of such subsidiaries as well as
restrictions in debt agreements. Dividends paid to the Company by these
subsidiaries may be subject to investment registration requirements and
withholding requirements.
17
CAPITALIZATION
The following table sets forth the capitalization of the Company at January
31, 1996, (i) on an actual basis, (ii) on a pro forma basis giving effect to (a)
the issuance of $370,000 principal amount of Bridge Notes and (b) the receipt in
February 1996 of $94,800 of the $300,000 of aggregate proceeds from the Hong
Kong Placement and (iii) on a pro forma, as adjusted basis to give effect to (at
an assumed initial public offering price of $5.50 per Share and $0.10 per
Warrant) (x) the receipt of the estimated net proceeds of this Offering and the
initial application of such estimated net proceeds as described in 'Use of
Proceeds' and (y) assuming that the Bridge Note holders elect to be repaid with
the proceeds of this Offering instead of converting their Bridge Notes into
shares of Common Stock as provided by the terms of the Bridge Notes (I) the
issuance to the Bridge Note holders of 21,818 shares of Common Stock at no cost
and Bridge Warrants to purchase an equal number of shares of Common Stock and
(II) the recognition of a non-recurring, non-cash interest expense of $100,000
for the unamortized portion of the original issue discount relating to the
repayment of the Bridge Notes. In the event that the holders of the Bridge Notes
elect to convert each of the convertible Bridge Notes into shares of Common
Stock upon consummation of this Offering (at an assumed initial public offering
price of $5.50 per Share), they will be entitled to receive 112,727 shares of
Common Stock and Bridge Warrants to purchase an additional 112,727 shares of
Common Stock. See 'Certain Transactions.'
JANUARY 31, 1996
-----------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- -------------
Current portion of long-term bank loan................................ $ 113,000 $ 113,000 $ --
Bridge Notes payable(1)............................................... 0 370,000 0
Current portion of capital lease obligations.......................... 12,858 12,858 12,858
Shareholders' loans................................................... 85,638 85,638 20,638
--------- ----------- -------------
Total current portion of debt.................................... 211,496 581,496 33,496
Long-term bank loan, net of current portion........................... 395,500 395,500 --
Capital lease obligations, net of current portion..................... 28,079 28,079 28,079
--------- ----------- -------------
Total non-current portion of debt................................ 423,579 423,579 28,079
Stockholders' equity:
Common Stock, $0.01 par value; 10,000,000 shares authorized,
2,000,000 shares outstanding actual and pro forma(2), and
3,355,151 shares outstanding pro forma, as adjusted(3)......... 645 649 13,982
Additional paid-in capital....................................... 460,015 554,811 6,512,478
Preferred Stock, $0.01 par value, 500,000 shares authorized and
no shares outstanding.......................................... -- -- --
Accumulated deficit.............................................. (248,847) (248,847 ) (348,847)
--------- ----------- -------------
Total stockholders' equity....................................... 211,813 306,613 6,177,613
--------- ----------- -------------
Total capitalization................................... $ 846,888 $1,311,688 $ 6,239,188
--------- ----------- -------------
--------- ----------- -------------
- ------------
(1) The Bridge Notes were issued in May 1996 to finance a portion of the
expenses of this Offering. See 'Certain Transactions.'
(2) Excludes (i) 300,000 shares of Common Stock reserved for future issuance
pursuant to options available for grant under the Stock Option Plan and (ii)
500,000 shares of Common Stock reserved for future issuance pursuant to the
Bridge Notes and the Bridge Warrants. See 'Management -- Stock Option Plan,'
'Certain Transactions' and 'Underwriting.'
(3) Includes the issuance of 21,818 shares of Common Stock upon the consummation
of this Offering pursuant to the terms of the Bridge Notes assuming no
conversion of the convertible Bridge Notes (112,727 shares of Common Stock
assuming full conversion of the convertible Bridge Notes and an initial
public offering price per Share of $5.50).
18
DILUTION
The net tangible book value of the South China Brewery at January 31, 1996
was approximately $306,613, or $0.15 per share of Common Stock including in the
calculation 21,818 shares of Common Stock issuable pursuant to the terms of the
Bridge Notes upon the consummation of this Offering (assuming an initial public
offering price per Share of $5.50 and no conversion of the convertible Bridge
Notes). Net tangible book value per share represents the amount of the Company's
total tangible assets less total liabilities divided by the number of shares of
Common Stock outstanding at that date and the receipt of $94,800 in February
1996 pursuant to the Hong Kong Placement. After giving effect to the sale of the
Shares and the Warrants at an assumed initial public offering price of $5.50 per
Share and $0.10 per Warrant, and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company, the
Company's pro forma, as adjusted net tangible book value at January 31, 1996
would have been $6,177,613 or $1.84 per share of Common Stock. This represents
an immediate increase in the net tangible book value of $1.69 per share to
existing stockholders and an immediate dilution of $3.66 per share to new
investors purchasing Shares in this Offering. The following table illustrates
this per share dilution:
Assumed initial public offering price per share.............................. $5.50
Net tangible book value per share at January 31, 1996........................ $0.15
Increase per share attributable to new investors............................. $1.69
-----
Pro forma, as adjusted net tangible book value per share after the
Offering................................................................... $1.84
-----
Dilution per share to new investors.......................................... $3.66
-----
-----
The computations in the table set forth above assume that the
Over-allotment Option is not exercised. If the Over-allotment Option is
exercised in full, the pro forma net tangible book value at January 31, 1996
would have been $7,152,012 or $2.01 per share of Common Stock.
The following table summarizes, on a pro forma, as adjusted basis, after
giving effect to this Offering and to the issuance of 21,818 shares of Common
Stock issuable pursuant to the terms of the Bridge Notes upon the consummation
of this Offering (assuming no conversion of the convertible Bridge Notes), the
number of shares purchased from the Company, the total consideration paid and
the average price per share paid by the existing stockholders and by the new
investors at an assumed initial public offering price of $5.50 per Share:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
Existing stockholders................................... 2,021,818 60.3% $ 555,460 7.0% $0.27
New investors........................................... 1,333,333 39.7% 7,333,332 93.0% $5.50
--------- ------- ---------- -------
Total.............................................. 3,355,151 100.0% $7,888,792 100.0%
--------- ------- ---------- -------
--------- ------- ---------- -------
The information presented above, with respect to existing stockholders,
assumes no exercise of the Over-allotment Option. In addition, 1,599,999 shares
of Common Stock have been reserved for issuance upon exercise of the Warrants
and 266,666 shares of Common Stock have been reserved for issuance upon exercise
of the Representative's Warrants, 300,000 shares of Common Stock have been
reserved for future issuance upon exercise of options granted pursuant to the
Stock Option Plan and 21,818 shares of Common Stock have been reserved for
future issuance pursuant to the Bridge Warrants assuming no conversion of the
convertible Bridge Notes (112,727 shares of Common Stock assuming full
conversion of the convertible Bridge Notes) and an initial public offering price
of $5.50 per Share. The issuance of such shares of Common Stock may result in
further dilution to new investors. See 'Management -- Stock Option Plan' and
'Underwriting.'
19
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the fiscal year ended October
31, 1995, have been derived from the Consolidated Financial Statements included
elsewhere in this Prospectus which have been audited by Arthur Andersen & Co.,
independent public accountants, whose report thereon is also included elsewhere
in this Prospectus. The selected consolidated financial data as of January 31,
1996, and for the three month periods ended October 31, 1995 and January 31,
1996, are unaudited, but in the opinion of management include all adjustments
necessary for a fair presentation of such data. The selected consolidated
financial data set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
THREE MONTHS
YEAR ENDED ENDED
OCTOBER 31, OCTOBER 31,
1995 1995
--------------- ---------------------
STATEMENT OF OPERATIONS DATA:
Net sales....................................................................... $ 63,707 $ 56,952
Cost of sales................................................................... (55,266) (35,620)
--------------- -----------
Gross profit................................................................ 8,441 21,332
Selling, general and administrative expenses.................................... (276,582) (97,682)
Interest expense, net........................................................... (17,838) (15,377)
Other expenses, net............................................................. (2,265) (1,137)
--------------- -----------
Loss before income taxes.................................................... (288,244) (92,864)
Income tax benefit.............................................................. 47,560 15,323
--------------- -----------
Net loss........................................................................ $ (240,684) $ (77,541)
Net loss per common share....................................................... $ (0.12) $ (0.04)
Number of shares outstanding(1)................................................. 2,000,000 2,000,000
JANUARY 31, 1996
----------------------------------------
ACTUAL PRO FORMA(1)(2)
--------------- ---------------------
BALANCE SHEET DATA:
Total current assets............................................................ $ 150,534 $ 615,334
Total assets.................................................................... $ 885,146 $ 1,349,946
Total current liabilities....................................................... $ 249,754 $ 619,754
Total liabilities............................................................... $ 673,333 $ 1,043,333
Total shareholders' equity...................................................... $ 211,813 $ 306,613
THREE MONTHS
ENDED
JANUARY 31,
1996
----------------
STATEMENT OF OPERATIONS DATA:
Net sales....................................................................... $ 124,544
Cost of sales................................................................... (22,599)
----------------
Gross profit................................................................ 101,945
Selling, general and administrative expenses.................................... (89,810)
Interest expense, net........................................................... (12,219)
Other expenses, net............................................................. (379)
----------------
Loss before income taxes.................................................... (463)
Income tax benefit.............................................................. 76
----------------
Net loss........................................................................ $ (387)
Net loss per common share....................................................... $ --
Number of shares outstanding(1)................................................. 2,000,000
PRO FORMA, AS
ADJUSTED(2)(3)
----------------
BALANCE SHEET DATA:
Total current assets............................................................ $5,538,834
Total assets.................................................................... $6,273,446
Total current liabilities....................................................... $ 67,754
Total liabilities............................................................... $ 95,833
Total shareholders' equity...................................................... $6,177,613
- ------------
(1) Assumes the consummation of the Reorganization and excludes (i) 300,000
shares of Common Stock reserved for future issuance pursuant to options
available for grant under the Stock Option Plan and (ii) 500,000 shares of
Common Stock reserved for future issuance pursuant to the Bridge Notes and
the Bridge Warrants. See 'Management -- Stock Option Plan,' 'Certain
Transactions' and 'Underwriting.'
(2) Gives pro forma effect to (i) the issuance of $370,000 principal amount of
Bridge Notes and (ii) the receipt in February 1996 of $94,800 of the
$300,000 of aggregate proceeds from the Hong Kong Placement. See 'Certain
Transactions.'
(3) Adjusted to give effect to (at an assumed initial public offering price of
$5.50 per Share and $0.10 per Warrant) (i) the receipt of the estimated net
proceeds of this Offering and the initial application of such estimated net
proceeds as described herein, and (ii) assuming that the Bridge Note holders
elect to be repaid with the proceeds of this Offering instead of converting
their Bridge Notes into shares of Common Stock as provided by the terms of
the Bridge Notes, (a) the issuance to the Bridge Note holders of 21,818
shares of Common Stock and Bridge Warrants to purchase an equal number of
shares of Common Stock and (b) the recognition of a non-recurring, non-cash
interest expense of $100,000 for the unamortized portion of the original
issue discount relating to the repayment of the Bridge Notes. In the event
that the holders of the Bridge Notes elect to convert each of the
convertible Bridge Notes into shares of Common Stock upon consummation of
this Offering (at an assumed initial public offering price of $5.50 per
Share), they will be entitled to receive 112,727 shares of Common Stock and
Bridge Warrants to purchase an additional 112,727 shares of Common Stock.
See 'Use of Proceeds' and 'Certain Transactions.'
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Unless otherwise indicated, the following discussion addresses the combined
financial condition and results of operations of the South China Brewery, which
consists of brewing and distribution operating subsidiaries of the Company
located in Hong Kong. The discussion should be read in conjunction with the
'Selected Consolidated Financial Data' and the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Prospectus. In addition, the
period-to-period presentation set forth under ' -- Results of Operations' will
not necessarily be indicative of future results and future net losses can be
expected as increased expenses are incurred in connection with the establishment
of the proposed expansion breweries. The Company expects that it will have a net
loss for the six months ended April 30, 1996.
The South China Brewery relies upon a single supplier (other than for
labels) for each of the raw materials used to make and package the Company's
beers. Although to date the South China Brewery has been able to obtain adequate
supplies of these ingredients and other raw materials in a timely manner from
those sources, if the South China Brewery were unable to obtain adequate
quantities of ingredients or other raw materials, delays or reductions in
product shipments would occur which would have an adverse effect on the South
China Brewery's business, financial condition and results of operations. As with
most agricultural products, the supply and price of raw materials used to
produce the Company's beers can be affected by a number of factors beyond the
control of the Company, such as frosts, droughts, other weather conditions,
economic factors affecting growing decisions, various plant diseases and pests.
If any of the foregoing were to occur, no assurance can be given that such
condition would not have an adverse effect on the Company's business, financial
condition and results of operations. See 'Business -- Brewing Operations' and
' -- Suppliers.'
A substantial portion of the South China Brewery's sales are made to a
small number of customers on an open account basis and generally no collateral
is required. For the three months ended January 31, 1996, 76.3% of net sales
were generated by sales to these customers. At January 31, 1996, the five
largest accounts receivable constituted 68% of the South China Brewery's
accounts receivable. See Note 14 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The South China Brewery commenced operations in June 1995 and has not
experienced a full fiscal year of operations. The first sales of the South China
Brewery's products occurred in July 1995. For comparison purposes, the following
presentation compares the three months ended October 31, 1995 with the three
months ended January 31, 1996. The following table sets forth for the periods
indicated certain line items from the South China Brewery's summary of
operations as a percentage of the South China Brewery's net sales for each of
the three months ended October 31, 1995 and January 31, 1996:
THREE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 1995 JANUARY 31, 1996
------------------ ------------------
Net sales................................................... 100.0% 100.0%
Cost of sales............................................... 62.5% 18.1%
Gross profit................................................ 37.5% 81.9%
Selling, general and administrative expenses................ 171.5% 72.1%
Operating (loss) income..................................... (134.1)% 9.7%
Interest expense, net....................................... 27.0% 9.8%
Net loss.................................................... 136.2% 0%
Net Sales. For the three months ended October 31, 1995 and January 31,
1996, the South China Brewery had net sales of $56,952 and $124,544,
respectively. The growth in sales resulted from an increased awareness of and
acceptance by consumers of the South China Brewery's flagship brand, Crooked
Island Ale, the first micro-brewed beer produced and sold in Hong Kong. In
addition, in September 1995, the South China Brewery entered into contracts for
the brewing and supply of custom
21
brewed ales for consumption in two Hong Kong pubs. Private label sales have
accounted for approximately 70% of all of the South China Brewery's sales for
the quarter ending January 31, 1996 though the Company expects that sales of the
South China Brewery's brands will increase relative to its private label sales.
See 'Business -- Products -- Specialty Brewing.'
Cost of Sales. The South China Brewery's cost of sales for the three
months ended October 31, 1995 and January 31, 1996 was $35,620 and $22,599,
respectively. The decrease in the cost of sales was due to the lower cost per
barrel of kegged products over bottled products resulting from the South China
Brewery's increased sales of kegged products during the quarter ended January
31, 1996 and to more efficient use of brewery equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended October 31, 1995 and January
31, 1996 were $97,682 and $89,810, respectively. The selling, general and
administrative expenses for the three months ended October 31, 1995 reflect
advertising and marketing costs of $18,883 compared to advertising and marketing
costs of $2,818 for the quarter ended January 31, 1996. The higher costs for the
earlier period were due to start-up advertising and promotion. This decrease in
expenses was in part offset by staff salary expense which increased during the
three months ended January 31, 1996 over the quarter ended October 31, 1995 by
$6,203. The Company's selling, general and administrative expenses, including
salary, marketing and other operational expenses, will increase as the proposed
expansion breweries are established.
Net Interest Expense. Net interest expense for the three months ended
October 31, 1995 and January 31, 1996 was $15,377 and $12,219, respectively. The
Company intends to repay the Hibernia Note and the BPW Note out of the net
proceeds of this Offering.
LIQUIDITY AND CAPITAL RESOURCES
The South China Brewery has been able to satisfy its cash requirements
through a combination of private sales of equity, borrowings from a stockholder
and from an institutional lender supported by a guarantee and letters of credit
from stockholders and cash flow from operations. At January 31, 1996, the South
China Brewery had $71,533 in cash on hand but a working capital deficit of
$99,220. At January 31, 1996, the Company had $40,115 in accounts receivable of
which $5,702 are past due by 90 days or more. At January 31, 1996, the South
China Brewery's five largest accounts receivable accounted for 68% of its total
accounts receivable as of such date.
At January 31, 1996, the South China Brewery had fixed capital lease
obligations of $17,179 per year for each of the three years ending January 31,
1999 relating to its delivery vehicles. At January 31, 1996, the South China
Brewery had $148,710 in operating lease commitments over the three year period
ending January 31, 1999 relating to its warehouse and brewery facility. The
Company may expand the production capacity at the South China Brewery by 50%
with the purchase of five fermentation tanks at an installed cost of
approximately $150,000. Any such purchase would be funded by cash flow generated
by the South China Brewery.
The amount of dividends payable by the South China Brewery as well as by
future subsidiaries of the Company operating the proposed expansion breweries is
and will be subject to general limitations imposed by the corporate laws of the
respective jurisdictions of incorporation of such subsidiaries as well as
restrictions in debt agreements. Dividends paid to the Company by these
subsidiaries may be subject to local investment registration requirements and
withholding requirements.
In May 1996, Craft issued $370,000 principal amount of Bridge Notes bearing
an interest rate of 12% to certain investors in Singapore and Hong Kong.
Pursuant to the terms of the Bridge Notes, these investors are entitled to
receive 21,818 shares of Common Stock assuming no conversion of the convertible
Bridge Notes (112,727 shares of Common Stock assuming full conversion of the
convertible Bridge Notes) and an initial public offering price per Share of
$5.50 and Bridge Warrants entitling such investors to purchase, in the
aggregate, up to 21,818 shares of Common Stock assuming no conversion of the
convertible Bridge Notes (112,727 shares of Common Stock assuming full
conversion of the convertible Bridge Notes) and an initial public offering price
per Share of $5.50, commencing six months from the date hereof at 150% of the
initial public offering price per Share.
