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BRIMSTONE INVESTMENT CORPORATION LIMITED - Amendments to Brimstone's BEE Transaction

Release Date: 15/08/2016 17:00
Code(s): BRT BRN     PDF:  
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Amendments to Brimstone's BEE Transaction

Brimstone Investment Corporation Limited
(Incorporated in the Republic of South Africa)
(Registration number 1995/010442/06)
(ISIN Number : ZAE000015277 Share Code : BRT)
(ISIN Number : ZAE000015285 Share Code : BRN)
("Brimstone” or “the Company”)

AMENDMENTS TO BRIMSTONE’S BEE TRANSACTION

1.   Introduction and background

     1.1 Brimstone entered into a Black economic empowerment (“BEE”) transaction in November 2010 (“BEE
         Transaction”) in order to retain, attract, incentivise and align the interests of a new generation of
         executive management with those of Brimstone shareholders, as well as to maintain and enhance
         Brimstone’s BEE credentials.

     1.2 The BEE Transaction involved the issue of 39 140 000 Brimstone “N” ordinary shares (“N Shares”)
         (“Subscription Shares”) by Brimstone to the Brimstone Black Executive Investment Trust (“BEE
         Management Trust”), the Brimstone General Staff Investment Trust (“General Staff Trust”) and the
         Brimstone Broad-based BEE Trust (“Brimstone Broad-based BEE Trust”) (collectively “Participants”).

     1.3 In terms of a notional vendor funding arrangement put in place at the inception of the BEE Transaction
         (“the Notional Vendor Funding”), Brimstone was granted an option by the Participants to repurchase
         a certain number of Subscription Shares from the Participants in accordance with a repurchase
         formula, in three separate tranches (“the Original Brimstone Call Option”) as follows:

          -      Tranche 1: 50% of the Subscription Shares with the final date in relation to this tranche
                 (“Original Final Date”) being on 31 October 2016;

          -      Tranche 2: 40% of the Subscription Shares with the Original Final Date being on 31 October
                 2017; and

          -      Tranche 3: 10% the Subscription Shares with the Original Final Date being on 31 October 2018.


     1.4 In the event that the Original Brimstone Call Option is exercised, the Participants then have a right to
         subscribe for an equivalent number of new N Shares as are repurchased in terms of the Original
         Brimstone Call Option (“Original Participants Call Option”).

     1.5 Prior to the exercise of the first tranche of the Original Brimstone Call Option, Brimstone proposes:

          -      a variation to the subscription and relationship agreements entered into by Brimstone on 10
                 November 2010 with the BEE Management Trust and the General Staff Trust (“Variation to the
                 Subscription and Relationship Agreements of the BEE Management Trust and the General Staff
                 Trust”) which will result in amendments to the Original Brimstone Call Option and consequent
                 amendments to the Original Participants Call Option as set out in paragraph 2 below;

          -      the introduction of a call option to be granted by the BEE Management Trust and the General
                 Staff Trust to Brimstone (“the Unencumbered Brimstone Share Call Option”) as set out in
                 paragraph 3 below; and

          -      the introduction of an option to be granted by Brimstone to employees of Brimstone and its
                 subsidiaries who are or will be beneficiaries of the BEE Management Trust or the General Staff
                 Trust (“the Participating Employees”) to subscribe for a maximum of 6 250 000 N Shares (“the
                 Participating Employees Call Option”) as set out in paragraph 4 below;
          collectively “the Transactions”.


2.   Variation to the Subscription and Relationship Agreements of the BEE Management Trust and the General
     Staff Trust

     2.1 Brimstone is proposing the Variation to the Subscription and Relationship Agreements of the BEE
         Management Trust and the General Staff Trust to restructure the mechanics of the Notional Vendor
         Funding by:

          -       extending the Original Final Date and the percentage of Subscription Shares that may be
                  repurchased by Brimstone from the BEE Management Trust and the General Staff Trust at the
                  relevant Original Final Date (“Revised Brimstone Call Option”); and

          -       as a consequence, the Original Participants Call Option as it relates to the BEE Management
                  Trust and the General Staff Trust will be revised on the same terms as the Revised Brimstone
                  Call Option (“Revised Participants Call Option”); and

          -       the Notional Vendor Funding, the Original Final Dates and the Original Participants Call Option
                  as it relates to the Brimstone Broad-based BEE Trust will not be varied and same will remain in
                  place as is.

     2.2 The Variation to the Subscription and Relationship Agreements of the BEE Management Trust and the
         General Staff Trust will result in five separate repurchase tranches as follows:

          -       Tranche 1 comprising 22.5% of the Subscription Shares with the final date in relation to this
                  tranche (“Revised Final Date”) being on 31 October 2016;

          -       Tranche 2 comprising 22.5% of the Subscription Shares with the Revised Final Date being 31
                  October 2017;

          -       Tranche 3 comprising 22.5% of the Subscription Shares with the Revised Final Date being 31
                  October 2018;

          -       Tranche 4 comprising 22.5% of the Subscription Shares with the Revised Final Date being 31
                  October 2019; and

          -       Tranche 5 comprising 10% of the Subscription Shares with the Revised Final Date being 31
                  October 2020.

