Wrap Text
Specific Repurchase, EmployeeCo Transaction and ManCo Transaction
Insimbi Refractory and Alloy Supplies Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2002/029821/06)
Share code: ISB ISIN: ZAE000116828
(“Insimbi” or “the Company” or “the Group”)
Specific Repurchase, EmployeeCo Transaction and ManCo Transaction
1. Introduction and rationale
Shareholders are advised that Insimbi has entered into a repurchase agreement with Insimbi Alloy
Supplies Proprietary Limited, a wholly owned subsidiary of Insimbi (“Insimbi Alloy”) for the
repurchase of up to 13 000 000 shares from Insimbi Alloy (“Specific Repurchase”) on the terms of
such agreement (“the Repurchase Agreement”).
Furthermore, shareholders are also advised that Insimbi has entered into agreements for the
implementation of an employee share participation transaction and a management share
participation transaction in terms of which eligible employees of Insimbi (other than directors and
prescribed officers of the Group as contemplated in the Companies Act, 2008 (Act 71 of 2008), as
amended, (“Companies Act”) (“Eligible Employees”) will, collectively, obtain an approximate 8.78%
indirect shareholding interest in Insimbi (“the Transactions”).
Eligible Employees forming part of Insimbi’s management structure (“ManCo Participants”) will by
way of individual shareholding interests to be held in Piece For All Trading Proprietary Limited
(“ManCo”) obtain a collective 3.78% indirect shareholding interest in Insimbi (“ManCo Transaction”).
The balance of the Eligible Employees not participating in the ManCo transaction (“EmployeeCo
Participants”) will by way of individual shareholding interests in Starblitz Trading Proprietary Limited
(“EmployeeCo”) obtain a collective 5.00% indirect shareholding interest in Insimbi (“EmployeeCo
Transaction”). The board of directors of Insimbi (“the Board”) has recognised the need to foster a
culture of ownership within the Company.
The indicative impact of the EmployeeCo Transaction and the ManCo Transaction on the BEE
ownership points of Insimbi will, collectively, result in an increase to 11.07 ownership points, based
on an 8.78% ownership in Insimbi.
2. The Transactions
2.1. The Specific Repurchase
2.1.1. Introduction and rationale
The Specific Repurchase will facilitate the implementation and intended empowerment objectives
of the Transactions set out below. The Specific Repurchase constitutes a specific repurchase of
shares in terms of the JSE Listings Requirements, requiring approval by way of a special
resolution of shareholders and otherwise requiring compliance with the provisions of sections 46
and 48 of the Companies Act.
2.1.2 Terms of the Repurchase Agreement
In terms of the Repurchase Agreement, Insimbi Alloy will sell to Insimbi, who will repurchase up
to 13 000 000 shares in Insimbi. The repurchase consideration shall be calculated at an amount
of R0.63 per repurchase share (“Repurchase Price”), which consideration shall be payable on
the first business day following fulfilment of the suspensive conditions to which the Repurchase
Agreement is subject or such other date as Insimbi and Insimbi Alloy may agree in writing
("Repurchase Date"). The Specific Repurchase represents not more than 5% of the Insimbi
shares currently in issue.
2.1.3 Suspensive conditions to the Repurchase Agreement
The Repurchase Agreement is subject to the fulfilment or waiver on or before 30 June 2016 of
the following suspensive conditions:
– the passing of any resolutions required to approve the transaction contemplated in the
Repurchase Agreement by the shareholders and boards of directors of Insimbi and the
approval of the Specific Repurchase in terms of the JSE Listings Requirements; and
– the conclusion of the EmployeeCo Agreement (as defined below) and the fulfilment or
waiver of any suspensive conditions to which such agreement may be subject, apart from
those which refer to the conclusion of the Repurchase Agreement and its becoming
unconditional in all respects.
2.2. The EmployeeCo Transaction
2.2.1. Introduction and rationale
The Board has recognised the importance of employee ownership within the Company.
EmployeeCo has been incorporated to enable EmployeeCo Participants to collectively
participate in the EmployeeCo Transaction.
