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Acquisition of ARA – Agreement Formalised and Signed
Alaris Holdings Limited
(formerly Poynting Holdings Limited)
Incorporated in the Republic of South Africa
(Registration number 1997/011142/06)
Share code: ALH ISIN: ZAE000201554
(“Alaris” or “the Company”)
ACQUISITION OF ARA – AGREEMENT FORMALISED AND SIGNED
1. INTRODUCTION
1.1. Shareholders are referred to the announcements on SENS by Alaris on 19 February 2015
and 1 April 2015 (“Previous Announcements”) in which it was advised that Alaris had
entered into binding heads of agreement with the existing shareholders of Antenna
Research Associates Inc (“ARA”) (“Vendors”) setting out the principal terms and conditions
of the proposed acquisition of 100% of the issued share capital of ARA (“Acquisition”).
1.2. Shareholders are advised that Alaris and ARA have subsequently entered into a formal
agreement and plan of merger in respect of the implementation of the Acquisition on
27 June 2015 (“Merger Agreement”).
1.3. Alaris and ARA have agreed to structure the Acquisition as a series of mergers to qualify as
a “reorganisation” under the provisions of section 368(a) of the United States of America
(“USA” or “US”) Internal Revenue Code (referred to herein as the “Merger”). The transaction
is structured in this manner for the purpose of obtaining optimal tax efficiency in terms of US
tax legislation.
1.4. Accordingly, for purposes of the Merger, Alaris has incorporated two companies in the USA
which are wholly-owned subsidiaries of Alaris, namely Merger Sub and Merger Sub II (which
will be the surviving entity, known as “Alaris ARA”). In terms of the Merger, Merger Sub will
be merged with and into ARA in a US statutory reverse triangular merger (the “First
Merger”), with ARA surviving the First Merger as the surviving entity, whereafter as part of a
single overall transaction with the First Merger pursuant to an integrated plan, ARA will be
merged with and into Merger Sub II in a US statutory forward triangular merger
(the “Second Merger”), with Merger Sub II surviving the Second Merger. The Second
Merger will be implemented as soon as possible after the implementation of the First
Merger, to allow for sufficient time for Merger Sub II to obtain a facility clearance certificate
(“FCL”) issued by the US Defense Security Service (“DSS”).
1.5. The result of the successful implementation of the Merger will be that Alaris will have a
wholly-owned subsidiary incorporated in the USA, namely Alaris ARA.
1.6. The effective date of the Merger is anticipated to be 31 August 2015.
1.7. The principal terms and conditions of the Merger contained in the Merger Agreement are as
set out below.
2. THE MERGER
2.1. Nature of ARA and rationale for the Merger
Shareholders are referred to the Previous Announcements, which set out the nature of the
Alaris Defence & Specialised Division as well as the nature of the business of ARA and the
rationale for the Merger in detail, as this remains unchanged.
2.2. Purchase Consideration
2.2.1. The total consideration payable by Alaris to the Vendors in respect of the Merger
(“Merger Consideration”) is comprised of:
2.2.1.1. USD 5 000 000 in cash less any adjustment in terms of the Merger Agreement
(“Initial Cash Consideration”), payable upon the date on which the First Merger is
implemented, which date shall be within three business days of the fulfilment or
waiver of the conditions precedent to the Merger (“Merger Closing Date”) to all
Vendors pro-rata to their shareholding in ARA, with the exception of ARA’s chief
executive officer, Logen Thiran, who shall not share in the Initial Cash Consideration
and instead will only receive ordinary shares in Alaris (“Alaris Shares”);
2.2.1.2. 46 000 000 Alaris Shares to be issued on the Merger Closing Date to the Vendors in
the proportions set out in the Merger Agreement (“Initial Share Consideration”
which, together with the Initial Cash Consideration, constitutes the “Initial
Consideration”);
2.2.1.3. an additional 7 731 707 Alaris Shares (“First Additional Share Consideration”) and
an additional cash consideration of USD 1 500 000 (“First Additional Cash
Consideration”) (which together are referred to as the “First Additional
Consideration”) payable should the audited IFRS Recurring Headline Profit before
taxation (as defined in the Merger Agreement) for the 12 month period ending
30 June 2016 (“First Measurement Period”) be USD 2 500 000 (“First Profit
Target”); and
2.2.1.4. a further additional 7 731 707 Alaris Shares (“Second Additional Share
Consideration”) and a further additional cash consideration of USD 3 000 000
(“Second Additional Cash Consideration”) (which together are referred to as the
“Second Additional Consideration”) payable should the audited IFRS Recurring
Headline Profit before taxation (as defined in the Merger Agreement) for the 12 month
period ending 30 June 2017 (“Second Measurement Period”) be USD 4 000 000
(“Second Profit Target”),
(the First Additional Consideration and the Second Additional Consideration are
collectively referred to as the “Additional Consideration”).
