To view the PDF file, sign up for a MySharenet subscription.

ONELOGIX GROUP LIMITED - Employee Share Participation Transaction, Mamagement Share Participation Transaction and Cautionary Announcement

Release Date: 02/10/2014 13:32
Code(s): OLG     PDF:  
Wrap Text
Employee Share Participation Transaction, Mamagement Share Participation Transaction and Cautionary Announcement

ONELOGIX GROUP LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/004519/06)
JSE share code: OLG ISIN: ZAE000026399
(“OneLogix” or “the Company” and together with its subsidiaries “the Group”)


EMPLOYEE SHARE PARTICIPATION TRANSACTION, MANAGEMENT SHARE PARTICIPATION TRANSACTION 
AND CAUTIONARY ANNOUNCEMENT



1.   INTRODUCTION

Shareholders of the Company (“Shareholders”) are advised that OneLogix has entered into
agreements for the implementation of an employee share participation transaction in terms of which
eligible employees of OneLogix (other than directors and prescribed officers of the Group as
contemplated in the Companies Act, 2008 (Act 71 of 2008), as amended, (“Companies Act”))
(“EmployeeCo Participants”) will obtain a 10% indirect shareholding interest in OneLogix
("EmployeeCo Transaction") and a management share participation transaction in terms of which
management and executive directors of OneLogix (“ManCo Participants”) will obtain a 5% indirect
shareholding interest in OneLogix ("ManCo Transaction") (collectively, "the Transactions").

2.   THE TRANSACTIONS

     2.1   THE EMPLOYEECO TRANSACTION

           2.1.1   Introduction and rationale

           During December 2013 OneLogix repurchased all of the OneLogix shares held by Izingwe
           Holdings Proprietary Limited (“Izingwe”), its then black economic empowerment (“BEE”)
           partner, which represented 10.25% of the issued share capital of OneLogix.

           The exit of Izingwe was at their election in order for them to realise their investment after the
           successful conclusion of the eight year BEE deal that was concluded in 2005.

           As a consequence of Izingwe’s exit OneLogix’s BEE ownership credentials have been
           negatively affected. In order to restore and improve our ownership credentials EmployeeCo
           will, along with a continuing benefit recognised from the previous ownership structures
           enable OneLogix to have meaningful broad based BEE ownership in place.

           Compounding the negative impact of the exit of Izingwe, which was a major contributor to
           OneLogix’s BEE scorecard, are the new codes recently promulgated by the Department of
           Trade and Industry (“New BEE Codes”), which treats BEE ownership as one of the priority
           elements.

           The board of directors of OneLogix (“the Board”) has recognised the importance of
           fostering a culture of ownership amongst employees and the ongoing need to improve BEE
           and comply with the New BEE Codes. Chute Investments Proprietary Limited
           (“EmployeeCo”) has been incorporated to enable EmployeeCo Participants to collectively
           acquire an indirect 10% shareholding interest in OneLogix. The demographic and
           composition of the employees of OneLogix will result in a significant increase in the BEE
           ownership of the Group.

           The indicative impact of the EmployeeCo Transaction on the BEE ownership points will
           result in an increase from 9.14 to 15.66, based on a 10% ownership in OneLogix, assuming
           that the ManCo Transaction is also implemented. Should the proposed EmployeeCo
           Transaction not be implemented, the BEE ownership is expected to be negatively impacted
           as OneLogix may only be accredited with approximately 4 to 5 BEE ownership points.

           Furthermore, it is believed that the proposed EmployeeCo Transactions will meet a number
           of key strategic objectives of OneLogix, including:
           -       offering a realistic opportunity to create substantial value for the employees of
                   OneLogix;
           -       assisting with employee retention;
           -       fostering an ownership culture; and
           -       aligning the interest of employees with those of the shareholders of OneLogix.

