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FONEWORX HOLDINGS LIMITED - ACQUISITION OF VALUE+ NETTWORK PROPRIETARY LIMITED (VALUE+) AND RENEWAL OF CAUTIONARY ANNOUNCEMENT

Release Date: 06/12/2012 15:03
Code(s): FWX     PDF:  
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ACQUISITION OF VALUE+ NETTWORK PROPRIETARY LIMITED (“VALUE+”) AND RENEWAL OF CAUTIONARY ANNOUNCEMENT

FoneWorx Holdings Limited
Incorporated in the Republic of South Africa
(Registration number 1997/010640/06)
Share code: FWX ISIN: ZAE000086237
(“FoneWorx” or “the Company”)


 ACQUISITION OF VALUE+ NETTWORK PROPRIETARY LIMITED (“VALUE+”) AND RENEWAL
 OF CAUTIONARY ANNOUNCEMENT


1.   INTRODUCTION

The board of directors of FoneWorx is pleased to advise shareholders that FoneWorx has entered
into a sale of shares and claims agreement (“Transaction Agreement”) with Value+, and Newshelf
1067 Proprietary Limited, which is controlled by The Isaac Kirsh Family Trust No 2 and The William
Kirsh Family Trust (“the Kirsh Consortium”), which owns approximately 75% of Value+.

The balance of the Value+ shareholders, being the Amazing Vouchers Trust (“Amazing Vouchers
Trust”), Pepper Coin Investments Proprietary Limited (“Pepper Coin”), Prime Interaction Holdings
Limited (“Prime Interaction”), Worldwide Capital Limited (“Worldwide Capital”), Allen Barrett, Amnon
Melzer, Illana Melzer, Andrew Fulton and the trustees of the Burnstone Trust (“Burnstone Trust”)
(“Value+ outside shareholders”), have unanimously agreed to support the transaction and will become
signatories to the agreement in due course.

Collectively the Kirsh Consortium and the Value+ outside shareholders (“the Sellers”), have agreed to
sell the entire issued share capital of Value+, and claims against, Value+ and Amazing Vouchers for a
fixed upfront payment of R191 181 998 payable in FoneWorx shares priced at R2.11 per share
(“upfront payment”) and an earnout over a five year period with the three year earnout commencing
on 30 June 2016, subject to the terms and conditions as set out in paragraph 9 below (“the
Acquisition” or “the Transaction”). Both FoneWorx and the Kirsh Consortium have provided standard
warranties.

Following the implementation of the Transaction, Value+ will be renamed Value+ Cluster Proprietary
Limited and will become a wholly owned subsidiary of FoneWorx, and FoneWorx will in turn change
its name to Value+Nettwork Limited, which will be led by William Kirsh as the Executive Chairman and
Mark Smith, currently the Chief Executive Officer (“CEO”) of FoneWorx, as the CEO.

2.   NATURE OF VALUE+

The Value+ business model, which has taken three years to evolve and crystalize through a number
of acquisitions, is centred on distributing or selling Value, commonly referred to as any form of reward
such as discounts or benefits.

Such Value is increasingly becoming accessible to all, due to the plethora of cost effective digital
delivery platforms, enabled by new and innovative digital technologies.

All people also have an innate need for Value.

Value+ has developed proprietary definitions and a proprietary system to best identify Value
categories and to ensure that Value is best packaged and sold to its target markets, and from such
discovery Value+ has concluded that Value can be created from any product or service, creating a
potentially large universe of opportunity.
.
Value+ has concluded that Value is best delivered digitally utilising unique and/or appropriate digital
technology. In this regard, Value+ has identified the telephone, loyalty card, stored value card,
internet and mobile phone as its current chosen platforms for delivering Value. The phenomena of
social networks straddle all these platforms.
The technology to support each of these digital delivery platforms has also been identified from the
traditional call centre, interoperable technology at the point of sale (key technology required to support
stored value cards to be loaded with prepaid Value) and USSD technology, a preferred technology for
high volume, low cost menu-based communications via the mobile networks.

Value+ has further resolved that Value delivered via these digital delivery platforms is best supported
by a data and analytics (“intelligence”) capability incorporating data segmentation and predicative
modelling skills. The intelligence element of the Value+ business model will enable Value to be
delivered or sold in the most precise way – Value+ recognises the growing trend for the
personalisation of products and services, as well as to facilitate the identification of new markets for
Value.

