| Wed 7 Aug 2002, 0:00 | | Iota Financial Services Limited |
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IOTA FINANCIAL SERVICES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1968/012195/06
Share code: IOT ISIN:ZAE4014759)
("IOTA")
Disposals of subsidiary companies, distribution of advance liquidation dividend,
delisting and members` voluntary winding-up
1. Disposals
1.1 Introduction
Brait Advisory Services Limited is authorised to announce that, pursuant to the
further cautionary announcement published in the press on 24 June 2002, IOTA
Group Holdings (Proprietary) Limited ("Group Holdings"), a wholly-owned
subsidiary of IOTA, has, subject to the fulfilment of certain suspensive
conditions, concluded a disposal agreement with the management of each of the
following subsidiary companies ("disposal agreements"):
* IOTA Business Finance (Proprietary) Limited ("Business Finance");
* IOTA Investment Services (Proprietary) Limited ("Investment Services");
* Colin Cooper and Associates (Proprietary) Limited ("CC&A");
* International Tank Containers (Proprietary) Limited ("Intertank");
* MR Financial Management (Proprietary) Limited ("MRF");
* SP Reid & Mackeurtan (Proprietary) Limited ("SP Reid"); and
* Waterford Financial Management (Proprietary) Limited ("Waterford"),
(collectively referred to as the "subsidiaries").
In terms of the disposal agreements, Group Holdings has agreed, with
effect from 1 May 2002 ("effective date"), to dispose of 100% of the issued
share capital of and, save for certain claims of Group Holdings on loan account
against the subsidiaries arising out of dividends declared by the subsidiaries
to Group Holdings on 29 April 2002, all claims that Group Holdings may have
against the subsidiaries, other than Business Finance ("the disposals").
1.2 Rationale
The IOTA group was listed in April 1998 with the intention of creating a
specialist financial services group that renders fully integrated investment
services, complemented by a full range of allied financial services. However, it
has proved very difficult to successfully implement this concept and the
expected synergies between various acquisitions have not materialised.
Accordingly, the board of directors of IOTA ("the Board") has, during the past
twelve months, undertaken a review of the IOTA group and as part of this
revisited the rationale for IOTA`s continued listing. This was done in order to
avoid further destruction of shareholder value, taking into account IOTA`s share
price and current market conditions.
The Board is of the opinion that the control of the businesses of the IOTA group
is best suited at management level, as opposed to forming part of an integrated
group and that the benefits of IOTA`s continued listing are outweighed by the
disadvantages thereof, in particular the fact that market sentiment towards
small and medium capitalised companies such as IOTA has been unfavourable for
some time and is unlikely to change in the short to medium term. Accordingly,
the Board has explored various strategies to:
* optimise the position for IOTA shareholders and to maximise value for them;
and
* facilitate the delisting of IOTA`s shares from the JSE Securities Exchange
South Africa ("JSE") .
By concluding the disposal agreements, the Board is of the view that both of
these objectives will be achieved.
2. Dividend declarations, IOTA premises, delisting and winding-up
2.1 In order to maximise value for IOTA shareholders and after considering
alternative transactions, the subsidiaries, save for Business Finance, have,
prior to implementing the disposals, declared, as dividends, all available
retained earnings as at 29 April 2002 to Group Holdings. Details of these
dividends are given in 3 below.
2.2 The Board also took account of IOTA`s premises situated at 27 Fricker
Road, Illovo Boulevard, Illovo ("IOTA premises") and the impact of the existing
structured lease transaction in relation thereto with the BoE group. Various
alternatives in relation to the IOTA premises were considered. In order to avoid
a negative impact of the IOTA premises on a distribution to IOTA shareholders,
the Board required that, as part of the disposal agreements, the respective
purchasers of the subsidiaries, with the exception of MRF and CC&A who are not
based in the IOTA premises, conclude new sub-lease agreements with IOTA. The
lease agreements are still to be concluded and is a suspensive condition to the
disposal agreements. This will avoid a possible additional impairment charge
attributable to the IOTA premises. Further details of these leases are given in
3 below.
2.3 Subject to the disposal agreements becoming unconditional, it is proposed
that IOTA be delisted from the JSE and that IOTA be wound-up by way of a members
voluntary winding-up.
3. Nature of the businesses of the subsidiaries and salient terms of the
disposal agreements
* Business Finance
Business Finance is an asset-based finance company. Finance agreements concluded
by it are discounted with a number of financial institutions.
