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Acquisition Of Knife Capital Proprietary Limited, Rights Offer And Specific Issue, Posting Of Circular And Notice
African Dawn Capital Limited
Incorporated in the Republic of South Africa
(Registration Number: 1998/020520/06)
JSE share code: ADW
ISIN: ZAE000060703
(“Afdawn” or the “Company")
ACQUISITION OF KNIFE CAPITAL PROPRIETARY LIMITED, RIGHTS OFFER AND
SPECIFIC ISSUE, POSTING OF CIRCULAR AND NOTICE OF GENERAL MEETING
RELATING TO A SECTION 41(3) SHAREHOLDER APPROVAL AND RENEWAL OF
CAUTIONARY ANNOUNCEMENT
A) ACQUISITION OF KNIFE CAPITAL PROPRIETARY LIMITED
1. INTRODUCTION
Shareholders are referred to the announcement released on SENS
on Monday, 18 November 2013, advising shareholders that Afdawn
had entered into negotiations to acquire 100% of the issued
shares in Knife Capital Proprietary Limited (“Knife Capital”).
Shareholders are hereby advised that an agreement was entered
into on 12 December 2013 (“the Knife Capital Acquisition
Agreement”), which if successfully implemented would result in
Afdawn acquiring 100% of the issued shares in Knife Capital for
a purchase consideration of R10 million (“the Knife Capital
Acquisition”).
2. THE BUSINESS OF KNIFE CAPITAL
Knife Capital focuses on investing in high growth, high impact
innovative and technology-enabled businesses in South Africa and
other frontier economies across Sub-Saharan Africa. Knife
Capital also manages HBD Venture Capital's (“HBD”) South African
portfolio of investments. In addition, Knife Capital provides
consulting, training and business acceleration services to high-
growth ventures in Southern Africa and is committed to creating
African success stories and filling critical gaps in the local
entrepreneurial ecosystem. In addition, Knife Capital is deeply
involved in skills-, technology- and knowledge transfer
initiatives to groom skilled entrepreneurs as the future
leadership class of Africa. Knife Capital has also partnered
with the UCT Graduate School of Business to present an Executive
Education Programme: Find-Make-Grow-Realise: Investing in
attractive growth companies.
Knife Capital started the Grindstone Accelerator, a structured
acceleration initiative that assists high-growth innovative i-
companies to become sustainable and fundable. This is done via a
range of services designed to build a foundation for growth,
create relevant business networks and enable these companies to
take advantage of market access opportunities. These
capabilities include, a rigorous selection process based on SME
insight assessment, systematic coaching to address the
weaknesses in the business that constraint growth, evaluation of
strategic options and the underlying resource requirements of
the business such as access to customers, partners, skills or
funding and market positioning, access to networks and business
development strategies, both locally and internationally.
Knife Capital will also contribute to the Afdawn business model
through existing revenue streams from the HBD fund management
fees, Executive Education Programme, consulting fees and funding
options.
3. THE RATIONALE FOR THE ACQUISITION
Shareholders are referred to the SENS announcements dated
10 April 2013 and 15 October 2013 (“the Announcements”), in
terms of which the Company advised shareholders of a change in
the Company’s strategy to become an active investment holding
company. As set out in the Announcements, the focus of the
Company would be to acquire shareholdings in entrepreneurial
companies with a strong innovation drive and which are in proven
growth phases and subsequently enhancing the capabilities of
these entities to accelerate long term sustainable growth.
The Knife Capital Acquisition supports Afdawn with the
implementation of the aforementioned strategy. The risk of short
term acquisitions in ‘investment ready’ companies will
drastically be reduced by the work that Grindstone has done in
identifying and mentoring attractive opportunities. Afdawn will
tap into the pipeline of ‘investment ready’ business
opportunities fulfilling the strategy of the Company.
The synergies between the strategic capabilities that have been
established in Afdawn and that of Knife Capital will have a
direct positive bearing on the near time growth and revenue of
Afdawn. The Knife Capital management team bring specific skills
and acumen to the Company.
The Knife Capital management team that will join Afdawn, subject
to the successful implementation of the Knife Capital
Acquisition and the role they will play in Afdawn is as follows:
• Eben van Heerden is proficient in conceptualization and
will guide key success tactics such as budgets, reporting,
and cash flow management. Eben will act as corporate
governance gatekeeper; he will oversee investment risk
management and will interact with tax, audit, legal and
other advisors. Eben will continuously evolve systems and
operating procedures;
• Keet van Zyl will as Deal Generation Executive oversee
investee pipeline, lead the due diligence teams based on a
rigorous selection process, pre-identified gaps, followed
by getting to know the business and the management team
while working on the growth strategy; and
• Andrea Böhmert will act as stakeholder relations executive
facilitating active management partnership with investees,
aid investees to plot a winning strategy and mitigate
risks. Develop privileged ecosystem assets and report
‘flight plan’ progress in line with investment specific
dashboard to the Business Development Committee.