The three components: Value, digital technology (Value+ will employ 25 developers) embedded in
digital delivery platforms and intelligence, is considered by Value+ to be the most appropriate way to
engage with its target markets into the future.

These three pillars are intended to monetise the markets for revenue generation identified by Value+
being both the corporate and consumer markets

The corporate market opportunity includes the complete suite of loyalty services that companies are
increasingly adopting for their key stakeholders, including customer, staff and supply chain/dealer
loyalty programs (“loyalty programs”).

 Value+ is of the opinion that the most successful companies of the future are going to be those that
reward (though Value offerings embedded in loyalty programs) their key stakeholders the most
effectively.

The consumer markets include all LSM segments as well as niche sectors of the economy, also
referred to as common interest communities.

Though unique in its strategic design, the Value+ business model has been established from
businesses that have a successful track record as well as trends and themes that are ever present in
society today.

Value+, founded by William Kirsh, comprises of the following subsidiaries:

    -   Opengate Technologies Proprietary Limited (“Opengate”) is a technology and service
        based business, which is the largest supplier of gift, store and loyalty cards to the local retail
        sector servicing all major groups in South Africa, managing over 20 million card units per
        annum in an exclusive partnership with the Abnote Group, a world leading card manufacturer.
        The business is involved in a number of chip card opportunities and positioning for growth in
        banking, mass-transit, gaming, plus migration of payment to Near Field Communication
        technologies.

        In addition, Opengate has developed a network business recognised as the leading provider
        of interoperable load services for 3rd party prepaid cards, targeting the retail, insurance and
        corporate markets.

        The business manages prepaid services on behalf of brands from the gift card, online retail,
        digital content (music, games and applications) and financial services segments.

    -   Amazing Vouchers Proprietary Limited, which is a voucher based subscription service that
        enables consumers to access over 20 000 vouchers from a supplier network of approximately
        10 000 small and medium enterprises as well as over 80 national brands. Consumers can
        choose vouchers which are highly relevant through personalization based on their interests or
        location and redeem their vouchers via the web or mobile.

    -   Eighty20 Proprietary Limited, which a niche management consultancy specialising in data
        analytics, actuarial projection modelling and consumer market profiling.

    -   WOW Marketing Proprietary Limited (“WOW”), which is a leading innovator among
        corporate outsource providers of incentive programme design and implementation services.
        The company formulates and administers staff recognition and reward programmes for
        organisations operating across South Africa. In addition, WOW deliver practical sales
        channel programmes to local corporates who rely on third party intermediaries responsible for
        their sales to end user customers. The majority of staff and sales channel solutions are driven
        with bespoke software developed by WOW to ensure programmes provide long term,
        sustainable value. WOW currently manages relationships with 40 000 programme
        participants.

     -  One Point Proprietary Limited, a start-up venture which consolidates an individual’s
        membership of multiple loyalty programmes, customer clubs and gift cards into an easy to use
        web-based platform, giving users the ability to redeem loyalty points, swap points between
        different programmes, claim missing points, manage lost membership cards, register for new
        programmes and update contact details.

Based on the most recent audited financial statements and management accounts for Value+, annual
turnover of R154.4 million was achieved. Over the last 5 years compound annual growth rates in
turnover has been 39%, while earnings before interest, tax, depreciation and amortisation (“EBITDA”)
and profit before interest and tax (“PBIT”) has been in excess of 25% per annum.

Greater detail on the Value+ results will be released when the pro forma results for the group are
released in 2013.

3.           RATIONALE

3.1 Strategic

There are a number of key strategic reasons for the Transaction:

               Value+ and FoneWorx are highly complementary. The combination of the two companies
               creates a significant progression to creating a company that, by virtue of its vision and
               strategy, is truly unique and the first of its kind in the world.

               The markets that Value+ are targeting are large, fragmented and growing. The Transaction
               creates the opportunity for a strong company to consolidate these markets.

               As a result of the dual markets for revenue that Value+ is focussed            on, through the
               Transaction, Value+ intends to:

               o   become the leading and trusted brand in South Africa for the design and implementation
                   of loyally programs for companies; and

               o   become the largest owner and aggregator of Value categories that can be sold directly to
                   the consumer.