2.2.2. Terms of the EmployeeCo Transaction
Insimbi and EmployeeCo have entered into a reciprocal subscription agreement (“the
EmployeeCo Agreement”), in terms of which EmployeeCo will subscribe for 13 000 000 shares in
Insimbi (“EmployeeCo Subscription Insimbi Shares”) for an aggregate amount of R10 790 000
(“EmployeeCo Insimbi Shares Subscription Price”). To enable EmployeeCo to fund its acquisition
of the EmployeeCo Subscription Insimbi Shares, Insimbi will subscribe for 1 non-convertible
cumulative redeemable preference share in EmployeeCo (“EmployeeCo Subscription Preference
Share”) for an aggregate amount of R10 789 000 (“EmployeeCo Preference Share Subscription
Price”) and Insimbi will subscribe for 1 000 “B” ordinary shares (“EmployeeCo Subscription "B"
Ordinary Shares”) for an aggregate amount of R1 000 (“EmployeeCo "B" Ordinary Share
Subscription Price”) subject to the further terms and conditions of the EmployeeCo Agreement.
The EmployeeCo Subscription Insimbi Shares will, following the implementation of the
EmployeeCo Transaction, constitute 5% of all the issued shares in Insimbi.
EmployeeCo Participants will subscribe for approximately 100 000 "A" ordinary shares in
EmployeeCo for a subscription price of R0.01 per share in terms of individual subscription
agreements ("EmployeeCo Participants Subscription Agreements").
The EmployeeCo Subscription Preference Share will have certain preferential rights, including
the right to a cumulative preference dividend in an amount equal to 80% of EmployeeCo's net
income, calculated as the sum of the distributions received by EmployeeCo from Insimbi during
each dividend period less any operating costs of EmployeeCo during the relevant dividend
period.
2.2.3. Suspensive conditions to the EmployeeCo Agreement
The EmployeeCo Agreement is subject to the fulfilment or waiver on or before 31 May 2016 of
the following suspensive conditions:
– the adoption by way of special resolution by the shareholders of EmployeeCo and
filing at the Companies and Intellectual Property Commission of the EmployeeCo
MOI;
– the implementation of the Specific Repurchase, following the passing of any
resolutions required to approve such repurchase by the shareholders and the
Board, as well as the subsequent delisting of such repurchased shares;
– the passing of any resolutions required to approve the EmployeeCo Transaction
by the shareholders and the board of directors of Insimbi, including, without
limitation, the approval of the specific issue of shares for cash in terms of the
JSE Listings Requirements and any resolutions required in terms of section 44 of
the Companies Act to approve any financial assistance which may be provided by
Insimbi to EmployeeCo in connection with the EmployeeCo Transaction; and
– the conclusion and implementation of the EmployeeCo Participants Subscription
Agreements to the satisfaction of EmployeeCo and Insimbi.
2.2.4 Financing of the EmployeeCo Subscription Insimbi Shares
In terms of the EmployeeCo Agreement, Insimbi has agreed, on the later of 31 May 2016 and the
first business day following fulfilment or waiver of the suspensive conditions set out in paragraph
2.2.3 (“EmployeeCo Subscription Date”), to provide financial assistance to EmployeeCo to fund
the EmployeeCo Insimbi Shares Subscription Price, as follows:
– Insimbi has undertaken to subscribe for the EmployeeCo Subscription Preference
Share on the EmployeeCo Subscription Date, for a consideration equal to the
EmployeeCo Preference Share Subscription Price;
– Insimbi has undertaken to subscribe for the EmployeeCo Subscription “B” Ordinary
Shares on the EmployeeCo Subscription Date, for a consideration equal to the
EmployeeCo “B” Ordinary Share Subscription Price;
– On the EmployeeCo Subscription Date, the obligation of EmployeeCo in respect of
the payment of the EmployeeCo Insimbi Shares Subscription Price shall be settled
by setting it off in the books of account of Insimbi against Insimbi's obligation in
respect of the EmployeeCo Preference Share Subscription Price and the
EmployeeCo “B” Ordinary Share Subscription Price;
– On the EmployeeCo Subscription Date, the obligation of Insimbi in respect of
payment of the EmployeeCo Preference Share Subscription Price and EmployeeCo
“B” Ordinary Share Subscription Price shall be settled by setting it off in the books
of account of EmployeeCo against EmployeeCo's obligation in respect of the
EmployeeCo Insimbi Shares Subscription Price;
– EmployeeCo shall be entitled, but not obliged, to redeem the EmployeeCo
Subscription Preference Share at any time after payment in full of any accrued but
unpaid preference share dividends, subject to compliance with the Companies
Act and provided that it passes the solvency and liquidity test; and
– After a period of five years from the EmployeeCo Subscription Date, Insimbi shall
be entitled to require EmployeeCo to redeem the EmployeeCo Subscription
Preference Share.