           Accordingly, OneLogix and EmployeeCo have entered into a reciprocal subscription
           agreement, in terms of which EmployeeCo will subscribe for 24 917 929 OneLogix ordinary
           shares (“EmployeeCo OL Subscription Shares”) for an aggregate amount of
           R89 380 613 (“EmployeeCo OL Subscription Share Price”) and, to enable EmployeeCo
           to fund its acquisition of the EmployeeCo OL Subscription Shares, OneLogix will subscribe
           for one non-convertible cumulative redeemable preference share with no par value
           (“EmployeeCo Preference Share”) for an aggregate amount of R89 384 613
           ("EmployeeCo Preference Share Subscription Price") subject to the further terms and
           conditions of such agreement (”EmployeeCo Reciprocal Subscription Agreement”), and
           the trustees for the time being of the OneLogix Group BEE Trust (“BEE Trust”) have
           entered into a sale of shares agreement, which governs the sale of 400 000 OneLogix
           shares registered in the name of the BEE Trust (“BEE Trust Sale Shares”) to EmployeeCo
           for an aggregate amount of R4 000 ("BEE Trust Sale Shares Purchase Price") subject to
           the further terms and conditions of such agreement (“the BEE Trust Sale of Shares
           Agreement”).

           The EmployeeCo OL Subscription Shares and the BEE Trust Sale Shares will, following the
           implementation of the Transactions, constitute 10% of all the ordinary shares in the issued
           share capital of OneLogix.

           2.1.2    EmployeeCo Specific Issue and EmployeeCo Preference Share Subscription

           In terms of the EmployeeCo Reciprocal Subscription Agreement:
           -       EmployeeCo will subscribe for the EmployeeCo OL Subscription Shares, which
                   equates to a 9.84% shareholding in OneLogix, for the EmployeeCo OL Subscription
                   Share Price, being an amount of R3.59 per EmployeeCo OL Subscription Share
                   ("EmployeeCo Specific Issue"); and
           -       the EmployeeCo Specific Issue will be funded by OneLogix subscribing for one
                   EmployeeCo Preference Share for the EmployeeCo Preference Share Subscription
                   Price (“EmployeeCo Preference Share Subscription”).

           The EmployeeCo OL Subscription Shares will be listed on the JSE Limited (“JSE”) and will
           rank pari passu in all respects with the existing OneLogix ordinary shares in issue.

           The EmployeeCo Preference Share will have certain preferential rights, including the right to
           a cumulative preference dividend calculated six monthly in arrears on the EmployeeCo
           Preference Share Subscription Price, at a rate of 72% of the the basic quoted prime lending
           rate at which Nedbank Limited lends to its customers as set out in the new memorandum of
           incorporation of EmployeeCo to be adopted as contemplated in section 16(5)(a) of the
           Companies Act (“EmployeeCo MOI”).

                   2.1.2.1 Suspensive conditions to the EmployeeCo Reciprocal Subscription
                           Agreement

                   The EmployeeCo Reciprocal Subscription Agreement is subject to the fulfillment or
                   waiver on or before 28 February 2015 of the following suspensive conditions:
                   -      the adoption by way of special resolution by the sole shareholder of
                          EmployeeCo (being OneLogix at the time), and filing at the Companies and
                          Intellectual Property Commission, of the EmployeeCo MOI;
                   -      the Board and OneLogix shareholders passing the resolutions required to
                          approve the EmployeeCo Specific Issue and the resolutions required in terms
                          of section 44 of the Companies Act to approve any financial assistance which
                          may be provided by OneLogix to EmployeeCo in connection with the
                          EmployeeCo Specific Issue;
                   -      the conclusion of the BEE Trust Sale of Shares Agreement 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 EmployeeCo
                          Reciprocal Subscription Agreement becoming unconditional in all respects; and
                   -      the conclusion and implementation of the individual subscription agreements
                          to be entered into between EmployeeCo, on the one hand, and EmployeeCo
                          Participants, on the other hand (“EmployeeCo Ordinary “A” Subscription
                          Agreements”), pursuant to which such employees will subscribe for 400 000
                          “A” ordinary shares in the authorised share capital of EmployeeCo
                          (“EmployeeCo Ordinary “A” Shares”) for a subscription price of R0.01 per
                          share and the subscription agreement between EmployeeCo and OneLogix
                          ("EmployeeCo Ordinary "B" Subscription Agreement") pursuant to which
                          OneLogix will subscribe for 100 000 "B" ordinary shares in the authorised
                          share capital of EmployeeCo ("EmployeeCo Ordinary "B" Shares").

