| Fri 7 Sep 2001, 0:00 | | Softline: Agreement On The Restructuring Of Softli |
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Solutions, Inc.
Softline Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1977/002304/06)
Share code SFT ISIN code ZAE 0000 12316
("Softline")
Agreement on the restructuring of Softline's interest in SVI Solutions, Inc.
Introduction
Further to the cautionary announcement of 22 August 2001, Softline is
pleased to advise that negotiations with SVI Solutions, Inc. ("SVI") and
their advisers, Jefferies & Company, Inc. have resulted in an agreement
being concluded between Softline and SVI to restructure Softline's interest
in SVI ("the agreement").
Softline currently holds 19 million SVI common shares, representing 49,3%
of SVI's voting rights, and holds a subordinated loan, which, including
accrued interest, constitutes a claim against SVI in the amount of $11,7
million (the "Subordinated Loan").
Softline and SVI have now concluded an agreement pursuant to which:
* SVI shall exchange, in its entirety, the Subordinated Loan due to Softline
for certain assets of SVI and Convertible Preferred Securities ("preferred
shares") in SVI; and
* Softline shall exchange approximately 56% of its holding in SVI common
shares for additional preferred shares.
Rationale for the agreement
Softline has stated its intention to exit from its investment in SVI and the
agreement is a step forward in this exit process. In particular:
* the restructuring of Softline's holding in SVI should strengthen SVI's
balance sheet considerably and provide greater funding flexibility to SVI,
which together should significantly improve SVI's financial position;
* an improved financial position at SVI should benefit Softline by improving
the value of its residual interests in SVI and by assisting in the ultimate
disposal thereof;
* the agreement reduces Softline's overall exposure to, and re-affirms the
ring-fenced nature of Softline's interest in SVI;
* Softline's status is elevated from an ordinary shareholder to a preferred
shareholder in respect of the shares so exchanged; and
* SVI has required considerable management time over the past 18 months and
the restructuring of Softline's holding in SVI will allow Softline
management to further concentrate efforts on growing the core accounting and
payroll software businesses and achieving a leading global position in its
identified markets.
Salient terms of the agreement
The Subordinated Loan will be exchanged for SVI's effective 11% interest in
Integrity Software, Inc. ("Integrity") and the issue of $2,9 million
preferred shares to Softline. SVI's interest in Integrity is held in the
form of a convertible note issued by Kielduff Investments Limited, which is
exchangeable into 1 536 000 shares of Integrity representing an interest of
approximately 11% in Integrity (the "IBIS note").
In addition, SVI will issue $8,8 million preferred shares to Softline in
exchange for 10,7 million SVI common shares currently held by Softline. Such
SVI common shares are to be thereafter held as treasury stock by SVI,
thereby reducing the number of SVI common shares in issue.
Softline has undertaken not to dispose of either its remaining SVI common
shares or its preferred shares without the consent of Jefferies & Company,
Inc. for a period of 12 months from the date that the agreement becomes
unconditional.
The terms of the preferred shares will be as follows:
* the preferred shares will be issued for a five-year term;
* they will carry a 7% cumulative compounded dividend accruing on a semi-
annual basis from the date of issue;
* the preferred shares include a call option (the "call") in terms of which
SVI will be able to repurchase the preferred shares at 107% of the then
outstanding value inclusive of dividends;
* the preferred shares include an option exercisable by Softline, in full or
in part, to convert into SVI common shares, at a price of $1 per share, such
price shall escalate at 3,5% per annum from the date of issue to the date of
conversion (the "conversion option");
* both the call and the conversion option are exercisable at any time during
the five-year term; and
* the preferred shares are redeemable at maturity at the par value plus
accrued and unpaid dividends, such redemption to be made, at the option of
SVI, in:
* cash; and/or
* SVI common shares at a 5% discount to the 10-day average closing price
immediately prior to the date of maturity.
Following implementation of the agreement, Softline's interest in SVI will
comprise 8,3 million SVI common shares, representing 29,8% of the voting
rights, and $11,7 million preferred shares. In addition, Softline's
effective interest in Integrity, Inc, will increase from 4% to 15%.
Conditions precedent
The agreement is subject to certain conditions precedent including, inter
alia, approval of the South African Reserve Bank, the JSE Securities
Exchange South Africa (the "JSE") , the American Stock Exchange, approval by
SVI shareholders and the consent of Union Bank of California to the release
of their security interest in the IBIS note. The Union Bank of California
has conditionally agreed to this release and SVI is working closely with
Jefferies & Company, Inc. to ensure that all their conditions are fulfilled.
Financial effects
In the annual financial statements for the period ended 31 March 2001,
Softline consolidated the results of SVI for the period up to 15 October
2000 and thereafter accounted for SVI as an investment. The pro forma
effects on Softline's results in the year ended 31 March 2001, assuming the
agreement had been implemented on 1 April 2000, are as follows:
Per financial Pro forma Percentage
statements change
Sustainable earnings
per share (cents) 28,3 28,3 -
Basic earnings per share
(fully diluted) (cents) 5,9 9,7 64,4
Net asset value
per share (cents) 119,5 125,9 5,4
* The pro forma impact on basic earnings per share removes SVI's results
which were included for the period to 15 October 2000 and includes pro forma
dividends earned on the preferred shares;
* Sustainable earnings per share already exclude the results of SVI; and
* The pro forma figures have not taken into account the proportion of
Integrity's earnings that Softline would be entitled to.
Excluding the results of SVI, Softline's non-South African revenue
represented 36% of Softline's total revenue and 33% of operating profit for
the year ended 31 March 2001.
Softline's investment in the Subordinated Loan was valued at R91 million
and its investment in SVI common shares was carried at a book value of
R111,5 million in the balance sheet of Softline at 31 March 2001. On
fulfilment of the conditions precedent, Softline's remaining SVI common
share holding will be carried at a book value of R48,6 million, the
preferred shares will be carried at $11,7 million (approximately R98,8
million) and the IBIS note will be carried at $8,8 million (approximately
R74,4 million). Softline will continue to account for SVI as an investment
in accordance with the rationale provided in the year end results to 31
March 2001.
Comment
Ivan Epstein, CEO of Softline commented:
"Following our management team's decision to focus on improving the
performance of key operations and reduce overheads, our group has emerged
leaner, stronger and more focused. Along the way we have had to make some
difficult decisions, including decisions about our future involvement with
SVI. The restructuring of our interest in SVI will give SVI greater
financial independence, whilst providing absolute clarity to our own
shareholders, that Softline has no further financial obligations in respect
of SVI. Although we have not fully exited from our investment in SVI, we are
able to assist SVI in this key step towards achieving financial
independence, which will facilitate our exit in time."
Background on Integrity
Integrity is a Dublin-based software company that develops, markets,
implements and supports enterprise-wide software applications for small and
mid-sized organisations in the distribution and contracting industries.
Integrity's products enable organisations to optimise the efficiency of
internal and external information flow by integrating business-to-business
software modules with mission critical, enterprise-wide software
applications. These applications include core accounting functions as well
as key, industry-specific functionality.
Withdrawal of cautionary announcement
With the conclusion of the agreement, shareholders are no longer required to
exercise caution when dealing in Softline shares. Shareholders will be
advised when the conditions precedent have been fulfilled, the agreement
becomes unconditional and the JSE's requirements as to further
communications with shareholders have been finalised.
Johannesburg
7 September 2001
Sponsor
Cazenove
Attorneys
FRRW
Fluxman Rabinowitz - Raphaely Weiner Inc. Attorneys
www.frrw.co.za