2.3. The ManCo Transaction
2.3.1 Introduction and rationale
The Board has identified a need to incentivise and reward management within the Company.
ManCo has been incorporated to enable ManCo Participants to collectively participate in the
ManCo Specific Issue.
2.3.2 Terms of the ManCo Transaction
Accordingly, Insimbi and ManCo have concluded a sale of shares and subscription agreement
with Insimbi subsidiaries, TP Hentiq 6064 Proprietary Limited (“TP Hentiq”) and Insimbi Alloy
("ManCo Agreement") pursuant to which ManCo will acquire 5 000 000 Insimbi shares and 4 835
887 Insimbi shares from TP Hentiq and Insimbi Alloy, respectively (collectively “the ManCo
Insimbi Acquisition Shares”) for an aggregate amount of R7 046 609 (“ManCo Insimbi Share
Acquisition Price”).
To enable ManCo to fund its acquisition of the ManCo Insimbi Acquisition Shares, Insimbi will in
terms of the ManCo Agreement subscribe for one non-convertible cumulative redeemable
participating preference share with no par value (“ManCo Subscription Preference Share”) for an
aggregate amount of R7 045 609 (“ManCo Preference Share Subscription Price”) and Insimbi
will subscribe for 1 000 “B” ordinary shares (“ManCo Ordinary Shares”) for R1.00 per
subscription “B” ordinary share for an aggregate amount of R1 000 (“ManCo Ordinary Share
Subscription Price”). The ManCo Insimbi Acquisition Shares will, following the implementation of
the ManCo Transaction, constitute a proposed 3.78% of all the issued shares in Insimbi.
ManCo Participants will subscribe for approximately 100 000 “A” ordinary shares in ManCo for a
subscription price of R0.01 per share in terms of individual subscription agreements ("ManCo
Participants Subscription Agreements").
The ManCo Subscription Preference Share will have certain preferential rights, including the right
to a cumulative preference dividend in an amount equal to 80% of ManCo's net income,
calculated as the sum of the distributions received by ManCo from Insimbi during each dividend
period less any operating costs of ManCo during the relevant dividend period.
2.3.3 Suspensive conditions to the ManCo Agreement:
The ManCo Agreement is subject to the fulfilment or waiver on or before 31 May 2016 of the
following suspensive conditions:
– the adoption by way of special resolution by the shareholders of ManCo, and filing
at the Companies and Intellectual Property Commission, of the ManCo MOI;
– the passing of any resolutions required to approve the ManCo Transaction as
contemplated in the ManCo Agreement by the shareholders and the board of
directors of Insimbi and TP Hentiq and Insimbi Alloy, including, without
limitation, the approval of the specific issue of shares for cash in terms of the JSE
Listings Requirements and any resolutions required in terms of section 44 of the
Companies Act to approve any financial assistance which may be provided by
Insimbi to ManCo; and
– the conclusion and implementation of the ManCo Participants Subscription
Agreement to the satisfaction of ManCo and Insimbi.
2.3.4 Financing of the ManCo Acquisition
In terms of the ManCo Agreement, Insimbi has agreed, on the later of 31 May 2016 and the first
business day following the fulfilment or waiver of the suspensive conditions set out in paragraph
2.3.3 above ("ManCo Subscription Date"), to provide financial assistance to ManCo to fund the
acquisition of the ManCo Insimbi Acquisition Shares, as follows:
– Insimbi will subscribe for the ManCo Preference Share on the ManCo Subscription
Date, for a consideration equal to the ManCo Preference Share Subscription Price
and Insimbi will subscribe for the ManCo Ordinary Shares on the ManCo
Subscription Date, for a consideration equal to the ManCo Ordinary Share
Subscription Price;
– The total purchase price for the ManCo Insimbi Acquisition Shares shall be an
amount equal to the ManCo Insimbi Share Acquisition Price which shall be payable
in cash by ManCo, utilising the proceeds from the ManCo Preference Share
Subscription Price and the ManCo Ordinary Share Subscription Price;
– ManCo shall be entitled, but not obliged, to redeem the ManCo Preference Share at
any time after payment in full of any accrued dividends, subject to compliance with
the Companies Act and provided that it passes the solvency and liquidity test; and
– After a period of five years from the ManCo Subscription Date, Insimbi shall be
entitled to require ManCo to redeem the ManCo Preference Share.