               Though Value+ has this dual focus, there are many synergistic and complimentary disciplines
               that overlay this duality. One of the most tangible aspects of synergy is that Value sold to the
               consumer and can be repurposed or “white labelled” into any loyalty program and vice versa.

               Further to this, the Value+ business model lends itself to a high degree of synergy. Value+
               has identified over 10 areas of potential synergy to be unlocked and this opportunity will be
               enhanced by the Transaction.

               The Transaction will result in a complimentary set of strategic and operational managerial
               skills.

               The Transaction is likely to attract potential acquisition opportunities, because of the benefits
               that the group will bring to these companies.

     3.2 Financial

        The group will have greater diversity of income and scale.

        The group will be a strong cash flow generator that will enable it, if need be, to access cost
        effective debt financing for acquisitions.

        FoneWorx had approximately R100 million cash on hand at 30 June 2012 and the group will
        be well capitalised to pursue further acquisitions.


4.   VENDORS

The Sellers of Value+, including the number of FoneWorx shares that they will receive as
consideration for their shareholding in Value+, are as follows:

           the Kirsh Consortium (68 643 105 shares);
           the Amazing Vouchers Trust (7 900 266 shares);
           Pepper Coin (4 123 765 shares);
           Prime Interaction (4 609 936 shares);
           Allen Barrett (2 899 658 shares);
           Worldwide Capital (1 363 013 shares);
           Amnon Melzer (312 538 shares);
           Illana Melzer (217 041 shares);
           Andrew Fulton (321 220 shares); and
           the Burnstone Trust (217 040 shares).

On the Implementation Date, the Kirsh Consortium, when adding the shares issued to them as
aforesaid to the shares in FoneWorx they currently own (being 32,8% of the Company), will become
the largest shareholders in the Company with an approximate 49% stake

5.   PURCHASE CONSIDERATION AND ISSUE OF SHARES

The purchase consideration for the Acquisition will be settled as follows:

-    the issue of 90 607 582 FoneWorx ordinary shares in respect of the upfront payment, at a price
     of R2.11 per share, to the Vendors of Value+ as detailed in paragraph 4 above; and

-    an earnout, limited to a maximum of R960 000 000 in aggregate, based on Opengate’s Network
     Services Division’s financial performance over a five year period in terms of a pre-determined
     formula, with the payment of the earnout in FoneWorx shares commencing in the financial year
     ending 30 June 2016, up to and including the financial years ending 30 June 2017, and 2018.

6.   THE EFFECTIVE DATE OF THE TRANSACTION

The effective date of the acquisition of Value+ will be the date on which the conditions precedent as
set out in paragraph 9 below have been fulfilled or waived. The FoneWorx shares will be issued to the
Vendors on the 10th business day after the fulfilment or waiver of such conditions precedent (“the
Implementation Date”).

7.   PRO FORMA FINANCIAL EFFECTS

The pro forma financial effects of the Transaction on the reported financial information of FoneWorx
are in the process of being finalised and will be announced to shareholders in due course.

8.   WAIVER OF MANDATORY OFFER

Following the implementation of the Transaction, the Kirsh Consortium will hold more than 35% of the
ordinary shares in issue of FoneWorx and it (together with any concert parties) will therefore be
required to make a mandatory offer to the remaining shareholders of FoneWorx. It is the intention of
the Kirsh Consortium to obtain approval from the Takeover Regulation Panel (“TRP”) and FoneWorx
shareholders for a waiver from the requirement to make a mandatory offer to the remaining
shareholders.

9.     CONDITIONS PRECEDENT

The Transaction is conditional upon the fulfilment (or waiver in whole or part) of, inter alia, the
following conditions precedent:

9.1.     within 5 business days of the signature of the Transaction Agreement, written irrevocable
         undertakings shall have been provided in favour of each of the Sellers and the Kirsh
         Consortium from FoneWorx directors who are also shareholders of FoneWorx ("Undertaking
         Directors") in terms of which the Undertaking Directors irrevocably and unconditionally
         undertake –
         9.1.1.       to vote, either in person or by proxy, and/or procure the vote in favour of all
                      ordinary and special resolutions at the general meeting and/or any adjournment
                      thereof; and
         9.1.2.       not to dispose or encumber any of their FoneWorx shares or take any action or
                      make any statement which is or may be prejudicial to the success of the adoption
                      of the requisite ordinary and special resolutions at the general meeting and/or any
                      adjournment thereof;
                      it being recorded that the irrevocable undertakings shall be subject to an
                      independent expert finding the Transaction to be fair;
9.2.     by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
         Consortium in writing), the service agreement between FoneWorx and William Kirsh is signed
         by the parties thereto;
9.3.     by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
         Consortium in writing), the Parties obtain such approval or deemed approval from the
         Competition Authorities as may be required or provided for in terms of the Competition Act for
         the Transaction Agreement and notification of any such approval or deemed approval is
         received by FoneWorx and the Sellers;
9.4.     by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
         Consortium in writing), the Parties shall have obtained any and all approvals, statutory,
         regulatory or otherwise, required in the Republic of South Africa for the implementation of the
         Transaction Agreements, including all necessary approvals required from the JSE and /or the
         TRP. All costs of and incidental to the applications for and granting of such approvals shall be
         paid by FoneWorx;
9.5.     by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
         Consortium in writing), FoneWorx obtains the requisite fairness opinion envisaged in the
         Listings Requirements of the JSE required to implement the Transaction and the independent
         expert finds the Transaction to be fair. All costs of and incidental to the applications for and
         granting of such fairness opinion shall be paid by FoneWorx;
9.6.     by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
         Consortium in writing), FoneWorx posts a circular to all its shareholders including revised
         listing particulars, as is required by the Listings Requirements of the JSE, and a notice of
         general meeting to convene the General Meeting. All costs of and incidental to the circular,
         revised listings particulars and the General Meeting shall be paid by FoneWorx;
9.7.     by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
         Consortium in writing), the General Meeting is held and the requisite consent of the
         shareholders of FoneWorx in General Meeting is obtained in respect of the Transaction, such
         that the requisite ordinary and special resolutions are adopted by FoneWorx shareholders,
         including –
         9.7.1.       such resolutions as are contemplated in the Listings Requirements of the JSE
                      required to approve the Transaction;
        9.7.2.        a special resolution in terms of Regulation 31(6) of the Companies Regulations,
                      converting the entire par value share capital of FoneWorx into share capital of no
                      par value;
        9.7.3.        a special resolution in order to increase the share capital of FoneWorx so that
                      such sufficient FoneWorx Shares shall have been created as shall enable the
                      allotment and issue to the Sellers of the FoneWorx shares in respect of the initial
                      upfront payment and the earnout (“the Consideration Shares”); and
        9.7.4.        to the extent required, a special resolution in terms of sections 41(1) and 41(3) of
                      the Companies Act, Act 71 of 2008 (“the Companies Act”), authorising the
                      allotment and issue to the Sellers of the Consideration Shares as envisaged in the
                      Transaction Agreement;
        9.7.5.        to the extent required, a special resolution in terms of section 44(3) of the
                      Companies Act, approving the provision by FoneWorx of financial assistance, by
                      way of the giving of the FoneWorx warranties, to the Sellers for the purpose of, or
                      in connection with, the allotment and issue of the Consideration Shares to the
                      Sellers,
                      and the special resolutions referred to in 9.8.2 and 9.8.3 shall have been filed with
                      and, for the avoidance of doubt, registered by the Companies and Intellectual
                      Property Commission (“the Commission);
9.8.    by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), the independent shareholders of FoneWorx shall, in the General
        Meeting, in accordance with Regulation 86(4) of the Companies Regulations, have waived the
        requirement that the Sellers and any other party acting in concert with it make a mandatory
        offer in terms of section 123 of the Companies Act to acquire their FoneWorx Shares following
        the acquisition by the Sellers and any other party acting in concert with it of more than 35%
        (thirty five per cent) of all the FoneWorx Shares;
9.9.    by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), board of directors of FoneWorx adopt / submit the requisite resolutions
        / reports–
        9.9.1.        in terms of section 38 of the Companies Act, to allot and issue to the Sellers the
                      Consideration Shares as envisaged in the Transaction Agreement, and authorising
                      the appropriate entries to be made in the allotment register and shareholder's
                      register of FoneWorx;
        9.9.2.        to the extent required, in terms of section 44(2) of the Companies Act, authorising
                      the provision by FoneWorx of financial assistance, by way of the giving of the
                      FoneWorx Warranties, to the Sellers for the purpose of, or in connection with, the
                      allotment and issue of the Consideration Shares to the Sellers; and
        9.9.3.        for the conversion of the entire par value share capital of FoneWorx into share
                      capital of no par value;
9.10.   by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), the JSE shall have approved the listing on the JSE of the
        Consideration Shares. All costs of and incidental to this approval shall be paid by FoneWorx;
9.11.   by not later than 28 February 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), to the extent required, the passing of a special resolution of the
        shareholders of each of the Kirsh Consortium, Pepper Coin and Worldwide Capital
        authorising the sale of the Sold Shares and the Sold Claims held by it in terms of section 112
        of the Companies Act;
9.12.   by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), if the JSE so requires, the Sellers adopt a new memorandum of
        incorporation in respect of Value+ (the adoption of which shall be conditional upon the
        implementation of the Transaction agreement), in the form reasonably acceptable to
        FoneWorx, thereafter file the newly adopted memorandum of incorporation with the
        Commission, and the Sellers receive the confirmation of registration from the Commission;
9.13.   by not later than 30 June 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), the Sellers adopt a special resolution in terms of Regulation 31(6) of
        the Companies Regulations, converting the entire par value share capital of Value+ into share
        capital of no par value, the board of directors of Value+ adopt / submit the requisite
        resolutions / reports for the conversion and the special resolution referred to herein is filed
        with and, for the avoidance of doubt, registered by the Commission;
9.14.   by no later than 31 January 2013 (or such later date agreed to by FoneWorx and the Kirsh
        Consortium in writing), FoneWorx's executive management confirm in writing that they are
        satisfied with the assumptions used in the Opengate Product Business (a division of
        Opengate) forecasts, which written confirmation shall not be unreasonably withheld or
        delayed.