22
On March 31, 1995, the South China Brewery borrowed $565,000 from Hibernia
National Bank. The loan was evidenced by a promissory note with principal
payments due on September 30, 1996 and March 31, 1997 bearing a Citibank prime
plus 0.5% interest rate. The amount due on the Hibernia Note has been reduced to
$452,000 through principal repayments by the Company. The South China Brewery
borrowed $65,000 evidenced by a limited recourse promissory note dated March 5,
1996 due ten days after the date of this Prospectus bearing an interest rate of
5.5%.
The Company intends to retire the Bridge Notes (that are not converted by
the holders thereof into shares of Common Stock upon the consummation of this
Offering), the Hibernia Note and the BPW Note with a portion of the net proceeds
of this Offering. The Company believes that the balance of the net proceeds of
this Offering will be sufficient to establish five of the seven micro-breweries
it intends to develop and operate by the end of 1997. The Company currently
plans that strategic local partners will purchase minority equity interests in
certain of the proposed breweries and also intends to utilize debt financing so
that the expected aggregate equity investment in each brewery is approximately
50% of total capitalization. The Company believes that this financing, if
obtained on acceptable terms, in conjunction with the net proceeds of this
Offering, will enable the Company to establish seven proposed breweries. In
addition to the capital requirements of the proposed breweries, the Company has
entered into an employment agreement with its Executive Vice President and Chief
Operating Officer, James L. Ake, which provides for an annual base salary of
$72,000.00. If the Company's assumptions change or prove to be inaccurate or the
net proceeds of this Offering prove to be insufficient, the Company may be
required to curtail its expansion activities or seek additional financing
through the sale of additional debt or equity securities or borrowings from
banks or other sources. There can be no assurance that such financing would be
available or, if available, could be obtained on terms satisfactory to the
Company.
23
BUSINESS
GENERAL
AmBrew International owns and operates the South China Brewery, the first
in a series of international breweries based on the concept of American-style
micro-breweries. The South China Brewery, the first American-style micro-brewery
in Hong Kong, produces fresh, high-quality, preservative-free, hand-crafted
beers using state-of-the-art American-manufactured brewing equipment.
Hand-crafted beers are distinguishable by their full flavor which results from
traditional brewing styles. The Company believes that American-style
micro-brewing has growth potential in other key world markets and that the South
China Brewery is a model that can be adapted to other markets.
The American-style micro-brewery concept has developed over the past ten
years into the fastest growing segment of the American beer industry.
American-style micro-breweries produce less than 15,000 barrels per year of
hand-crafted beers in a variety of styles. The Company believes that the growing
demand for micro-brewed beers in the United States is part of a broader shift in
preferences on the part of a certain segment of consumers away from
mass-produced products and toward high-quality, distinctive foods and beverages.
While craft beers currently account for less than 2% of total United States beer
consumption, sales volume of these beers grew by 50% in 1995 and had an annual
growth rate of approximately 47% during the period from 1985 through 1994.
AmBrew International believes that the demand for craft beers is not limited to
the United States and is committed to the production of a variety of craft beers
designed to appeal to a growing number of consumers in global markets.
The Company exported the American-style micro-brewery concept to Hong Kong
with the establishment of the South China Brewery in June 1995. With only one
head brewer and six other employees, the South China Brewery produces,
distributes and markets two full-flavored beers marketed under South China's own
brand names, Crooked Island Ale and Dragon's Back India Pale Ale, and custom
produces beers for local Hong Kong establishments in accordance with their
individual specifications to market under their own labels. The South China
Brewery is designed to permit small and economical production runs of
differentiated products to meet special tastes or other custom requirements and
for sale in niche markets. Increased consumer demand for high quality,
full-flavored beers has allowed the South China Brewery to achieve a price
premium relative to mass-produced domestic beer producers and to set its prices
at the upper end of the premium import market.
The Company's senior management and Board of Directors have extensive
experience in the international beverage alcohol industry. The Company expects
to utilize this experience to identify new markets receptive to the
American-style micro-brewery concept and to seek out strategic local partners to
co-invest in new micro-breweries in such markets. The Company plans to establish
and operate, either through wholly-owned subsidiaries or through majority-owned
joint venture arrangements with strategic local partners, a series of
micro-breweries similar in concept to the South China Brewery. The Company
expects that these partners will use their knowledge of local regulation and
markets to facilitate the establishment and acceptance of the Company's
micro-breweries and their products. In pursuing its expansion strategy, the
Company will move into both markets dominated by mass-market breweries and
markets in which high-quality beer producers will be the Company's primary
competition. In markets where mass-produced beers are sold to a broad consumer
profile, AmBrew International intends to develop craft beers as locally produced
premium product alternatives. In markets in which there are already a number of
traditional high-quality beer producers, the Company intends to produce
distinctive micro-brewed products for niche market segments. The Company has
preliminarily identified seven locations in which it is considering establishing
breweries by the end of 1997, subject to more extensive feasibility studies:
Shanghai, Tecate (Mexico), Warsaw, Zurich, Budapest, Singapore and Prague.
The Company expects to achieve greater economies of scale as it expands.
For example, the Company intends to enter into a contract with Micro Brew
Systems Company, Limited ('Micro Brew Systems') which supplied the equipment for
the South China Brewery, or another comparable provider of state-of-the-art
brewing equipment, to purchase, at discounted prices, the necessary brewing
equipment for its proposed new breweries. In addition, the Company believes that
it can benefit from volume discounts on purchases of equipment and ingredients.
Based on the growth of its South China
24
Brewery to date, the Company believes it is well-positioned to establish similar
American-style micro-breweries in other markets.
AMERICAN-STYLE MICRO-BREWERIES AND THE BREWING INDUSTRY
American-style micro-breweries produce small quantities of fresh,
high-quality, preservative-free hand-crafted beers. In 1995, craft brewers, both
regional and micro, comprised the only growing segment of the United States beer
market. According to the Association of Brewers of Boulder, Colorado, 830 new
breweries have been established in the United States since 1980: 17 'regional
craft breweries' (breweries producing between 15,000 and 500,000 barrels per
year); 280 micro-breweries (breweries producing less than 15,000 barrels for
off-premise sale); and 533 brewpubs (brewery restaurants that sell mostly on
premises).
AmBrew International believes that it can take advantage of this
micro-brewery market niche opportunity by selling high-quality, hand-crafted
beers in certain international markets just as United States micro-brewers have
done in domestic markets. While craft beers currently account for less than 2%
of total United States beer consumption, sales volume of these beers grew by 50%
in 1995 and had an annual growth rate of approximately 47% during the period
from 1985 through 1994. Based on its experience in the industry, the Company
believes that the South China Brewery presently is the only American-equipped
micro-brewery outside of the United States.
SOUTH CHINA BREWERY
The Company exported the American-style micro-brewery concept by
establishing the South China Brewery in Hong Kong in June 1995. The South China
Brewery produces its specialty products in a state-of-the-art, company-owned
facility using traditional brewing methods. A head brewer and two assistants
brew all of the South China Brewery's beer. With only one head brewer and six
other employees, the South China Brewery produces, distributes and markets two
full-flavored, craft beers marketed under South China's own brand names, Crooked
Island Ale and Dragon's Back India Pale Ale, and custom brews beers for local
Hong Kong establishments in accordance with their individual specifications to
market under their own labels. The South China Brewery is designed to permit
small and economical production runs of differentiated products to meet special
tastes or other custom requirements and for sale in niche markets.
PROPOSED EXPANSION MARKETS
The Company plans to establish and operate, either through wholly-owned
subsidiaries or through majority-owned joint venture arrangements with strategic
local partners, a series of state-of-the-art, American-style micro-breweries.
The Company is currently considering the following locations, subject to more
extensive feasibility studies: Shanghai, Tecate (Mexico), Zurich, Budapest,
Singapore, Warsaw and Prague. Preliminary work has commenced at two of the
proposed sites:
Shanghai. The Company has identified a prospective site for the Shanghai
expansion brewery, is currently conducting negotiations with prospective Chinese
joint venture partners and has commenced work for a preliminary site lay-out.
Tecate. The Company has selected the site for the Tecate expansion
brewery, has commenced work for a preliminary site lay-out and is currently
conducting lease negotiations. The proposed site is in Mexico less than one mile
from the California border. The Company's present plan is to distribute its
products in Mexico, although there may be opportunities for distribution in
southern California.
The Company currently expects strategic local partners to invest in
minority equity interests in certain of the proposed breweries and also intends
to utilize debt financing so that the expected aggregate equity investment in
each brewery is approximately 50% of the total capitalization. The Company
expects to utilize the extensive experience of management and the Board of
Directors in the international beverage alcohol industry to seek out strategic
local partners for such co-investment purposes. The Company believes that third
party financing, if obtained on acceptable terms, in
25
conjunction with the net proceeds of this Offering, will enable the Company to
establish seven proposed breweries. See 'Use of Proceeds.'
The Company expects to achieve economies of scale with its proposed
breweries through volume discounts on equipment and ingredient purchases and
reduction of brewery start-up expenses. The Company intends to enter into a
contract with Micro Brew Systems, or a comparable provider of micro-brewing
equipment, to purchase brewing equipment manufactured by JV Northwest, Ltd. of
Portland, Oregon ('JVNW') at a price discounted for volume purchases. For each
of the proposed breweries, the Company will conduct a feasibility study covering
brewery licensing, taxation and local operating costs and conduct a head brewer
search. In addition, the Company expects to utilize its experience with the
South China Brewery to speed the process from start-up to profitable operations
at the proposed breweries.
Successful expansion will require management of various factors associated
with the construction of new facilities in geographically and politically
diverse locations. Factors include site selection, local land use requirements,
obtaining governmental permits and approvals, adequacy of municipal
infrastructure, environmental uncertainties, possible cost estimation errors or
overruns, additional financing, construction delays, weather problems and other
factors, many of which are beyond the Company's control. There can be no
assurance that the Company will be successful in establishing and operating
additional breweries.
BREWING OPERATIONS
The Company's beer is prepared from barley, grain, hops, yeast and water.
Distinctive styles of beer depend upon how the barley is malted, the use of hops
and the proportions of the ingredients, among other factors. The following
discusses the production process for the South China Brewery. The Company
intends to utilize the same type and scale of equipment at the other breweries
and to generally pattern future brewery operations on the South China Brewery.
Brewing Process. The South China Brewery's products are crafted from pale
and specialty malted barley produced in Great Britain by high-quality malters.
The South China Brewery acquires its hops from micro-brewery quality sources in
the United States. The first step in the South China Brewery's brewing process
is to crack malted barley in a roller mill (milled barley is called grist) and
store it in a grist case. Hot water (called 'liquor') and grist are mixed in a
mash/lauter tun producing the mash. A sweet, clear liquid called wort is
filtered out of the mash and transferred to the kettle. The wort is brought to a
rolling boil in the kettle. Some hops are added early to provide bitterness;
other hops (finishing hops) are put in later to give a fine aroma. The hot wort
is cooled to termination temperature (about 40[d] F) through a heat exchanger.
The cold liquor tank provides the water to cool the wort in the heat exchanger
and the resulting heated water is transferred to the hot liquor tank for use in
the next brew.
The cooled wort is then transferred to the fermentation tanks ('unitanks'),
yeast is added and fermentation begins. Fermentation is the process by which
yeast transforms the sweet wort into a flavor solution containing alcohol and
carbon dioxide. After fermentation, the beer is aged to develop its final smooth
taste. The fermentation and aging process can last 14 days for ales and 21 days
and longer for lagers.
The conditioned product is filtered and stored in a bright beer tank where
it is carbonated and then packaged. Packaged beer is stored in a refrigerated
walk-in cooler and delivered in refrigerated vehicles and containers.
Quality Control. The South China Brewery employs an experienced head
brewer who hand crafts all of the brewery's beer. The Company will seek to
employ a similarly qualified head brewer at each of the Company's proposed
breweries by conducting a head brewer personnel search for each proposed
brewery. The Company plans to monitor production and exercise quality control at
each of its breweries. Each brewery will have equipment for on-site yeast
propagation, to monitor product quality, to test products and to measure color
and bitterness. The breweries will also utilize independent laboratories for
further product analysis. The Company's policy is to meet the highest quality
standards, with the goal of assuring the purity and safety of each of its beers.
26
Management believes that its ability to engage in constant product
innovation and its control over product quality are critical competitive
advantages. Accordingly, the Company does not hire third parties to perform
contract brewing of any of its products, and plans to operate its own breweries
in each of the proposed initial expansion locations and at any subsequent sites.
In addition, AmBrew International believes that its ownership of a number of
micro-breweries will enable it to shift production among breweries giving it
greater operating flexibility while reducing the risk of producing all of its
products at a single location. This strategy would also permit the Company to
produce its brands that achieve widespread market-acceptance at any of its
proposed breweries for local consumption.
PRODUCTS
The South China Brewery currently produces two styles of full-flavored
craft beers using traditional brewing methods, high quality ingredients and
state-of-the-art American-manufactured brewing equipment that the Company
intends to replicate at each of its proposed breweries. The Company's beers are
marketed on the basis of freshness and distinctive flavor profiles. Like most
other micro-brewed brands, the South China Brewery's products are not
pasteurized. Accordingly, they should be kept cool so that oxidation and
heat-induced aging will not adversely affect the original taste, and should be
distributed and served within 90 days after brewing to maximize freshness and
flavor. The South China Brewery distributes its products in kegs and glass
bottles. The bottles are freshness-dated for the benefit of consumers. For the
period from November 1, 1995 through March 31, 1996, approximately 81% of the
South China Brewery's sales were generated by sales of kegged products.
Proprietary Brands. The South China Brewery presently produces two branded
products, each with its own distinctive combination of flavor, color and
clarity:
Crooked Island Ale. The flagship brand, Crooked Island Ale, accounted
for approximately 19% of the Company's sales during the quarter ended
January 31, 1996. This Ale is produced from pale malted barley from Great
Britain and hops from the United States. Crooked Island Ale is a light,
golden ale with a fresh clean nose and crisp finish. It is brewed light,
with all the flavor and uniqueness of a full-bodied ale. The Company
believes that this Ale's distinctive malt flavor comes from a careful
balance of bittering and aroma hops. Crooked Island Ale is available in
both kegs and bottles.
Dragon's Back India Pale Ale. Brewed to reflect the essence of a
traditional oak barrel British India Pale Ale, Dragon's Back gets its amber
hue from a blend of premium British malted barley. This Ale is heavily
hopped maintaining all of the qualities of the quintessential cask ale.
Currently, Dragon's Back is brewed for distribution only in kegs.
Specialty Brewing. In addition to its branded products, the South China
Brewery custom brews beers for local Hong Kong establishments in accordance with
their individual product specifications to market under their own labels. For
the quarter ending January 31, 1996, such sales to two customers, Dabeers
Distributors Limited and Delaney's (Wanchai) Limited, owner of Delaney's Irish
Pub, have accounted for approximately 70% of the South China Brewery's sales.
The Company's contracts with these customers both expire in September 1996.
While the Company has no reason to believe that such contracts will not be
renewed, there is no assurance that either contract will be renewed or renewed
on favorable terms.
The Company believes that continual development of new products is the
hallmark of micro-breweries. In an effort to be responsive to varying consumer
style and flavor preferences, the South China Brewery is continually engaged in
the development and testing of new products. The South China Brewery has the
capability of producing all distinct styles of beer, including ale, lager, stout
and porter, and has a single production batch size of 260 cases. The Company
intends to construct its proposed breweries with similar versatility. The
Company intends to expand sales by entering into specialty brewing arrangements
with local bars, clubs, hotel, restaurant and airline partners in Hong Kong and
in each of the locales of the proposed breweries.
27
SOUTH CHINA FACILITY
Plant. The South China Brewery's brewing facility is located in Aberdeen,
Hong Kong, on the south side of the island. The Company believes, based on its
experience in the industry, that the South China Brewery is the first and only
independent micro-brewery established outside the United States using
state-of-the-art, American-made brewing equipment. The selection of this site
enabled the South China Brewery to be located near its primary markets in the
Hong Kong Central district and Kowloon while not incurring the high lease costs
of downtown Hong Kong. The primary operations are in a 3,600 gross square foot
space on the second floor of a 23 story building. An additional 2,000 square
foot storage facility for dry package goods (bottles, caps, labels) is also
located in the same building. Both the brewing facility and the storage facility
are leased.
The Hong Kong 20-barrel brewery is an adaptable facility that is able to
produce 9 different products simultaneously. The capacity of this brewery can be
increased by 50% with the addition of five fermentation tanks at an installed
cost of approximately $150,000. The configuration and space of the brewery
allows the Company to achieve this 50% expansion with no modification to either
the facility or equipment currently installed. For these reasons, the South
China Brewery will serve as a prototype for the proposed breweries, allowing the
Company to modify the basic configuration at each location to achieve optimum
brewery capacity and capability.
Equipment. The equipment for the brewery was designed and fabricated by
JVNW. JVNW was established in 1981 and is considered one of the premiere
fabricators of micro-brewery systems. The Company's state-of-the-art equipment
allows the head brewer to control the brewing process to achieve a consistent
hand-crafted, high-quality product. The Company intends to enter into a contract
with Micro Brew Systems (a distributor of JVNW brewing equipment) or another
comparable provider of brewing equipment, to purchase, at discounted prices, the
necessary brewing equipment for its proposed new breweries.
The plant is a 20-barrel system which means that it is capable of brewing
20 barrels of product with each brewing cycle. Twenty barrels (each barrel is 31
gallons) equates to approximately 260 cases of 24-355 ml bottles or 75 30-liter
kegs. Annual capacity is approximately 70,000 cases. The 10 fermentation vessels
allow the plant to make different products at the same time.