3. Effective date
The effective date of the Specific Repurchase, the EmployeeCo Transaction and the ManCo
Transaction shall be the Repurchase Date, the EmployeeCo Subscription Date and the ManCo
Subscription Date, respectively.
4. Pro forma effects
The table below sets out the pro forma financial effects of the Transactions on Insimbi’s basic
earnings per share, diluted earnings per share, headline earnings per share, diluted headline
earnings per share, net asset value per share and tangible net asset value per share. The pro forma
financial effects have been prepared to illustrate the impact of the Transactions on the published
unaudited financial information of Insimbi for the interim period ended 31 August 2015, had the
Transactions occurred on 1 March 2015 for statement of comprehensive income purposes and on
31 August 2015 for statement of financial position purposes.
The pro forma financial effects have been prepared using accounting policies that comply with IFRS
and that are consistent with those applied in the unaudited results of Insimbi for the interim period
ended 31 August 2015. The pro forma financial effects, which are the responsibility of the directors,
are provided for illustrative purposes only and, because of their pro forma nature may not fairly
present Insimbi’s financial position, changes in equity, results of operations or cash flow nor the
effect and impact of the Transactions going forward.
Pro forma after
EmployeeCo Pro forma after Pro forma after the
1
Before Transaction ManCo Transaction Transactions
Earnings and diluted earnings
per shares (cents) 5.89 5.43 5.54 5.07
Headlines and diluted
headline earnings (cents) 5.87 5.40 5.51 5.05
Weighted and diluted average
number of shares ('000) 236,245 236,245 236,245 236,245
Net asset value per share
(cents) 59.44 59.13 59.21 58.90
Net tangible asset value per
share (cents) 36.55 36.24 36.31 36.01
Numbers of shares in issue
('000) 260,000 260,000 260,000 260,000
Notes:
1. The “Before” column is based on the published unaudited consolidated condensed financial results of
Insimbi for the six months ended 31 August 2015, as released on SENS on 29 September 2015.
EmployeeCo Transaction
2. The Specific Repurchase will have no financial effect on the statement of comprehensive income
following the delisting and cancellation of the Repurchase Shares, since the Repurchase Shares
owned by Insimbi Alloy were treated as treasury shares for accounting purposes prior to the Specific
Repurchase.
3. The “EmployeeCo pro forma adjustments” column reflects the pro forma adjustments for the
EmployeeCo Transaction based on the following assumptions:
3.1 Operating expenses are adjusted as follows:
R’000
Relates to the estimated transaction costs. These costs are once-off
and have been assumed to be non-tax deductible. (723)
The EmployeeCo Transaction will be treated as an equity settled (366)
share based payment scheme in terms of IFRS 2: Share based
payments, measured at the fair value of the equity instruments
granted on the grant date. On an annual basis, an IFRS 2 expense
will be recognised over the remaining vesting period (assumed to be
eight years for purpose of calculating the pro forma financial effects)
with a corresponding increase in the share based payment reserve
to be recognised in ordinary shareholders’ equity.
The scheme has been valued using option pricing methodologies
with the following key inputs:
• Strike price: R 0.83
• Market price: R1
• Volatility: 67.9%
• Risk free rate: 8.36%
• Dividend yield: 12.04%
Net effect on cash and cash equivalents (1,089)
3.2 Finance income is reduced by R18 623 due to the reduction in cash balances as a result of
settling the assumed transaction costs of R723 235, calculated at an assumed interest rate of
5.15%, being the yearly average money market rate. Tax is adjusted accordingly.