3.   Unencumbered Brimstone Share Call Option

     3.1. Terms of Unencumbered Brimstone Share Call Option

         3.1.1.   Following the exercise of the Revised Brimstone Call Option, Brimstone is proposing that a right
                  and option be granted by the BEE Management Trust and/or the General Staff Trust to
                  Brimstone (or its nominee), to repurchase all or some of the remaining N Shares held by the
                  BEE Management Trust and the General Staff Trust after the Revised Brimstone Call Option
                  has been exercised in respect of a particular tranche of Subscription Shares earmarked for the
                  Revised Brimstone Call Option (“Unencumbered Brimstone Shares”) at the 30 day volume
                  weighted average price of Brimstone N Shares (“Market Value”) immediately preceding the
                  date on which Brimstone exercises the Unencumbered Brimstone Share Call Option.

         3.1.2.   The exercise of the Unencumbered Brimstone Share Call Option will involve a repurchase by
                  Brimstone of a maximum of Brimstone N Shares over the period that the tranches may become
                  available after the exercise, on or about the Revised Final Date (“Unencumbered Tranches”),
                  as follows:

                  -     39 140 000 Brimstone N Shares issued in terms of the BEE Transaction;

                  -     less 2 500 000 Brimstone N Shares issued to the Brimstone Broad-based BEE Trust,

                  -     less any Brimstone N Shares repurchased separately in terms of the Revised Brimstone
                        Call Option.

         3.1.3.   The exercise of the Unencumbered Brimstone Share Call Option will have no impact on the
                  number of N Shares in issue as these N Shares were already held as treasury shares. There are
                  4 253 087 Brimstone ordinary shares and 46 184 634 Brimstone N Shares held as treasury
                  shares respectively for accounting purposes.

         3.1.4.   In terms of the JSE Limited (“JSE”) Listing Requirements, the exercise of the Unencumbered
                  Brimstone Share Call Option is classified as a “specific repurchase” for Brimstone.

     3.2. Source of funds

          The exercise of the Unencumbered Brimstone Share Call Option will be funded from existing cash
          resources.

     3.3. Statement by the board of directors of Brimstone (“the Board”)

          The Board will only enter into the Unencumbered Brimstone Share Call Option if it is of the opinion
          that, for a period of twelve months subsequent to the date of the exercise of the Unencumbered
          Brimstone Share Call Option:

          -   the Company and the Group will be in a position to repay their debts in the ordinary course of
              business;

          -   the assets of the Company and the Group, being fairly valued in accordance with IFRS, will be in
              excess of the liabilities of the Company and the Group;

          -   the ordinary and N Share capital and reserves of the Company and the Group are adequate for
              ordinary business purposes; and

          -   the available working capital will be adequate for ordinary business purposes.

          A resolution by the Board will be passed that the Board has applied the solvency and liquidity test in
          accordance with the requirements of the Companies Act, 2008 (No. 71 of 2008) and has reasonably
          concluded that the Company will satisfy the solvency and liquidity test upon exercising the
          Unencumbered Brimstone Share Call Option.

4.   Participating Employees Call Option

     4.1. Terms of the Participating Employees Call Option

         4.1.1.   In addition to the Revised Participants Call Option, Brimstone has resolved to grant an
                  additional right and option to Participating Employees to subscribe for N Shares as follows:

                  -   Participating Employees in the BEE Management Trust may subscribe for up to 1 000 000
                      N Shares per Participating Employee; and
                  -    Participating Employees in the General Staff Trust may subscribe for up to 50 000 N Shares
                       per Participating Employee,

                  with a total maximum limit of up to 6 250 000 Brimstone N Shares to be subscribed for
                  collectively by all such Participating Employees, at the Market Value immediately preceding
                  the date on which Brimstone exercises the Participants Call Option.

         4.1.2.   The Participating Employees Call Option will be split as follows:

                  -    up to a maximum of 6 000 000 Brimstone N Shares to be issued to the Participating
                       Employees under the BEE Management Trust; and

                  -    up to a maximum of 250 000 Brimstone N Shares to be issued to the Participating
                       Employees under the General Staff Trust.

         4.1.3.   In terms of the JSE Listing Requirements, the exercise of the Participating Employees Call
                  Option is classified as a “specific issue of shares for cash” for Brimstone.

     4.2. Intended use of funds

          The funds received on exercise of the Participating Employees Call Option will be added to cash-on-
          hand.

5.   Impact of the Unencumbered Brimstone Share Call Option and the Participating Employees Call Option on
     financial information

     5.1. The exercise of the Unencumbered Brimstone Share Call Option is immaterial on the financial
          information of Brimstone and will involve an amount of R29.588 million being payable in cash for the
          Unencumbered Shares following the exercise of the Unencumbered Brimstone Share Call Option.

     5.2. The exercise of the Participating Employees Call Option will result in an increase in the shares in issue
          and the weighted average number of shares in issue of 1.091 million N Shares and the receipt of
          R13.089 million in cash.

6.   Circular and salient dates of the Transactions

     A circular containing full details of the Transactions, together with a notice of general meeting has been
     dispatched to Brimstone shareholders today. The salient dates are as follows:


                                                                                                           2016

       Circular posted to Brimstone shareholders on                                         Monday, 15 August
       Last day to trade to be entitled to vote and participate in the                   Tuesday, 6 September
       general meeting
       Record date to be entitled to vote and participate in the general                   Friday, 9 September
       meeting
       Forms of proxy to be received by 15h00 on                                          Friday, 16 September
       General meeting to be held at 15h00 on                                           Tuesday, 20 September
       Results of general meeting to be released on SENS on                             Tuesday, 20 September


Cape Town
15 August 2016

Investment Bank and Sponsor
Nedbank Corporate and Investment Banking

Independent Reporting Accountants
Deloitte

Legal Advisor
Cliffe Dekker Hofmeyr

Date: 15/08/2016 05:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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