The South China Brewery also utilizes several pieces of ancillary equipment
such as a boiler to make steam for heating the hot liquor and boiling in the
brew kettle, a glycol refrigeration unit to provide cooling for the cold liquor
tank, fermentation tanks and a bright beer tank, fixed and movable pumps to
transfer the liquid, filters, soft piping, for transferring liquid to and from
the fermentation tanks and labeling, bottling and kegging equipment.
SALES AND MARKETING
The South China Brewery presently markets its products by educating
consumers as to the distinctive qualities of its products and by emphasizing
localized promotions designed to enhance the South China Brewery's word-of-mouth
reputation. The Company intends to adopt sales and marketing strategies targeted
for each individual local market it serves, but generally will seek to identify
its products with local markets. Management believes that by locating the
proposed breweries in proximity to the local markets they serve, AmBrew
International will be able to enjoy distinct competitive advantages, including
established consumer identification with the Company's brands and enhanced
familiarity with local consumer tastes. By pursuing this strategy, the Company
believes that it will be able to develop its reputation and prestige as a local
craft brewer, while selectively introducing new and existing products into new
regional markets.
The South China Brewery devotes considerable effort to the promotion of
on-premises consumption at participating pubs and restaurants, and currently
engages in limited media advertising. Among other things, the South China
Brewery participates in and sponsors cultural and community events, local music
and other entertainment venues, local festivals and cuisine events, and local
professional sporting events in Hong Kong. The Company believes that educating
retailers about the freshness and quality of its products will in turn allow
retailers to assist in educating consumers. The Company considers on-premises
product sampling and education to be among its most effective tools
28
for building brand identity with consumers and establishing word-of-mouth
reputation. The South China Brewery achieves additional on-premises marketing
through a variety of other point-of-sale tools, such as tap handles, coasters,
table tents, neon signs, banners, posters and menu guidance. The South China
Brewery also markets its products through sales and give-aways of T-shirts, polo
shirts, baseball hats and glasses. Sales of merchandise could develop as an
independent source of revenue for the Company. In addition, the South China
Brewery offers guided tours of its facility to further increase consumer
awareness of its products and is considering offering tasting sessions.
The South China Brewery presently distributes its own products and does not
use independent distributors. To expand distribution of proprietary brands, the
South China Brewery has recently hired two local sales representatives. The
Company intends to reevaluate its distribution strategy for each market as its
business develops.
COMPETITION
The beer industry is intensely competitive. While there are no other craft
brewers in Hong Kong, the South China Brewery competes directly with premium
import beers as well as with mass-produced beers marketed by a number of much
larger producers. Some much larger United States beer producers are currently
marketing their beers in the United States as craft beers. There can be no
assurance that, in the future, the Company will not face competition from
mass-produced beer marketed internationally as craft beer. Similarly, the
Company may face competition from brewers or other investors who wish to
establish American-style micro-breweries in Hong Kong or in other areas in which
the Company plans to locate proposed breweries.
SUPPLIERS
The South China Brewery currently purchases all of its pale and specialty
malted barley from a single British supplier and its premium-quality select hops
from a single United States supplier. The South China Brewery currently
maintains its own yeast supply. The South China Brewery currently purchases its
case boxes, bottles and crowns each from a single supplier and maintains
multiple competitive sources for its supply of labels. While the South China
Brewery believes that multiple sources of supply are available for all of its
ingredients and raw materials, there can be no assurance that political,
economic or other factors will not limit or restrict the availability of
supplies. The Company expects that future breweries will adopt similar practices
for obtaining supplies.
As with most agricultural products, the supply and price of raw materials
used to produce the Company's beers can be affected by a number of factors
beyond the control of the Company, such as frosts, droughts, other weather
conditions, economic factors affecting growing decisions, various plant diseases
and pests. If any of the foregoing were to occur, no assurance can be given that
such condition would not have an adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
results of operations are dependent upon its ability to accurately forecast its
demand for raw materials. Any failure by the Company to accurately forecast its
demand for raw materials could result in the Company either being unable to meet
higher than anticipated demand for its products or producing excess inventory,
either of which may adversely affect the Company's business, results of
operations and financial condition.
GOVERNMENT REGULATION
Hong Kong Regulation. The South China Brewery was granted a brewery
license pursuant to the Dutiable Commodities Ordinance and the Dutiable
Commodities Regulations (Chapter 109 of the Laws of Hong Kong). Such license
will expire on June 6, 1997.
The South China Brewery is required to comply with the terms and conditions
of a license for the environmental discharge originating from the South China
Brewery in the Western Buffer Water Control Zone of Hong Kong which has been
obtained pursuant to Section 20 of the Water Pollution Control Ordinance
(Chapter 358 of the Laws of Hong Kong) (which will expire on February 28, 1997).
29
The South China Brewery's premises is connected, directly or indirectly, to
a communal drain or a communal sewer which is vested in and maintained by the
Hong Kong government, and produces trade effluent that is discharged into a
communal drain or communal sewer. Accordingly the South China Brewery, in
addition to a sewer charge, pays to the Hong Kong government a trade effluent
surcharge under the Sewage Services Ordinance (Chapter 463 of the Laws of Hong
Kong).
Other Regulation. The Company will conduct a preliminary feasibility study
for each of the proposed expansion brewery locations including analyses of
brewery licensing requirements and other local operating costs. In addition, the
Company will seek the assistance and expertise of local joint venture partners
in complying with local regulatory requirements.
INSURANCE
The South China Brewery has purchased liability insurance issued by New
Zealand Insurance. The South China Brewery maintains a public liability
insurance policy (coverage limit approximately $1.3 million) to protect against
damage to third party property. In addition, the South China Brewery maintains a
total of $800,000 commercial all risks coverage and approximately $390,000 of
business interruption coverage. The South China Brewery also maintains employee
compensation insurance as required by local law. The Company plans to purchase
comparable insurance, and any additional insurance necessitated by local
conditions or regulations, for each of the proposed breweries.
INTELLECTUAL PROPERTY
The Company regards the trademarks it adopts and uses in connection with
the sale of its products as having substantial value and as being an important
factor in the marketing of its products. The Company's policy is to pursue
registration of the trademarks it adopts and uses in connection with the sale of
its products whenever possible, and to oppose vigorously any infringement of its
marks. The Company has applied to register the marks CROOKED ISLAND and DRAGON'S
BACK INDIA PALE ALE in Hong Kong, China and Taiwan. The Crooked Island Ale
application was accepted for registration in Taiwan, and is pending in Hong
Kong. The application was rejected in China because of its similarity to a prior
registered mark; the Company has appealed this rejection. The Company is not
aware of any infringing uses of its trademarks by third parties that could
materially affect its current business.
While it has not obtained patents on its recipes, AmBrew International
believes that it is not standard practice in the industry to obtain such
patents.
EMPLOYEES
As of May 31, 1996, the South China Brewery had seven full-time employees.
The Company's future success will depend, in part, on its ability to continue to
attract, retain and motivate highly qualified marketing and managerial
personnel. Each of James L. Ake, Executive Vice President and Chief Operating
Officer of the Company, David K. Haines, Managing Director for Hong Kong
Operations, and Edward Cruise Miller, the head brewer of the South China
Brewery, have employment agreements. None of the South China Brewery's employees
are represented by a collective bargaining agreement, nor has the South China
Brewery experienced work stoppages. The South China Brewery believes that
relations with its employees are satisfactory.
LEASES
The South China Brewery leases brewing and storage space in the Vita Tower
at 29 Wong Chuk Hang, Aberdeen, Hong Kong under two leases at a current monthly
rent of $8,200. The leases expire in September 1997 and April 1998. The South
China Brewery has the option to extend each of the leases six years beyond their
original term at a rent to be agreed by the parties.
LEGAL PROCEEDINGS
The South China Brewery is not currently involved in any material pending
legal proceedings and is not aware of any material legal proceedings threatened
against it.
30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the Company's directors and officers and
their ages as of the date hereof:
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
Peter W. H. Bordeaux......................... 47 Chairman of the Board of Directors
Federico G. Cabo Alvarez..................... 51 Deputy Chairman of the Board of Directors
James L. Ake................................. 51 Executive Vice President and Chief Operating Officer
Joseph E. Heid(1)(3)......................... 50 Director
Norman H. Brown, Jr.(1)(2)................... 49 Director
John F. Beaudette(2)(3)...................... 39 Director
Wyndham H. Carver(1)(2)...................... 52 Director
David K. Haines.............................. 30 Director and Managing Director for Hong Kong Operations
John Campbell(4)............................. 56 Director
Tonesan Amissah-Furbert(4)................... 30 Director
Each of the directors was elected as of June 3, 1996. Each of the officers
was appointed to his respective position with the Company as of June 3, 1996,
the date of incorporation of American Craft Brewing International.
(1) Messrs. Brown, Carver and Heid are members of the Stock Option Committee.
See ' -- Stock Option Plan.'
(2) Messrs. Brown, Beaudette and Carver are members of the Compensation
Committee.
(3) Messrs. Beaudette and Heid are members of the Audit Committee.
(4) Mr. Campbell and Ms. Furbert, attorneys in the law firm acting as the
Company's Bermuda counsel, have been appointed directors of the Company in
accordance with Bermuda local requirements applicable to non-publicly traded
Bermuda companies. They will resign as directors upon consummation of this
Offering.
Mr. Bordeaux has been Chairman of the Board of Directors of AmBrew
International since June 3, 1996 and has been associated with its subsidiaries
since August 9, 1994. Mr. Bordeaux joined New Orleans-based Sazerac Company,
Inc. ('Sazerac'), the tenth largest United States producer, importer and
exporter of spirits as well as a large U.S. distributor of wine, beer and
non-alcoholic beverages in 1980. Since 1982, Mr. Bordeaux has been the Chief
Executive Officer and President of Sazerac. In addition, Mr. Bordeaux has served
as Chairman of Concorde Holdings Limited (Beijing), a distributor of alcohol and
non-alcohol beverages ('Concorde'), since November 1994 and as President, since
1992, of Leestown Company, Inc., which owns the world's largest bourbon
distillery. Mr. Bordeaux is Vice Chairman of the Board of the National
Association of Beverage Importers, a Board Member and member of the Executive
Committee of the Board of the World Trade Center, New Orleans, Chairman of the
International Advisory Council of Hibernia National Bank (New Orleans) and a
member of the Executive Commitee of the Board and Treasurer of Episcopal Housing
for Seniors, Inc.
Mr. Ake has been the Executive Vice President and Chief Operating Officer
of AmBrew International since June 3, 1996 and has been associated with its
subsidiaries since August 9, 1994. Mr. Ake has been the Director of Financial
Analysis and Planning for Sazerac since 1993 where he is responsible for
expansion of operations overseas with emphasis on ventures in the Pacific Rim
countries. In addition, since November 1994, Mr. Ake has seved as Managing
Director of Concorde. Prior to joining Sazerac, Mr. Ake was the Director of
Planning of Zapata-Haynie Corporation in Hammond, Louisiana, the largest fishing
company in the United States, where Mr. Ake was responsible for corporate
planning and oversaw profitability and development of various departments. Mr.
Ake is a registered engineer and is a member of the Board of Directors of the
Japan-Louisiana Friendship Foundation.
31
Mr. Beaudette has been a director of AmBrew International since June 3,
1996 and has been associated with its subsidiaries since April 27, 1995. Mr.
Beaudette has been President of BPW Holding LLC, a beverage investment and
consulting company, and its predecessor, since February 1995. Mr Beaudette has
also been Executive Vice President and General Manager of MHW, Ltd., a beverage
alcohol importer, distributor and service company located in Manhasset, New
York, since 1994. From 1992 to 1994, Mr. Beaudette was Vice President and Chief
Financial Officer of Monsieur Henri Wines, Ltd. and from 1988 to 1992, he was
Director of Planning at PepsiCo Wines and Spirits International. Both companies
were involved in the United States and Canadian marketing and distribution of
imported wines and spirits from around the world.
Mr. Brown has been a director of AmBrew International since June 3, 1996
and has been associated with its subsidiaries since August 9, 1994. Mr. Brown
has been a Managing Director of Donaldson, Lufkin & Jenrette in the Investment
Banking Group since 1985. Mr. Brown is a director of Gaylord Container
Corporation, a manufacturer of paper, box board and corrugated cardboard.
Mr. Cabo has been Deputy Chairman of the Board of Directors since June 3,
1996 and has been associated with its subsidiaries since August 9, 1994. Since
1970, Mr. Cabo has been Chief Executive Officer and President of Cabo
Distributing Company, Inc., formerly a distributor of Mexican beers in the
United States and currently a producer of beer and spirits.
Mr. Carver has been a director of AmBrew International since June 3, 1996.
Since 1995, Mr. Carver has been on a two-year secondment from Grand Metropolitan
PLC ('Grand Met'), an international producer, distributor, wholesaler and
retailer of spirits, wines and foods, to the British Department of Trade and
Industry where Mr. Carver is a Latin American export promoter. Mr. Carver has
served in a variety of capacities on behalf of International Distillers &
Vintners, Ltd., an international producer and distributor of spirits and wine
and a subsidiary of Grand Met ('IDV'), since 1965, including Managing Director
of Wyvern International, the marketing division of IDV, and Regional Director
for IDV in the Caribbean and Central America.
Mr. Haines has been the Managing Director of Hong Kong Operations of AmBrew
International since June 3, 1996. Since August 9, 1994, Mr. Haines has devoted
his efforts to establishing and developing the South China Brewery. Before his
involvement with the Company, Mr. Haines practiced clinical psychology for one
year in Vail, Colorado and was in private practice as a psychologist for two
years in Hong Kong.
Mr. Heid has been a director of AmBrew International since June 3, 1996.
Mr. Heid has been Senior Vice President of Sara Lee Corporation ('Sara Lee'), an
international food and consumer products company, and Chief Executive Officer of
Sara Lee Personal Products -- North and South America, a line of business
responsible for Sara Lee's brands in apparel and accessories in North and South
America, since 1996, President and Chief Executive Officer of Sara Lee Personal
Products -- Pacific Rim, a line of business responsible for Sara Lee's brands in
the apparel and accessories in the Pacific Rim, since 1994 and Vice President of
Sara Lee since 1992. From 1988 to 1992, Mr. Heid served as President of Guinness
America, Inc. ('Guinness'), a holding company of Guinness PLC's United States
ventures, and Executive Vice President and Chief Operating Officer of United
Distillers North America, Inc., a subsidiary of Guinness that imports, produces,
markets and sells alcoholic beverages.
Mr. Campbell has been a director of AmBrew International since June 3, 1996
and a partner of the law firm of Appleby, Spurling & Kempe since 1972.
Ms. Furbert has been a director of AmBrew International since June 3, 1996
and an associate with the law firm of Appleby, Spurling & Kempe since 1989.
Directors of the Company were elected at a special meeting of the Company's
stockholders on June 3, 1996, and thereafter will be elected annually at a
general meeting of stockholders. The next annual meeting of stockholders is
scheduled for the second Tuesday of March, 1997.
DIRECTORS' COMPENSATION
Messrs. Bordeaux and Cabo will receive an annual fee of [$20,000] and the
remaining directors will receive an annual fee of [$10,000].
32
EXECUTIVE COMPENSATION
Other than pursuant to the agreements described in the next paragraph and
other than directors' fees, none of the officers of AmBrew International has
received any salary, bonus or long-term incentive or other compensation from the
Company's inception through January 31, 1996. The Company has no long-term
incentive compensation plans other than the Stock Option Plan. No options have
been granted to the Company's officers or directors under the plan to date.
Although the Company has no formal bonus plan, the Compensation Committee of the
Board, in its discretion, may award bonuses to executive officers of the
Company. The Company has not paid bonuses in the past but in the future may pay
bonuses based on individual and Company performance. The Company does not
provide for deferred awards.
The Company has entered into a management agreement with Lunar Holdings,
Ltd. ('Lunar'), a Hong Kong company controlled by David K. Haines, the Company's
Managing Director for Hong Kong Operations. Pursuant to that agreement, Mr.
Haines will manage the South China Brewery on behalf of Lunar. Mr. Haines will
be paid approximately $54,000 plus 3% of net (after tax) income generated by the
South China Brewery for the current fiscal year. The Company has entered into an
employment agreement with James L. Ake, the Company's Executive Vice President
and Chief Operating Officer. Pursuant to that agreement, Mr. Ake will manage the
Company as directed by the Board of Directors. Mr. Ake's annual salary will be
$72,000.00. Mr. Ake's employment agreement will expire in June 1998.
STOCK OPTION PLAN
Prior to the effective date of the Registration Statement of which this
Prospectus is a part, the Stock Option Plan was adopted by the Company's Board
of Directors and approved by its stockholders. The Company has reserved 300,000
authorized but unissued shares of Common Stock for issuance under the Stock
Option Plan. The purpose of the Stock Option Plan is to provide key employees
(including officers and directors) and independent contractors of AmBrew
International (including its subsidiaries) with additional incentives by
increasing their equity ownership in the Company.
Options granted under the Stock Option Plan are intended to qualify as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the 'Code') ('ISOs'). The Plan is intended to satisfy the
conditions of Section 16 of the Exchange Act pursuant to Rule 16b-3.
The Stock Option Plan will be administered by a committee of the Company's
Board of Directors comprised of at least two non-employee directors who are
'disinterested' within the meaning of Rule 16b-3 (the 'Stock Option Committee').
Subject to the terms of the Stock Option Plan, the committee administering the
plan has the sole authority and discretion to grant options, construe the terms
of the plan and make all other determinations and take all other action with
respect to the Stock Option Plan.
Options will be exercisable during the period specified by the Stock Option
Committee, except that options will become immediately exercisable in the event
of a Change in Control (as defined in the Stock Option Plan) of the Company and
in the event of certain mergers and reorganizations of the Company. Generally,
options will vest over a five-year period. No option will be exercisable more
than 10 years from the date of grant (or five years in the case of ISOs granted
to holders of more than 10% of the Common Stock) or after the option holder
ceases to be an employee or independent contractor of the Company; provided that
the Stock Option Committee may permit an employee or independent contractor to
exercise options after such employee or independent contractor ceases to be an
employee or independent contractor, as the case may be, in the event of certain
circumstances specified in the documentation of the grant of the option, but in
no event will any option be exercisable after its expiration date. Options are
nontransferable, except by will or the laws of intestate succession. Shares
underlying options that terminate unexercised are available for reissuance under
the Stock Option Plan.