Afdawn will benefit from collective cost curtailing structures
resulting from the adoption of best of breed systems and
structural arrangements. Afdawn has embarked on aggressive cost
cutting and zero base planning process over the past six months;
these actions will be enhanced further with the integration of
the Knife Capital operations. A flat and cost efficient
management structure will ensure optimum investment
productivity.
Knife Capital will underpin the articulation of a strong brand
position that personifies the inspirational force of the
business.
The acquisition will have a direct and substantial positive
impact on creating shareholder value through this unique and
value adding modelling.
4. CLASSIFICATION OF THE ACQUISITION
The Knife Capital Acquisition is classified as a category 2
transaction in terms of the Listings Requirements of the JSE
Limited.
5. DETAILS OF THE ACQUISITION
5.1. PURCHASE CONSIDERATION
The purchase consideration for the Knife Capital
Acquisition is an amount of R10 million, payable through
the issue of 100 000 000 Afdawn ordinary shares at an
issue price of 10 cents per Afdawn ordinary share in the
following proportions:
i) 33 333 333 ordinary shares in Afdawn shall be
issued to Keet van Zyl;
ii) 33 333 334 ordinary shares in Afdawn shall be
issued to Eben van Heerden; and
iii) 33 333 333 ordinary shares in Afdawn shall be
issued to Andrea Böhmert,
(collectively referred to as “the Knife Capital
Vendors”).
5.2. EFFECTIVE DATE
In terms of the Knife Capital Acquisition Agreement, the
effective date of the Knife Capital Acquisition, subject
to the fulfilment of the conditions precedent set out in
paragraph 5.3 below, is expected to occur on or about 3
March 2014 or a later date agreed to by the Company and
the Knife Capital Vendors (“the Effective Date”).
5.3. CONDITIONS PRECEDENT
The Knife Capital Acquisition is subject to the
following outstanding conditions precedent:
i) the successful conclusion of the due diligence
investigation in respect of Knife Capital by Afdawn
on or before 20 January 2014;
ii) all regulatory approvals required in order to
implement the Knife Capital Acquisition being
obtained by no later than the Effective Date;
iii) Knife Capital becoming the beneficial owner of all
the issued shares in Knife Knowledge (Proprietary)
Limited (“Knife Knowledge”) and Grindstone
Accelerator (Proprietary) Limited (“Grindstone”),
on or before 1 February 2014, structured in such a
way as agreed to by Afdawn in writing;
iv) the tax clearance certificates of Knife Capital,
Knife Knowledge and Grindstone being delivered to
Afdawn and same being to the satisfaction of Afdawn
by no later than the Effective Date;
v) the written consent to the change of control of
Knife Capital, together with the waiver of any
restrictions pertaining to such change, from third
party clients and/or parties with whom Knife
Capital has entered into agreement before the date
of signature of the Knife Capital Acquisition
Agreement, together with the written consent of
Knife Capital’s third party clients and/or such
third parties to any affect that such change in
control may have on the agreements concluded, being
obtained by no later than the Effective Date;
vi) the extension of the HBD management agreement on
terms acceptable to Afdawn, being obtained by no
later than the Effective Date;
vii) Afdawn’s board of directors approving a detailed
budgeted forecast of income and expenses for the 24
month period from the effective date of the Knife
Capital Acquisition, by no later than the Effective
Date;
viii) the Knife Capital Acquisition being approved by the
Afdawn board of directors on or before 20 January
2014;
ix) the Knife Capital Vendors being satisfied before
the Effective Date that:
• the realisation of non-core assets of Afdawn
would yield at least R15 million within 12
months from the effective date of the Knife
Capital Acquisition Agreement;
• there are no liabilities owing to SARS by
Afdawn or its subsidiary companies that have
not been adequately accrued for on the balance
sheet of Afdawn or its subsidiary companies as
the case may be;
• the effect of the aforementioned relating to
the non-core assets and SARS liabilities,
being that the realisation of the non-core
assets of Afdawn and the settling of
liabilities owing to SARS would yield a
minimum amount of R15 million within 12 months
of the closing date of the Knife Capital
Acquisition Agreement, that would be available
for new investments and related costs;
• ongoing actions are being pursued regarding
the disposal of Elite Group (Proprietary)
Limited;
x) The Knife Capital Vendors being satisfied that
Afdawn has secured irrevocable undertakings from at
least 40% of its shareholders (“the Supporting
Shareholders”) for the capital raising referred to
below (“Rights Offer”) to the effect that the
Supporting Shareholders will before the Effective
Date support the Rights Offer through following
their rights in the proposed Rights Offer and that
they will vote in favour of all resolutions
required to effect Rights Offer and the
recapitalisation of Afdawn;
xi) that Knife Capital is satisfied that Afdawn has
secured that at least an additional 20% of the
proposed Rights Offer is underwritten by no later
than the Effective Date;
xii) the effect of (x) and (xi) above, being that the
Rights Offer will yield a minimum amount of R25
million raised that would be available for new
investments and related costs post the closing date
of the Knife Capital Acquisition Agreement;
xiii) Mac van der Merwe signing a three year service
contract with Afdawn by no later than the Effective
Date; and
xiv) the conclusion of employment and service agreements
of at least 5 years with each of the Knife Capital
Vendors by no later than the Effective Date.