On 5 August 2002, Group Holdings concluded an agreement with Cres Investment
Holdings (Proprietary) Limited ("Cres") in terms of which, inter alia, Group
Holdings sold to Cres the entire issued share capital of Business Finance,
subject to the fulfilment of the suspensive conditions referred to in 6 below.
Cres was incorporated to house the interests of the current executive management
of Business Finance.
No dividends were declared to Group Holdings as Business Finance had an
accumulated loss of R27 600 000 as at 30 April 2002. The purchase price payable
by Cres is R600. Cres will also repay a loan account of Business Finance which
is due to Group Holdings of R8 030 325 less the amount of R2 000 000 to be
offset as detailed below ("the loan"). The purchase price and the loan, together
with interest thereon at the prime rate, calculated from the effective date
until the date of payment thereof, will be paid, in cash, as follows:
- R3 030 325 on the closing date of the Business Finance disposal agreement; and
- R3 000 000 (plus interest), on 31 December 2002.
Group Holdings has given limited warranties, including warranties as to the
ownership and ability to transfer its shares to Cres.
In terms of the Business Finance disposal agreement, IOTA sold to Cres, for R10,
all its redeemable preference shares in Secured Asset Finance (Proprietary)
Limited, a special purpose vehicle used for a transaction in terms of which
certain debtors of Business Finance were securitised. The purchase price,
together with interest thereon at the prime rate, calculated from the effective
date until date of payment, will be paid in cash on 30 September 2002.
Business Finance had instituted legal action against two companies and has
obtained judgment against these companies for R3 254 000 and R1 260 000,
respectively, ("the claims"). Both amounts bear interest at a rate of 18% from
19 October 2001 until the date of repayment thereof in full. Neither company has
discharged these judgments and steps have been taken to enforce the judgments to
obtain payment of the claims. Business Finance has ceded the claims to Group
Holdings for an amount of R2 000 000 and Business Finance will set-off this
amount against the loan.
Business Finance will conclude a three year sub-lease agreement with IOTA for 50
m2 of lettable space in the IOTA premises at R70 per m2, escalating by 10% per
annum.
* CC&A
CC&A is a KwaZulu-Natal based short term insurance broker and provider of a wide
range of other financial services.
On 10 July 2002, Group Holdings concluded an agreement with Hunterdon Investment
Holdings (Proprietary) Limited ("Hunterdon") in terms of which, inter alia,
Group Holdings sold to Hunterdon the entire issued share capital of CC&A and,
save for certain claims of Group Holdings on loan account against CC&A arising
out of dividends declared by CC&A on 29 April 2002, all claims which Group
Holdings may have against CC&A, subject to the fulfilment of the suspensive
conditions referred to in 6 below. Hunterdon was incorporated to house the
interests of the current executive management of CC&A.
The purchase price payable by Hunterdon is an amount equal to the net tangible
asset value ("NTAV") of CC&A, as reflected in its annual financial statements on
30 April 2002, being R1 789 276 after the distribution of a dividend of R4 258
000 to Group Holdings on 29 April 2002. The purchase price, together with
interest thereon at the prime rate, calculated from the effective date until the
date of payment thereof, will be paid, in cash, on the closing date of the CC&A
disposal agreement. Group Holdings has given limited warranties, including
warranties as to the ownership and ability to transfer its shares and claims to
Hunterdon.
* Intertank
Intertank markets tank container investments and manages these investments
offshore.
On 10 July 2002, Group Holdings concluded an agreement with Ivukuthu Investment
Holdings (Proprietary) Limited ("Ivukuthu") in terms of which, inter alia, Group
Holdings sold to Ivukuthu the entire issued share capital of Intertank and, save
for certain claims of Group Holdings on loan account against Intertank arising
out of dividends declared by Intertank on 29 April 2002, all claims which Group
Holdings may have against Intertank, subject to the fulfilment of the suspensive
conditions referred to in 6 below. Ivukuthu was incorporated to house the
interests of the current executive management of Intertank.
The purchase price payable by Ivukuthu is an amount equal to the NTAV of
Intertank, as reflected in its annual financial statements on 30 April 2002,
being R91 489 after the distribution of a dividend of R36 240 000 to Group
Holdings on 29 April 2002. The purchase price, together with interest thereon at
the prime rate, calculated from the effective date until the date of payment
thereof, will be paid, in cash, on the closing date of the Intertank disposal
agreement. Group Holdings has given limited warranties, including warranties as
to the ownership and ability to transfer its shares and claims to Ivukuthu.