2.2.2. On the Merger Closing Date, the Initial Consideration shall be adjusted based on the
foreign currency rate and Alaris Share price at the time to ensure that the total possible
cash component of the Merger Consideration does not exceed 59% of the total Merger
Consideration. Alaris could be required to issue up to 52 000 000 Shares in aggregate on
the Merger Closing Date with the Initial Cash Consideration decreasing accordingly.
2.2.3. If the adjustment to the Initial Consideration contemplated above would result in the
issuance of more than 52 000 000 Alaris Shares, then Alaris may elect, in its sole
discretion, to issue such Alaris Shares as contemplated above. If Alaris does not so
elect, and the Merger Agreement is not terminated pursuant to its terms, then Alaris shall
issue 52 000 000 Alaris Shares, and reallocate the value of any excess Alaris Shares
that would have been issued to the Initial Cash Consideration.
2.2.4. The First Additional Consideration shall be adjusted based on the actual audited IFRS
Recurring Headline Profit before taxation (as defined in the Merger Agreement) reported
in the First Measurement Period, in the following manner:
2.2.4.1. if 100% or more of the First Profit Target is achieved in the First Measurement Period,
100% of the First Additional Consideration shall be payable;
2.2.4.2. if less than 80% of the First Profit Target is achieved in the First Measurement Period,
no First Additional Consideration shall be payable;
2.2.4.3. if between 80% and 100% of the First Profit Target is achieved in the First
Measurement Period, payment of the First Additional Consideration will be linearly
scaled (between 50% and 100% of the First Additional Consideration).
2.2.5. For illustrative purposes only, the following table sets out the relevant First Additional
Consideration that would be payable based on achievement of the IFRS Recurring
Headline Profit before taxation (as defined in the Merger Agreement) set out in the first
row of the table below:
Actual IFRS
Recurring
Headline Profit
before taxation
(USD) 1 750 000 2 000 000 2 250 000 2 500 000 2 750 000
First Profit
Target
Percentage
Achieved 70% 80% 90% 100% 110%
Percentage of
First Additional
Consideration
paid 0% 50% 75% 100% 100%
First Additional
Cash
Consideration
(USD) 0 750 000 1 125 000 1 500 000 1 500 000
First Additional
Share
Consideration
(in cash) *
(USD) 0 660 417 990 625 1 320 833 1 320 833
First Additional
Share
Consideration
(in Shares) 0 3 865 854 5 798 780 7 731 707 7 731 707
* To the extent that Alaris elects to pay the First Additional Share Consideration in cash,
this will represent the maximum cash amount.
2.2.6. The Second Additional Consideration shall be adjusted based on the actual audited IFRS
Recurring Headline Profit before taxation (as defined in the Merger Agreement) reported
in the Second Measurement Period, in the following manner:
2.2.6.1. if 100% or more of the Second Profit Target is achieved in the Second Measurement
Period, 100% of the Second Additional Consideration shall be payable;
2.2.6.2. if less than 80% of the Second Profit Target is achieved in the Second Measurement
Period, no Second Additional Consideration shall be payable;
2.2.6.3. if between 80% and 100% of the Second Profit Target is achieved in the Second
Measurement Period, payment of the Second Additional Consideration will be linearly
scaled (between 50% and 100% of the Second Additional Consideration).
2.2.7. For illustrative purposes only, the following table sets out the relevant Second Additional
Consideration that would be payable based on achievement of the IFRS Recurring
Headline Profit before taxation (as defined in the Merger Agreement) set out in the first
row of the table below:
Actual IFRS
Recurring
Headline Profit
before taxation
(USD) 2 800 000 3 200 000 3 600 000 4 000 000 4 400 000
Second Profit
Target
Percentage 70% 80% 90% 100% 110%
Percentage of
Second
Additional
Consideration
paid 0% 50% 75% 100% 100%
Second
Additional Cash
Consideration
(USD) 0 1 500 000 2 250 000 3 000 000 3 000 000
Second
Additional
Share
Consideration
(in cash)
(USD) * 0 660 417 990 625 1 320 833 1 320 833
Second
Additional
Share
Consideration
(in Shares) 0 3 865 854 5 798 780 7 731 707 7 731 707
* To the extent that Alaris elects to pay the Second Additional Share Consideration in
cash, this will represent the maximum cash amount.
2.2.8. The First Profit Target and the Second Profit Target are not cumulative and will be
calculated separately each year.