The per share exercise price of options granted under the Stock Option Plan
may not be less than 100% of the Fair Market Value (as defined in the Stock
Option Plan) of a share of the Company's Common Stock on the date of grant (or
110% in the case of ISOs granted to employees owning more than 10% of the Common
Stock).
33
The Company has agreed not to grant options without the prior written
consent of the Representative for a period of thirteen (13) months following the
date of this Prospectus. See 'Shares Eligible for Future Sale' and
'Underwriting.'
INDEMNIFICATION; LIMITATION OF LIABILITY
Bermuda law permits a company to indemnify its directors and officers,
except for any act of willful negligence, willful default, fraud or dishonesty.
The Company has provided in its Bye-Laws that the directors and officers of the
Company will be indemnified and held harmless against any expenses, judgments,
fines, settlements and other amounts incurred by reason of any act or omission
in the discharge of their duty, other than in the case of willful negligence,
willful default, fraud or dishonesty.
Bermuda law and the Bye-Laws of the Company also permit the Company to
purchase insurance for the benefit of directors and officers against any
liability incurred by them for the failure to exercise the requisite care,
diligence and skill in the exercise of their powers and the discharge of their
duties, or indemnifying them in respect of any loss arising or liability
incurred by them by reason of negligence, default, breach of duty or breach of
trust. The Company intends to purchase a directors' and officers' liability
insurance policy upon consummation of this Offering.
The Company intends to enter into indemnification agreements with the
Company's officers and directors. To the extent permitted by law, the
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
At present, there is no pending material litigation or proceeding involving
a director or officer of the Company where indemnification will be required or
permitted. In addition, the Company is not aware of any threatened material
litigation or proceeding that may result in a claim for such indemnification.
34
PRINCIPAL STOCKHOLDERS
As of the date of this Prospectus, 2,021,818 shares of Common Stock were
issued and outstanding including shares issuable pursuant to the Bridge Notes
assuming no conversion of convertible Bridge Notes and an initial public
offering price per Share of $5.50. The following table sets forth certain
information with respect to the beneficial ownership of the Common Stock prior
to this Offering and after giving effect to this Offering (i) of each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) of the Company's directors and (iii) of
all directors and executive officers as a group.
NUMBER OF PERCENT OF TOTAL
SHARES ---------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ---------------------------------------------------------------------------- ------------ -------- --------
John F. Beaudette(2) ....................................................... 152,000 7.5% 4.5%
MHW, Ltd.
1165 Northern Boulevard
Manhasset, New York 11030
Peter W. H. Bordeaux ....................................................... 200,000 9.9% 6.0%
Unit A1, 1/F, Vita Tower
29 Wong Chuk Hang
Aberdeen, Hong Kong
Norman H. Brown, Jr. ....................................................... 152,000 7.5% 4.5%
277 Park Avenue
New York, New York 10172
Federico G. Cabo Alvarez(3) ................................................ 1,016,000 50.3% 30.3%
Pablo Neruda #2640 Suite 702
Guadalajara, Jalisco
Mexico, 44630
Richard Frederick Cabo(3) .................................................. 1,016,000 50.3% 30.3%
Pablo Neruda #2640 Suite 702
Guadalajara, Jalisco
Mexico, 44630
David K. Haines(4) ......................................................... 380,000 18.8% 11.3%
American Craft Brewing International Limited
Unit A1, 1/F, Vita Tower
29 Wong Chuk Hang
Aberdeen, Hong Kong
Edmund Piccolino(2) ........................................................ 152,000 7.5% 4.5%
124 Rowayton Avenue
Rowayton, Connecticut 06853
Peter Warren(2) ............................................................ 152,000 7.5% 4.5%
1030 Ridgefield Road
Wilton, Connecticut 06897
All executive officers and directors as a group (ten persons)(2)(3)(4)(5)... 1,900,000 94.0% 56.6%
- ------------
(1) Assumes no exercise of the Over-allotment Option. Applicable percentage
ownership is based on 2,021,818 shares of Common Stock outstanding as of the
date hereof. Beneficial ownership is determined in accordance with the rules
of the Commission and generally includes voting or investment power with
respect to securities, subject to community property laws, where applicable.
(2) Represents shares of Common Stock held of record by BPW Holding LLC, a New
York limited liability company ('BPW'). Messrs. Beaudette (a director of the
Company), Edmund Piccolino (former Vice President of Human Resources for
Pepsi-Co International, a division of PepsiCo Inc.) and Peter Warren (former
President of Pepsi-Co International and a former director of Pepsi-Co Inc.)
each own one third of the membership interest of BPW.
(3) Represents shares of Common Stock held of record by Stockwell Holdings
Limited, a Bahamas corporation ('Stockwell'). Mr. Federico Cabo and his son,
Richard Cabo, own 90% and 10%, respectively, of Stockwell. The Company's
largest stockholder, Mr. Federico Cabo, acquired shares of AmBrew
International's operating subsidiaries in 1994 and purchased additional
shares from Sazerac in June 1996. Mr. Cabo subsequently transferred
ownership of his shares to Stockwell Holdings Limited.
(4) Represents shares of Common Stock held of record by Lunar. David K. Haines,
Managing Director for Hong Kong Operations of the Company is the sole share
shareholder and director of Lunar.
(5) None of Messrs. Campbell, Carver and Heid and Ms. Amissah-Furbert, directors
of AmBrew International, beneficially own any shares of Common Stock.
35
CERTAIN TRANSACTIONS
The following summary is qualified in its entirety by the agreements that
have been filed as exhibits to the Registration Statement, of which this
Prospectus forms a part.
On March 31, 1995, the South China Brewery borrowed $565,000 from Hibernia
National Bank. The loan was evidenced by a promissory note with principal
payments due on September 30, 1996 and March 31, 1997 bearing a Citibank prime
plus 0.5% interest rate. Sazerac provided a $250,000 guarantee for the Hibernia
Note. Norman H. Brown, Jr. and Federico G. Cabo Alvarez, each directors of
AmBrew International, provided standby letters of credit in the total amount of
$315,000. Peter W. H. Bordeaux is President and Chief Executive Officer of
Sazerac and Chairman of the Board of Directors of the Company as well as
Chairman of the International Advisory Council of Hibernia National Bank (New
Orleans). The amount due has been reduced to $452,000 through principal
repayments by AmBrew International.
The South China Brewery borrowed $65,000 from BPW evidenced by a Limited
Recourse Promissory Note dated as of March 5, 1996 and due ten days after the
consummation of this Offering bearing an interest rate of 5.5%. John F.
Beaudette, a director of AmBrew International, is President of BPW.
In May 1996, Craft issued $370,000 principal amount of convertible Bridge
Notes to certain investors in Singapore and Hong Kong bearing an interest rate
of 12%. Holders of $250,000 principal amount of the Bridge Notes have the right
to convert such Bridge Notes, upon the consummation of this Offering, into a
maximum of that number of shares of Common Stock equal to the quotient obtained
by dividing 250,000 by the product of 0.5 and the initial public offering price
per Share. The holder of the remaining $120,000 principal amount of Bridge Notes
will be entitled to Common Stock at no cost, with the number of shares of Common
Stock equal to 120,000 divided by the initial public offering price per Share.
Each holder of a Bridge Note will receive a Bridge Warrant entitling such holder
to purchase that number of shares of Common Stock as such holder shall receive
upon the consummation of this Offering, pursuant to the terms of such Bridge
Note, at a price equal to $ [150% of the initial public offering price
per Share]. Micro-Brew Systems, from whom the Company intends to purchase
brewery equipment for its proposed expansion breweries, holds $20,000 principal
amount of the Bridge Notes. Assuming no conversion of the convertible Bridge
Notes and an initial public offering price per Share of $5.50, a total of 21,818
shares of Common Stock will be issued to the holders of the Bridge Notes
(112,727 shares of Common Stock assuming full conversion of the convertible
Bridge Notes) and 21,818 shares of Common Stock will be issued pursuant to the
Bridge Warrants (112,727 shares of Common Stock assuming full conversion of the
convertible Bridge Notes).
Prior to the effective date of the Registration Statement of which this
Prospectus is a part, Sazerac, Lunar and BPW and Messrs. Cabo and Brown, the
holders of all of the issued and outstanding shares of South China and SCBC,
exchanged such shares for 23,750 shares of capital stock of Craft. This Share
Exchange had the effect of consolidating ownership of the South China Brewery's
operating companies in Craft.
Prior to the effective date of the Registration Statement of which this
Prospectus is a part, Craft, a British Virgin Islands Company, amalgamated into
AmBrew International, a Bermuda company. AmBrew International is the surviving
company and its officers and directors remained in office after the Merger.
In addition, see 'Management' for a discussion of employment and management
contracts with Messrs. Ake and Haines.
In connection with this Offering, the Company has adopted a policy whereby
any further transactions between the Company and its officers, directors,
principal stockholders and any affiliates of the foregoing persons will be on
terms no less favorable to the Company than could reasonably be obtained in an
arm's length transaction with independent third parties, and that any such
transactions also be approved by a majority of the Company's disinterested
outside directors.
36
DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of 10,000,000 shares of
Common Stock, par value $0.01 per share and 500,000 shares of preferred stock,
par value $0.01 per share. As of the date hereof, there were 2,021,818 shares of
Common Stock outstanding held by 30 stockholders of record, assuming an initial
public offering price per Share of $5.50 and no conversion of the convertible
Bridge Notes.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. The holders of
Common Stock are entitled to receive ratably the dividends, if any, that may be
declared from time to time by the Board of Directors out of funds legally
available for such dividends. The holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. Holders of Common
Stock have no preemptive rights and no right to convert their Common Stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock. All the outstanding shares of Common Stock are,
and the shares of Common Stock to be issued in this Offering will be, validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further stockholder approval,
to issue up to 500,000 shares of 'blank check' preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
or imposed upon unissued shares of preferred stock and to fix the number of
shares constituting any series and designations of such series.
The issuance of preferred stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of this Offering, no shares of
preferred stock will be outstanding and the Company currently has no plans to
issue any shares of preferred stock.
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the warrant agreement (the 'Warrant Agreement')
among the Company, the Representative, and the Bank of New York (the 'Warrant
Agent'). A copy of the Warrant Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See 'Available
Information.'
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time over a fifty-four month period commencing six
(6) months after the date of this Prospectus, one share of Common Stock at a
price of 150% of the initial public offering price per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below. The holder of any Warrant may exercise such Warrant by surrendering the
certificate representing the Warrant to the Warrant Agent, with the subscription
form thereon properly completed and executed, together with payment of the
exercise price. The Warrants may be exercised at any time in whole or in part at
the applicable exercise price until expiration of the Warrants. No fractional
shares will be issued upon the exercise of the Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
Adjustments. The holders of the Warrants are protected against dilution of
their interests by adjustments, as set forth in the Warrant Agreement, of the
exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Warrants upon the occurrence of certain events,
37
including stock dividends, stock splits, combinations or reclassification of the
Common Stock, or sale by the Company of shares of its Common Stock or other
securities convertible into Common Stock at a price below the then-applicable
exercise price of the Warrants. Additionally, an adjustment would be made in the
case of a reclassification or exchange of Common Stock, consolidation or merger
of the Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company in order to enable warrantholders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing eighteen (18) months after the date of
this Prospectus, all, but not less than all, of the Warrants are subject to
redemption at $0.10 per Warrant on not less than thirty (30) days' prior written
notice to the holders of the Warrants provided the per share closing bid
quotation of the Common Stock as reported on Nasdaq equals or exceeds
$ [160% of the initial public offering price per Share] for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth trading day prior to the date on which the Company gives notice of
redemption. The Warrants will be exercisable until the close of business on the
day immediately preceding the date fixed for redemption in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to be
exercisable and the holder will be entitled only to the redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five (5) years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
Warrantholder Not a Stockholder. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days' prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants, without the consent of two-thirds of the warrantholders.
A significant amount of the Securities offered hereby may be sold to
customers of the Representative. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with the
Representative. Although it has no obligation to do so, the Representative
currently intends to make a market in the Securities and may otherwise effect
transactions in the Securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the securities described in this Prospectus. Such market-making activity may
be discontinued at any time. The price and liquidity of the Common Stock and the
Warrants may be significantly affected by the degree, if any, of the
Representative's participation in such market. See 'Underwriting.'
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be assurance that it will be able to do so.
The Warrants are separately transferable immediately upon issuance.
Although the Warrants will not knowingly be sold to purchasers in jurisdictions
in which the Warrants are not registered or
38
otherwise qualified for sale or exemption, purchasers may buy Warrants in the
after-market in, or may move to, jurisdictions in which Warrants and the Common
Stock underlying the Warrants are not so registered or qualified or exempt. In
this event, the Company would be unable lawfully to issue Common Stock to those
persons desiring to exercise their Warrants (and the Warrants would not be
exercisable by those persons) unless and until the Warrants and the underlying
Common Stock are registered, or qualified for sale in jurisdictions in which
such purchasers reside, or an exemption from registration or qualification
exists in such jurisdiction.
BERMUDA LAW
The following discussion is based upon the advice of Appleby, Spurling &
Kempe, Bermuda counsel for the Company.
Prior to the effective date of the Registration Statement of which this
Prospectus is a part, Craft, a British Virgin Islands holding company was
amalgamated into the Company and continues as an exempted company under the
Companies Act 1981 of Bermuda (the 'Act'). The rights of the Company's
stockholders, including those persons who will become stockholders of the
Company in connection with this Offering, are governed by Bermuda law and the
Company's Memorandum of Amalgamation and Bye-Laws. The following is a summary of
certain provisions of Bermuda law and the Company's organizational documents.
This summary is not a comprehensive description of such laws and documents and
is qualified in its entirety by appropriate reference to Bermuda law and to the
organizational documents of the Company which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Dividends. Under Bermuda law, a company may pay such dividends as are
declared from time to time by its board of directors unless there are reasonable
grounds for believing that the company is or would, after the payment, be unable
to pay its liabilities as they become due or that the realizable value of its
assets would thereby be less than the aggregate of its liabilities and issued
share capital and share premium accounts.
Voting Rights. Under Bermuda law, questions brought before a general
meeting of stockholders are decided by a majority vote of stockholders present
at the meeting (or by such majority as the Act or the Bye-Laws of the company
prescribe), each stockholder having one vote, irrespective of the number of
shares held, unless a poll is requested. The Company's Bye-Laws provide that,
subject to the provisions of the Act, any questions proposed for the
consideration of the stockholders will be decided by a simple majority of the
votes cast, with each stockholder present, or person holding proxies for any
stockholder, entitled to one vote. If a poll is requested, each stockholder
present in person or by proxy has one vote for each share held. A poll may only
be requested under the Company's Bye-Laws by (i) the Chairman of the meeting,
(ii) at least three stockholders present in person or by proxy, (iii) any
stockholder or stockholders, present in person or by proxy, holding between them
not less than 10% of the total voting rights of all stockholders having the
right to vote at such meeting or (iv) a stockholder or stockholders present in
person or by proxy holding voting shares in the company on which an aggregate
sum has been paid equal to not less than 10% of the total sum paid up on all
such voting shares.
Rights in Liquidation. Under Bermuda law, in the event of liquidation,
dissolution or winding up of a company, after satisfaction in full of all claims
of creditors and subject to the preferential rights accorded to any series of
preferred stock, the proceeds of such liquidation, dissolution or winding up are
distributed pro rata among the holders of common stock.
Meetings of Stockholders. Under Bermuda law, a company is required to
convene at least one general stockholders' meeting per calendar year. The
Company will hold its annual meeting in the United States. Bermuda law provides
that a special general meeting may be called by the board of directors and must
be called upon the request of stockholders holding not less than 10% of such of
the paid-up capital of the company carrying the right to vote. Bermuda law also
requires that stockholders be given at least five days' advance notice of a
general meeting but the accidental omission of notice to any person does not
invalidate the proceedings at a meeting. Under the Bye-Laws of the Company, at
39
least ten days' notice of the annual general meeting and of any special general
meeting must be given to each stockholder.
Under Bermuda law, the number of stockholders constituting a quorum at any
general meeting of stockholders is determined by the bye-laws of a company. The
Company's Bye-Laws provide that the presence in person or by proxy of the
holders of more than 50% of the voting capital stock of the Company constitute a
quorum.
Access to Books and Records and Dissemination of Information. Members of
the general public have the right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda. These
documents include a company's Certificate of Incorporation, its Memorandum of
Association (including its objects and powers) and any alteration to a company's
Memorandum of Association. The stockholders have the additional right to inspect
the bye-laws of the company, minutes of general meetings and a company's audited
financial statements, which must be presented at the annual general meeting. The
register of stockholders of a company is also open to inspection by stockholders
without charge and to members of the general public on the payment of a fee. A
company is required to maintain its share register in Bermuda but may, subject
to the provisions of the Act, establish a branch register outside Bermuda. The
Company intends to maintain a share register in New York, New York. A company is
required to keep at its registered office a register of its directors and
officers which is open for inspection for not less than two hours in each day by
members of the public without charge. Bermuda law does not, however, provide a
general right for stockholders to inspect or obtain copies of any other
corporate records.
Election or Removal of Directors. Under Bermuda law and the Company's
Bye-Laws, directors are elected at the annual general meeting and shall serve
until re-elected or until their successors are elected or appointed, unless they
are earlier removed or resign.
Under Bermuda law and the Bye-Laws of the Company, a director may be
removed at a special general meeting of stockholders specifically called for
that purpose, provided that the director was served with at least 14 days'
notice. The director has a right to be heard at the meeting. Any vacancy created
by the removal of a director at a special general meeting may be filled at such
meeting by the election of another director in his or her place or, in the
absence of any such election, by the Board of Directors.