6. PRO FORMA FINANCIAL EFFECTS
The pro forma financial information applicable to the Knife
Capital Acquisition are still in the process of being finalised
and will be published in due course.
7. OTHER RELEVANT INFORMATION
7.1. The Knife Capital Vendors and Afdawn have provided
warranties and indemnities to each other that are
standard to a transaction of this nature.
7.2. Afdawn will ensure that the provisions of the memorandum
of incorporation of Knife Capital do not frustrate
Afdawn in any way from compliance with its obligations
in terms of the JSE Listings Requirements and nothing
contained in the memorandum of incorporation of any
subsidiary of Afdawn will relieve Afdawn from compliance
with the JSE Listings Requirements.
B) RIGHTS OFFER AND SPECIFIC ISSUE
1. INTRODUCTION
Shareholders are hereby advised that Afdawn will undertake a
partially underwritten rights offer to raise up to
R40 654 732.40 (“the Rights Offer”) in terms of which
508 184 155 shares (“Rights Offer Shares”) will be offered to
shareholders recorded in the Afdawn share register at the
applicable record date to be determined, at a subscription price
of 8 cents per Rights Offer Share, in the ratio of 1 Rights
Offer Share for every 1 Afdawn ordinary share held at the close
of trade on the applicable record date to be determined.
Shareholders are further advised that Afdawn will possibly raise
an additional R5 million by way of a specific issue of shares
for cash (“Specific Issue”). To the extent that underwriters of
the Rights Offer do not obtain at least 62 500 000 Afdawn shares
due to the underwriting of the Rights Offer, Afdawn will issue
so many shares to the underwriters by way of the Specific Issue
at an issue price of 8 cents per share, as necessary in order
for the underwriters to hold an additional 62 500 000 new shares
in Afdawn after the underwriting of the Rights Offer and the
Specific Issue (in addition to the shares they held before the
Rights Offer and as a result of following their rights in terms
of the Rights Offer) .
The full details of the Rights Offer and the Specific Issue will
be announced on SENS and set out in a circular to be sent to
Afdawn shareholders in due course.
2. PRO FORMA FINANCIAL EFFECTS OF THE RIGHTS OFFER AND THE SPECIFIC
ISSUE
The pro forma financial information applicable to the Rights
Offer and the Specific Issue are still in the process of being
finalised and will be published in due course.
C) POSTING OF CIRCULAR AND NOTICE OF GENERAL MEETING RELATING TO
SECTION 41(3) SHAREHOLDER APPROVAL
In terms section 41(3) of the Companies Act, an issue of shares
in a transaction, or a series of integrated transactions,
requires approval of the shareholders by special resolution if
the voting power of the class of shares that are issued or
issuable as a result of the transaction or series of integrated
transactions will be equal to or exceed 30% of the voting power
of all the shares of that class held by shareholders immediately
before the transaction or series of transactions.
As more than 30% of the Company’s issued share capital will be
issued in terms of the Knife Capital Acquisition, the Rights
Offer and the Specific Issue, the approval of Afdawn
Shareholders by way of a special resolution is required.
The Company will post a circular on Friday, 20 December 2013 to
its shareholders relating to the authority to issue the Afdawn
shares in terms of the Knife Capital Acquisition, the Rights
Offer and the Specific Issue. A copy of the circular will also
be available on Afdawn’s website (www.afdawn.co.za).
The general meeting, convened in terms of the notice
incorporated in the circular, will be held at First Floor,
Quadrum 4, Quadrum Office Park, 50 Constantia Boulevard,
Constantia Kloof, Ext 28, South Africa on Tuesday, 21 January
2014, commencing at 10h00 (“the General Meeting”) for purposes
of considering and, if deemed fit, passing with or without
modification, the resolutions required as set out in the
circular.
D) RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement dated
18 November 2013 and are hereby advised to continue exercising
caution when dealing in the Company’s securities until a full
announcement regarding the pro forma financial effects in
relation to the Knife Capital Acquisition, the Rights Offer and
Specific Issue is made.
Johannesburg
13 December 2013
Corporate Adviser and Transaction Designated Adviser
PSG Capital
Date: 13/12/2013 10:14:00 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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