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Update To Shareholders
FONEWORX HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1997/010640/06)
Share code: FWX ISIN: ZAE000086237
(“FoneWorx” or “the company”)
UPDATE TO SHAREHOLDERS
The FoneWorx board has noted with considerable surprise the press release issued by The William Kirsh
Family Trust and The Isaac Kirsh Family Trust No. 2 (“the Kirsh family”) yesterday morning.
The attack by the Kirsh family on alleged corporate governance weaknesses at FoneWorx, poor board
performance and so called lack of strategic direction is nothing more than an attempt by the Kirsh family to
so reconstitute the board of FoneWorx as to enable them to force through a transaction which would give
them access to the significant capital required to pursue a course which the board of FoneWorx perceives as
fundamentally flawed.
In order to put the Kirsh family attack into perspective, the following factors are relevant:
Post the signing of a sale agreement of certain businesses owned and controlled by the Kirsh family, the
board of FoneWorx was apprised of additional revised financial information relating to Opengate
Technologies Proprietary Limited (“Opengate”), one of the divisions comprised in the business, which is in a
development and build phase.
The FoneWorx board were most concerned by the constant changes to Opengate’s financial projections and
funding requirements and its failure to achieve its current year projected results. In addition, the Foneworx
board was unhappy with the capitalisation policy reflected in the Opengate financials, which were not in line
with IFRIS standards.
The FoneWorx board was also concerned that the management team of Opengate that have 49.9% of the
Opengate equity, were vehemently opposed to being part of a listed entity.
This additional revised information differed materially and adversely from information furnished pre-signing of
the agreement.
The funding and cash requirements would be significantly higher than represented and the build and
development phase would be for a significantly longer period.
The FoneWorx board accordingly came to the conclusion that to continue with the transaction based on the
new information would be reckless and would significantly endanger the financial stability of the company
and substantially change the nature of the transaction.
The company had several meetings and discussions with the Kirsh family to seek ways to mitigate this
unanticipated cash funding. To this end, meetings and discussions also took place between the company’s
attorneys and the attorneys acting for the Kirsh family which resulted in an agreement being reached to
exclude the delinquent division from the sale and to adjust the purchase price accordingly.
Subsequently, the Kirsh family changed their minds on two occasions and a second round of negotiations
took place which culminated in an agreement that the entire transaction be cancelled by consensual
agreement.
An additional offer was made to the Kirsh family that to the extent that their investment in the company was
in anticipation of the transaction being implemented, the company would repurchase their shares at the
same price at which they acquired the shares so that they would not be out of pocket. The Kirsh family
agreed to the cancellation but did not wish to exit their shareholding.
An appropriate cancellation agreement was prepared by the attorneys for the Kirsh family and approved by
the company attorneys and the company.
The first indication that the company had that the Kirsh family had again reneged on that agreement was the
press release to which we are responding.
The FoneWorx board categorically denies that there is a “poor state of corporate governance” at FoneWorx
and would remind Mr Kirsh that he has said on many public platforms that the company is a well-run
company and an excellent choice and vehicle for Value+. This is demonstrated by the fact that Mr Kirsh
agreed that Mark Smith be appointed as the CEO of the entire group and prior to the finalisation of the
conditions precedent sent out a notice to all the Value+ companies informing them of his appointment. The
stated intention of William Kirsh to appoint himself as Non-Executive Chairman together with his appointment
of three other non-executive directors to the FoneWorx board, none of whom are independent, so as to
implement the sale agreement, is a material and serious breach of the most fundamental principles of good
corporate governance. Significantly, the Sale Agreement provides for the appointment of Mr Kirsh as
Executive Chairman and this was an issue which was raised with Mr Kirsh by the FoneWorx board. Mr
Kirsch was adamant that he be appointed Executive Chairman.
It is also most surprising that at no stage during our engagement, and the due diligence on FoneWorx by
Value+ did the Kirsh family or their advisors raise any issues regarding the corporate governance of the
company or its lack of strategy. The latest observations can therefore only be seen as opportunistic and in
bad taste.
The FoneWorx board further categorically denies the statement by the Kirsh family that the company does
not have sound strategies to run the company. The company has a sound financial strategy which has
resulted in solid compound growths on many key dials and the aggregation of close to R100 million in cash.
The company has also paid good dividends over the past 4 years. In addition, each operating division has
defined strategies which have shown positive growth.
We remind the Kirsh family that FoneWorx has achieved a 5 year compound net profit of 20 percent, and net
asset value growth over the same period is 45 percent. The company has a strategy for each of its operating
divisions which shareholders may be informed of at our annual general meeting.
Shareholders who have attended our annual general meetings have been fully apprised of our strategies and
are always welcome to ask any questions or for elaboration on any aspect of the company, which will be
freely provided. In addition each of our detailed annual reports have given shareholders a comprehensive
overview of each reporting year.
The company’s CEO has always welcomed any input or questions from shareholders. The company is a
totally transparent company.
The tactic and strategy adopted by William Kirsh has been to apply a bullying approach aimed at control and
creating a board that effectively "rubber stamps" his wishes. This ultimately doesn't bode well for building a
board or management team which is democratic and cohesive. His tactics, emotional outbursts and divisive
approach have only resulted in alienating the FoneWorx management team. A strategy to force two parties
together under these circumstances can only result in destroying value.
In conclusion we believe that the Kirsh family’s hostile approach is inappropriate and a mischievous attempt
to discredit a well-managed company in order to try and implement an agreement to acquire businesses
which they control and the company’s cash reserves in a manner for a purpose which the board strongly
oppose.
Shareholders are advised that there is now a dispute between the Kirsh family and the company as to the
status of the sale agreement and/or its implementation.
Johannesburg
9 April 2013
Designated Adviser
Merchantec Capital
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