Amendment of Memorandum of Amalgamation and Bye-Laws. Bermuda law provides
that the Memorandum of Amalgamation of a company may be amended by a resolution
passed at a general meeting of stockholders of which due notice has been given.
An amendment to the Memorandum of Amalgamation other than an amendment which
alters or reduces a company's share capital as provided in the Act, also
requires the approval of the Bermuda Minister of Finance, who may grant or
withhold approval at his discretion. The Bye-Laws may be amended by a resolution
passed by a majority of shares cast at a general meeting.
Under Bermuda law, the holders of an aggregate of no less than 20% in par
value of a company's issued share capital have the right to apply to the Bermuda
Court for an annulment of any amendment of the Memorandum of Amalgamation
adopted by stockholders at any general meeting, other than an amendment which
alters or reduces a company's share capital as provided in the Act. Where such
an application is made, the amendment becomes effective only to the extent that
it is confirmed by the Bermuda Court. An application for amendment of the
Memorandum of Amalgamation must be made within 21 days after the date on which
the resolution altering the company's memorandum is passed and may be made on
behalf of the persons entitled to make the application by one or more of their
number as they may appoint in writing for the purpose. No such application may
be made by persons voting in favor of the amendment.
Appraisal Rights and Stockholder Suits. Under Bermuda law, in the event of
an amalgamation of two Bermuda companies, a stockholder who is not satisfied
that fair value has been paid for his shares may apply to the Bermuda Court to
appraise the fair value of his shares. The amalgamation of a company with
another company (except where the amalgamation is between a holding company and
one or more of its wholly-owned subsidiaries or between two or more wholly-owned
subsidiaries of the same holding company), requires the amalgamation agreement
to be approved by the board of directors
40
and by a meeting of the holders of shares of the amalgamating company of which
they are directors and of the holders of each class of such shares. Under
Bermuda law, an amalgamation also requires the consent of the Bermuda Minister
of Finance, who may grant or withhold consent at his discretion.
Class actions and derivative actions are generally not available to
stockholders under Bermuda law. The Bermuda courts, however, would ordinarily be
expected to permit a stockholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of is alleged to
be beyond the corporate power of the company or is illegal or would result in
the violation of the company's Memorandum of Association or Bye-Laws.
Furthermore, consideration would be given by the Court to acts that are alleged
to constitute a fraud against the minority stockholders or, for instance, where
an act requires the approval of a greater percentage of the company's
stockholders than those who actually approved it.
When the affairs of a company are being conducted in a manner oppressive or
prejudicial to the interests of some part of the shareholders, one or more
shareholders may apply to the Bermuda Court for an order regulating the
company's conduct of affairs in the future or ordering the purchase of the
shares by any shareholder, by other shareholders or by the company.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent and Registrar for the Common Stock and the Warrant Agent
for the Warrants is the Bank of New York.
41
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The following discussion is based on the advice of Appleby, Spurling &
Kempe, Bermuda counsel to the Company.
The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority ('BMA'). In addition, prior to this
Offering, this Prospectus will be filed with the Registrar of Companies in
Bermuda in accordance with Bermuda law.
IT MUST BE DISTINCTLY UNDERSTOOD THAT, IN GRANTING SUCH PERMISSION AND UPON
ACCEPTING THIS PROSPECTUS FOR FILING, THE BMA AND THE REGISTRAR OF COMPANIES IN
BERMUDA WILL ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS OF ANY SCHEMES
OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE OR OPINIONS EXPRESSED WITH
REGARD TO THEM.
There are no limitations on the rights of non-Bermuda owners of the Common
Stock to hold or vote their shares. Because the Company has been designated as a
non-resident for Bermuda exchange control purposes, there are no restrictions on
its ability to transfer funds in and out of Bermuda or to pay dividends to
United States residents who are holders of the Company's Common Stock, other
than in respect of local Bermuda currency.
In the case of an applicant acting in a special capacity (for example, as
an executor or trustee), certificates may, at the request of the applicant,
record the capacity in which the applicant is acting. Notwithstanding the
recording of any such special capacity, the Company is not bound to investigate
or incur any responsibility in respect of the proper administration of any such
estate or trust. The Company will take no notice of any trust applicable to any
of its shares whether or not it had notice of such trust.
Under Bermuda law, the Company is an exempted company (that is, it is
exempted from the provisions of Bermuda law which stipulate that at least 60% of
the equity must be beneficially owned by Bermudians). Consents under The
Exchange Control Act 1972 of Bermuda and the regulations made thereunder have
been obtained for the issue and subsequent transfer of the shares of Common
Stock and Warrants offered by this Prospectus to and among persons not resident
in Bermuda for exchange control purposes. Persons regarded as residents of
Bermuda for exchange control purposes require specific consent under The
Exchange Control Act 1972 to purchase such Securities. The Act permits companies
to adopt bye-law provisions relating to the transfer of securities. Neither
Bermuda law, the Memorandum of Amalgamation nor the Bye-Laws of the Company
impose limitations on the right of foreign nationals or nonresidents of Bermuda
to hold the Securities or vote the Shares. Pursuant to the provisions of Section
28 of the Companies Act 1981 of Bermuda, there is no minimum subscription which
must be raised by the issue of the Securities to provide the funds required to
be provided in respect of the matters set forth in that section.
As an exempted company, the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company the Company may not participate in certain business
transactions, including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature; (2) the taking of mortgages on land in Bermuda to secure an
amount in excess of $50,000 without the consent of the Bermuda Minister of
Finance; (3) the acquisition of securities created or issued by, or any interest
in, any local company or business, other than certain types of Bermuda
government securities or securities of another exempted company, partnership or
other corporation resident in Bermuda but incorporated abroad or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Bermuda Minister of Finance. In addition, no more than 20% of the share
capital of an exempted Company may be held by Bermudians.
The Bermuda government actively encourages foreign investment in exempted
entities like the Company that are based in Bermuda but do not operate in
competition with local business. In addition to having no restrictions on the
degree of foreign ownership, the Company is subject neither to taxes on its
income or dividends nor to any foreign exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and profits can be
accumulated by the Company, as required, without limitation.
42
TAXATION
This discussion of certain tax considerations is based upon applicable
laws, treaties, regulations and interpretations thereof as currently in effect.
This summary does not consider all aspects of taxation which may be relevant to
a particular investor and which may depend upon the investor's particular
circumstances. Prospective investors should consult with their own professional
advisors about the tax consequences to them of an investment in the Company
under the laws of the jurisdictions in which they are subject to taxation.
The summary of certain Bermuda tax consequences is based upon the opinion
of Appleby, Spurling & Kempe, Bermuda counsel to the Company.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general description of the principal United States
federal income tax consequences of the purchase, ownership, and sale of the
Securities. This description is for general information purposes only and is
based on the Code, Treasury Regulations promulgated thereunder and judicial and
administrative interpretations thereof, all as in effect on the date hereof and
all of which are subject to change, possibly retroactively. The tax treatment of
a holder of Securities may vary depending upon the holder's particular
situation. Certain holders (including, but not limited to, insurance companies,
tax-exempt organizations, financial institutions, persons subject to the
alternative minimum tax, dealers in the Securities, persons that have a
'functional currency' other than the U.S. dollar, persons that receive
Securities as compensation for services, and persons owning, directly or
indirectly, including by rules of attribution, 5% or more of the stock of the
Company measured by vote or value) may be subject to special rules not discussed
below. Except as discussed below with regard to persons who are not U.S.
Holders, the following summary is limited to U.S. Holders who will hold the
Securities as 'capital assets' within the meaning of Section 1221 of the Code
and not as part of a 'straddle' or 'conversion transaction' within the meaning
of Sections 1092 and 1258 of the Code. The discussion below does not address the
effect of any state or local tax law on a holder of the Securities. Persons
considering the purchase of Securities should consult their own tax advisors
concerning the application of United States federal, state and local tax laws to
their investments and any consequences arising under the laws of any other
jurisdiction.
TAXATION OF THE COMPANY
Currently, most of the Company's income is and, according to the Company's
plans set forth in 'Business' above, will be from sources outside the United
States and will not be effectively connected with the conduct by the Company of
a trade or business within the United States ('Foreign Income'). The Company
generally will not be subject to United States federal income tax on its income
from sources outside the United States that is not effectively connected with
the conduct of a trade or business within the United States. The Company will be
subject to United States federal income tax at regular corporate rates on the
Company's taxable income that is effectively connected with the conduct by the
Company of a trade or business within the United States ('U.S. Income'). In
addition, the Company will be subject to United States federal branch profits
tax (currently 30%) on actual or deemed withdrawals of U.S. Income from the
United States.
TAXATION OF U.S. HOLDERS
As used herein, the term 'U.S. Holder' means an individual who is a citizen
or resident of the United States, a corporation organized in or under the laws
of the United States or any state thereof, or an estate or trust that is subject
to United States federal income taxation without regard to the source of its
income.
Distributions. A distribution with respect to the Common Stock will be
treated as a dividend taxable to a U.S. Holder as ordinary income, to the extent
of the Company's current and accumulated earnings and profits as determined for
United States federal income tax purposes. Distributions in excess of such
current and accumulated earnings and profits will constitute a nontaxable return
of capital to the extent of, and will be applied against and reduce, such
holder's tax basis in such Common Stock. Any remaining excess over the holder's
tax basis will be a capital gain. Such capital gain will be long-term or
short-term depending on whether the Common Stock has been held longer than one
year. Corporations will not be allowed a deduction for dividends received on the
Common Stock.
43
Sale of Securities. The sale of Securities by a U.S. Holder will generally
result in the recognition of U.S. source gain or loss in an amount equal to the
difference between the amount realized on the sale and the holder's adjusted
basis in the sold Securities. This will result in a long-term or short-term
capital gain or loss, depending on whether the sold Securities have been held
for more than one year. The redemption of Warrants by the Company will generally
be treated as a sale of the redeemed Warrants by the U.S. Holder.
Exercise of Warrants. The exercise of a Warrant will not generally be a
taxable event to the holder. The tax basis of Common Stock purchased on exercise
of a Warrant will include the holder's tax basis in the exercised Warrant plus
the price paid for the Common Stock.
Passive Foreign Investment Company Status. The foregoing discussion
assumes that the Company is not currently, and will not in the future be, a
'passive foreign investment company' ('PFIC'). A PFIC is a foreign corporation
(i) 75% or more of whose income is passive income or (ii) 50% or more of whose
assets produce or are held to produce passive income. The Company believes that
it has not been and will not become a PFIC. Although the Company expects to earn
sufficient active business income to avoid PFIC status, the Company may earn
passive income such as interest on working capital. Furthermore, the extent and
timing of the Company's non-passive income and of its ownership of assets that
produce non-passive income cannot be predicted with certainty. In a year in
which the Company is a PFIC, a U.S. Holder would be subject to increased tax
liability in respect of gain realized on the sale of the Securities and upon the
receipt of certain distributions on the Common Stock. A U.S. Holder holding
Common Stock can avoid this increased tax liability by making an election to be
taxed currently on its pro rata portion of the Company's income, whether or not
such income is distributed. The election can be made only if certain required
information is made available by the Company to the U.S. Internal Revenue
Service and to the U.S. Holder of Common Stock. Although there can be no
assurance, the Company currently intends to make available the information
necessary for holders to make such election in the event the Company is
classified as a PFIC.
Foreign Personal Holding Company Status. The Company believes that it has
not been and will not become a foreign personal holding company ('FPHC'). In
general terms, a foreign corporation is an FPHC if at least 60% of its gross
income for the taxable year is FPHC income and more than 50% of either the total
combined voting power of all classes of stock or the total value of all stock in
such corporation is owned (directly or indirectly) by or for five or fewer
individuals who are United States persons. FPHC income generally includes the
same items of income as passive income but the two terms are not identical.
After its initial year as an FPHC, a corporation may remain an FPHC even if only
50% of its gross income is FPHC income.
For a year in which a corporation is an FPHC, stockholders who are United
States persons are required to include in their taxable income a deemed dividend
equal to their share of the corporation's 'undistributed FPHC' income. In
general, a corporation's undistributed FPHC income is the corporation's total
taxable income (which is gross income minus allowable deductions such as
ordinary and necessary business expenses), with certain adjustments, less
dividends paid by the corporation. For any year in which it is an FPHC, the
Company presently intends to distribute sufficient dividends so that it will
have no undistributed FPHC income, to the extent practicable. Nevertheless, if
the Company is an FPHC and has undistributed FPHC income, U.S. Holders will
recognize deemed dividend income regardless of whether they receive cash
distributions from the Company.
TAXATION OF NON-U.S. HOLDERS
The following discussion of the United States federal income tax
consequences of ownership of Securities by a person that is not a U.S. Holder (a
'Non-U.S. Holder') and has no connection with the United States other than
holding its Securities assumes that the Non-U.S. Holder is not engaged in the
conduct of a trade or business within the United States for United States
federal income tax purposes. Each prospective Non-U.S. Holder should consult
with its individual tax advisor to determine the effect that its conduct of a
trade or business within the United States or the applicability of a tax treaty
may have upon its ownership of Securities.
Distributions. Dividends by the Company to Non-U.S. Holders would be
subject to United States federal income tax only if 25% or more of the gross
income of the Company (from all sources for the three-year period ending with
the close of the taxable year preceding the declaration of the dividend) was
effectively connected with the conduct of a trade or business in the United
States by the Company.
44
If the 25% threshold for such period is exceeded, a portion of any dividend paid
by the Company to a Non-U.S. Holder would be subject to federal income tax
withholding at the rate of 30%, unless a lower treaty rate is applicable; the
portion of the dividend that would be subject to withholding would correspond to
the portion of the Company's gross income for the period that is effectively
connected to its conduct of a trade or business within the United States.
Sale of Securities. A Non-U.S. Holder generally will not be subject to
United States federal income tax on gain from the sale of Securities or the
redemption of Warrants.
UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments in respect of the Securities may be subject to information
reporting to the United States Internal Revenue Service and to a 31% United
States backup withholding tax. In general, backup withholding will not apply,
however, to a holder who furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification or who
is otherwise exempt from backup withholding. Currently, in general, a U.S.
Holder will provide such certification on Form W-9 (Request for Taxpayer
Identification Number and Certification) and a Non-U.S. Holder will provide such
certification on Form W-8 (Certification of Foreign Status).
BERMUDA TAX CONSIDERATIONS
At the present time, there is no Bermuda income or profits tax, withholding
tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
payable by a Bermuda company or its stockholders, other than stockholders
ordinarily resident in Bermuda. The Company has obtained an assurance from the
Minister of Finance under the Exempted Undertakings Tax Protection Act 1966
that, in the event that any legislation is enacted in Bermuda imposing any tax
computed on profits or income, or computed on any capital asset, gain or
appreciation, or any tax in the nature of an estate duty or inheritance tax,
such tax shall not, until March 28, 2016, be applicable to the Company or to any
of its operations or to the shares, warrants, debentures or other obligations of
the Company except insofar as such tax applies to persons ordinarily resident in
Bermuda and holding such shares, warrants, debentures or other obligations of
the Company or any land leased or let to the Company. Therefore, there will be
no Bermuda tax consequences with respect to the sale or exchange of the Common
Stock or the Warrants or with respect to distributions in respect of the Common
Stock or the Warrants. As an exempted company, the Company is liable to pay in
Bermuda a registration fee of $1,680 based upon its initial authorized share
capital upon amalgamation, 12,000 shares, and the premium on its shares which
fee will not exceed $25,000.00. The registration fee payable by the Company in
1996 will be $1,680.00.
OTHER COUNTRIES
The Company will likely be subject to tax on income earned in each of the
countries in which it does business (directly or through subsidiaries or joint
ventures). The Company has not to date analyzed the tax consequences of doing
business in any jurisdiction other than those described above.
45
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, 3,355,151 shares of the Common
Stock, 1,333,333 Warrants and Bridge Warrants entitling the holders thereof to
purchase 21,818 shares of Common Stock will be outstanding (3,821,817 Shares and
1,666,666 Warrants if the Over-allotment Option and the Representative's
Warrants are exercised in full) including shares of Common Stock issuable
pursuant to the Bridge Notes assuming no conversion of the convertible Bridge
Notes and an initial public offering price per Share of $5.50. The 1,333,333
Shares and 1,333,333 Warrants sold in this Offering (1,533,333 shares of Common
Stock and 1,533,333 Warrants if the Over-allotment Option is exercised in full)
will be freely tradeable without restrictions or further registration under the
Securities Act unless acquired by an 'affiliate' of the Company (as that term is
defined in the Securities Act) which Securities will be subject to the resale
limitations of Rule 144 under the Securities Act ('Rule 144').
The remaining 2,000,000 shares of Common Stock which will be outstanding
upon the consummation of this Offering, excluding shares of Common Stock issued
pursuant to the terms of the Bridge Notes and the Bridge Warrants, were issued
by the Company's subsidiaries in private transactions in reliance upon the
'private placement' exception under Section 4(2) of the Securities Act at
various times between August 1994 and February 1996, and are therefore
'restricted securities' within the meaning of Rule 144 ('Restricted
Securities'). The Company and the existing stockholders (and any holders of
outstanding securities exercisable for or convertible into Common Stock) have
agreed not to, directly or indirectly, issue, agree or offer to sell, sell,
transfer, assign, distribute, grant an option for purchase or sale of, pledge,
hypothecate or otherwise encumber or dispose of any beneficial interest in such
securities for a period of thirteen (13) months from the date of this Prospectus
without the prior written consent of the Company and the Representative other
than (i) shares of Common Stock transferred pursuant to bona fide gifts where
the transferee agrees in writing to be similarly bound or (ii) securities
transferred through the laws of descent. Upon expiration of this period, all
such shares may be sold subject to the limitations of and in accordance with
Rule 144. Beginning 13 months after the date of this Prospectus, these 2,000,000
shares will be available for sale in the public market subject to certain volume
and resale restrictions, as described below. Additional shares of Common Stock,
including shares issuable upon exercise of options issued in accordance with the
Stock Option Plan and upon the exercise of the Warrants and the Representative's
Warrants will also become eligible for sale in the public market from time to
time in the future.