2.2.9. Alaris may elect, in its sole discretion, to pay all or part of the (i) First Additional Share
Consideration and/or the Second Additional Share Consideration in cash at a fixed price
of USD 0.17083 per Alaris Share (irrespective of currency or Alaris Share price
fluctuations). To preserve continuity of interest as required by the US Treasury
Regulation section 1.368-1(e), however, in no event shall the amount of cash payable as
First Additional Cash Consideration, Second Additional Cash Consideration or in lieu of
the First Additional Share Consideration or the Second Additional Share Consideration
exceed an amount that would cause the overall cash component of the Merger
Consideration to exceed 59% of the aggregate Merger Consideration. To the extent that
the amount of cash payable exceeds an amount that would cause the overall cash
component of the Merger Consideration to exceed 59% of the aggregate Merger
Consideration, then Alaris shall waive all or part of its right to pay all or part of the First
Additional Share Consideration and/or the Second Additional Share Consideration in
cash and shall be obligated to issue Alaris Shares at an issue price of USD 0.17083 per
Alaris Share in order to ensure that the aggregate cash component of the Merger
Consideration is a maximum of 59%. Under no circumstance shall Alaris be required to
issue, in aggregate, more than 67 463 414 Alaris Shares as part of the Merger
Consideration.
2.3. Conditions precedent to the Merger and effective date
2.3.1. The obligations of Alaris, Merger Sub and Merger Sub II to consummate the transactions
contemplated in the Merger Agreement are subject to the satisfaction, on or prior to the
Merger Closing Date, of each of the following conditions (any or all of which may be
waived in writing by Alaris in whole or in part to the extent permitted by applicable law):
2.3.1.1. the representations and warranties of ARA and the Vendors contained in the Merger
Agreement shall be true and correct in all respects;
2.3.1.2. the Fundamental Representations (as defined in the Merger Agreement) shall be true
and correct in all respects;
2.3.1.3. ARA and the Vendors shall have performed and complied with, in all material
respects, all covenants and agreements contained in the Merger Agreement;
2.3.1.4. ARA shall have delivered to Alaris a certificate executed by the chief executive officer
of ARA, dated on the Merger Closing Date, to the effect that each of the conditions
specified have been satisfied in all respects;
2.3.1.5. ARA shall have caused to be delivered to Alaris, certificates representing all of the
issued and outstanding shares of ARA;
2.3.1.6. there shall not have been any Material Adverse Effect (as defined in the Merger
Agreement) since the date of the Merger Agreement;
2.3.1.7. there shall not be in effect any order by a governmental authority of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated in the Merger Agreement, and there shall not be pending
or threatened any legal proceeding seeking to restrain or prohibit or with the probable
or reasonably likely effect of restraining or prohibiting the consummation of the
Merger or seeking material damages on account thereof;
2.3.1.8. Alaris shall have obtained or received all approvals necessary from the shareholders
with respect to the consummation of the transactions contemplated in the Merger
Agreement;
2.3.1.9. Alaris, Merger Sub, Merger Sub II and ARA shall have executed a commitment letter,
in a form and substance acceptable to Alaris (in its reasonable discretion) and the
DSS, regarding a plan to operate ARA pursuant to a foreign ownership, control or
influence (“FOCI”) mitigation agreement, and shall have provided the DSS with (i) a
draft of such mitigation agreement in a form and substance acceptable to Alaris (in its
reasonable discretion) and the DSS, and (ii) written Interim Security Measures (as
defined in the Merger Agreement), in a form and substance acceptable to Alaris (in its
reasonable discretion) and the DSS, to be established and implemented on the
Merger Closing Date through the date that the DSS executes the planned FOCI
mitigation agreement (the “FOCI Condition”);
2.3.1.10. the Committee for Foreign Investment in the United States (“CFIUS”) shall have
notified Alaris and ARA in writing that (a) the transactions contemplated by the Merger
Agreement do not constitute a “covered transaction” pursuant to section 800.207 of
Title 31 of the Code of Federal Regulations of the United States (“CFR”), (b) review or
investigation of the transactions contemplated by the Merger Agreement has been
concluded under the Exon-Florio Provision of the Defense Production Act of 1950, 50
U.S.C. app. 2170, as amended (“Exon-Florio”) and that a determination has been
made that there are no unresolved national security concerns, or (c) following an
investigation conducted by CFIUS pursuant to section 800.503 of Title 31 of the CFR
and a subsequent report of the transaction to the President of the United States by
CFIUS, a decision by the President of the United States not to suspend or prohibit
such transaction pursuant to his authorities under Exon-Florio (the “CFIUS
Condition”);
2.3.1.11. any applicable prior notice period under the International Traffic in Arms Regulations
(ITAR) relating to the transactions contemplated in the Merger Agreement shall have
expired or otherwise been waived by the US Department of State’s Directorate of
Defense Trade Controls (“DDTC”);
