| Tue 17 Jan 2006, 17:00 | | Kelgran Limited - Settlement Of Put Option |
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KLG
KLG
Kelgran Limited - Settlement Of Put Option
Withdrawal Of Cautionary Announcement
KELGRAN LIMITED
DIMENSION STONE SPECIALISTS
(Incorporated in the Republic of South Africa)
(Registration number 1975/004595/06)
Share code: KLG ISIN: ZAE000003885
("Kelgran" or "the company")
SETTLEMENT OF PUT OPTION
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1. Background
In August 2003, Kelgran entered into an agreement ("the transaction
agreement") with JVK S.r.l ("JVK"), which resulted in JVK acquiring a 51%
interest in Kelgran Investments (Pty) Limited ("KI"), a then wholly-owned
subsidiary of Kelgran. In terms of the transaction agreement, JVK irrevocably
granted Kelgran the right to require JVK to purchase from Kelgran all the
shares in (being Kelgran"s remaining 49% interest in KI), and claims against,
KI ("the put option").
Further to the cautionary announcement dated 7 December 2005, the board
of directors of Kelgran ("the directors") wishes to advise shareholders that
the company, KI and JVK have entered into an agreement, dated 16 December 2005
("the put option agreement"), to give effect to the exercise by Kelgran of the
put option ("the transaction").
Kelgran"s 49% interest in KI is its sole asset, therefore the exercise
of the put option by Kelgran will result in Kelgran disposing of its only
asset. This transaction therefore qualifies as a disposal in terms of section
228 of the Companies Act, Act 61 of 1973, as amended, and as such is governed
by the Securities Regulation Code on Take-overs and Mergers.
2. The transaction
2.1 Terms
The purchase price payable by JVK to Kelgran for Kelgran"s 49%
interest in KI and Kelgran"s claims against KI is the total of:
2.1.1 R29 million in cash ("the cash portion"); plus
2.1.2 8 667 961 Kelgran shares owned by JVK, valued at the closing
price per share on the JSE Limited ("the JSE") on the effective date ("the
share portion"). The effective date of the transaction will be the date of
fulfilment of the last of the suspensive conditions set out in paragraph 2.3
("the effective date"); plus
2.1.3 the amount, if any, deemed to have been paid by JVK to Kelgran, relating
to the loan account between Kelgran and KI, as detailed in paragraph 2.2.2;
plus
2.1.4 an additional amount payable by JVK to Routledge Modise Moss
Morris ("Routledges") on the closing date (being five business days after the
effective date) in respect of remuneration due to Mr di Capua, an executive
director of Kelgran. Such amount will be held in escrow by Routledges and
released to Kelgran subject to the fulfilment of certain conditions. The
additional amount is equal to the sum of:
2.1.4.1 US$16 667 multiplied by the number of completed months between the
effective date and 31 May 2006; plus
2.1.4.2 US$20 000; plus
2.1.4.3 all income tax due to the South Africa Revenue Service in respect
of the amounts referred to above. The cash portion and the share portion of
the purchase price will be payable by JVK to Kelgran on the 5th business day
after the effective date.
2.2 Loan account
2.2.1 Background
Since 30 June 2004, by agreement with Kelgran, KI has claimed from Kelgran an
amount equal to 5% of the salaries paid to executive management of Kelgran,
being an estimate of the time spent by these individuals on the management of
Kelgran and an amount equal to 20% of the salary paid to Mr di Capua. The
amounts claimed have been set-off against the loan by Kelgran to KI ("the loan
account").
The loan account will be further reduced by the following:
-# the remuneration paid by KI to Mr di Capua from 1 June 2005 to the
effective date;
-# 20% of the remuneration paid to executive management of Kelgran from
16 December 2005 to the effective date; and
-# rental paid by Kelgran Africa (Pty) Limited for premises from
16 December 2005 to the effective date, being R9 585 per month.
2.2.2 Adjustment to the purchase price
The purchase price payable by JVK to Kelgran has been based on the assumption
that the loan account has a face value of not less than R4.5 million on the
effective date. Should the adjustments to the loan account detailed in
paragraph 2.2.1 result in the loan account being reduced to an amount below
R4.5 million, such shortfall shall be payable by Kelgran to JVK on the
following bases:
-# a maximum amount of R600 000 shall be paid by Kelgran
to JVK; and
-# the balance of the shortfall shall be deemed to increase the purchase
consideration payable by JVK to Kelgran (as referred to in paragraph
2.1.3), so that the increase in the purchase price will be set- off
against the additional amount owed by Kelgran to JVK.