In addition to the shares described in the preceding paragraphs, additional
shares of Common Stock will become eligible for sale in the public market from
time to time pursuant to the Bridge Notes and the Bridge Warrants. Holders of
$250,000 principal amount of the Bridge Notes have the right to convert such
Bridge Notes, upon the consummation of this Offering, into a maximum of that
number of shares of Common Stock equal to the quotient obtained by dividing
250,000 by the product of 0.5 and the initial public offering price per Share.
The holder of the remaining $120,000 principal amount of Bridge Notes shall be
issued that number of shares of Common Stock equal to 120,000 divided by the
initial public offering price per Share. Each holder of a Bridge Note shall
receive a Bridge Warrant entitling such holder to purchase that number of shares
of Common Stock as such holder shall receive upon the consummation of this
Offering pursuant to the terms of such Bridge Note. The Company and the holders
of the Bridge Notes and the Bridge Warrants have agreed not to, directly or
indirectly, issue, agree or offer to sell, sell, transfer, assign, distribute,
grant an option for purchase or sale of, pledge, hypothecate, or otherwise
encumber or dispose of any beneficial interest in the Bridge Notes or the Bridge
Warrants or the shares underlying the Bridge Notes or the Bridge Warrants for a
period of six (6) months from the date of this Prospectus without the prior
written consent of the Company and the Representative other than (i) shares of
Common Stock transferred pursuant to bona fide gifts where the transferee agrees
in writing to be similarly bound or (ii) shares transferred through the laws of
descent.
Upon the expiration of this period, all such shares may be sold subject to
the limitations and in accordance with Rule 144.
The Company has agreed not to, directly or indirectly, without the prior
written consent of the Representative, issue, sell, agree or offer to sell,
grant an option for the purchase or sale of, or otherwise transfer or dispose of
any of its securities for a period of thirteen (13) months following the date of
this Prospectus, except (x) pursuant to options existing on the date of this
Prospectus and pursuant to the exercise of the Warrants and the Representative's
Warrants or pursuant to the terms of
46
the Bridge Notes and the Bridge Warrants or (y) debt securities issued to
non-affiliated third parties in connection with bona fide business acquisitions
and/or expansions consistent with the Company's business plans as generally
described in this Prospectus.
The Company has further agreed that it will not, other than with respect to
the Stock Option Plan, without the Representative's prior written consent, for a
period of thirteen (13) months from the effective date of the Registration
Statement: (i) adopt, propose to adopt, or otherwise permit to exist any
additional equity compensation plans or similar arrangements providing for the
grant, sale, or issuance of stock options, warrants, or other rights to acquire
the Company's securities to any of the Company's executive officers, directors,
employees, consultants or holders of 5% or more of the Company's Common Stock;
(ii) grant, sell or issue any option, warrant or other right to acquire the
Company's securities or enter into any agreement to grant, sell, or issue any
option, warrant or other right to acquire the Company's securities at an
exercise price that is less than the fair market value on the date of grant or
sale; (iii) allow for the maximum number of shares of Common Stock or other
securities of the Company purchasable pursuant to options or warrants issued by
the Company, together with the shares of Common Stock acquired upon exercise of
outstanding options, to exceed the aggregate 800,000 shares described in
footnote one (1) to the 'Prospectus Summary -- The Offering' section of this
Prospectus (excluding the Warrants and the Representative's Warrants); (iv)
allow for the payment for such securities with any form of consideration other
than cash; or (v) allow for the existence of stock appreciation rights, phantom
options or similar arrangements.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least two years shares privately acquired, directly or
indirectly, from the Company or from an affiliate of the Company, and persons
who are affiliates of the Company, will be entitled to sell within any three-
month period a number of shares that does not exceed the greater of (i) 1% of
the outstanding shares of Common Stock (33,552 shares immediately after
completion of this Offering or 38,218 shares if the Over-allotment Option is
exercised in full, in each case including 21,218 shares of Common Stock issued
pursuant to the Bridge Notes assuming no conversion of the convertible Bridge
Notes and an initial public offering price per Share of $5.50), or (ii) the
average weekly trading volume of shares during the four calendar weeks preceding
such sale. Sales under 144 are also subject to certain requirements relating to
the manner and notice of sale and the availability of current public information
about the Company.
The Company has reserved 300,000 shares of Common Stock for issuance under
the Stock Option Plan. At appropriate times subsequent to completion of the
Offering, the Company may file registration statements under the Securities Act
to register the Common Stock to be issued under this plan. After the effective
date of such registration statement, and subject to the lock-up agreement
executed by existing shareholders, shares issued under this plan will be freely
tradeable without restriction or further registration under the Securities Act,
unless acquired by affiliates of the Company.
Prior to this Offering, there has been no market for the Common Stock or
Warrants. No predictions can be made with respect to the effect, if any, that
public sales of shares of the Common Stock or Warrants or the availability of
shares or Warrants for sale will have on the market price of the Common Stock or
Warrants after this Offering. Sales of substantial amounts of the Common Stock
or Warrants in the public market following this Offering, or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock and Warrants or the ability of the Company to raise capital through sales
of its equity securities.
47
UNDERWRITING
The Underwriters named below (the 'Underwriters'), for whom National
Securities Corporation is acting as Representative, have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the
'Underwriting Agreement') to purchase from the Company and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the respective
number of Shares and Warrants set forth opposite their names:
NUMBER OF NUMBER OF
UNDERWRITER SHARES WARRANTS
- ------------------------------------------------------------------------------ --------- ---------
National Securities Corporation...............................................
--------- ---------
Total.................................................................... 1,333,333 1,333,333
--------- ---------
--------- ---------
The Underwriters are committed to purchase all the Shares and Warrants
offered hereby, if any of such Securities are purchased. The Underwriting
Agreement provides that the obligations of the several Underwriters are subject
to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share and
$ per Warrant. Such dealers may re-allow a concession not in excess of
$ per Share and $ per Warrant to certain other dealers. After the
commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five (5) percent of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds derived from the sale of the Securities
underwritten, of which $50,000 has been paid to date.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 200,000 shares of Common Stock
and/or 200,000 Warrants at the initial public offering price per Share and
Warrant, respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional Securities proportionate to
its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 133,333 shares of Common Stock and/or 133,333 Warrants (the
'Representative's Warrants'). The Representative's Warrants are initially
exercisable at a price of $ per share [150% of the initial public offering
price per Share] of Common Stock and $ [150% of the initial public
offering price per Warrant] per Warrant for a period of four (4) years,
commencing at the beginning of the second year after their issuance and sale and
are restricted from sale, transfer, assignment or hypothecation for a period of
twelve (12) months from the date hereof, except to officers of the
Representative. The Representative's Warrants provide for adjustment in the
number of shares of Common Stock and Warrants issuable upon the exercise thereof
and in the exercise price of the Representative's Warrants as a result of
certain events, including subdivisions and combinations of the Common Stock. The
Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise thereof.
48
All officers, directors and stockholders of the Company and all holders of
any options, warrants or other securities convertible, exercisable or
exchangeable for or convertible into shares of Common Stock have agreed not to,
directly or indirectly, issue, offer, agree or offer to sell, sell, transfer,
assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such securities
for a period of thirteen (13) months following the date of this Prospectus
without the prior written consent of the Company and the Representative other
than (x) shares of Common Stock transferred pursuant to bona fide gifts where
the transferee agrees in writing to be similarly bound or (y) securities
transferred through the laws of descent. An appropriate legend shall be marked
on the face of certificates representing all such securities.
The Company has agreed not to, directly or indirectly, without the prior
written consent of the Representative, issue, sell, agree or offer to sell,
grant an option for the purchase or sale of, or otherwise transfer or dispose of
any of its securities for a period of thirteen (13) months following the date of
this Prospectus, except (x) pursuant to options existing on the date of this
Prospectus and pursuant to the exercise of the Warrants and the Representative's
Warrants or pursuant to the terms of the Bridge Notes and the Bridge Warrants or
(y) debt securities issued to non-affiliated third parties in connection with
bona fide business acquisitions and/or expansions consistent with the Company's
business plans as generally described in this Prospectus.
The Underwriting Agreement provides that the Representative has a right of
first refusal for a period of two (2) years from the effective date of the
Registration Statement with respect to any sale of securities by the Company or
any of its present or future affiliates or subsidiaries; provided, however, that
such right of first refusal shall earlier expire upon the date that Messrs.
Raymond L. Dirks and Michael K. Hsu terminate their association with the
Representative.
The Company has agreed for a period of [ ], if requested by the
Representative, to use its best efforts to nominate for election to the
Company's Board of Directors one person designated by the Representative. In the
event the Representative elects not to exercise such right, the Representative
may designate a person to receive all notices of meetings of the Company's Board
of Directors and all other correspondence and communications sent by the Company
to its Board of Directors and to attend all such meetings of the Company's Board
of Directors. The Company has agreed to reimburse designees of the
Representative for their out-of-pocket expenses incurred in connection with
their attendance of meetings of the Company's Board of Directors.
Although the Representative has been in business for over 40 years, the
Representative has participated in only seven public offerings as an underwriter
during the last five years. Prospective purchasers of the Securities offered
hereby should consider the Representative's limited experience in evaluating an
investment in the Company.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of the
Securities have been determined by negotiation between the Company and the
Representative and do not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission which shall not exceed
five percent (5%) of the aggregate exercise price of such Warrants in connection
with bona fide services provided by the Representative relating to any warrant
solicitation undertaken by the Representative. In addition, the individual must
designate the firm entitled to payment of such warrant solicitation fee.
However, no compensation will be paid to the Representative in connection with
the exercise of the Warrants if (a) the market price of the Common Stock is
lower than the exercise price, (b) the Warrants were held in a discretionary
account, or (c) the exercise of the Warrants is not solicited by the
Representative. Unless granted an exemption by the Commission from its Rule
10b-6 under the Exchange Act, the Representative will be prohibited from
engaging in any market-making activities with regard to the
49
Company's securities for the period from nine (9) business days (or other such
applicable periods as Rule 10b-6 may provide) prior to any solicitation of the
exercise of the Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative may have to receive a fee. As a result, the Representative may be
unable to continue to provide a market for the Common Stock or Warrants during
certain periods while the Warrants are exercisable. If the Representative has
engaged in any of the activities prohibited by Rule 10b-6 during the periods
described above, the Representative undertakes to waive unconditionally its
rights to receive a commission on the exercise of such Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement that is filed as an exhibit to the Registration Statement
of which this Prospectus is a part. See 'Available Information.'
LEGAL MATTERS
The validity of the Securities offered hereby and certain other matters of
Bermuda law will be passed upon for the Company by Appleby, Spurling & Kempe,
Bermuda counsel to the Company. Woo, Kwan, Lee & Lo has acted as Hong Kong
counsel to the Company to advise on certain matters of Hong Kong law in relation
to the Share Exchange and the section entitled 'Business -- Government
Regulation -- Hong Kong Regulation.' Howard, Darby & Levin has acted as United
States counsel to the Company in connection with this Offering. Orrick,
Herrington & Sutcliffe, New York, New York, has acted as counsel to the
Underwriters in connection with this Offering.
EXPERTS
The financial statements and schedules included elsewhere in this
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their reports with respect thereto and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
AVAILABLE INFORMATION
Pursuant to the requirements of the Act, the Company has filed with the
Commission a registration statement on Form S-1 (the 'Registration Statement')
relating to the Securities offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Additional information concerning the Company and the Securities may
be found in the Registration Statement, including the exhibits and schedules
thereto, which may be inspected at the offices of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of all or any portion of the Registration Statement may be obtained from
the Public Reference Section of the Commission, upon payment of prescribed fees.
The Company will furnish its shareholders with annual reports within 90
days of the end of each fiscal year containing audited financial statements and
intends to furnish quarterly reports containing selected unaudited financial
data for the first three quarters of each fiscal year within 45 days of the end
of each such fiscal quarter (in each case prepared in accordance with United
States generally accepted accounting principles).
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
50
INDEX TO FINANCIAL INFORMATION
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
Report of Independent Public Accountants.............................................................. F-2
Consolidated Balance Sheets as of October 31, 1994 and 1995 (Audited) and January 31, 1996
(Unaudited).......................................................................................... F-3
Consolidated Statements of Operations for the period from August 31, 1993 to October 31, 1994 and year
ended October 31, 1995 (Audited) and for the Three Months ended January 31, 1995 and 1996
(Unaudited).......................................................................................... F-4
Consolidated Statements of Cash Flows for the period from August 31, 1993 to October 31, 1994 and year
ended October 31, 1995 (Audited) and for the Three Months ended January 31, 1995 and 1996
(Unaudited).......................................................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the period from August 31, 1993 to
October 31, 1994 and year ended October 31, 1995 (Audited) and for the Three Months ended January 31,
1996 (Unaudited)..................................................................................... F-6
Notes to Consolidated Financial Statements............................................................ F-7
BALANCE SHEET OF
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
Report of Independent Public Accountants.............................................................. F-16
Balance Sheet as of June 10, 1996..................................................................... F-17
Note to the Balance Sheet............................................................................. F-18
F-1
To the Shareholders and Board of Directors of American Craft Brewing
International Limited:
After the reorganization transaction discussed in Note 1 to the American Craft
Brewing International Limited's consolidated financial statements is effected,
we expect to be in a position to render the following audit report.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
June 10, 1996.
'REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of American Craft Brewing
International Limited:
We have audited the accompanying consolidated balance sheets of American
Craft Brewing International Limited (incorporated in Bermuda) and its
subsidiaries (see Note 2 to the accompanying financial statements for the basis
of presentation) as of October 31, 1994 and 1995 and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for the
period from August 31, 1993 (the earliest date of incorporation of the companies
now comprising the Group) to October 31, 1994 and the year ended October 31,
1995. These financial statements are the responsibility of the management of
American Craft Brewing International Limited and its subsidiaries. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Craft Brewing International Limited and its subsidiaries as of October 31, 1994
and 1995, and the results of their operations and their cash flows for the
period from August 31, 1993 to October 31, 1994 and the year ended October 31,
1995, in conformity with generally accepted accounting principles in the United
States of America.
Hong Kong,
[ ], 1996.'
F-2
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1994 AND 1995 (AUDITED) AND
JANUARY 31, 1996 (UNAUDITED)
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
--------------- -------------- ---------------
(AUDITED) (AUDITED) (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
ASSETS
Current assets:
Cash................................................................ $ 197,752 $102,248 $ 71,533
Accounts receivable, net............................................ -- 21,680 40,115
Inventories......................................................... -- 22,922 35,378
Other current assets................................................ -- 391 3,508
--------------- -------------- ---------------
Total current assets........................................ 197,752 147,241 150,534
Rental, utility and other deposits.................................... 9,433 35,174 35,174
Deferred tax assets................................................... 1,536 49,096 49,172
Equipment and capital leases, net..................................... 10,295 634,767 650,266
--------------- -------------- ---------------
Total assets................................................ $ 219,016 $866,278 $ 885,146
--------------- -------------- ---------------
--------------- -------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term bank loan, current portion................................ $ -- $113,000 $ 113,000
Capital lease obligations, current portion.......................... -- 13,284 12,858
Accounts payable.................................................... -- -- 387
Accrued liabilities................................................. 182 39,294 37,871
Shareholders' loans................................................. 2,490 85,638 85,638
--------------- -------------- ---------------
Total current liabilities................................... 2,672 251,216 249,754
Long-term bank loan................................................... -- 395,500 395,500
Capital lease obligations............................................. -- 30,221 28,079
--------------- -------------- ---------------
Total liabilities........................................... 2,672 676,937 673,333
--------------- -------------- ---------------
Commitments...........................................................
Shareholders' equity:
Common stock........................................................ 1 645 645
Additional paid-in capital.......................................... -- -- 460,015
Subscription monies received in advance............................. 224,119 437,156 --
Accumulated deficit................................................. (7,776) (248,460) (248,847)
--------------- -------------- ---------------
Total shareholders' equity.................................. 216,344 189,341 211,813
--------------- -------------- ---------------
Total liabilities and shareholders' equity.................. $ 219,016 $866,278 $ 885,146
--------------- -------------- ---------------
--------------- -------------- ---------------
The accompanying notes are an integral part of these financial statements.
F-3
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM AUGUST 31, 1993 TO OCTOBER 31, 1994 AND
YEAR ENDED OCTOBER 31, 1995 (AUDITED) AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1995 AND 1996 (UNAUDITED)
THREE
MONTHS
ENDED THREE MONTHS
PERIOD ENDED YEAR ENDED JANUARY ENDED
OCTOBER 31, OCTOBER 31, 31, JANUARY 31,
1994 1995 1995 1996
------------ ------------ ---------- ------------
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
Net sales................................................ $ -- $ 63,707 $ -- $ 124,544
Cost of sales............................................ -- (55,266) -- (22,599)
------------ ------------ ---------- ------------
Gross profit........................................ -- 8,441 -- 101,945
Selling, general and administrative expenses............. (9,312) (276,582) (31,235) (89,810)
Interest income (expense), net........................... -- (17,838) 2,255 (12,219)
Other expenses, net...................................... -- (2,265) -- (379)
------------ ------------ ---------- ------------
Loss before income taxes............................ (9,312) (288,244) (28,980) (463)
Income tax benefit....................................... 1,536 47,560 4,782 76
------------ ------------ ---------- ------------
Net loss............................................ $ (7,776) $ (240,684) $ (24,198) $ (387)
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Pro forma net loss per common share...................... $ -- $ (0.12) $ (0.01) $ --
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
Pro forma weighted average number of shares
outstanding............................................ 2,000,000 2,000,000 2,000,000 2,000,000
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
The accompanying notes are an integral part of these financial statements.