2.3.1.12. ARA shall have obtained all consents, waivers and approvals referred to in the
Merger Agreement;
2.3.1.13. ARA shall have terminated all agreements between ARA and related parties;
2.3.1.14. each of the Key Employees (as defined in the Merger Agreement) shall have entered
into employment agreements with terms acceptable to Alaris and such Key
Employee;
2.3.1.15. Merger Sub II and Pradeep Wahi (being a Vendors) shall have entered into a loan
agreement pursuant to which, at Alaris’ election, Pradeep Wahi or his designee shall
make available a working capital loan to Merger Sub II in the amount of up to $1.2
million at a simple interest rate of 10% per annum;
2.3.1.16. ARA shall have delivered, or caused to be delivered, to Alaris a certificate of good
standing as of a recent date with respect to ARA by the Secretary of State of the
State of Texas and the Maryland State Department of Assessments and Taxation;
2.3.1.17. ARA shall have delivered, or caused to be delivered, to Alaris a certificate from the
company secretary of ARA certifying (i) the organisational documents of ARA, and (ii)
resolutions of the board of directors of ARA and the Vendors authorising the
execution, delivery and performance of the Merger Agreement and the other
agreements, instruments and certificates to be delivered by ARA pursuant to the
Merger Agreement;
2.3.1.18. Alaris shall have received satisfactory evidence that all personal guarantees have
been released (other than any personal guarantee of Pradeep Wahi, which, in Alaris’
discretion, may stay in effect for one year following the Merger Closing Date);
2.3.1.19. Alaris shall have received a non-foreign affidavit from each Vendor dated as of the
Merger Closing Date, sworn under penalty of perjury and in form and substance
required under the Treasury Regulations issued pursuant to section 1445 of the USA
Internal Revenue Code stating that such Vendor is not a “Foreign Person” as defined
in section 1445 of the USA Internal Revenue Code;
2.3.1.20. the irrevocable written consents to the implementation of the Merger given by the
Vendors shall be in full force and effect and shall be valid and effective; and
2.3.1.21. the representations and warranties contained in each of the Vendors’ accredited
investor declaration certificates delivered pursuant to the Merger Agreement shall be
true and correct.
2.3.2. The obligations of ARA to consummate the transactions contemplated by the Merger
Agreement are subject to the fulfilment, prior to or on the Merger Closing Date, of each of
the following conditions (any or all of which may be waived in writing by ARA in whole or
in part to the extent permitted by applicable law):
2.3.2.1. the representations and warranties of Alaris contained in the Merger Agreement shall
be true and correct in all material respects as of the Merger Closing Date as though
made at and as of the Merger Closing Date;
2.3.2.2. Alaris shall have performed and complied in all material respects with all covenants
and agreements contained in the Merger Agreement that are required to be
performed or complied with by it on or before the Merger Closing Date;
2.3.2.3. Alaris shall not have had any Material Adverse Effect since the date on which the
Merger Agreement was signed;
2.3.2.4. the FOCI Condition has been fulfilled;
2.3.2.5. the CFIUS Condition has been fulfilled;
2.3.2.6. the DSS has communicated, orally or in writing, that it expects to issue the facility
security clearance to Merger Sub II on or prior to 31 December 2015;
2.3.2.7. any applicable prior notice period under ITAR relating to the Merger shall have
expired or otherwise been waived by the DDTC;
2.3.2.8. ARA shall have received satisfactory evidence that all personal guarantees given by
the Vendors have been released (other than any personal guarantee of Pradeep
Wahi and Anuradha Wahi (being two of the Vendors));
2.3.2.9. Pradeep Wahi shall have been appointed as a member of the Board; and
2.3.2.10. Alaris shall have delivered to ARA a certificate executed by an officer of Alaris, dated
as of the Merger Closing Date, as to the matters set out in paragraphs 2.3.2.1, 2.3.2.2
and 2.3.2.3 above.
2.4. Principal terms
The parties to the Merger Agreement have provided representations, warranties and
indemnities to each other that are customary for a transaction similar to the Merger.
3. UNDERLYING FINANCIAL INFORMATION OF ARA
As at 30 April 2014 (last audited financial statements) the value of total assets of ARA was
USD 9.6 million and the value of net assets was USD 1.9 million. ARA reported a loss before
tax of $649 000 for the year ended 30 April 2014.
4. CLASSIFICATION OF THE MERGER AND CIRCULAR TO SHAREHOLDERS
As set out in the Previous Announcements, the Merger is classified as a Category 1 transaction
in terms of the JSE Listings Requirements and requires shareholder approval. Accordingly, a
circular containing full details of the Merger and a notice to shareholders in terms of section 60
of the Companies Act (Act 71 of 2008), as amended, submitting the resolutions necessary to
approve and implement, inter alia, the Merger for shareholders to consider and if deemed fit, to
pass with or without modification, in writing, shall be distributed in due course.
Johannesburg
30 June 2015
Transaction adviser
PSG Capital Proprietary Limited
Designated Adviser
Merchantec Capital
Date: 30/06/2015 05:44:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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