Intertank will conclude a five year sub-lease agreement with IOTA for 300 m2 of
lettable space in the IOTA premises at R70 per m2, escalating by 10% per annum.
* Investment Services
Investment Services provides long and short term insurance, certain employee
benefit consulting services, as well as investment advice, both onshore and
offshore.
On 10 July 2002, Group Holdings concluded an agreement with Chalkidiki
Investment Holdings (Proprietary) Limited ("Chalkidiki") in terms of which,
inter alia, Group Holdings sold to Chalkidiki the entire issued share capital of
Investment Services and, save for certain claims of Group Holdings on loan
account against Investment Services arising out of dividends declared by
Investment Services on 29 April 2002, all claims which Group Holdings may have
against Investment Services, subject to the fulfilment of the suspensive
conditions referred to in 6 below. Chalkidiki was incorporated to house the
interests of the current executive management of Investment Services.
The purchase price payable by Chalkidiki is an amount equal to the NTAV of
Investment Services, as reflected in its annual financial statements on 30 April
2002, being R7 872 829 after distribution of a dividend of R2 677 000 to Group
Holdings on 29 April 2002. However, it was agreed that this amount be reduced by
a foreign currency loss of R684 959 incurred by Investment Services. The
purchase price, together with interest thereon at the prime rate, calculated
from the effective date until the date of payment thereof, will be paid, in
cash, on the closing date of the Investment Services disposal agreement. Group
Holdings has given limited warranties, including warranties as to the ownership
and ability to transfer its shares and claims to Chalkidiki.
Investment Services will conclude a five year sub-lease agreement with IOTA for
450 m2 of lettable space in the IOTA premises at R70 per m2, escalating by 10%
per annum.
*MRF
MRF is the financial services "division" of Moores Rowland, Johannesburg, and
offers specialist accounting, financial, secretarial and taxation services.
On 10 July 2002, Group Holdings concluded an agreement with Brian Harold Bank,
Michael John Becker, Denis Vincent Cacho, Rudi Oudemayer and Norman Leibowitz
("MRF management") in terms of which, inter alia, Group Holdings sold to MRF
management the entire issued share capital of MRF and, save for certain claims
of Group Holdings on loan account against MRF on 29 April 2002, all claims which
Group Holdings may have against MRF, subject to the fulfilment of the suspensive
conditions referred to in 6 below.
The purchase price payable by MRF management is R2 500 000 plus the Rand value
of the proceeds to be received by MRF management from the distribution of cash
in relation to 1 668 701 IOTA shares which were held by MRF management at the
effective date, less the dividend outstanding to Group Holdings of R4 441 398.
In addition, MRF will repay an existing loan account of R1 500 000, together
with interest thereon. The purchase price, together with interest thereon at the
call rate, calculated from the effective date until the date of payment thereof,
will be paid, in cash, on the closing date of the MRF disposal agreement. Group
Holdings has given limited warranties, including warranties as to the ownership
and ability to transfer its shares and claims to MRF management.
* SP Reid
SP Reid offers asset management and stockbroking services.
On 19 July 2002, Group Holdings concluded an agreement with Pipit Investment
Holdings (Proprietary) Limited ("Pipit") in terms of which, inter alia, Group
Holdings sold to Pipit the entire issued share capital of SP Reid and, save for
certain claims of Group Holdings on loan account against SP Reid arising out of
dividends declared by SP Reid on 29 April 2002, all claims which Group Holdings
may have against SP Reid, subject to the fulfilment of the suspensive conditions
referred to in 6 below. Pipit was incorporated to house the interests of the
current executive management of SP Reid.
The purchase price payable by Pipit is an amount equal to the NTAV of SP Reid,
as reflected in its annual financial statements on 30 April 2002, being R2 796
285 after distribution of the dividend of R25 063 000 to Group Holdings on 29
April 2002. The purchase price, together with interest thereon at the call rate
plus 3%, calculated from the effective date until the date of payment thereof,
will be paid, in cash, on the closing date of the SP Reid disposal. Group
Holdings has given limited warranties as to the ownership and ability to
transfer its shares and claims in SP Reid to Pipit.
SP Reid has a loan from Group Holdings of R6 000 000 which, together with
interest at the call rate plus 3% will be paid to Group Holdings on or before 31
December 2002.
A legal action has been instituted against SP Reid, in terms of which SP Reid
may be liable to pay certain legal costs and/or claims arising out of such legal
action. Group Holdings has agreed to refund SP Reid an amount by which any
aggregate amount paid by SP Reid pursuant to this legal action is in excess of
R5 million, but subject to a maximum refund of R1 million, until 30 June 2003.