2.3 Suspensive conditions
The transaction is subject to the fulfilment of the following suspensive
conditions on or before 31 March 2006:
2.3.1 written confirmation from the directors that they will recommend to
shareholders to vote in favour of the resolutions necessary to give
effect to the transaction and that they will vote in favour of these
resolutions in respect of shares held by them;
2.3.2 an irrevocable undertaking from Mycom South Africa (Pty) Limited,
Kelgran"s controlling shareholder, to vote in favour of the resolutions
necessary to give effect to the transaction;
2.3.3 the approval by the Kelgran shareholders in general meeting;
2.3.4 the approvals of the JSE, the Securities Regulation Panel and the
Exchange Control Department of the South African Reserve Bank, if
applicable; and
2.3.5 the approval by the relevant Competition Authorities, if applicable,
within such reasonable period as the Competition Authorities may require
to provide the ruling.
3. Rationale for the transaction and prospects
For the past three years the operations of KI, being the mining of granite,
have incurred substantial losses and require additional working capital and
funding requirements. As published in Kelgran"s reviewed provisional results,
dated 28 October 2005, the directors have been considering a number of options
available to the company and are of the opinion that exercising the put option
is in the best interests of the company and its shareholders.
Following completion of the transaction, the company"s only asset will be cash.
The directors are considering various proposals with regards to the company"s
future and will in the foreseeable future either return all available cash to
the company"s shareholders and wind the company up or present the shareholders
with a viable alternative for consideration and approval. Details of these
developments will be announced in due course.
4. Financial effects
The pro forma financial effects of the transaction are set out in the table
below and have been prepared for illustrative purposes only to provide
information on how the transaction may have impacted on Kelgran. Because of
their nature, the pro forma financial effects may not give a fair reflection of
Kelgran"s financial position after the transaction nor its effect on future
earnings. The pro forma financial effects are the responsibility of the
company"s directors.
Before the After the Percentage
Notes transaction1 transaction change
Earnings per share (cents) 2 1.5 2.1 40.0
Headline earnings
per share (cents) 2 0.3 0.8 166.7
Weighted average number
of shares in issue ("000s) 94 034 85 366
Net asset value
per share (cents) 3 31.3 31.9 1.9
Net tangible asset value
per share (cents) 3 - 31.9 Not a
meaningful
figure
Number of shares
in issue ("000s) 94 034 85 366
Notes:
1.Extracted from Kelgran"s reviewed provisional results for the year ended
30 June 2005.
2. The basic earnings and headline earnings per share in the "After
the transaction" column are based on the following assumptions:
-# the transaction was effective 1 July 2004;
-# the cash portion of the purchase price was invested and earned an after-
tax return of 4.6% per annum;
-# the 8 667 961 Kelgran shares received from JVK as part consideration for
the purchase price were cancelled; and
-# the loan account had a face value of R4.5 million and therefore there
were no adjustments to the purchase price paid by JVK to Kelgran.
3. The net asset value and the net tangible asset value per share in
the "After the transaction" column are based on the following assumptions:
-# the transaction was effective 30 June 2005;
-# the 8 667 961 Kelgran shares received from JVK as part consideration for
the purchase price were cancelled; and
-# the loan account had a face value of R4.5 million and therefore there
were no adjustments to the purchase price paid by JVK to Kelgran.
5. Documentation and withdrawal of cautionary announcement
A circular to shareholders giving details of the transaction and including a
notice of general meeting will be posted to shareholders in due course. As
details of the transaction have been announced, shareholders are no longer
required to exercise caution when dealing in the company"s shares.
Johannesburg
17 January 2006
Sponsor and corporate advisor
Bridge Capital
Attorneys
Routledge Modise Moss Morris
Attorneys to JVK
Webber Wentzel Bowens
Reporting accountants and auditors
KPMG
Date: 17/01/2006 05:01:10 PM Produced by the JSE SENS Department