                   2.1.2.2 Financing of the EmployeeCo Specific Issue

                   In terms of the EmployeeCo Reciprocal Subscription Agreement, OneLogix has
                   agreed, subject to fulfilment or waiver of the suspensive conditions set out in
                   paragraph 2.1.2.1 above, to provide financial assistance to EmployeeCo to fund the
                   EmployeeCo Specific Issue, as follows:
                   -      OneLogix has undertaken to subscribe for the EmployeeCo Preference Share
                          on the first business day following the day on which the suspensive conditions
                          set out in paragraph 2.1.2.1 above have been fulfilled or waived or such other
                          date as OneLogix and EmployeeCo may agree in writing (“EmployeeCo
                          Subscription Date”) for the EmployeeCo Preference Share Subscription Price;
                   -      The EmployeeCo Preference Share Subscription Price will be equal to the
                          sum of the EmployeeCo OL Subscription Share Price and the BEE Trust Sale
                          Shares Purchase Price;
                   -      On the EmployeeCo Subscription Date, the obligation of OneLogix in respect
                          of payment of the EmployeeCo Preference Share Subscription Price shall be
                          settled by OneLogix settling the payment obligation of EmployeeCo towards
                          the BEE Trust in terms of the BEE Trust Sale of Shares Agreement on its
                          behalf and setting the balance off in the books of account of EmployeeCo
                          against EmployeeCo’s obligation in respect of the EmployeeCo OL
                          Subscription Share Price;
                   -      On the EmployeeCo Subscription Date, the obligation of EmployeeCo in
                          respect of the payment of the EmployeeCo OL Subscription Shares Price
                          shall be settled by setting it off in the books of account of OneLogix against
                          OneLogix’s obligation in respect of the EmployeeCo Preference Share
                          Subscription Price;
                   -      EmployeeCo shall be entitled, but not obliged, to redeem the EmployeeCo
                          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 as contemplated in section 4 of the Companies Act
                          (“Solvency and Liquidity Test”); and
                   -       After a period of five years from the EmployeeCo Subscription Date,
                           OneLogix shall be entitled to require EmployeeCo to redeem the EmployeeCo
                           Preference Share.

           2.1.3 EmployeeCo Ordinary Shares Subscription

           In terms of the EmployeeCo Ordinary “A” Subscription Agreement and the EmployeeCo
           Ordinary "B" Subscription Agreement:
           -     the EmployeeCo Participants shall subscribe for the EmployeeCo Ordinary “A”
                 Shares (which will constitute 80% of the ordinary shares in the issued share capital of
                 EmployeeCo) for a subscription price of R0.01 per share, which equates to an
                 aggregate amount of R 4 000; and
           -     OneLogix shall subscribe for the EmployeeCo Ordinary “B” Shares (which will
                 constitute 20% of the ordinary shares in the issued share capital of EmployeeCo) for
                 a subscription price of R0.01 per share, which equates to an aggregate amount of
                 R1 000.
      
           The EmployeeCo “A” Ordinary Shares and the EmployeeCo “B” Ordinary Shares will have
           the same voting rights and rights to dividends but will be subject to different transfer
           restrictions, as set out in the EmployeeCo MOI.

