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SECUREDATA HOLDINGS LIMITED - Disposal of SensePost Proprietary Limited and renewal of cautionary announcement

Release Date: 01/11/2013 10:00
Code(s): SDH     PDF:  
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Disposal of SensePost Proprietary Limited and renewal of cautionary announcement

SECUREDATA HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/010017/06)
Share code: SDH ISIN: ZAE000096368
(“SecureData” or “the Company” or “the Group”)


     DISPOSAL OF SENSEPOST PROPRIETARY LIMITED AND RENEWAL OF CAUTIONARY
                               ANNOUNCEMENT



1. INTRODUCTION

  Further to the cautionary announcement dated 7 August 2013 and the subsequent renewal of cautionary
  announcement dated 19 September 2013, the board of directors of SecureData (“the Board”) is pleased
  to inform shareholders that a Share Sale and Purchase Agreement (“the Agreement”) was entered into
  on 31 October 2013 between SensePost Newco Limited (“the Buyer”) and SecureData, in terms of
  which, subject to the fulfilment of the conditions precedent set out in paragraph 2.4 below, SecureData
  (“the Seller”) will dispose of 100% of the issued share capital of SensePost Proprietary Limited
  (“SensePost”) (“the Shares”) to the Buyer for a purchase consideration of R36 million, subject to certain
  adjustments as set out in paragraph 2.3 below (“the Disposal”).

2. THE DISPOSAL

  2.1 Nature of SensePost

      Established in early 2000, SensePost, which is a wholly-owned subsidiary of SecureData, provides
      independent information security assessment services. Based in South Africa, the company is a
      recognised leader in this niche market and boasts a blue-chip client base internationally.

  2.2 Rationale for the Disposal

      SecureData has been engaged in a restructuring and turnaround process since April 2012. The main
      business of the Company is to provide the means for its end-user customers to keep their electronic
      data secure, available and reliable. Approximately 90% of the Group’s revenue is generated by its
      wholly-owned subsidiary, SecureData Security Proprietary Limited (“SecureData Africa”), which
      distributes and supports specialist hardware and software to the IT security channels, in addition to
      providing training for these products. Approximately 10% of the Group’s revenue is generated by
      SensePost, a niche operator in the field of penetration testing and vulnerability assessment services
      and training.

      The Board has determined that the greatest growth opportunity for the Group lies with SecureData
      Africa, which is expected to generate significant revenue growth. The Board has therefore decided to
      fund SecureData Africa’s working capital requirements from the proceeds of the Disposal, which will
      result in maximisation of the return on equity in the Group.

  2.3 Consideration

      The consideration for the Shares, being R36 million (“Consideration”), which is subject to the
      adjustment set out below, is payable by the Buyer to the Seller, on the Completion Date, being the
      fifth business day following the fulfilment of the conditions precedent set out in paragraph 2.4 below,
      or such other date as agreed in writing between the Seller and the Buyer, as follows:
      -   in the event that the accounts of SensePost and its wholly-owned subsidiary, SensePost UK
          Limited, for the period 31 July 2013 up to and including the date of the Agreement (“Completion
          Accounts”) have been agreed as final and binding prior to the Completion Date in accordance
          with the terms of the Agreement, an amount of R36 million will be transferred into the account of
          the Seller;
      -   in the event that the Completion Accounts have not been agreed as final and binding prior to the
          Completion Date in accordance with the terms of the Agreement:
          o   an amount of R34 million will be transferred into the account of the Seller; and
          o   an amount in Pounds Sterling equal to R2 million (“Retention Sum”) will be transferred into
              an account set up by the Buyer’s Solicitors at the Royal Bank of Scotland plc (“Retention
              Account”). If the amount of the Aggregate Net Balance, being the working capital and net
              cash balance of SensePost, as shown by the final and binding Completion Accounts:
              -    exceeds R2 913 000 (“Aggregate Surplus”), then the Consideration will be increased
                   by R1 for every R1 by which the Aggregate Surplus exceeds R2 913 000 (“Aggregate
                   Surplus Payment”); or
              -    is less than R2 913 000 (“Aggregate Shortfall”), then the Consideration will be reduced
                   by R1 for every R1 by which the Aggregate Shortfall is less that R2 913 000
                   (“Aggregate Shortfall Payment”).

      In the event that the Completion Accounts have been agreed or determined as final and binding prior
      to the Completion Date, SensePost shall be entitled to declare, make and pay to the Seller a
      dividend equal to the Aggregate Surplus Payment and no further payment in respect thereof shall be
      payable by the Buyer.

      In the event that the Completion Accounts have not been agreed or determined as final and binding
      on or before the Completion Date then:
      -    any Aggregate Shortfall Payment to be made by the Seller to the Buyer in respect of an
           Aggregate Shortfall shall in the first instance, (but not so as to limit the amount recoverable by
           the Buyer) be settled from the monies held in the Retention Account within five business days
           after the date on which the Completion Accounts shall be determined as final and binding;
      -    to the extent that the monies held in the Retention Account are insufficient to meet the
           Aggregate Shortfall Payment to be made by the Seller to the Buyer in respect of an Aggregate
           Shortfall then the balance shall be paid to the Buyer by the Seller within five business days after
           the date on which the Completion Accounts shall be determined as final and binding; and
      -    any Aggregate Surplus Payment to be made by the Buyer to the Seller in respect of an
           Aggregate Surplus shall be paid to the Seller within five business days after the date on which
           the Completion Accounts shall be determined as final and binding.