SP Reid will conclude a five year sub-lease agreement with IOTA for 574 m2 of
lettable space in the IOTA premises at R70 per m2, escalating by 10% per annum.
* Waterford
Waterford provides a complete range of accounting, taxation and administration
services.
On 10 July 2002, Group Holdings concluded an agreement with Belize Investment
Holdings (Proprietary) Limited ("Belize") in terms of which, inter alia, Group
Holdings sold to Belize the entire issued share capital of Waterford and, save
for certain claims of Group Holdings on loan account against Waterford arising
out of dividends declared by Waterford on 29 April 2002, all claims which Group
Holdings may have against Waterford, subject to the fulfilment of the suspensive
conditions referred to in 6 below. Belize was incorporated to house the
interests of the current executive management team of Waterford.
The purchase payable by Belize is an amount equal to the NTAV of Waterford, as
reflected in its annual financial statements on 30 April 2002, being R831 495
after distribution of the dividend of R5 750 000 to Group Holdings on 29 April
2002. The purchase price, together with interest thereon at the prime rate,
calculated from the effective date until the date of payment thereof, will be
paid, in cash, on the closing date of the Waterford disposal agreement. Group
Holdings has given limited warranties, including warranties as to the ownership
and ability to transfer its shares and claims to Belize.
Waterford will conclude a five year sub-lease agreement with IOTA for 680 m2 of
lettable space in the IOTA premises at R70 per m2, escalating by 10% per annum.
4. Distributions to IOTA shareholders
4.1 Subject to all of the disposal agreements becoming unconditional, the Board
will distribute the net proceeds of the disposals to IOTA shareholders, by way
of a capital reduction in accordance with section 90 of the Companies Act, 1973,
No 61 of 1973, as amended ("the Act") and an advance liquidation dividend
("advance liquidation dividend") in anticipation of a members` winding-up of
IOTA, details of which are given in 8 below.
4.2 The advance liquidation dividend will be 130 cents per IOTA ordinary share.
A final liquidation dividend ("final liquidation dividend") will be distributed
to qualifying shareholders once the winding-up of IOTA has been completed to the
satisfaction of the Master of the High Court. At this stage, the Board
anticipates that the final liquidation dividend may be approximately 10 cents
per IOTA ordinary share. Shareholders are referred to 5.2 below.
4.3 The advance liquidation dividend of 130 cents per IOTA share represents the
following premium to the respective prices at which IOTA shares traded on the
JSE on the following dates:
Date: 2002 Closing IOTA share
price on the JSE Premium
(cents)
13 February - cautionary announcement 82 58,54%
28 March - cautionary announcement 90 44,44%
10 May - cautionary announcement 105 23,81%
24 June - cautionary announcement 80 62,50%
Closing price on 5 August 85 52,94%
5. Financial effects
5.1 The effect of the disposals and the distribution of the advance liquidation
dividend on IOTA`s earnings/(loss) per share, headline earnings/(loss) per
share, net asset value ("NAV") and NTAV per share is illustrated in the table
below, which contains the unaudited pro forma financial effects based on the
audited consolidated financial results of the IOTA group for the financial year
ended 30 April 2002.
The unaudited pro forma financial effects are provided for illustrative purposes
only, in order to show the effect of the disposals and the distribution of the
advance liquidation dividend on the earnings/(loss) per share, headline
earnings/(loss) per share, NAV and NTAV of IOTA and, because of their nature,
may not give a fair reflection of the financial position of IOTA after
implementation of the disposals and the distribution of the advance liquidation
dividend.
Per IOTA share Pro forma
After the
disposal and
distribution
of the
advance
Audited Pro forma liquidation
Before(1) After disposals Change dividend(3) Change
(cents) (cents) (cents)
Earnings/
(loss) per share (90,3) (66,0) 27% (72,8) (10%)
Headline earnings/
(loss) per share (29,6) 3,1 110% (3,7) (219%)
NAV 191,9 182,9 (5%) 46,0 (75%)
NTAV 186,8 182,9 (2%) 46,0 (75%)
The calculation of the financial effects was based on the following:
1. They are based on the audited results of IOTA for the financial year ended 30
April 2002.
2. The "After the disposals" column assumes that the disposals were effective
from 1 May 2001. It also assumes that, for purposes of calculating the
earnings/(loss) per share and headline earnings/(loss) per share, the net
proceeds of the disposals were invested at an after tax rate of 9,5% from 1 May
2001 to 30 April 2002.