           The subscription of the EmployeeCo Ordinary “A” Shares by EmployeeCo Participants is
           subject to the suspensive conditions that:
           -     EmployeeCo shareholders (being OneLogix at the time) pass a resolution required in
                 terms of section 41(3) of the Companies Act in connection with the issue to the
                 EmployeeCo Participants of the EmployeeCo Ordinary “A” Shares; and
           -     to the extent that OneLogix and/or EmployeeCo provide any financial assistance to
                 EmployeeCo Participants as contemplated in section 44 and/or section 45 of the
                 Companies Act, the Board and OneLogix shareholders and or the Board of directors
                 of EmployeeCo and EmployeeCo shareholders have passed the necessary
                 resolutions to approve the provision of such financial assistance as required by
                 section 44 and/or section 45 of the Companies Act, as the case may be.

           2.1.4 The BEE Trust Sale of Shares

           In terms of the BEE Trust Sale of Shares Agreement, the BEE Trust Sale Shares will be
           sold to EmployeeCo for the BEE Trust Sale Shares Purchase Price.
           In terms of the Listings Requirements of the JSE (“Listings Requirements”), the BEE
           Trust Sale of Shares must comply with all provisions relating to a fresh issue of OneLogix
           shares and accordingly, the BEE Trust Sale of Shares is required to be approved by
           OneLogix shareholders at the general meeting in terms of the requirements of a specific
           issue of shares of cash.

          The BEE Trust Sale Shares will remain listed on the JSE and will rank pari passu in all
          respects with the existing OneLogix ordinary shares in issue.

  2.2  THE MANCO TRANSACTION

      2.2.1 Introduction and rationale

      The Board has identified a need to implement a share participation transaction that will allow
      key executives to create value over the long term whilst also serving the interests of
      OneLogix and its shareholders.

      The benefit which the ManCo Participants (certain of whom are defined as “related
      parties” in terms of paragraph 10.1(b) of the Listings Requirements) derive from the ManCo
      Transaction will depend on the extent to which OneLogix achieves certain pre-determined
      earnings growth targets over a five year period thereby aligning their interests with those of
      the shareholders of OneLogix.
      
      Accordingly, OneLogix and K2014176026 Proprietary Limited (“ManCo”) have entered into
      a reciprocal subscription agreement, in terms of which ManCo will subscribe for 12 658 963
      OneLogix ordinary shares (“ManCo OL Subscription Shares”) for an aggregate amount of
      R53 420 825 (“ManCo OL Subscription Share Price”) and, to enable ManCo to fund its
      acquisition of the ManCo OL Subscription Shares, OneLogix will subscribe for one non-
      convertible cumulative redeemable participating preference share with no par value
      (“ManCo Preference Share”) for an aggregate amount of R53 420 825 ("ManCo
      Preference Share Subscription Price") on the further terms and conditions of such
      agreement (“ManCo Reciprocal Subscription Agreement”). The ManCo OL Subscription
      Shares will, following the implementation of the Transactions, constitute 5% of all the
      ordinary shares in the issued share capital of OneLogix.

      2.2.2 The ManCo Specific Issue and ManCo Preference Share Subscription

      In terms of the ManCo Reciprocal Subscription Agreement:
      -      ManCo will subscribe for the ManCo OL Subscription Shares for the ManCo OL
             Subscription Price, being an amount of R4.22 per ManCo OL Subscription Share
             ("ManCo Specific Issue"); and
      -      the acquisition of such shareholding interest in OneLogix by ManCo will be funded by
             OneLogix subscribing for the ManCo Preference Share for the ManCo Preference
             Share Subscription Price (“ManCo Preference Share Subscription”).

