| Wed 13 Aug 2003, 17:47 | | Further Trading Update And Proposed Disposal Of Co |
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Kelgran Limited -
Kelgran Limited
DIMENSION STONE SPECIALISTS
(Incorporated in the Republic of South Africa)
(Registration number 1975/004595/06)
Share code: KLG ISIN: ZAE000038851
("Kelgran" or "the company")
FURTHER TRADING UPDATE AND PROPOSED DISPOSAL OF CONTROL OF KELGRAN"S OPERATIONS
AND FURTHER CAUTIONARY ANNOUNCEMENT
1. Further trading update
In an announcement dated 27 May 2003, shareholders were notified that Kelgran
expects to report an operating loss for the financial year ended 30 June 2003.
The factors contributing to this loss, namely, the strengthening of the Rand,
the weakening of US Dollar prices for exports and the slowdown in market demand,
have had a more significant negative impact on Kelgran"s results than was
initially expected. Shareholders are hereby informed that Kelgran expects to
report a loss before tax of approximately R62 million for the year ended 30 June
2003, which results are expected to be released on or about 31 August 2003. This
loss estimate has not been reviewed and reported on by the company"s auditors.
In addition, Kelgran has received correspondence from their bankers ("the
banks") to the effect that the banks require, inter alia, the business of
Kelgran to be recapitalised, in the absence of which the banks have reserved
their right to review their facilities to Kelgran.
Furthermore, the board of Kelgran ("the board") has received a letter from
their auditors advising the board that in view of the company"s current trading
position, a failure to recapitalise the company to resolve this problem is
likely to cause financial loss to the company or to some or all of its creditors
or members.
The board has thus decided to enter into an agreement with JVK S.r.l, a joint
venture company representing the interests of substantial players in the
international granite market, namely Finstone S.r.l and R.E.D Graniti S.p.A (the
controlling shareholders of Marlin Corporation Limited and R.E.D Graniti (Pty)
Limited, respectively) ("JVK") with a view to JVK recapitalising the company and
providing the necessary financial resources as well as technical and marketing
competence to restore Kelgran"s trading position.
2. Proposed transaction
Further to the cautionary announcement dated 24 June 2003, the board wishes
to advise shareholders that agreement ("the transaction agreement") has been
reached between the company, Kelgran Investments (Pty) Limited ("KI"), a wholly-
owned subsidiary of Kelgran which owns the operating subsidiaries of the Kelgran
group, and JVK, in terms of which, subject to the conditions precedent set out
in paragraph 3 below:
* Kelgran will capitalise its existing loan account owed to it by KI and its
subsidiaries ("the loan capitalisation");
* JVK will subscribe for new shares in KI ("the subscription"), such that JVK
will, following the subscription, hold 51% of the enlarged issued share capital
of KI;
* Kelgran and JVK will enter into an agreement governing their relationship as
shareholders of KI; and
* KI and JVK will enter into a management agreement ("the management agreement")
to regulate the commercial, industrial and technical affairs of KI, including
the appointment of JVK as the operational manager of KI,
collectively, "the transaction".
3. The recapitalisation
Following the loan capitalisation, JVK will subscribe for that number of new
shares in KI that will result in JVK holding 51% of the enlarged issued share
capital of KI, at an aggregate price of R60 million ("the subscription price").
The subscription price will be partly used for the purposes of partially
repaying KI"s debt to the banks, with the balance being applied to meet the
costs of the transaction and providing working capital support to KI. JVK will
provide additional working capital assistance in a further sum of R20 million.
The transaction is subject to the fulfilment of the following conditions
precedent:
* unconditional approval in terms of the Competition Act, 1998 (as amended), the
parties having agreed that the application to the relevant competition
authorities will be made on a "failing firm" basis;
* unconditional consents of certain identified third parties to the change of
control of KI which will occur as a result of the subscription;
* the independent expert appointed by the board, advising that the transaction
is fair and reasonable;
* written confirmation from each of the banks to reschedule KI"s remaining debt;
* conclusion of the management agreement;
* approval of the JSE Securities Exchange South Africa ("the JSE"), the
Securities Regulation Panel and the Exchange Control Department of the South
African Reserve Bank, if applicable; and
* approval of the requisite number of Kelgran shareholders in general meeting as
required in terms of the Companies Act, 1973 and the Listings Requirements of
the JSE. Mycom South Africa (Pty) Limited ("Mycom"), the controlling shareholder
of Kelgran holding approximately 65% of Kelgran"s voting shares, has irrevocably
undertaken to vote in favour of the relevant resolutions. JVK indirectly holds
approximately 8% of Kelgran"s voting shares and has undertaken not to vote at
the relevant shareholders" meeting.
4. Put and call options
In terms of the transaction agreement, JVK has irrevocably granted Kelgran
the following rights:
* the right to acquire, from JVK, either JVK"s entire interest in KI or such
interest in JVK so as to result in Kelgran holding a 51% interest in KI ("the
call option") for a purchase consideration calculated at the time which would
yield a return for JVK on its investment equal to 16% in United States Dollars
compounded annually; and
* the right to require JVK to purchase from Kelgran, Kelgran"s entire interest
in KI ("the put option") for a purchase consideration equal to the higher of R30
million or the fair market value of Kelgran"s interest in KI at the time.
The call option is exercisable by Kelgran at any time after the third
anniversary of the effective date (being the first business day after the
fulfilment of the conditions precedent), but prior to the sixth anniversary of
the effective date. The put option is exercisable by Kelgran at any time after
the first anniversary of the effective date, but prior to the third anniversary
of the effective date.
Kelgran has irrevocably granted JVK the right to acquire, from Kelgran,
Kelgran"s entire interest in KI at any time after:
* a change of control occurs in either Kelgran or Mycom from that which existed
at the signature date of the transaction agreement, without the prior written
consent of JVK; or
* the conduct by Kelgran or any of its subsidiary or associated companies of any
business in competition with the business of granite mining and beneficiation
conducted by KI in South Africa or its neighbouring countries from time to time,
for a purchase consideration equal to the fair market value of Kelgran"s
interest in KI at the time, less 50%.
5. Rationale for the transaction
In light of the company"s trading position, Kelgran"s new management,
represented by Dr V di Capua, appointed on 1 June 2003, has submitted various
alternatives to the board with the view to:
* recapitalising the group; and
* enhancing the technical and commercial expertise of the group through
strategic alliances.
The board, after due consideration, has decided that the best solution for
the future of the group is the transaction as detailed in this announcement. The
transaction will result in the required injection of capital into the group as
well as provide the necessary enhancements to the group"s technical processes of
exploiting the quarries and product development, together with marketing and
distribution.
6. Documentation and further cautionary announcement
A circular to shareholders providing full details of the transaction and
including a notice of general meeting will be posted to shareholders in due
course. Until such time as Kelgran"s financial results for the year ended 30
June 2003, and the financial effects of the transaction, have been published,
shareholders are advised to continue to exercise caution when dealing in their
Kelgran shares on the JSE.
Johannesburg
13 August 2003
Sponsor, corporate advisor and independent advisor to Kelgran
BRIDGE CAPITAL
Attorneys to Kelgran
Deneys Reitz Attorneys Inc.
Reg. No. 1984/003385/21
Attorneys to JVK in South Africa
WEBBER WENTZEL BOWENS
Legal advisor to JVK in Italy
Camozzi & Bonissoni
Investment bank and corporate advisor to JVK
NEDBANK CORPORATE
Date: 13/08/2003 05:43:39 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
