| Thu 18 Nov 2010, 14:41 | | BRT/BRN - Brimstone Investment Corporation Limited - Announcement regarding the |
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BRT BRN
BRT
BRT/BRN - Brimstone Investment Corporation Limited - Announcement regarding the
specific issue of 39 140 000 "N" ordinary Brimstone shares
BRIMSTONE INVESTMENT CORPORATION LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1995/010442/06)
Share Code: BRT
ISIN Number: ZAE000015277
Share Code: BRN
ISIN Number: ZAE000015285
("Brimstone" or "the Company")
ANNOUNCEMENT REGARDING THE SPECIFIC ISSUE OF 39 140 000 "N" ORDINARY BRIMSTONE
SHARES ("BRIMSTONE N SHARES") ("THE SUBSCRIPTION SHARES") FOR CASH TO THE BEE
MANAGEMENT TRUST, THE GENERAL STAFF TRUST AND THE BRIMSTONE BROAD-BASED BEE
TRUST ("THE PARTICIPANTS")
1. Introduction
Brimstone participates meaningfully in the South African economy. Whilst it
continues to do so, it has remained firmly committed to Black Economic
Empowerment ("BEE") in South Africa. Brimstone believes that the meaningful
participation of black people in the mainstream economy is essential to
sustaining South Africa`s economic and democratic values and structures.
Against this background, holders of ordinary shares in Brimstone
("Brimstone ordinary shares") and Brimstone N shares, collectively
("Brimstone shareholders") are advised that the Board of directors of
Brimstone ("the Board") is proposing the specific issue of 39 140 000 new
Brimstone N shares for cash to the participants, representing in aggregate
12.5% of Brimstone`s enlarged issued share capital ("the transactions"), in
order to retain, attract, incentivise and align the interests of a new
generation of executive management (excluding the current Board) ("second-
tier management") and other employees ("general staff"), the majority of
whom are black persons, with those of Brimstone shareholders. The
transactions will further maintain and enhance Brimstone`s BEE credentials.
Professor GJ Gerwel, non-executive chairman commented:
"We are proud of what has been achieved at Brimstone over the last number
of years and the returns provided to our shareholders. Brimstone is
committed to the future growth of the business by pursuing transactions
that will unlock value and secure future earnings. To do that, we need to
retain and attract key management and staff. The entrepreneurial mind set
is a key ingredient to our future success as it has been in the past. This
transaction is important for that purpose as well as enhancing the
company`s BEE ownership credentials which are core to our very purpose."
The transactions comprise three distinct transactions, involving three
distinct participants, namely -
- the BEE Management Trust, an executive equity investment scheme
established for the benefit of second-tier management, which will hold
11.2% of Brimstone`s enlarged issued share capital, being 35 140 000
Brimstone N shares. It is envisaged that at the inception of the
transactions 55.8% of the units in the BEE Management Trust will be
allocated to current second-tier management while the remaining 44.2%
will be warehoused by Brimstone for future allocation to new and
existing second-tier management and management of the Brimstone group.
At inception 77.9% of the units in the BEE Management Trust will be
held by black people (this includes the units warehoused by
Brimstone);
- the General Staff Trust, an employee equity investment scheme
established in line with the requirements of the Codes of Good
Practice on BEE, issued from time to time by the Department of Trade
and Industry in terms of section 9 of the BEE Act ("BEE Codes") for
the benefit of general staff, all of whom are black, which will hold
0.5% of Brimstone`s enlarged issued share capital, being 1 500 000
Brimstone N shares. It is envisaged that at the inception of the
transactions 55.8% of the units in the General Staff Trust will be
allocated to current general staff while the remaining 44.2% will be
reserved for future allocation to new and existing general staff; and
- the Brimstone Broad-based BEE Trust, a broad-based equity investment
scheme formed for the benefit of broad-based community and regional
organisations, which will hold 0.8% of Brimstone`s enlarged issued
share capital, being 2 500 000 Brimstone N shares. It is envisaged
that at inception, 100% of the units in the Brimstone Broad-based BEE
Trust will be allocated to the Brimstone Equity Share Trust, which
represents the interests of a broad base of community and regional
organisations. Further units in the Brimstone Broad-based BEE Trust
may be allocated to qualifying participants that are also public
benefit organisations, including community and regional non-profit
organisations. This may result in a dilution to the Brimstone Equity
Share Trust.