F-4
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 31, 1993 TO OCTOBER 31, 1994 AND
YEAR ENDED OCTOBER 31, 1995 (AUDITED) AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1995 AND 1996 (UNAUDITED)
THREE MONTHS THREE MONTHS
PERIOD ENDED YEAR ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, JANUARY 31, JANUARY 31,
1994 1995 1995 1996
------------ ----------- ------------ ------------
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $ (7,776) $(240,684) $ (24,198) $ (387)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................ -- 21,997 -- 14,461
Deferred income tax......................... (1,536) (47,560) (4,782) (76)
Increase in operating assets:
Accounts receivable, net............... -- (21,680) -- (18,435)
Inventories............................ -- (22,922) -- (12,456)
Other current assets................... -- (391) -- (3,117)
Rental, utility and other deposits..... (9,433) (25,741) (8,000) --
Increase (Decrease) in operating
liabilities:
Accounts payable....................... -- -- -- 387
Accrued liabilities.................... 182 39,112 (182) (1,423)
------------ ----------- ------------ ------------
Net cash used in operating activities....... (18,563) (297,869) (37,162) (21,046)
------------ ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment............................ (10,295) (595,037) (82,977) (29,960)
------------ ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........... 1 644 -- --
Subscription monies received in advance.......... 224,119 213,037 2 22,859
Shareholders' loan............................... 2,490 83,148 -- --
New bank loan.................................... -- 508,500 -- --
Repayment of capital lease obligations........... -- (7,927) -- (2,568)
------------ ----------- ------------ ------------
Net cash provided by financing activities... 226,610 797,402 2 20,291
------------ ----------- ------------ ------------
Increase (Decrease) in cash........................... 197,752 (95,504) (120,137) (30,715)
Cash at beginning of period........................... -- 197,752 197,752 102,248
------------ ----------- ------------ ------------
Cash at end of period................................. $197,752 $ 102,248 $ 77,615 $ 71,533
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS:
Cash paid for interest expense (net of amount
capitalized)................................... $ -- $ 15,977 $ -- $ 442
Cash received for interest income................ -- 3,201 2,255 1,006
Equipment purchased under capital leases......... -- 51,432 -- --
The accompanying notes are an integral part of these financial statements.
F-5
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 31, 1993 TO OCTOBER 31, 1994 AND
YEAR ENDED OCTOBER 31, 1995 (AUDITED) AND FOR THE
THREE MONTHS ENDED JANUARY 31, 1996 (UNAUDITED)
ADDITIONAL SUBSCRIPTION
COMMON PAID-IN MONIES RECEIVED IN ACCUMULATED
STOCK CAPITAL ADVANCE DEFICIT
------ ---------- ------------------ -----------------
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
Balance as of August 31, 1993....................... $ -- $ -- $ -- $ --
Issuance of common stock............................ 1 -- -- --
Subscription monies received in advance............. -- 224,119 --
Net loss............................................ -- -- -- (7,776)
------ ---------- ------------------ -----------------
Balance as of October 31, 1994 (audited)............ 1 -- 224,119 (7,776)
Issuance of common stock............................ 644 -- -- --
Subscription monies received in advance............. -- -- 213,037 --
Net loss............................................ -- -- -- (240,684)
------ ---------- ------------------ -----------------
Balance as of October 31, 1995 (audited)............ 645 -- 437,156 (248,460)
Subscription monies received in advance
(unaudited)....................................... -- 22,859 --
Capitalization of subscription monies received
(unaudited)....................................... -- 460,015 (460,015) --
Net loss (unaudited)................................ -- -- -- (387)
------ ---------- ------------------ -----------------
Balance as of January 31, 1996 (unaudited).......... $645 $460,015 $ -- $(248,847)
------ ---------- ------------------ -----------------
------ ---------- ------------------ -----------------
The accompanying notes are an integral part of these financial statements.
F-6
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
ORGANIZATION
American Craft Brewing International Limited, a Bermuda company ('AmBrew
International' or the 'Company'), was incorporated on June 3, 1996. On
[ ], 1996, Craft Brewing Holdings Limited, a British Virgin
Islands company ('Craft'), amalgamated into AmBrew International (the 'Merger').
Craft acquired its entire interests in South China Brewing Company Limited
('South China'), a company incorporated in Hong Kong and formerly known as
Forever Smooth Investments Limited, and SCBC Distribution Company Limited, a
company incorporated in Hong Kong and formerly known as Arizona Limited ('SCBC,'
and collectively with South China, the 'South China Brewery'), through the
exchange (the 'Share Exchange') effective as of [ ], 1996, of
substantially all of the issued and outstanding shares of capital stock of South
China and SCBC by the stockholders thereof for 23,750 shares of capital stock of
Craft. Effective as of [ ], Craft issued 1,250 shares of
capital stock to certain investors in Hong Kong. Effective as of
[ ], 1996, Craft consummated an eighty-for-one share split
(the 'Share Split'). See Note 16.
Unless otherwise required by the context, the terms 'AmBrew International'
and the 'Company' include American Craft Brewing International Limited and its
subsidiaries.
PERCENTAGE OF
EQUITY INTEREST
COUNTRY AND DATE ATTRIBUTABLE TO
NAME OF INCORPORATION THE GROUP PRINCIPAL ACTIVITIES
- ------------------------------------------------ ------------------ --------------- ---------------------
American Craft Brewing International ........... Bermuda June 3, 100% Holding Company
Limited 1996
South China Brewing Company .................... Hong Kong 100%* Production of beer
Limited (formerly known as Forever May 26, 1994
Smooth Investments Limited)
SCBC Distribution Company Limited .............. Hong Kong 100%* Distribution of beer
(formerly known as Arizona Limited) August 31, 1993
- ------------
* Pursuant to the requirement of a minimum of two registered shareholders for
companies incorporated in Hong Kong, Lunar Holdings Limited, a shareholder of
the Company, holds one share of the capital stock of each of South China and
SCBC in trust for the benefit of AmBrew International.
PRINCIPAL ACTIVITIES
AmBrew International is a holding company. The South China Brewery operates
a micro-brewery in Hong Kong for the production of beer and ale and distributes
beer and ale produced to customers in Hong Kong. The South China Brewery started
to build its production facilities in October 1994, and commenced commercial
operations in June 1995.
2. BASIS OF PRESENTATION
The consolidated financial statements as of and for the period ended
October 31, 1994, for the three months ended January 31, 1995 and as of and for
the year ended October 31, 1995 incorporate the financial statements of the
South China Brewery. The consolidated financial statements as of and for the
three months ended January 31, 1996 incorporate the financial statements of
Craft and the South China Brewery. All material inter-company balances and
transactions have been eliminated in consolidation.
F-7
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. INVENTORIES
Inventories are stated at the lower of cost, on a first-in first-out basis,
or market. Costs of work-in-process and finished goods include direct materials,
direct labor and production overhead costs.
B. EQUIPMENT AND CAPITAL LEASES
Equipment and capital leases are recorded at cost. Depreciation for
financial reporting purposes is provided by the straight-line method over the
estimated useful lives of the assets as follows: brewing equipment -- 20 years;
furniture and equipment -- 4 years; and motor vehicles (capital leases) -- 4
years. Leasehold improvements are amortized by the straight-line method over the
terms of the leases or the estimated useful lives of the improvements, whichever
is shorter. All ordinary repair and maintenance costs are expensed as incurred.
Interest costs for the acquisition of certain equipment are capitalized and
amortized over the estimated useful lives of the related assets. For the period
ended October 31, 1994, year ended October 31, 1995, three months ended January
31, 1995 and three months ended January 31, 1996, interest costs capitalized
were approximately $0, $13,177, $0 and $0, respectively.
C. SALES
Sales represents the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
D. INCOME TAXES
The Company accounts for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
E. OPERATING LEASES
Operating leases represent those leases under which substantially all the
risks and rewards of ownership of the leased assets remain with the lessors.
Rental payments under operating leases are charged to expense on the
straight-line basis over the period of the relevant leases.
F. FOREIGN CURRENCY TRANSLATION
The translation of financial statements of foreign subsidiaries into United
States dollars is performed for balance sheet accounts using closing exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using an average exchange rate during each reporting period. The gains or losses
resulting from translation are included in shareholders' equity separately as
cumulative translation adjustments. For the period ended October 31, 1994, year
ended October 31, 1995, three months ended January 31, 1995 and three months
ended January 31, 1996, aggregate loss
F-8
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
from foreign currency transactions included in the results of operations were
$0, $451, $0 and $117, respectively.
G. PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share is computed by dividing net loss for
each period by 2,000,000 weighted average shares of capital stock outstanding
during the period on the basis that the Share Exchange, the Share Split and the
Merger (see Note 1 ) had been consummated prior to the periods presented.
H. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
4. ACCOUNTS RECEIVABLE
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Trade receivables........................................................ $ -- $22,236 $41,147
Less: Allowance for doubtful accounts.................................... -- (556) (1,032)
----------- ----------- -----------
Accounts receivable, net................................................. $ -- $21,680 $40,115
----------- ----------- -----------
----------- ----------- -----------
5. INVENTORIES
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Raw materials............................................................ $ -- $16,682 $28,853
Work-in-process and finished goods....................................... -- 6,240 6,525
----------- ----------- -----------
$ -- $22,922 $35,378
----------- ----------- -----------
----------- ----------- -----------
F-9
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
6. EQUIPMENT AND CAPITAL LEASES
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Equipment:
Leasehold improvements.............................................. $ -- $ 52,123 $ 52,123
Brewing equipment................................................... 4,489 522,869 522,869
Furniture and equipment............................................. 5,806 25,216 55,177
Capital leases:
Motor vehicles...................................................... -- 56,556 56,555
----------- ----------- -----------
Cost................................................................ 10,295 656,764 689,724
Less: Accumulated depreciation
Equipment........................................................... -- (17,284) (28,211)
Capital leases...................................................... -- (4,713) (8,247)
----------- ----------- -----------
$10,295 $ 634,767 $ 650,266
----------- ----------- -----------
----------- ----------- -----------
7. LONG-TERM BANK LOAN
Maturities of long-term bank loan are as follows:
Payable during the following period: OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Within one year..................................................... $ -- $ 113,000 $ 113,000
Over one year but not exceeding two years........................... -- 395,500 395,500
----------- ----------- -----------
$ -- $ 508,500 $ 508,500
----------- ----------- -----------
----------- ----------- -----------
The long-term bank loan is evidenced by a promissory note, with repayment
of $113,000 of the principal due on September 30, 1996 and the remaining
$395,500 of the principal due on March 31, 1997. It bears interest at variable
rates equal to the U.S. Citibank prime rate plus 0.5%, which was 9.25% per annum
as of October 31, 1995 and 9% per annum as of January 31, 1996, and is secured
by a letter of credit of $315,000 provided by two directors of the Company who
are also stockholders of the Company and a corporate guarantee of $250,000 given
by a stockholder of the Company. Subsequent to January 31, 1996 and up to the
date of this report, $56,500 of the principal has been repaid.
F-10
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
8. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments under the capital lease as of October 31,
1994, October 31, 1995 and January 31, 1996, together with the present value of
the minimum lease payments are:
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Payable during the following period:
Within one year..................................................... $ -- $ 17,747 $ 17,179
Over one year but not exceeding two years........................... -- 17,179 17,179
Over two years but not exceeding three years........................ -- 17,179 17,179
Over three years but not exceeding four years....................... -- 6,025 3,163
----------- ----------- -----------
Total minimum lease payments............................................. -- 58,130 54,700
Less: Amount representing interest....................................... -- (14,625) (13,763)
----------- ----------- -----------
Present value of minimum lease payments.................................. -- 43,505 40,937
Less: Current portion.................................................... -- (13,284) (12,858)
----------- ----------- -----------
Noncurrent portion....................................................... $ -- $ 30,221 $ 28,079
----------- ----------- -----------
----------- ----------- -----------
9. ACCRUED LIABILITIES
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Accrued interest expense................................................. $ -- $ 5,050 $17,834
Accrued operating lease rental........................................... -- 13,755 --
Other accrued liabilities................................................ 182 20,489 20,037
----------- ----------- -----------
$ 182 $39,294 $37,871
----------- ----------- -----------
----------- ----------- -----------
10. SHAREHOLDERS' LOANS
During the year ended October 31, 1995, South China borrowed $65,000 from
BPW Holding Limited, a shareholder of the Company. The loan is evidenced by a
limited recourse promissory note dated as of March 5, 1996, bearing interest at
a rate of 5.5% per annum and is due ten days after the consummation of an
initial public offering of shares of common stock of AmBrew International (See
Note 16f). For the period ended October 31, 1994, year ended October 31, 1995,
three months ended January 31, 1995 and three months ended January 31, 1996,
interest expense payable to the shareholder was approximately $0, $813, $0, and
$894, respectively. As of October 31, 1995, the remaining balance of the
shareholders loans was unsecured, non-interest bearing and without
pre-determined repayment terms. Subsequent to January 31, 1996 and up to the
date of this report, the entire $20,638 has been repaid.
11. COMMON STOCK
As of October 31, 1994, October 31, 1995 and January 31, 1996, the amount
of common stock recorded in the consolidated balance sheets represented the
aggregate amount of the common stock of the subsidiaries of the Company as of
those dates.
F-11
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
12. INCOME TAXES
The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which they
are domiciled and operate. AmBrew International is exempted from income tax in
Bermuda until 2016. The Hong Kong subsidiaries are subject to Hong Kong profits
tax at a rate of 16.5%.
Significant components of income tax benefit are:
PERIOD THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, JANUARY 31, JANUARY 31,
1994 1995 1995 1996
----------- ----------- ------------ ------------
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
Current................................................. $ -- $ -- $ -- $ --
Deferred -- Operating loss carryforwards................ 1,536 47,560 4,782 76
----------- ----------- ------------ -----
$ 1,536 $47,560 $4,782 $ 76
----------- ----------- ------------ -----
----------- ----------- ------------ -----
The reconciliation of the United States federal income tax rate to the
effective income tax rate based on the loss before income tax benefit stated in
the consolidated statements of operations is as follows:
THREE THREE
PERIOD MONTHS MONTHS
ENDED YEAR ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, JANUARY 31, JANUARY 31,
1994 1995 1995 1996
----------- ----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
United States federal income tax rate....................... (35%) (35%) (35%) (35%)
Aggregate effect of different tax rates in foreign
jurisdictions............................................. 18.5% 18.5% 18.5% 18.6%
----------- ----------- ----------- -----------
Effective income tax rate................................... (16.5%) (16.5%) (16.5%) (16.4%)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The major component of deferred tax assets relates to the tax loss
carryforwards. As of October 31, 1994, October 31, 1995 and January 31, 1996,
tax losses of approximately $10,000, $298,000 and $298,000, respectively, can be
carried forward indefinitely.
13. COMMITMENTS
A. CAPITAL COMMITMENTS
As of October 31, 1994, October 31, 1995 and January 31, 1996, the Company
had purchase commitments for machinery and furniture of approximately $0,
$19,000 and $0, respectively.
B. LEASE COMMITMENTS
The Company leases various facilities under noncancelable operating leases
which expire at various dates through 1998. Rental expenses for the period ended
October 31, 1994, year ended October 31, 1995 and three months ended January 31,
1996 were approximately $0, $67,000 and $21,000, respectively. Future minimum
rental payments as of October 31, 1994, October 31, 1995 and January 31,
F-12
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
13. COMMITMENTS -- (CONTINUED)
1996, under agreements classified as operating leases with noncancelable terms
in excess of one year, are as follows:
OCTOBER 31, OCTOBER 31, JANUARY 31,
1994 1995 1996
----------- ----------- -----------
(AUDITED) (AUDITED) (UNAUDITED)
Payable during the following period:
Within one year..................................................... $ 52,645 $ 79,742 $ 79,742
Over one year but not exceeding two years........................... 52,645 75,355 62,194
Over two years but not exceeding three years........................ 48,258 13,548 6,774
----------- ----------- -----------
$ 153,548 $ 168,645 $ 148,710
----------- ----------- -----------
----------- ----------- -----------
14. OPERATING RISK
A. BUSINESS RISK
The South China Brewery commenced commercial operations in June 1995. Its
operations are subject to all the risks inherent in an emerging business
enterprise. These include, but are not limited to, high expense levels relative
to production, complications and delays frequently encountered in connection
with the development and introduction of new products, the ability to recruit
and retain accomplished management personnel, competition from established
breweries, the need to expand production and distribution and the ability to
establish and sustain product quality.
B. CONCENTRATION OF CREDIT RISK
A substantial portion of the South China Brewery's sales are made to a
small number of customers on an open account basis and generally no collateral
is required. Details of individual customers accounting for more than 10% of the
South China Brewery's sales for the year ended October 31, 1995 and three months
ended January 31, 1996 are as follows:
PERCENTAGE OF NET SALES
--------------------------------------
YEAR ENDED THREE MONTHS ENDED
OCTOBER 31, 1995 JANUARY 31, 1996
---------------- ------------------
(AUDITED) (UNAUDITED)
DaBeers Distributors Limited.............................................. 27.1% 43.8%
Delaney's (Wanchai) Limited............................................... 10.5% 32.5%
Concentration of accounts receivable as of October 31, 1995 and January 31, 1996
is as follows:
PERCENTAGE OF ACCOUNTS RECEIVABLE
--------------------------------------
AS OF AS OF
OCTOBER 31, 1995 JANUARY 31, 1996
---------------- ------------------
(AUDITED) (UNAUDITED)
Five largest accounts receivables......................................... 41% 68%
The South China Brewery performs ongoing credit evaluation of each
customer's financial condition. It maintains reserves for potential credit
losses and such losses in the aggregate have not exceeded management's
projections.
F-13
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
14. OPERATING RISK -- (CONTINUED)
C. CONCENTRATION OF SUPPLIERS
The South China Brewery relies upon a single supplier (other than for labels)
for each of the raw materials used to make and package its beers. Although to
date, the South China Brewery has been able to obtain adequate supplies of these
ingredients and other raw materials in a timely manner from these sources, if
the South China Brewery were unable to obtain adequate supplies of ingredients
or other raw materials, delays or reductions in product shipments could occur
which would have an adverse effect on the South China Brewery's business,
financial condition and results of operations. As with most agricultural
products, the supply and price of raw materials used to produce the South China
Brewery's beers can be affected by factors beyond the control of the South China
Brewery, a number of factors such as drought, frost, other weather conditions,
economic factors affecting growing decisions, various plant diseases and pests.