      The ManCo OL Subscription Shares will be listed on the JSE and will rank pari passu in all
      respects with the existing OneLogix ordinary shares in issue.
      The ManCo Preference Share will have certain preferential rights, including the right to a
      cumulative preference dividend arising from the distributions received from OneLogix during
      each dividend period less any operating costs of ManCo during the relevant dividend period
      (“Net Income”) and shall reduce on a sliding scale over a five year period as set out in the
      table below:

                                                                            Percentage of Net
      Period                                                                       Income (%)

      During the first year following the ManCo Subscription Date                         100
      During the second year following the ManCo Subscription Date                         80
      During the third year following the ManCo Subscription Date                          60
      During the fourth year following the ManCo Subscription Date                         40
      During the fifth year following the ManCo Subscription Date                          20
      From the sixth year following the ManCo Subscription Date                             0


             2.2.2.1 Suspensive conditions to the ManCo Reciprocal Subscription Agreement

             The ManCo Reciprocal Subscription Agreement is subject to the fulfillment or waiver
             on or before 28 February 2015 of the following suspensive conditions:
             -       the adoption by way of special resolution by the sole shareholder of ManCo
                     (being OneLogix at the time), and filing at the Companies and Intellectual
                     Property Commission, of the new memorandum of incorporation of ManCo to
                     be adopted as contemplated in section 16(5)(a) of the Companies Act
                     (“ManCo MOI”);
             -       the Board and OneLogix shareholders passing the resolutions required to
                     approve the ManCo Specific Issue and the resolutions required in terms of
                     section 44 of the Companies Act to approve any financial assistance which
                     may be provided by OneLogix to ManCo in connection with the ManCo Specific Issue; and
             -       the conclusion and implementation of the individual subscription agreements
                     to be entered into between ManCo, on the one hand, and ManCo
                     Participants, on the other hand (“ManCo Ordinary “A” Subscription
                     Agreement”), pursuant to which such employees will subscribe for 10 000
                     ordinary “A” shares in the authorised share capital of ManCo (“ManCo
                     Ordinary “A” Shares”) for a subscription price of R0.01 per share and the
                     subscription agreement between ManCo and OneLogix ("ManCo Ordinary
                     "B" Subscription Agreement") pursuant to which OneLogix will subscribe
                     for one ordinary "B" share in the authorised share capital of ManCo ("ManCo
                     Ordinary "B" Share"), for a subscription price of R 1.00 per share.

             2.2.2.2 Financing of the ManCo Specific Issue

             In terms of the ManCo Reciprocal Subscription Agreement, OneLogix has agreed,
             subject to the fulfilment or waiver of the suspensive conditions set out in paragraph
             2.2.2.1 above, to provide financial assistance to ManCo to fund the the ManCo
             Specific Issue, as follows:
             -        OneLogix has undertaken to subscribe for the ManCo Preference Share on
                      the first business day following the day on which the suspensive conditions
                      set out in paragraph 2.2.2.1 above have been fulfilled or waived or such other
                      date as OneLogix and EmployeeCo may agree in writing (“ManCo
                      Subscription Date”) for the ManCo Preference Share Subscription Price;
             -        The ManCo Preference Share Subscription Price will be equal to the ManCo
                      OL Subscription Share Price;
             -        On the ManCo Subscription Date, the obligation of OneLogix in respect of
                      payment of the ManCo Preference Share Subscription Price shall be settled
                      by setting it off in the books of account of ManCo against ManCo’s obligation
                      in respect of the ManCo OL Subscription Share Price;
             -        On the ManCo Subscription Date, the obligation of ManCo in respect of the
                      payment of the ManCo OL Subscription Share Price shall be settled by
                      setting it off in the books of account of OneLogix against OneLogix’s
                      obligation in respect of the ManCo Preference 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, OneLogix shall
                      be entitled to require ManCo to redeem the ManCo Preference Share.

        2.2.3 ManCo Ordinary Shares Subscription

        In terms of the ManCo Ordinary “A” Subscription Agreement and the ManCo Ordinary “B”
        Subscription Agreement:
        -      the ManCo Participants shall subscribe for the ManCo Ordinary “A” Shares for a
               subscription price of R0.01 per share; and
        -      OneLogix shall subscribe for the ManCo Ordinary “B” Share for an aggregate amount
               of R1.00.