The participants will subscribe for the 39 140 000 Brimstone N shares at a
subscription price of R0.5075 per share ("subscription price"), with the
difference between the subscription price and the 30 trading day volume
weighted average price of Brimstone N shares as at 29 October 2010 (the
"subscription VWAP") (the subscription VWAP being R5.41 per Brimstone N
share) being notionally funded by Brimstone through a notional vendor
funding structure.
The transactions have an overall term of eight years.
The purpose of this announcement is to provide Brimstone shareholders with
information relating to the transactions, the conditions precedent to which
they are subject and the proposed timetable applicable thereto.
A circular was posted to Brimstone shareholders today providing information
on the transactions ("the circular"), and incorporating a notice convening
a general meeting of Brimstone shareholders ("general meeting") to approve
the resolutions as set out in the notice of general meeting and which are
required in order to implement the transactions.
2. Rationale for the transactions
Brimstone aims to assist in ensuring meaningful participation by black
people in the mainstream economy by adopting and implementing a BEE
strategy aimed at achieving:
- black ownership;
- a meaningful number of black senior management within Brimstone;
- a staff complement that reflects South Africa`s diverse demographic
profile;
- the transfer of skills to black employees;
- procurement policies that recognise the principles of BEE; and
- social development programmes that are primarily directed at
developing and empowering previously disadvantaged groupings.
The transactions build on the success thus far achieved by Brimstone and
achieves a number of Brimstone`s key objectives in line with its
incentivisation and BEE strategy, namely:
- retaining existing second-tier management and general staff, the
majority of whom are black people;
- attracting top professional and management skills to the Company and
to the Brimstone group;
- incentivising and rewarding second-tier management and general staff;
- aligning the interests of second-tier management and general staff
with shareholders;
- entrenching the entrepreneurial mindset by requiring second-tier
management to make available their contributions;
- allowing for structured succession planning;
- improving Brimstone`s BEE credentials to 62.11% black voting ownership
and 58.02% black economic ownership, in terms of the BEE Codes;
- preserving and enhancing Brimstone`s current business in South Africa;
- ensuring Brimstone is competitive in South Africa in the context of
BEE by maintaining and enhancing Brimstone`s BEE credentials;
- further benefiting a broad base of community and regional groups; and
- furthering the assistance in respect of the social and compassionate
needs of Brimstone`s black employees and their immediate families and
the broad-based groupings.
3. Details of the transactions
3.1 Contribution
The BEE Management Trust will be capitalised with a capital
contribution from each of its beneficiaries, amounting to a total of
R17 833 550 which will be used to settle the subscription price.
Current second-tier management of Brimstone will contribute 55.8% or
R9 950 000 and Brimstone will contribute 44.2% or R7 883 550 of the
total capital contributions, being the amount that will be required to
pay the subscription price in respect of the proportion of units
warehoused by it.
The subscription price in respect of the General Staff Trust will be
funded by a payment by Brimstone, in the amount of R761 250, made by
the Company to the General Staff Trust.
The subscription price in respect of the Brimstone Broad-based BEE
Trust will be funded by a loan from Brimstone, in the amount of R1 268
750, made by the Company to the Brimstone Broad-based BEE Trust.
3.2 Subscription and notional vendor funding
The participants will utilise the capital contributions received to
subscribe for the subscription shares at the subscription price for
cash. The difference between the aggregate subscription price and the
aggregate subscription VWAP is subject to notional vendor funding.
The outstanding balance of the notional vendor funding will accrue
notional interest at a hurdle rate being a fixed nominal rate of 8.5%,
compounded annually in arrears.
In and during the transaction term the participants will not have any
entitlement to any distributions, whether by way of interest, dividend
or any capital distribution, including capitalisation issues, scrip
dividends and bonus issues (but excluding distributions of underlying
securities by way of unbundlings) in relation to their subscription
shares. Any distributions not received by the participants shall be
taken into account as a notional credit in respect of the notional
vendor funding arrangement.