      The Sellers have provided warranties which are normal in a transaction of this nature.

  2.4 Effective date and conditions precedent

      The effective date of the Disposal is 31 December 2013.

      Completion of the Disposal is subject to the fulfilment of the following conditions precedent by the
      Longstop Date, being 31 January 2014:
      -   despatch of the circular referred to in paragraph 4 below to shareholders of SecureData;
      -   shareholders of SecureData in general meeting passing the resolutions necessary to give effect
          to the Disposal in accordance and compliance with the relevant requirements of the Listings
          Requirements of the JSE Limited (“JSE”);
      -   the Seller, procuring written confirmation from First National Bank Limited (“FNB”) of the release
          of any guarantee and/or suretyship given by SensePost for any indebtedness of the Group to
          FNB and members of the FNB group of companies;
      -   the Buyer receiving written confirmation from each of Nedbank Limited and ABSA Bank Limited
          confirming that they consent to the Disposal and will not terminate the relevant service
          agreements entered into by them with SensePost;
      -   the Buyer’s parent company, being SensePost Interco Limited (“Parent”), agreeing terms on an
          equity investment with, amongst others, the key managers of SensePost (“Key Managers”)
          together with the Parent agreeing terms on new employment agreements with the Key Managers;
          and
      -   the Buyer satisfying the conditions precedent required by HSBC Bank plc (“HSBC”) in respect of
          the financing by HSBC of the Buyer’s obligations under paragraph 2.3 above.

3. PRO FORMA FINANCIAL EFFECTS

    The table below sets out the unaudited pro forma financial effects of the Disposal on SecureData’s
    earnings per share, headline earnings per share, net asset value per share and tangible net asset value
    per share.

    The unaudited pro forma financial effects have been prepared to illustrate the impact of the Disposal on
    the reported financial information of SecureData for the twelve months ended 31 July 2013, had the
    Disposal occurred on 1 August 2012 for statement of comprehensive income purposes and on 31 July
    2013 for statement of financial position purposes.

    The unaudited pro forma financial effects have been prepared using accounting policies that comply
    with IFRS and that are consistent with those applied in the audited results of SecureData for the twelve
    months ended 31 July 2013.

    The unaudited 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 SecureData’s
    financial position, changes in equity, results of operations or cash flow.

                                                                        Before the            After the         %
                                                                         Disposal              Disposal      change
    Basic earnings per share (cents)                                           1.0                  0.7         (30)
    Headline earnings per share (cents)                                        1.1                  0.8         (27)
    Net asset value per share (cents)                                         35.9                 41.4          15
    Tangible net asset value per share (cents)                                38.9                 35.4          (9)
    Weighted average number of shares in issue
    (000’s)                                                                 227 129             227 129           -
    Total number of shares in issue (000’s)                                 246 320             246 320           -

    Notes:
    1. The amounts in the “Before the Disposal” column have been extracted from the audited results of SecureData
       for the twelve months ended 31 July 2013.
    2. The amounts in the “After the Disposal” column reflect the financial effects of the Disposal on SecureData, and
       are based on the assumption that:
       a.    the remaining cash from the Consideration, net of transaction costs, is invested to earn interest at 5.75%
             per annum, which will not have a continuing effect on SecureData; and
       b.    the income tax rate is 28%.
    3. The effects on basic earnings per share and headline earnings per share are calculated based on the
       assumption that the Disposal was effected on 1 August 2012.
    4. The effects on net asset value per share and tangible net asset value per share are calculated based on the
       assumption that the Disposal was effected on 31 July 2013.

4. CATEGORISATION OF THE DISPOSAL AND FURTHER DOCUMENTATION

   The Disposal, which is classified as a Category 1 transaction in terms of section 9.5(b) of the JSE
   Listings Requirements, requires shareholder approval. Accordingly, a circular containing full details of
   the proposed Disposal including, inter alia, a notice to convene a general meeting of SecureData
   shareholders in order to consider and, if deemed fit to pass, with or without modification, the resolutions
   necessary to approve and implement, inter alia, the Disposal, will be distributed to SecureData
   shareholders on or about 26 November 2013.

5. RENEWAL OF CAUTIONARY ANNOUNCEMENT

   Further to the cautionary announcement dated 7 August 2013 and the subsequent renewal of cautionary
   announcement dated 19 September 2013, shareholders are hereby advised that negotiations, which are
   unrelated to the Disposal, are still in progress which, if successfully concluded, may have a material
   effect on the price of the Company’s securities.

   Accordingly, shareholders are advised to continue exercising caution when dealing in the Company’s
   securities, until a further announcement is made.


1 November 2013

Sponsor
Merchantec Capital

Attorneys to SecureData in South Africa
AB Scarrott Attorneys

Attorneys to SecureData in the United Kingdom
EMW Law LLP

Date: 01/11/2013 10:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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