The "After the disposal" column illustrates the NAV and the NTAV of IOTA having
assumed that the disposals were implemented on 30 April 2002.
3.In the "After the disposals and distribution of the advance liquidation
dividend ("distribution")" column, earnings/(loss) per share and headline
earnings/(loss) per share represents the pro forma earnings/(loss) per share and
headline earnings/(loss) per share of the "After the disposals" column, adjusted
to reflect the distribution and secondary tax of companies of R3,69 million. The
NAV and NTAV are based on the pro forma NAV and NTAV recorded in the "After the
disposals" column, adjusted for the distribution, and represents the NAV and the
NTAV of IOTA after the distribution.
4. For purposes of calculating earnings/(loss) and headline earnings/(loss) per
share, a weighted average number of 54 558 971 shares issued was used.
5. For purposes of calculating NAV and NTAV per share, a total of 51 277 354
shares in issue was used.
5.2 The following matters could not be included in the NAV and NTAV of IOTA as
at 30 April 2002, but may have an impact in the financial year which commenced
on 1 May 2002:
* Approximate cost of unwinding the structured lease transaction
with the BoE group in relation to the IOTA premises R12 million
* Provision for an adjustment to purchase price -
Compass Insurance R7 million
* Provision for legal costs/claims - SP Reid R1 million
* Estimated costs associated with the winding-up of the IOTA group R1,5
million
* Estimated operating costs until the winding-up of the IOTA group
has been completed R1,5 million
* Estimated interest earned on dividends received from the
subsidiaries and on the disposal proceeds, from
1 May 2002 until the final winding-up of the group R3,8 million
Accordingly, the NAV and NTAV could reduce by a further R19,2 million (37,4
cents per share), resulting in the estimated final liquidation dividend of
approximately 10 cents per share, as referred to in 4.2 above. However, IOTA
will use its best endeavours in resolving the aforementioned matters to increase
the estimated final liquidation dividend for IOTA shareholders.
6. Suspensive conditions
The disposals are subject to the fulfilment of, inter alia, the following
suspensive conditions:
* approval by the shareholders of IOTA of each disposal, as each disposal is
conditional on the others;
* the conclusion of the respective lease agreements referred to in 3 above;
* approval by the shareholders of IOTA of the voluntary winding-up of IOTA; and
* IOTA obtaining all the required regulatory approvals necessary to conclude the
disposal agreements and implement the disposals.
7. Related party transaction
7.1 The disposals constitute a disposal in terms of section 228 of the Act.
Accordingly, the transaction is classified as an affected transaction, as
defined by the Code and Rules ("Code") of the Securities Regulation Panel, and a
statement from an independent professional expert is required as to whether or
not the terms and conditions of the disposals are fair and reasonable to the
shareholders of IOTA. Furthermore, in terms of the Listings Requirements of the
JSE, certain related party relationships exist relative to the disposals, full
details of which will be disclosed in the circular to IOTA shareholders.
Consequently, a fair and reasonable statement by an independent professional
expert similar as aforementioned must be obtained.
7.2 IOTA has appointed Deloitte & Touche Corporate Finance to conduct this
investigation. Full details of their opinion will be set out in the circular to
be posted to IOTA shareholders (see 9 below).
8. Members` voluntary winding-up
It is proposed that IOTA be voluntarily wound-up by IOTA shareholders in terms
of sections 349 and 350 of the Act. Save for the advance liquidation dividend
and the final liquidation dividend, no other dividend will be distributed to
IOTA shareholders.
9. General meeting and circular to shareholders
A general meeting of IOTA shareholders will be held on Wednesday, 18 September
2002, at which IOTA shareholders will consider, and, if deemed fit, pass
resolutions to approve each of the disposals, the distribution of the advance
liquidation dividend, the delisting of IOTA from the JSE and the winding-up of
IOTA. Full details of the aforementioned transactions will be set out in a
circular, to be posted to IOTA shareholders on or about Friday, 23 August 2002.
Johannesburg
6 August 2002
Corporate advisor
Brait
Independent advisor to IOTA shareholders
Deloitte & Touche Corporate Finance
Attorneys
Weksmans Incorporated
(Registration number 1990/007215/21)
Reporting accountants
PricewaterhouseCoopers Inc
Chartered Accountants (SA)
Registered Accountants and Auditors
(Registration number 1998/012055/21)
Transaction sponsor
Brait Sponsors (Proprietary) Limited
(Registration number 2000/031069/07)
Date: 07/08/2002 07:10:00 AM Produced by the JSE SENS Department