For purposes of the notional vendor funding arrangement, the
subscription shares comprise three separate tranches. The first
tranche comprises 50% of the subscription shares and has a final date
of 31 October 2016. The second tranche comprises 40% of the
subscription shares and has a final date of 31 October 2017. The third
tranche comprises 10% of the subscription shares and has a final date
of 31 October 2018.
3.3 Brimstone call option
At the relevant final date of the notional vendor funding period of
each tranche, Brimstone will, in terms of a call option, be entitled
to repurchase a certain number of subscription shares (as well as any
unbundled shares and other shares acquired by the participant by
virtue of its holding of the subscription shares) from the
participants at the subscription price ("the Brimstone call option").
In relation to each tranche, the number of shares to be purchased will
be calculated in terms of the repurchase formula as set out in the
circular and is calculated as that number of subscription shares and
other shares which, at the then market value thereof, have a value
equal to the then outstanding notional vendor funding. The balance of
the subscription shares of that tranche will become unencumbered in
the hands of the relevant participant.
3.4 Participants call option
If Brimstone has exercised its rights under the Brimstone call option
the participants will have, in terms of a call option, the right to
subscribe for an equivalent number of new Brimstone N shares and/or
Brimstone ordinary shares (or to purchase from Brimstone an equivalent
number of unbundled shares and other shares) at a cash price equal to
the then market value thereof ("the participants call option").
3.5 Cession and Pledge
The participants will pledge their subscription shares to Brimstone as
security for the performance of their obligations.
3.6 Voting of shares
The trustees of the participants will vote the subscription shares in
their discretion. Given the manner in which the transactions have been
structured, the participants will not be entitled to vote on any
resolutions governed by the JSE Limited Listings Requirements
("Listings Requirements") and will not be regarded as "public"
shareholders for purposes of the Listings Requirements.
3.7 Termination
The participants shall continue indefinitely but will terminate once
all assets have been disposed of or when the trustees agree to
terminate them and Brimstone and the beneficiaries of the participants
approve such agreement, provided that no resolution may be taken to
terminate them until the later of the final date of the last tranche
of the subscription shares and the notional settlement of all
outstanding notional indebtedness by the participants to Brimstone.
Upon termination of the participants, the trustees shall, if they have
not already done so, liquidate the net assets of the participants and
distribute the net proceeds to the beneficiaries of the participants
in proportion to the beneficiaries` interests.
Brimstone shareholders are referred to the circular for further
details of the terms of the transactions.
4. Conditions precedent to the transactions
The transactions are subject to the conditions precedent that, by no later
than 31 December 2010:
- all resolutions required to effect the transactions, as set out in the
notice of general meeting, shall have been approved by the requisite
majority of Brimstone shareholders;
- the initial trustees of the participants shall have been issued
letters of authority by the Master of the Western Cape High Court,
Cape Town and that the participants shall have acceded to the
subscription and relationship agreement and cession and pledge
agreement, the salient features of which are set out in the circular;
and
- any regulatory approvals required to effect the transactions have been
received.
The transactions are subject to the condition precedent that by no later
than 31 January 2011:
- all special resolutions required to effect the transactions shall have
been registered with CIPRO.
It should be noted that the transactions are not inter-dependant and the
conditions precedent outlined above are applicable to each one
individually.
5. Financial effects of the transactions
5.1 Cost to shareholders
The cost of the transactions, as at the calculation date, determined
in accordance with the statement on share-based payments, IFRS 2 and
including transaction costs, is R66.62 million and equates to 3.14% of
the Brimstone market capitalisation for an equivalent 10% BEE
transaction. This compares favourably with precedent BEE transactions.
It is important to note that this cost will be amortised in the
Company`s statement of comprehensive income over the term of the
transactions and does not represent a cash cost.
5.2 Unaudited pro forma financial effects of the transactions
Based on Brimstone`s published unaudited results for the six months
ended 30 June 2010, the pro forma financial effects of the
transactions on Brimstone`s Earnings per share ("EPS"), Headline EPS
("HEPS"), Diluted EPS, Diluted HEPS, Net asset value ("NAV") and
Tangible NAV ("TNAV") are set out below. These financial effects have
been prepared for illustrative purposes only in order to assist
shareholders to assess the impact of the transactions and, because of
their nature, may not give a fair presentation of Brimstone`s
financial position after the transactions. The financial effects are
the responsibility of the Board.
