ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
The following table sets forth information about those persons who hold more
than 5% of our common shares and the share ownership of our directors and
officers as a group. The information is based upon our knowledge of the share
ownership of such persons on February 28, 2001.
Hung Lay Si Co. Ltd. is a company organized under the laws of the Cayman
Islands. It is wholly owned by the Quan Gung 1986 Trust, a trust formed under
the laws of the Island of Jersey. The trustee of the trust is Hill Street
Trustees Limited, an Island of Jersey limited liability company whose shares are
wholly owned by the partners of the Mourant Group, which is a firm based in the
Island of Jersey that provides trust administration services. The partners of
the Mourant Group are: Richard Jeune, Peter Mourant, Conrad Coutanche, Ian
James, Alan Binnington, James Crill, Tim Herbert, Jacqueline Richomme, Elizabeth
Breen, Cyman Davies, Nicola Davies, Alastair Syvret, Edward Devenport, Jonathan
Speck, Beverley Lacey, Moz Scott, Julia Chapman, Jonathan Walker and Dominic
Jones. Hill Street Trustees Limited is the sole beneficial owner of the Hung Lay
Si Co. Ltd. shares under applicable Securities and Exchange Commission
regulations.
The Quan Gung 1986 Trust (through Hung Lay Si Co. Ltd., its wholly owned
subsidiary) beneficially owns approximately 61% of our common shares. The Quan
Gung 1986 Trust was formed under the laws of the Island of Jersey. According to
an opinion from Mourant du Feu & Jeune, counsel to the trustee of the Trust, as
of the date of this report the trustee has sole and exclusive voting and
investment power (which includes the power to dispose, or to direct the
disposition) for all the shares of Hung Lay Si Co. Ltd. owned by the Trust. None
of the beneficiaries or settlor of the Trust has any control over such shares.
This opinion also states that the trustee's powers under the Trust are
irrevocable and neither the settlor, the beneficiaries nor any other person has,
under the terms of the Trust, the ability to amend or revoke such powers or to
remove the trustee, except in very limited circumstances such as the trustee
being a lunatic or of unsound mind, or becoming bankrupt. Counsel to the
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trustee has also informed us that, by virtue of the terms of the Trust and the
laws of the Island of Jersey, the trustee cannot make disclosure of the names of
the beneficiaries and settlor of the Trust in breach of the obligations placed
on it and in accordance with its duties of confidentiality. Accordingly, you may
never know the identity of the beneficiaries or settlor of the Quan Gung 1986
Trust.
Common Shares
Beneficially Owned
Name of Beneficial Owner Shares Percentage
------ ----------
Hung Lay Si Co. Ltd..................................... 16,035,388 61.0%
Merle A. Hinrichs....................................... 4,008,221 15.2
Jeffrey J. Steiner(1)................................... 309,502 1.2
Eddie Heng Teng Hua..................................... * *
J. Craig Pepples........................................ * *
Bill Georgiou........................................... * *
Sarah Benecke........................................... * *
David F. Jones.......................................... * *
Roderick Chalmers....................................... * *
Dr. Lynn Hazlett........................................ * *
All officers and directors as a group (9 persons)....... 4,326,423 16.4
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* Indicates beneficial ownership of less than 1%.
(1) Mr. Jeffrey J. Steiner is the sole manager of The Steiner Group LLC, and
as such may be deemed to beneficially own the same common shares owned
directly or beneficially by The Steiner Group LLC. Mr. Steiner disclaims
beneficial ownership of shares owned by The Steiner Group LLC, the Jeffrey
Steiner Family Trust and shares owned by him as custodian for his
children. The Steiner Group LLC is a Delaware limited liability company.
Jeffrey J. Steiner is its sole manager. The members are Jeffrey J. Steiner
(with a 20% membership interest) and The Jeffrey Steiner Family Trust
(with an 80% membership interest). The Jeffrey Steiner Family Trust is a
trust created for the benefit of the issue of Jeffrey J. Steiner.
2,495,649 of our shares, or 9.5%, were beneficially owned by U.S. holders as of
February 28, 2000, the latest date as to which such information is available to
us.
Related Party Transactions
On December 31, 2000, we had $11,404,000 in net intercompany obligations due to
our controlling shareholder.
These obligations arose from:
o the transfer of intangibles, including copyrights for magazines, from
Hung Lay Si Co. Ltd. to us after our re-incorporation in the Cayman
Islands in 1983; and
o allocations of operating expenses from Hung Lay Si Co. Ltd. and its
affiliates to us, as described in the last paragraph of Note 10 to our
audited consolidated financial statements included elsewhere in this
document.
