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Detailed Terms Announcement Of The Broad-Based Black Economic Empowerment (“B-BBEE”) Transaction
ELLIES HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2007/007084/06)
JSE share code: ELI ISIN: ZAE000103081
(“Ellies” or the “Company”)
DETAILED TERMS ANNOUNCEMENT OF THE BROAD-BASED BLACK ECONOMIC
EMPOWERMENT (“B-BBEE”) TRANSACTION
1. INTRODUCTION
Ellies is pleased to announce that it has entered into an
agreement (“Subscription Agreement” or “the Agreement”) with
Imvula Education Empowerment Fund Trust (“Imvula” or “the
Subscriber”), a Broad-Based Black Economic Empowerment
(“B-BBEE”) partner, in terms of which Ellies will issue to
Imvula and Imvula will subscribe for 185 242 070 new ordinary
shares of no par value (“Subscription Shares”), (“the Proposed
B-BBEE Transaction”), subject to the fulfilment of
the conditions precedent as set out in paragraph 5 below. The
Subscription Shares will be issued at an issue price per
ordinary share of 10 cents per share, (“Subscription Price”),
for a total cash consideration of R18 524 207,00
(“Subscription Proceeds”).
As set out in the Company’s Chairperson’s Report for 2020,
the Company was rated as B-BBEE non-compliant relating to its
beneficial shareholding for the period then under review. The
non-compliant rating has posed challenges for the Company in,
or prevented the Company from, procuring certain business
opportunities or even tendering for certain business. The
Company proposes, therefore, to implement the Proposed B-BBEE
Transaction in order to increase its B-BBEE Status for the
reasons set out in paragraph 2 below. Ellies has identified
and selected Imvula based on Imvula’s ability to meet not only
the ownership criteria under the B-BBEE Codes of Good
Practice, but also Imvula’s ability to (i) enable the Company
to meet and improve its performance in relation to other B-
BBEE scorecard elements, and (ii) provide other strategic
benefits including Imvula’s access to appropriate potential
business networks and opportunities.
In addition, Imvula has agreed to transaction terms that are
favourable to Ellies, including:
– a 10-year lock-in period;
– Imvula funding the consideration payable for the
Subscription Shares from its own sources with no funding
assistance being required from Ellies; and
– Imvula agreeing to a price of 10 cents per Subscription
Share which is equal to the prevailing share price of the
Company as at 5 July 2021, and a premium of 1.6% to the
Company’s 30-day volume weighted average price up to and
including 5 July 2021.
The Proposed B-BBEE Transaction is regarded as the
specific issue of shares for cash in terms of section
5.51(g) of the JSE Limited (“JSE”) Listings Requirements
and is therefore subject to the necessary approval of the
shareholders of Ellies, (“the Specific Issue”).
The Proposed B-BBEE Transaction will result in an
aggregate B-BBEE shareholding in Ellies of approximately
23% on the issue date. Ellies anticipates achieving a
Level 4 B-BBEE Status as a result of the Proposed B-BBEE
Transaction.
2. RATIONALE
Implementing the Specific Issue will improve the level of B-
BBEE ownership in the Company and the Company’s B-BBEE Status
to a Level 4 contributor. As stated above, the Company is
currently ranked as a non-compliant B-BBEE contributor. An
improved B-BBEE scorecard is necessary for the future
prospects of the Company, and will strengthen the Company’s
position in relation to its competitors.
The Specific Issue will reiterate the Company’s commitment to
sustainable B-BBEE ownership and transformation. It is
intended that the Specific Issue will also assist to uplift
and develop black people in the areas and communities in which
the Subscriber operates.
In addition, the Company intends utilising the Subscription
Proceeds, to be raised in terms of the Specific Issue to the
Subscriber provided for herein in order to improve its
operations and/or financial position in order to endeavour to
increase returns for the shareholders of the Company.
3. INFORMATION ON IMVULA AND MAHARISHI INVINCIBILITY INSTITUTE
The Imvula Education Empowerment Trust is the funding arm of
initiatives aimed at providing a holistic set of solutions to
historically disadvantaged young South Africans to enable them
to become economically active citizens in high-level
employment. These initiatives are facilitated by the Maharishi
Invincibility Institute NPC (MI), a not for profit company.
Imvula provides an ideal B-BBEE solution, allowing partners to
attain the highest possible B-BBEE scores, in the most
impactful way for the future of South Africa, at an affordable
cost, and with fair value paid to the business. Imvula deploys
100% of future revenues to empower deserving unemployed young
black South Africans, through access to quality education,
specialist skills training, work experience, nutritional and
counselling support and finally job placement, thereby
assisting them to enter the economy productively.
This formula has proven to work over more than a decade, and
Maharishi Invincibility Institute, with its predecessor
organisations, has successfully put over 19 070 black
individuals into decent jobs, earning combined annual salaries
exceeding R1,45 billion and estimated career earnings of
approximately R41,85 billion. These individuals support over
150 000 family members. Maharishi Invincibility Institute has
won 34 awards locally and globally and has been selected as
the most innovative youth development programme in the world.