Before the After the % change
transactions transactions
(1) (2)(3)(4)
EPS (cents) 146.3 142.4 (2.7)
HEPS (cents) 149.0 145.1 (2.6)
Diluted EPS (cents) 146.3 138.1 (5.6)
Diluted HEPS (cents) 149.0 140.8 (5.5)
NAV (cents) 1 133.5 1 133.1 -
TNAV (cents) 1 047.2 1 046.8 -
Number of shares in issue 241 995 241 995 -
(`000)
Weighted average number of
shares in issue (`000)
EPS and HEPS 239 065 239 065 -
Diluted EPS and HEPS 239 065 246 509 3.1
Notes relating to the transactions:
1. The "Before the transactions" information has been extracted, without
adjustment, from Brimstone`s published unaudited results for the six
months ended 30 June 2010.
2. The EPS and HEPS "After the transactions" are based on the assumption
that the transactions were effected on 1 January 2010 for statement of
comprehensive income purposes.
3. The diluted EPS and diluted HEPS "After the transactions" are based on
the assumption that an additional 7 444 000 Brimstone N shares will be
issued.
4. The NAV and TNAV "After the transactions" are based on the assumption
that the transactions were effected on 30 June 2010 for statement of
financial position purposes. The transactions are share-based payment
expenses, interest received, expenses relating to the transactions and
taxation.
Details of the pro forma financial effects of the transactions on
Brimstone`s consolidated statement of comprehensive income and the
consolidated statement of financial position for the six months ended 30
June 2010 are contained in the circular.
The independent reporting accountants` report on the abovementioned pro
forma financial effects and the pro forma consolidated statement of
comprehensive income and the pro forma consolidated statement of financial
position of Brimstone is set out in the circular.
6. Fairness opinion
In terms of the Listings Requirements, the transactions require a fairness
opinion from an independent expert as the BEE Management Trust
beneficiaries are related parties. Ernst & Young Advisory Services Limited
has been appointed by the Board as independent expert to Brimstone and has
provided a fairness opinion to the Board that the terms and conditions of
the transactions, as they relate to each of the participants and in
particular, price and funding, are fair to Brimstone shareholders. The text
of the letter from Ernst & Young is included in the circular and the letter
has not been withdrawn prior to the release of this announcement.
7. Directors` recommendations in respect of the transactions
After taking into consideration the opinion of the independent expert, the
Board is of the opinion that the transactions are in the best interests of
Brimstone shareholders and recommends that Brimstone shareholders vote in
favour of the transactions and the resolutions to be proposed at the
general meeting. The directors intend to vote in favour of the resolutions
to be proposed at the general meeting in respect of their personal holdings
in the issued share capital of Brimstone.
8. Action required by Brimstone shareholders and notice of general meeting
Brimstone shareholders are referred to the circular which sets out the
action required by them and the notice convening a general meeting which
sets out the resolutions required in order to implement the transactions.
The general meeting will be held at The Athenaeum, Boundary Terraces, 1
Mariendahl Lane, Newlands, Cape Town on Friday, 10 December 2010,
commencing at 08h30.
The circular, which incorporates the notice of general meeting, will also
be available on Brimstone`s website from Friday, 19 November 2010:
www.brimstone.co.za/circulars.htm
9. Salient dates and times
2010
Terms announcement released on SENS on Thursday, 18 November
Circular posted to Brimstone shareholders on Thursday, 18 November
Terms announcement published in the South African Friday, 19 November
press on
Forms of proxy (yellow) for the general meeting to Wednesday, 8 December
be received by 08h30 on
General meeting held at 08h30 on Friday, 10 December
Results of the general meeting announced on SENS on Friday, 10 December
Results of the general meeting published in the Monday, 13 December
South African press on
Note:
1. All times shown in this announcement are South African times.
2. The above dates and times are subject to amendment. Any such
amendment will be announced on SENS and published in the South African
press.
Cape Town
18 November 2010
Corporate advisor, investment bank and sponsor Attorneys
Nedbank Capital Cliffe Dekker Hofmyer Inc.
Independent reporting accountants Independent expert
Deloitte & Touche Ernst & Young
Financial communications adviser College Hill
Date: 18/11/2010 14:41:55 Produced by the JSE SENS Department.
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