| Thu 11 Nov 2004, 12:55 | | - Disposal Of Shares In Metrofile (Proprietary) Li |
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MGX - Disposal Of Shares In Metrofile (Proprietary) Limited For Incentive
Purposes And Withdrawal Of Cautionary Announcement
MGX Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1983/012697/06)
Share code: MGX
ISIN code: ZAE000009262
(`MGX` or `the Company`)
DISPOSAL OF SHARES IN METROFILE (PROPRIETARY) LIMITED
FOR INCENTIVE PURPOSES AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders of MGX are advised that MGX:
* proposes to enter into an agreement with the Metrofile employee share trust
(`the trust`) (a trust to be formed), in terms of which MGX will sell 5% of its
shareholding in Metrofile (Proprietary) Limited (`Metrofile`), a wholly-owned
subsidiary of MGX, to the trust (`the staff transaction`); and
* has entered into an agreement with Sabvest Investments (Proprietary) Limited
(`Sabvest`), in terms of which MGX will sell 5% of MGX`s shareholding in
Metrofile to Sabvest (`the Seabrooke transaction`).
2. THE STAFF TRANSACTION
2.1 Rationale for the staff transaction
Metrofile already has a short-term incentive plan in place to motivate the
performance of its management in each financial year. MGX and Metrofile have now
resolved to create a long-term incentive plan for present and future employees
of MGX, Metrofile and Metrofile subsidiaries (`MGX Group`). The creation of the
trust, which will hold Metrofile shares for the benefit of the MGX Group
employees, will allow for present and future employees of the MGX Group to be
incentivised through participation in the Metrofile share incentive scheme (`the
share incentive scheme`), which will provide MGX Group employees with the
opportunity to acquire shares in Metrofile. The boards of directors of MGX and
Metrofile are of the view that the staff transaction will boost employee
commitment and encourage the continued growth of the MGX Group.
2.2 Important terms and conditions of the staff transaction
On receiving approval from the shareholders of MGX for the share incentive
scheme, MGX and the trust will enter into an agreement, the important terms and
conditions of which are set out below. The draft sale agreement relating to the
staff transaction will be available for inspection once the circular to
shareholders has been posted.
2.2.1 Sale
With effect from two business days after the fulfilment of the last of the
conditions precedent set out in paragraph 2.2.5 below (`the staff effective
date`), MGX will sell sufficient ordinary shares to the trust in Metrofile so as
to constitute the trust as the holder of 5% of the total issued ordinary share
capital of Metrofile (`the trust sale shares`).
2.2.2 Purchase consideration
The purchase consideration to be paid by the trust to MGX for the trust sale
shares will be R5 000, which will be paid in cash by the trust on the staff
effective date. The staff transaction has been priced on the same basis as the
black economic empowerment transaction which has been concluded by MGX and
Mineworkers Investment Company (Proprietary) Limited (`MIC`) (`the BEE
transaction`) and that was announced on SENS on 21 October 2004.
It should be noted that Metrofile had a net liability value of R7.8 million at
30 June 2004, which was calculated after taking into account R187.8 million of
trademarks and goodwill on the balance sheet at that date. Metrofile`s interest-
bearing debt at that date was R358.0 million.
2.2.3 Warranties
MGX has provided such warranties as are normal in a transaction of this nature.
2.2.4 Staff effective date
It is anticipated that the effective date of the staff transaction will be 2
February 2005.
2.2.5 Conditions precedent
The staff transaction is subject to, inter alia:
* MGX obtaining the written approvals of its capital providers;
* the entering into of an addendum to the common terms agreement, entered into
on 20 November 2003, between MGX and the capital providers (`the common terms
agreement`) incorporating the relevant terms of the staff transaction into that
common terms agreement;
* MGX obtaining shareholder approval in respect of the creation of the share
incentive scheme;
* the shareholders of MGX in general meeting approving:
- the establishment of the trust; and
- the staff transaction;
* to the extent necessary, all regulatory approvals and consents necessary in
respect of the staff transaction being obtained from the JSE Securities Exchange
South Africa (`JSE`); and
* the trustees of the trust receiving the requisite letters of authority to act
as trustees of the trust.