        The ManCo Ordinary “A” Shares and the ManCo Ordinary “B” Share will have different voting
        rights and rights to dividends and will be subject to different transfer restrictions, as set out in
        the ManCo MOI, the most notable difference being that the holder of the ManCo Ordinary "B"
        Share shall have the right to receive out of capital gains arising from the sale of any assets of
        ManCo or deemed capital gains arising from the distribution of any assets of ManCo, a
        preferred ordinary dividend based on the real growth rate of Core Headline Earnings per
        share of OneLogix (as defined in the ManCo MOI) over a period of five years from the date
        of issue of the ManCo Ordinary “B” Share as follows:
         -      if the relevant growth rate is less than 4%, 100% of any capital gains;
         -      if the relevant growth rate is 4% or more, but less than or equal to 10%, 100% to 0%
                of any capital gains on a linear basis; or
         -      if the relevant growth rate is more than 10%, 0% of any capital gains,

                with the balance of any capital gains capable of being declared as a dividend to the
                holders of the ManCo Ordinary "A" Shares.

         The subscription of ManCo Ordinary “A” Shares by ManCo Participants is subject to the
         suspensive conditions that:
         -      ManCo shareholders (being OneLogix at the time) pass a resolution required in terms
                of section 41(3) of the Companies Act in connection with the issue to the ManCo
                Participants of the ManCo Ordinary “A” Shares; and
         -      to the extent that OneLogix and/or ManCo provide any financial assistance to ManCo
                Participants as contemplated in section 44 and/or section 45 of the Companies Act,
                the Board and OneLogix shareholders and/or the Board of directors of ManCo and
                ManCo shareholders have passed the necessary resolutions to approve the provision
                of such financial assistance as required by section 44 and/or section 45 of the
                Companies Act, as the case may be.

3. EFFECTIVE DATE

The effective date of the EmployeeCo Transaction and the ManCo Transaction shall be the
EmployeeCo Subscription Date and the ManCo Subscription Date, respectively.

4. PRO FORMA FINANCIAL EFFECTS

The pro forma financial effects in relation to the Transactions are in the process of being finalised and
will be published in due course.

5. JSE LISTINGS REQUIREMENTS AND RELATED PARTY IMPLICATIONS

In terms of the Listings Requirements, the EmployeeCo Specific Issue is an issue of shares for cash
at a 19.2% discount to the 30 day VWAP as at 29 September 2014. As the EmployeeCo OL
Subscription Shares, which are the subject of the EmployeeCo Specific Issue, are subject to certain
restrictions, they are deemed to be issued to ‘non-public’ shareholders. Furthermore, the ManCo
Specific Issue is an issue of shares for cash to related parties at a 5.0% discount to the 30 day VWAP
as at 29 September 2014. Accordingly, OneLogix is required to obtain a fairness opinion on the
EmployeeCo Specific Issue and the ManCo Specific Issue from an Independent Expert (“Fairness
Opinions”) and the board of directors of the Company are required to include a statement in the
circular to be issued to Shareholders confirming whether the EmployeeCo Specific Issue and the
ManCo Specific Issue are fair to shareholders (“Board Statement”).

6. CIRCULAR AND GENERAL MEETING

A circular containing, inter alia, full details of the Transactions, the Fairness Opinions and the Board
Statement will be posted to Shareholders in due course. The circular will contain a notice of general
meeting of Shareholders to vote on the Transactions.

7. CAUTIONARY ANNOUNCEMENT

Shareholders are advised that as the pro forma financial effects of the Transactions are still in the
process of being finalised, Shareholders should exercise caution when dealing in the Company’s
securities until a further announcement has been published on SENS.

Johannesburg
2 October 2014


Corporate Advisor:
Nodus Capital

Transaction Sponsor:
Merchantec Capital

Sponsor:
Java Capital

Legal Advisor:
Webber Wentzel

Date: 02/10/2014 01:32:00 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
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story