If any of the foregoing were to occur, the Company's business, financial
condition and results of operations would be adversely affected.
D. POLITICAL RISK
Substantially all of the Company's assets are located in Hong Kong. As a
result, the Company's business, results of operations and financial condition
may be influenced by the political situation in Hong Kong and by the general
state of the Hong Kong economy. On July 1, 1997, sovereignty over Hong Kong will
be transferred from the United Kingdom to the People's Republic of China
('China') and Hong Kong will become a Special Administrative Region of China.
15. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the consolidated statements of
operations:
THREE MONTHS THREE MONTHS
PERIOD ENDED YEAR ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, JANUARY 31, JANUARY 31,
1994 1995 1995 1996
------------ ----------- ------------ ------------
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
Depreciation of fixed assets
-- owned assets................................. $ -- $ 17,284 $ -- $ 10,927
-- assets held under capital leases............. -- 4,713 -- 3,534
Operating lease rental for rented premises............ -- 67,005 13,161 20,619
Advertising expenses.................................. -- 24,312 -- 2,818
Repairs and maintenance expenses...................... -- 1,155 -- 1,555
Interest expense incurred............................. -- 34,216 -- 13,225
Less: Amount capitalized as equipment................. -- (13,177) -- --
------------ ----------- ------------ ------------
-- 21,039 -- 13,225
Net foreign exchange loss............................. -- 451 -- 117
Interest income....................................... $ -- $ 3,201 $ 2,225 $ 1,006
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
16. SUBSEQUENT EVENTS
Subsequent to October 31, 1995, the following events took place:
a. On [ ], 1996, the stockholders of South China
and SCBC exchanged all of the issued and outstanding shares of capital
stock of South China and SCBC for 23,750 shares of capital stock of Craft.
F-14
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)
(DATA WITH RESPECT TO JANUARY 31, 1996 AND FOR THE THREE MONTHS ENDED JANUARY
31, 1995 AND 1996 ARE UNAUDITED)
16. SUBSEQUENT EVENTS -- (CONTINUED)
b. On [ ], Craft issued 1,250 shares of capital stock to
certain investors in Hong Kong for $300,000.
c. On [ ], Craft consummated an eighty-for-one
share split of its capital stock.
d. On [ ], 1996, Craft amalgamated into AmBrew
International, which is the surviving company and its officers and
directors remained in office after the amalgamation.
e. On [ ], 1996, the Company issued $370,000
principal amount of notes bearing interest at a rate of 12% per annum.
Holders of $250,000 principal amount of these notes have the right to
convert such notes, upon consummation of a contemplated initial public
offering, into a maximum number of shares of common stock of AmBrew
International equal to the quotient obtained by dividing 250,000 by the
product of 0.5 and the initial public offering price per share of such
offering. The holder of the remaining $120,000 principal amount of such
notes will be repaid in cash with the entire principal amount upon
consummation of the offering and will be entitled to common stock of the
Company at no cost, with the number of shares of common stock equal to
120,000 divided by the initial public offering price per share of such
offering. Each holder of these notes will receive a warrant entitling such
holder to purchase that number of shares of common stock of the Company as
such holder shall receive upon consummation of such offering pursuant to
the terms of such notes at a price equal to 150% of the initial public
offering price per share of such offering. If the offering is not
consummated by September 1, 1996, the interest rate of such notes will be
increased from 12% per annum to 14% per annum.
f. The Company is planning for an initial public offering of 1,333,333
shares of its common stock and 1,333,333 redeemable common stock purchase
warrants. The estimated expenses before underwriting discounts and
commissions are approximately $625,000.
F-15
To the Shareholders and Board of Directors of American Craft Brewing
International Limited:
After the reorganization transaction discussed in Note 1 to American Craft
Brewing International Limited's consolidated financial statements is effected,
we expect to be in a position to render the following audit report.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
June 10, 1996.
'REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of American Craft Brewing
International Limited:
We have audited the accompanying balance sheet of American Craft Brewing
International Limited (incorporated in Bermuda) as of June 10, 1996. This
balance sheet is the responsibility of the management of American Craft Brewing
International Limited. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures 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 American Craft Brewing
International Limited as of June 10, 1996, in conformity with generally accepted
accounting principles in the United States of America.
Hong Kong,
[ ], 1996.'
F-16
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
BALANCE SHEET
AS OF JUNE 10, 1996
JUNE 10, 1996
------------------------
(AMOUNTS EXPRESSED IN
UNITED STATES DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents........................................................... $--
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities...................................................................... $ 7,865
--------
Shareholders' equity:
Common stock........................................................................ $ 120
Less: Subscription receivable....................................................... (120)
--------
--
Accumulated deficit................................................................. (7,865)
--------
Total shareholders' equity..................................................... (7,865)
--------
Total liabilities and shareholders' equity..................................... $--
--------
--------
The accompanying note is an integral part of this balance sheet.
F-17
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED
NOTE TO THE BALANCE SHEET
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
American Craft Brewing International Limited, a Bermuda company ('AmBrew
International'), was incorporated in Bermuda on June 3, 1996. AmBrew
International has issued 12,000 shares of common stock of US$0.01 each, which
are unpaid as of June 10, 1996. On [ ], 1996 Craft Brewing
Holdings Limited, a British Virgin Islands Company ('Craft'), amalgamated with
AmBrew International, which is the surviving company and its officers and
directors remained in office after the amalgamation.
F-18
_____________________________________ _____________________________________
NO UNDERWRITER, DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. 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 OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary............................. 3
Risk Factors................................... 8
The Company.................................... 16
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Consolidated Financial Data........... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 24
Management..................................... 31
Principal Stockholders......................... 35
Certain Transactions........................... 36
Description of Securities...................... 37
Certain Foreign Issuer Considerations.......... 42
Taxation....................................... 43
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 50
Experts........................................ 50
Available Information.......................... 50
Index to Financial Information................. F-1
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
_____________________________________ _____________________________________
[LOGO]
AMERICAN CRAFT BREWING
INTERNATIONAL LIMITED
1,333,333 SHARES OF COMMON STOCK
AND
1,333,333 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
---------------------------
PROSPECTUS
---------------------------
NATIONAL SECURITIES
CORPORATION
, 1996
_____________________________________ _____________________________________
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the securities being registered. All the amounts shown are estimates, except for
the registration fee with the Securities and Exchange Commission (the 'SEC'),
the filing fee with the National Association of Securities Dealers, Inc. (the
'NASD'), and the Nasdaq SmallCap Market ('Nasdaq') quotation and the Boston
Stock Exchange (the 'BSE') listing fees.
SEC Registration fee........................................................... $ 8,818.38
NASD filing fee................................................................ 1,435.33
Nasdaq fees.................................................................... 5,000.00
BSE fees....................................................................... 7,750.00
Blue Sky fees and expenses..................................................... 30,000.00
Printing and engraving expenses................................................ 140,000.00
Legal fees and expenses........................................................ 250,000.00
Accounting fees and expenses................................................... 130,000.00
Transfer agent and registrar fees.............................................. 8,500.00
Miscellaneous.................................................................. 43,496.29
-----------
Total..................................................................... $625,000.00
-----------
-----------
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Bermuda law permits a company to indemnify its directors and officers,
except for any act of willful negligence, willful default, fraud or dishonesty.
The Registrant has provided in its Bye-Laws that its directors and officers will
be indemnified and held harmless against any expenses, judgments, fines,
settlements and other amounts incurred by reason of any act or omission in the
discharge of their duty, other than in the case of willful negligence, willful
default, fraud or dishonesty.
Bermuda law and the Bye-Laws of the Registrant also permit the Registrant
to purchase insurance for the benefit of its directors and officers against any
liability incurred by them for the failure to exercise the requisite care,
diligence and skill in the exercise of their powers and the discharge of their
duties, or indemnifying them in respect of any loss arising or liability
incurred by them by reason of negligence, default, breach of duty or breach of
trust.
The Registrant intends to enter into indemnification agreements with its
officers and directors. To the extent permitted by law, the indemnification
agreements may require the Registrant, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature) and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
The Registrant intends to purchase upon consummation of the offering a
directors' and officers' liability insurance policy.
The underwriting agreement (the 'Underwriting Agreement') to be entered by
the Registrant and the several underwriters party thereto (the 'Underwriters'),
will contain provisions for the indemnification of, among others, controlling
persons, directors and officers of the Registrant for certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) (i) Prior to the effective date of this Registration Statement, Craft
Brewing Holdings Limited, a British Virgin Islands company ('Craft') and a
predecessor company of the Registrant, issued 23,750 shares to its directors in
exchange for substantially all of the outstanding capital stock of each of the
South China Brewing Company Limited ('South China') and SCBC Distribution
Company Limited ('SCBC') pursuant to Section 4(2) of the Securities Act.
II-1
(ii) Prior to the effective date of this Registration Statement, Craft
issued and sold 1,250 shares pursuant to Regulation S promulgated under the
Securities Act for an aggregate consideration of $300,000. The shares were
offered and sold in an overseas directed offering in an off-shore transaction to
non-United States persons.
(iii) In May 1996, Craft issued $370,000 in principal amount of convertible
notes and warrants pursuant to Regulation S promulgated under the Securities
Act. The notes and warrants were offered and sold in an overseas directed
offering in an off-shore transaction to non-United States persons.
(b) There were no underwriters, brokers or finders employed in connection
with any of the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
1.0 -- Form of Underwriting Agreement between the Registrant and National Securities
Corporation ('National Securities').*
3.1 -- Memorandum of Amalgamation of the Registrant.*
3.2 -- Bye-Laws of the Registrant.*
4.1 -- Specimen common stock certificate.*
4.2 -- Form of Warrant Agreement between the Registrant, National Securities and the Bank of
New York (including form of Redeemable Common Stock Purchase Warrant).*
4.3 -- Form of Representative's Warrant Agreement between the Registrant and National
Securities (including form of Representative's Warrant).*
5.0 -- Opinion of Appleby, Spurling & Kempe.
10.1 -- 1996 Stock Option Plan of the Registrant.*
10.2 -- Agreement of Lease between Ping Ping Investment Company Limited ('Ping Ping') and
South China dated as of December 12, 1994.
10.3 -- Agreement of Lease between Ping Ping and South China dated as of May 1, 1995.
10.4 -- Management Agreement and Performance Guaranty between South China and Lunar Holdings
Limited dated as of April 1, 1995.
10.5 -- Distributors Limited Brewing Agreement between South China and Dabeers Distributors
Limited dated as of September 23, 1995.**
10.6 -- Brewing Agreement between South China and Delaney's (Wanchai) Limited dated as of
September 20, 1995.**
10.7 -- Promissory Note issued by South China in favor of Hibernia National Bank dated as of
March 31, 1995.
10.8 -- Limited Recourse Promissory Note issued by South China in favor of BPW Holding LLC
dated as of March 5, 1996.
10.9 -- Form of Employment Agreement dated as of June 14, 1996 between the Registrant and
James L. Ake.
10.10 -- Forms of Bridge Financing Purchase Agreements.
10.11 -- Forms of Bridge Financing Convertible Notes (including forms of Bridge Financing
Warrants attached thereto).*
23.1 -- Consent of Arthur Andersen & Co.
23.2 -- Consent of Appleby, Spurling & Kempe (set forth in their Opinion filed as Exhibit 5.0
to this Registration Statement).
24 -- Power of Attorney of Directors and Officers (set forth on signature page of this
Registration Statement).
27 -- Financial Data Schedule.
- ------------
* To be filed by amendment.
** Confidential treatment requested.
(b) Financial Statement Schedules:
PAGE
----
V. -- Indebtedness to Related Parties............................................. S-2
IX. -- Valuation and Qualifying Accounts........................................... S-3
II-2
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) (1) For purposes of determining any liability under the Securities
Act of 1933 (the 'Securities Act'), the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act 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 SEC
such indemnification is against public policy as expressed in the
Securities 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 Securities Act and will be governed by
the final adjudication of such issue.
(c) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(d) 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;
(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 this 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) under the Securities Act of
1933 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;
(e) That, for the purpose of determining any liability under the
Securities Act, 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;
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 14, 1996.
AMERICAN CRAFT BREWING INTERNATIONAL
LIMITED
By: /s/ Peter W.H. Bordeaux
...................................
NAME: Peter W.H. Bordeaux
TITLE: Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter W. H. Bordeaux and James L. Ake and each of
them as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement filed by the Registrant pursuant to Rule 462(b) of the Securities Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
/s/ Peter W.H. Bordeaux Chairman of the Board of Directors and June 14, 1996
......................................... Director
PETER W. H. BORDEAUX
/s/ James L. Ake Executive Vice President and Chief Operating June 14, 1996
......................................... Officer (principal executive, accounting
JAMES L. AKE and financial officer)
/s/ John F. Beaudette Director June 14, 1996
.........................................
JOHN F. BEAUDETTE
/s/ Norman H. Brown, Jr. Director June 14, 1996
.........................................
NORMAN H. BROWN, JR.
/s/ Federico G. Cabo Alvarez Deputy Chairman of the Board of Directors June 14, 1996
......................................... and Director
FEDERICO G. CABO ALVAREZ
Director , 1996
.........................................
WYNDHAM H. CARVER
II-4
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
/s/ David K. Haines Director June 14, 1996
.........................................
DAVID K. HAINES
/s/ Joseph E. Heid Director June 14, 1996
.........................................
JOSEPH E. HEID
Director , 1996
.........................................
JOHN CAMPBELL
Director , 1996
.........................................
TONESAN AMISSAH-FURBERT
II-5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the shareholders and Board of Directors of
American Craft Brewing International Limited:
We have audited, in accordance with generally accepted auditing standards
in the United States of America, the consolidated financial statements of
American Craft Brewing International Limited ('the Company') and its
subsidiaries as of October 31, 1994 and 1995 and related consolidated statements
of operations, cash flows and changes in shareholders' equity for the period
from August 31, 1993 to October 31, 1994 and the year ended October 31, 1995,
included in this registration statement and have issued our report thereon dated
June 10, 1996. Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedules listed in the
index to the schedules are the responsibility of the Company's management and
are presented for the purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
June 10, 1996.
S-1
SCHEDULE V
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
INDEBTEDNESS TO RELATED PARTIES
INDEBTEDNESS TO
BALANCE AT -----------------------
NAME OF PERSON BEGINNING ADDITIONS DEDUCTIONS BALANCE AT END
- ------------------------------------------------------------- ---------- --------- ---------- --------------
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
Period ended October 31, 1994
Sazerac Company, Inc.................................... $ -- $ 2,490 $ -- $ 2,490
---------- --------- ---------- --------------
Year ended October 31, 1995
Sazerac Company, Inc.................................... 2,490 18,148 -- 20,638
BPW Holding Limited..................................... -- 65,000 -- 65,000
---------- --------- ---------- --------------
Total.............................................. $2,490 $ 85,638
---------- --------------
---------- --------------
S-2
SCHEDULE IX
AMERICAN CRAFT BREWING INTERNATIONAL LIMITED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS:
BALANCE AT CHARGED TO COSTS
DESCRIPTION BEGINNING AND EXPENSES DEDUCTIONS BALANCE AT END
- ------------------------------------------------------ ---------- ---------------- ---------- --------------
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)
Period ended October 31, 1994
Provision for doubtful accounts.................. $ -- $ -- $ -- $ --
---------- ------- ---------- --------------
Year ended October 31, 1995
Provision for doubtful accounts.................. $ -- $ 556 $ -- $ 556
---------- ------- ---------- --------------
S-3
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ----
1.0 -- Form of Underwriting Agreement between the Registrant and National Securities Corporation
('National Securities').*....................................................................
3.1 -- Memorandum of Amalgamation of the Registrant.*...............................................
3.2 -- Bye-Laws of the Registrant.*.................................................................
4.1 -- Specimen common stock certificate.*..........................................................
4.2 -- Form of Warrant Agreement between the Registrant, National Securities and the Bank of New
York (including form of Redeemable Common Stock Purchase Warrant).*..........................
4.3 -- Form of Representative's Warrant Agreement between the Registrant and National Securities
(including form of Representative's Warrant).*...............................................
5.0 -- Opinion of Appleby, Spurling & Kempe.........................................................
10.1 -- 1996 Stock Option Plan of the Registrant.*...................................................
10.2 -- Agreement of Lease between Ping Ping Investment Company Limited ('Ping Ping') and South China
dated as of December 12, 1994................................................................
10.3 -- Agreement of Lease between Ping Ping and South China dated as of May 1, 1995.
10.4 -- Management Agreement and Performance Guaranty between South China and Lunar Holdings Limited
dated as of April 1, 1995....................................................................
10.5 -- Distributors Limited Brewing Agreement between South China and Dabeers Distributors Limited
dated as of September 23, 1995.**............................................................
10.6 -- Brewing Agreement between South China and Delaney's (Wanchai) Limited dated as of September
20, 1995.**..................................................................................
10.7 -- Promissory Note issued by South China in favor of Hibernia National Bank dated as of March
31, 1995.....................................................................................
10.8 -- Limited Recourse Promissory Note issued by South China in favor of BPW Holding LLC dated as
of March 5, 1996.............................................................................
10.9 -- Form of Employment Agreement dated as of June 14, 1996 between the Registrant and James L.
Ake..........................................................................................
10.10 -- Forms of Bridge Financing Purchase Agreements................................................
10.11 -- Forms of Bridge Financing Convertible Notes (including forms of Bridge Financing Warrants
attached thereto).*..........................................................................
23.1 -- Consent of Arthur Andersen & Co..............................................................
23.2 -- Consent of Appleby, Spurling & Kempe (set forth in their Opinion filed as Exhibit 5.0 to this
Registration Statement)......................................................................
24 -- Power of Attorney of Directors and Officers (set forth on signature page of this Registration
Statement)...................................................................................
27 -- Financial Data Schedule......................................................................
- ------------
* To be filed by amendment.
** Confidential treatment requested.