3.3 The calculation of diluted earnings and diluted headline earnings per share at reporting dates is
based on the number of shares to be issued for no consideration. This is calculated as the
difference between the average market price of the Company shares for the period, less the value
of the consideration receivable at the reporting date and the remainder of un-expensed share-
based payment charges. Based on the aforementioned principles, there is currently no diluting
effect.
3.4 In terms of IFRS, Insimbi controls EmployeeCo and therefore EmployeeCo is consolidated into
the Insimbi Group, thereby eliminating any preference dividends. The EmployeeCo Insimbi
Subscription Shares held by EmployeeCo are treated as treasury shares for accounting purposes.
ManCo Transaction
4. The “ManCo pro forma adjustments” column reflects the pro forma adjustments for the ManCo
Transaction based on the following assumptions:
4.1 Operating expenses are adjusted as follows:
R’000
Relates to the estimated transaction costs. These costs are once-off
and have been assumed to be non-tax deductible. (547)
The ManCo Transaction will be treated as an equity settled share based
payment in terms of IFRS 2: Share based payments, measured at the
fair value of the equity instruments granted on the grant date. On an
annual basis, an IFRS 2 expense will be recognised over the remaining
vesting period (assumed to be eight years for purpose of calculating the
pro forma financial effects) with a corresponding increase in the share
based payment reserve to be recognised in ordinary shareholders’ (289)
equity.
The scheme has been valued using option pricing methodologies with
the following key inputs:
• Strike price: R0.63 & R0.80
• Market price: R1
• Volatility: 67.9%
• Risk free rate: 8.36%
• Dividend yield: 12.04%
Net effect on cash and cash equivalents (836)
4.2 Finance income is reduced by R14 079 due to the reduction in cash balances as a result of
settling the assumed transaction costs of R546 765, calculated at an assumed interest rate of
5.15%, being the yearly average money market rate. Tax is adjusted accordingly.
4.3 The calculation of diluted earnings and diluted headline earnings per share at reporting dates
is based on the number of shares to be issued for no consideration. This is calculated as the
difference between the average market price of the Company shares for the period, less the value
of the consideration receivable at the reporting date and the remainder of un-expensed share-
based payment charges. Based on the aforementioned principles, there is currently no diluting
effect.
4.4 In terms of IFRS, Insimbi controls ManCo and therefore ManCo is consolidated into the
Insimbi Group, thereby eliminating any preference dividends. The ManCo Insimbi Subscription
Shares held by ManCo are treated as treasury shares for accounting purposes.
4.5 All effects are of a recurring nature except where otherwise noted.
5. JSE Listings Requirements
In terms of paragraph 5.69(b) of the JSE Listings Requirements, the Specific Repurchase
constitutes a specific repurchase of shares and requires the approval by special resolution of the
shareholders of Insimbi and consequently a 75% majority of the votes cast in favour thereof by all
shareholders present or represented by proxy at the general meeting.
Furthermore, in terms of the JSE Listings Requirements, the EmployeeCo Transaction and the
ManCo Transaction constitute a specific issue of shares for cash. The EmployeeCo Insimbi Shares
Subscription Price represents a 15% discount to the 30 day VWAP prior to 9 February 2016 and the
EmployeeCo Insimbi Subscription Shares and the ManCo Insimbi Acquisition Shares are deemed
to be issued to ‘non-public’ shareholders.
The EmployeeCo Transaction and the ManCo Transaction require the approval of ordinary
resolutions achieving a 75% majority of the votes cast in favour thereof by all shareholders present
or represented by proxy at the general meeting, excluding EmployeeCo Participants, ManCo
Participants and their associates, if any. Furthermore, in terms of paragraph 10.1(b)(vii) of the JSE
Listings Requirements, EmployeeCo and ManCo are not considered to be related parties and
fairness opinions are not required.
6. Circular and General Meeting
A circular containing, inter alia, full details of the Specific Repurchase, EmployeeCo Transaction
and ManCo Transaction will be posted to shareholders in due course. The circular will contain a
notice of general meeting of shareholders to vote on the Transactions.
1 March 2016
Johannesburg
Sponsor: Bridge Capital Advisors Proprietary Limited
Transaction Advisor: Nodus Capital Proprietary Limited
Legal Advisor: Webber Wentzel Attorneys
Independent Reporting Accountants: PricewaterhouseCoopers
Date: 01/03/2016 11:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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