Effective January 1, 2000, we executed an unsecured promissory note in the
principal amount of $11,404,000 to establish the repayment terms of these
intercompany obligations owed to Hung Lay Si Co. Ltd. On January 1, 2005, we
will begin repayment of this promissory note by making quarterly payments of
principal and interest over the following ten years. Interest will accrue
beginning on January 1, 2005 at the U.S. Federal Funds rate on
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the following business day and will be adjusted quarterly. For each subsequent
interest period, the interest rate will be the U.S. Federal Funds rate on the
first business day of the applicable calendar quarter. If we fail to make a
timely payment, the interest rate on that payment will be adjusted quarterly to
equal 2% over the U.S. Federal Funds rate on the first business day of each
calendar quarter that payment and the accrued but unpaid interest are
outstanding until that payment is made. The interest that accrues on the unpaid
amount will be payable quarterly unless Hung Lay Si Co. Ltd. demands immediate
payment. If we fail to make a payment, Hung Lay Si Co. Ltd. may also accelerate
the promissory note and demand full payment.
We have extended loans to nine members of our senior management who are living
abroad, for the sole purpose of financing the purchase or lease of a residence.
The loans for the purchase of a residence are secured by that residence, bear
interest at a rate of LIBOR plus 2 to 3%, generally have a term of ten years and
become due and payable immediately upon the termination of the employee's
employment. The loans for the lease of a residence are unsecured, interest free
and are repayable in equal monthly installments over the period of the lease,
which is typically less than or equal to 12 months. The maximum loan amounts are
limited to the lower of the aggregate of two years' gross compensation of the
borrower or $500,000. The loans were made upon terms and subject to conditions
that are more favorable to the borrowers than those that would customarily be
applied by commercial lending institutions in the borrower's country of
employment. Since the beginning of 1996, the largest aggregate amount of
indebtedness of Mr. Pepples and Ms. Benecke to us, outstanding at any time
during such period, was approximately $40,733 and $531,082, respectively. As of
December 31, 2000, the indebtedness of Mr. Pepples to us was approximately
$16,288. Ms. Benecke has repaid her loan in full. Ms. Benecke's loan was secured
and bore interest at a rate of LIBOR plus 2%. Mr. Pepples' loan was interest
free and unsecured.
We lease approximately 102,418 square feet of our office facilities from
affiliated companies under cancelable operating leases and incur building
maintenance services fees to those affiliated companies. We incurred rental and
building services expenses of $950,453 during the year ended December 31, 2000.
We also receive legal and secretarial services from our affiliate companies. The
expenses incurred for these services during the year ended December 31, 2000 was
$455,436.
On March 17, 2000 we entered into a revolving credit facility with Bank of
Bermuda (Isle of Man) Limited. The credit facility has a term of one year and
provides for borrowings of up to $25.0 million, with minimum borrowings of $1.0
million. The lender may request security from time to time to secure borrowings
under the credit facility. The credit facility bears interest, payable quarterly
in arrears, at the London Inter-Bank Market Rate plus 0.5%. The credit facility
may be used for investments, working capital and general corporate purposes. If
any payment is not made when due, the interest rate will increase by 2% on the
aggregate amount outstanding and will be payable in arrears and, if not paid
when due, will be compounded. The loan may not be prepaid prior to the end of
any quarter, but if the bank notifies us of its intention to charge a
maintenance fee to cover its costs for the facility, we may prepay without
penalty the amount outstanding within seven days of the bank's notice. When we
entered into the credit facility, we paid the bank an arrangement fee of
approximately $16,000. Hung Lay Si Co. Ltd. has guaranteed all of our
obligations under the credit facility.
The total outstanding principal amount of the loan at December 31, 2000 was
$4,000,000.
On March 9, 2000, we borrowed $5,260,032.80 from Hung Lay Si Co. Ltd. to pay
U.S. taxes on income to Merle Hinrichs, our president and chief executive
officer. On March 22, 2000, we used a portion of our $25.0 million credit
facility with Bank of Bermuda to repay and cancel the loan from Hung Lay Si Co.
Ltd. to us. On March 9, 2000, we loaned $5,008,869 to Mr. Hinrichs for the
purpose of providing funds for payment of his portion of the required U.S. tax
payments. The loan to Mr. Hinrichs bore interest at the Federal Funds rate plus
2%. The interest and principal of this loan, which was unsecured, were repaid on
December 19, 2000.
Effective May 1, 2000, we engaged The Fairchild Corporation to provide
financial, legal and certain other services to us for a fee of $41,667 per
month. We terminated these services with effect from December 31, 2000.
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For further information on these transactions, see Notes to our audited
consolidated financial statements included elsewhere in this document.
Our management believes these transactions are commercially reasonable in the
jurisdictions where we operate and for our employees where they reside or work.
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