It is anticipated that the last of the conditions precedent will be fulfilled on
or before 31 January 2005.
2.2.6 Dilution
If either of the Metrofile B notes and/or the Metrofile C notes (`the Metrofile
notes`), created as parts of the restructuring of MGX in January 2004, convert
into Metrofile shares, the total number of ordinary shares that will be held by
the trust after such conversion, will reduce to 2.5%.
Metrofile`s management will accordingly be incentivised to facilitate the growth
of Metrofile and the meeting of its loan obligations in order to create value in
management`s interest in Metrofile and so as to avoid a 50% dilution in
management`s interest if the Metrofile notes convert into Metrofile ordinary
shares. MGX stakeholders have an interest in ensuring that this conversion does
not take place, as it would remove MGX`s equity interest in Metrofile.
Metrofile management`s commitment to repaying or refinancing this outstanding
debt is accordingly essential to MGX.
2.2.7 Undertakings by the trust
The trust undertakes:
* not to sell, dispose of or encumber any of the trust sale shares, other than
in terms of the agreement relating to the staff transaction or the Metrofile
shareholders` agreement (between MGX and MIC) (`the Metrofile shareholders`
agreement`) or pursuant to the share incentive scheme to be adopted by the
trust, at any time prior to three months after the fifth anniversary of the
staff effective date, without the prior written consent of MGX and Metrofile;
and
* to co-operate with MGX and Metrofile in the entering into of the Metrofile
shareholders` agreement and to sign such agreement on terms and conditions as
would be acceptable to MGX.
2.3 Fair and reasonable opinion
The board of directors of MGX will, in due course, on the advice of the
management of Metrofile, recommend to the trustees of the trust that offers to
be made by the trust to individual members of the management of Metrofile. As
these nominations are expected to include one or more executive directors of
MGX, the staff transaction will be a related party transaction. Accordingly,
Deloitte & Touche Corporate Finance has been appointed by the board of directors
of MGX to act as an independent adviser and advise on whether the terms and
conditions of the staff transaction are fair and reasonable to the shareholders
of MGX. The substance of such advice will be included in a circular to MGX
shareholders.
3. THE TRUST AND THE SHARE INCENTIVE SCHEME
3.1 Rationale for the trust and the share incentive scheme
The share incentive scheme is intended to act as an incentive for present and
future employees of the MGX Group by giving MGX Group employees the opportunity
of acquiring shares in Metrofile, while at the same time promoting Metrofile`s
and MGX`s continued growth.
3.2 Objective of the trust
The primary objective of the trust will be to administer the employee share
incentive scheme.
3.3 Terms and conditions of the share incentive scheme
Details of the terms and conditions of the trust and of the share incentive
scheme will be contained in the circular to MGX shareholders.
Shareholders will be requested to consider and if deemed fit, approve the terms
and conditions of the share incentive scheme at a general meeting of MGX
shareholders.
4. THE SEABROOKE TRANSACTION
4.1 Rationale for the Seabrooke transaction
Chris Seabrooke (`Seabrooke`) has been a director of MGX since January 2003 and
assumed the role of Non-Executive Chairman of the Company on 18 June 2003, with
a mandate from the capital providers and the board of directors of MGX, to guide
the Company through its debt-restructuring plan. Seabrooke has also been
Chairman of Metrofile since the sanctioning of MGX`s scheme of arrangement in
terms of section 311 of the Companies Act, 1973 (Act 61 of 1973) in March 2004,
and will continue as Deputy Chairman of Metrofile once the Chief Executive
Officer of MIC has been appointed as Chairman.
The board of directors of MGX is of the view that:
* Seabrooke has been instrumental in ensuring the continued existence of the
Company after it became apparent in January 2003 that the Company was unable to
service its interest-bearing debt; and
* Seabrooke`s contribution to MGX over the last 18 months has been invaluable
and his continued leadership is essential for the return to profitability and
growth of the Company.