10. CATEGORISATION OF THE TRANSACTION

As the Kirsh Entities currently holds approximately 32.8% of the share capital of FoneWorx, they are
considered to be a related party in terms of paragraph 10.1(b)(i) of the Listings Requirements of the
JSE Limited (“JSE”). Furthermore, as a result of the issue shares comprising more than 25% of the
ordinary shares in issue, revised listing particulars will be required in terms of the JSE Listings
Requirements. The Transaction will therefore require approval by 50% of FoneWorx shareholders at a
general meeting, excluding Value+ and their associates.

Due to the Transaction being a related party transaction, a fairness opinion is required by an
independent professional expert (“independent expert”) acceptable to the JSE. The opinion of the
independent expert will be included in the circular to be distributed to FoneWorx shareholders as set
out in paragraph 11 below.

11. CIRCULAR TO FONEWORX SHAREHOLDERS

A circular containing full details of the Transaction, incorporating revised listings particulars and a
notice to convene a general meeting of FoneWorx shareholders in order to consider and, if deemed
fit, to pass with or without modification, the resolutions necessary to approve and implement the
Transaction, will be posted to FoneWorx shareholders in due course.

An investor presentation on the group will be made as soon as practically possible.

12. RENEWAL OF CAUTIONARY ANNOUNCEMENT

Further to the cautionary announcement dated 12 July 2012, and the subsequent renewal of
cautionary announcements, the last of which was dated 26 October 2012, shareholders are advised
to continue exercising caution when dealing in FoneWorx’ securities until a further announcement,
incorporating the pro forma financial effects of the issue and additional details in respect thereof, is
made.

13. FONEWORX RESPONSIBILITY STATEMENT

FoneWorx’ board of directors accepts responsibility for the information contained in this
announcement to the extent that it relates to FoneWorx. To the best of their knowledge and belief, the
information contained in this announcement is true and nothing has been omitted which is likely to
affect the import of the information.

14. VALUE+ RESPONSIBILITY STATEMENT

Value+’s board of directors accepts responsibility for the information contained in this announcement
to the extent that it relates to Value+. To the best of their knowledge and belief, the information
contained in this announcement is true and nothing has been omitted which is likely to affect the
import of the information.

Johannesburg
6 December 2012

Corporate and Designated Adviser
Merchantec Capital

Reporting Accountants to FoneWorx
PKF (Johannesburg) Inc.

Legal Adviser to FoneWorx
Fluxmans Inc.

Legal Adviser to Value+ and the Kirsh Consortium
Edward Nathan Sonnenberg

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