MGX Group`s capital providers and MGX`s two largest shareholders have expressed
their support for Seabrooke`s continued involvement with the MGX Group for the
five-year period envisaged in the common terms agreement.
Seabrooke is the Chief Executive Officer of Sabvest and the Seabrooke Family
Trust has a voting interest of 67% and an economic interest of 32% in the shares
of Sabvest.
4.2 Important terms and conditions of the Seabrooke transaction
4.2.1 Sale
With effect from two business days after the fulfilment of the last of the
conditions precedent set out in paragraph 4.2.7 below (`the Sabvest effective
date`), MGX will sell to Sabvest 5% of its interest in Metrofile (`the Sabvest
sale shares`).
4.2.2 Purchase consideration
The purchase consideration for the Sabvest sale shares will be R5 000, in cash,
which will be paid on the Sabvest effective date. The pricing of the Seabrooke
transaction is on the same basis as the BEE transaction set out in paragraph
2.2.2 above.
It should be noted that Metrofile had a net liability value of R7.8 million at
30 June 2004, which was calculated after taking into account R187.8 million of
trademarks and goodwill on the balance sheet at that date. Metrofile`s interest-
bearing debt at that date was R358.0 million.
4.2.3 Warranties
MGX and Sabvest have provided such warranties as are normal in a transaction of
this nature.
4.2.4 Sabvest effective date
It is anticipated that the effective date of the Seabrooke transaction will be 2
February 2005.
4.2.5 MGX call option
Sabvest has granted to MGX or any company nominated by MGX, including Metrofile,
the right to acquire all of the Sabvest sale shares held by Sabvest (`the MGX
call option`), which right shall be exercisable by MGX within three months after
the occurrence of any of the following events:
i. the sale by MGX of all of the remaining shares held by it in the issued
share capital of Metrofile (other than as a result of the conversion of the
Metrofile notes), or the sale by the Company of all or substantially all of its
business to a third party;
ii. the termination of Seabrooke`s employment by MGX as Non-Executive Chairman
due to the death or disability of Seabrooke or the lawful retrenchment of
Seabrooke by MGX;
iii. the lawful termination of Seabrooke`s employment as Non-Executive Chairman
of MGX by MGX in circumstances that do not fall within any of the events
described in ii above; and
iv. the resignation by Seabrooke as Non-Executive Chairman of MGX, except in
the case set out in ii above.
Notwithstanding the above, the MGX call option will not be deemed to be
excercised if Seabrooke ceases to be the Non-Executive Chairman of MGX but
continues as a director of MGX or Metrofile and continues to perform
substantially the same responsibilities as he currently does.
If the MGX call option is exercised, the purchase consideration payable by MGX
(or any company nominated by MGX) to Sabvest for the relevant Metrofile shares
will be determined by the nature of the event that caused the MGX call option to
be exercised. Full details of the purchase consideration payable in terms of the
MGX call option will be set out in the circular to shareholders.
4.2.6 Sabvest put option
MGX has irrevocably granted to Sabvest the right to require MGX to purchase from
Sabvest all of the Sabvest sale shares held by Sabvest at that time (`the
Sabvest put option`), which will be exercisable by Sabvest within three months
after the occurrence of any of the following events:
i. the sale by MGX of all of the remaining shares held by it in the share
capital of Metrofile;
ii. the sale by Metrofile of all or substantially all of its business to a
third party;
iii. the conversion by the relevant holders of the Metrofile C notes into
ordinary shares issued by Metrofile; and
iv. the termination of Seabrooke`s employment by MGX as Non-Executive Chairman
due to the death or disability of Seabrooke or the lawful retrenchment of
Seabrooke by MGX.
If the Sabvest put option is exercised, the purchase consideration payable by
MGX (or any company nominated by MGX) to Sabvest for the relevant Metrofile
shares will be determined by the nature of the event that causes the Sabvest
put option to be exercised. Full details of the purchase consideration payable
in terms of the Sabvest put option will be set out in the circular to
shareholders.
4.2.7 Conditions precedent
The Seabrooke transaction is subject to, inter alia:
* MGX obtaining the written approval of its capital providers;
* the entering into of an addendum to the common terms agreement, by each of
MGX`s capital providers incorporating the relevant terms of the Seabrooke
transaction into the common terms agreement; and
* all regulatory approvals and consents necessary in respect of the Seabrooke
transaction being obtained from the JSE and the approval of the shareholders of
MGX in general meeting.
It is anticipated that the last of the conditions precedent will be fulfilled on
or before 31 January 2005.
4.2.8 Dilution
If the Metrofile B notes created as part of the restructuring of MGX convert
into Metrofile ordinary shares, Sabvest`s shareholding in Metrofile will dilute
to 2.5% of the total increased issued share capital. Seabrooke and Sabvest are
incentivised to facilitate the growth of Metrofile and the meeting of its loan
obligations in order to avoid this dilution. MGX`s stakeholders have a vital
interest in ensuring this conversion does not take place.
4.2.9 Undertakings by Sabvest
Sabvest has undertaken:
* not to sell, dispose or encumber any of the Sabvest sale shares other than in
terms of the Sabvest sale agreement at any time prior to three months after the
fifth anniversary of the Sabvest effective date, without the prior written
consent of MGX and Metrofile; and
* to co-operate with MGX and Metrofile in the entering into of a shareholders`
agreement in respect of Metrofile pursuant to the BEE transaction and to sign
such agreement on terms and conditions as would be acceptable to MGX.
4.3 Fair and reasonable opinion
Seabrooke is the Non-Executive Chairman of MGX and the Chief Executive officer
of Sabvest and has a material indirect non-beneficial interest in Sabvest
through the Seabrooke Family Trust. The Seabrooke transaction is accordingly a
related party transaction. Accordingly, Deloitte & Touche Corporate Finance has
been appointed by the board of directors of MGX to act as an independent adviser
and advise on whether the terms and conditions of the Seabrooke transaction are
fair and reasonable to the shareholders of MGX. The substance of such advice
will be included in a circular to MGX shareholders.
5. FINANCIAL EFFECTS OF THE METROFILE TRANSACTIONS
Individually and cumulatively, the staff transaction, the Seabrooke transaction
and the BEE transaction are not anticipated to have a material effect on the net
liability value per MGX share, headline loss per MGX share and loss per MGX
share.
6. IMPORTANT DATES AND TIMES
The important dates and times in respect of the staff transaction, the Seabrooke
transaction, the BEE transaction and the staff share incentive scheme (`the
Metrofile transactions`) are set out in the table below.
Posting of the circular, on Wednesday, 15 December 2004
Last day to lodge the form of proxy for the general meeting by 09:00, on
Wednesday, 26 January 2005
General meeting at 09:00 at the registered office of MGX, 22 Milkyway Avenue,
Linbro Business Park, Linbro Park, Sandton, on Friday, 28 January 2005
Results of the general meeting released on SENS, on Friday, 28 January 2005
Results of the general meeting published in the press, on Monday, 31 January
2005
Note:
These dates and times are subject to amendment. Any such amendment will be
published on SENS and in the press.
7. NOTICE OF GENERAL MEETING AND CIRCULAR
A circular providing additional information relating to the Metrofile
transactions and containing, inter alia, a notice of general meeting and a form
of proxy, will be posted to shareholders on or about 15 December 2004.
8. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement dated 23 September 2004
and are advised that as the important terms and conditions of the Metrofile
transactions have now been disclosed to shareholders, caution is no longer
required to be exercised by shareholders when dealing in their MGX shares.
Sandton
11 November 2004
Investment bank and sponsor
Standard Bank
Independent advisers
Deloitte & Touche
Corporate Finance Division
Attorneys to MGX
Webber Wentzel Bowens
Reporting accountants and auditors
Deloitte & Touche Chartered Accountants (SA)
Registered Accountants and Auditors
Date: 11/11/2004 11:58:01 AM
Produced by the JSE SENS Department