The beneficiaries of the Imvula Education Empowerment Fund
Trust are 100% South African black individuals (youth). These
will be youth specifically selected by the Maharishi
Invincibility Institute, based on genuine financial and other
needs.
4. SPECIFIC ISSUE
In terms of the Specific Issue, the Company will issue
185 242 070 ordinary shares of no par value in the authorised
share capital of the Company to Imvula. The Subscription
Shares will be of a class already in issue, will be listed on
the JSE and will rank pari passu in all respects with the
Ellies shares already in issue.
The Subscription Shares will be issued at an issue price of
R0,10 per Share, equal to a total issue price of
R18 524 207,00.
The Specific Issue will be made to a public shareholder as
defined by the JSE Listings Requirements. Imvula founders and
trustees are Geoffrey Rothschild, Sandile Shepard Ndlungwane,
Neo Petunia Makgato, Richard Herbert Peycke, Peter Samuel
Mabila, Adam Paul Blecher, Thami Mathamsanqa Ngubeni and Edo
Carlo Folli. Imvula is currently not a related party but will
become a related party upon conclusion of the Proposed B-BBEE
Transaction, by virtue of becoming a material shareholder, as
defined by the JSE Listings Requirements.
The Subscription Shares shall be issued to the Subscriber on
the Issue Date, being the date upon which the Subscription
Shares are allotted and issued by the Company to the
Subscriber, expected to occur within five business days after
fulfilment of all of the Conditions Precedent, or such later
date as may be notified by the Company.
From the Issue Date, the Subscriber will be entitled to
exercise voting rights in the Company with regard to the
appointment of directors in accordance with the Companies Act,
No. 71 of 2008, as amended from time to time (“Companies
Act”), JSE Listings Requirements and the Company’s Memorandum
of Incorporation (“MOI”), subject to the B-BBEE undertakings
by the Subscriber in paragraph 8 below.
In terms of paragraph 5.51(g) of the JSE Listings
Requirements, the Specific Issue requires the approval by way
of an ordinary resolution (requiring at least a 75% majority
of the votes cast in favour of such resolution) by all
Shareholders present or represented by proxy at the general
meeting. Imvula will be prohibited from selling their
Subscription Shares for a period of 10 years from the
Subscription Date (“Lock-in Period”).
The undertakings by the Company and the Subscriber are set out
in paragraphs 6, 7 and 8 below.
In addition to the above, the Subscription Agreement includes
warranties and breach clauses usual for a transaction of this
nature.
5. CONDITIONS PRECEDENT TO THE SPECIFIC ISSUE
(a) The Agreement is subject to the fulfilment of the
Conditions Precedent that on or before 30 September 2021
(“Long Stop Date”):
Conditions Precedent required by law
(i) the shareholders of the Company have voted at a
general meeting of the Company to:
(A) amend the MOI to increase the authorised shares
of the Company by the creation of 50 000 000
Shares, resulting in the increase of the
authorised shares of the Company from 800 000 000
to 850 000 000
ordinary Shares in accordance with in terms of
section 16(1)(c) of the Companies Act and
regulation 31(6) of the Companies Act;
(B) approve the Specific Issue;
(C) approve the pre-emptive right granted in favour of
the Company and/or its nominee as more fully
detailed in the pre-emptive right paragraph 10
below; and
(D) a specific buy-back of the Subscription Shares as
more fully detailed in the Company call option
paragraph 11 below, in terms of section 48(2)(a),
as read with section 46, of the Companies Act,
subject to the requirements of section 48(8)(b) of
the Companies Act;
(ii) all required approvals shall have been obtained,
including from the JSE and the Financial
Surveillance department of the South African Reserve
Bank; and
(iii) the Parties pass all required Board and/or
shareholders’ resolutions necessary for the
implementation of the Agreement;
Conditions Precedent in favour of the Subscriber
(iv) the Subscriber (acting reasonably) has confirmed in
writing that they have completed their due diligence
on the Company to their satisfaction; and
Conditions Precedent in favour of the Company
(v) the Company (acting reasonably) has confirmed in
writing that they have completed their due diligence
on the Subscriber to their satisfaction.
(b) The Conditions Precedent required by law are not capable
of waiver.
(c) The Condition Precedent in favour of the Subscriber is
expressed for the benefit of the Subscriber who may, on or
before the date for fulfilment thereof, waive or extend
the date of fulfilment thereof on written notice to the
Company.
(d) The Condition Precedent in favour of the Company who may,
on or before the date for fulfilment thereof, waive or
extend the date of fulfilment thereof on written notice to
the Subscriber.
(e) The Parties shall use their reasonable endeavours and
shall cooperate in good faith to procure the fulfilment of
the Conditions Precedent by the Long Stop Date, or such
later date as the Parties may agree in writing.
(f) If the Conditions Precedent are not fulfilled on or before
the Long Stop Date (or such later date/s as may be agreed
in writing between the Parties), then the Agreement, save
for the Surviving Provisions which will remain in full
force and effect, shall be of no force or effect, the
Parties shall be restored as near as possible to the
positions in which they would have been had the Agreement
not been entered into (status quo ante) and neither Party
shall have any claim against the other in terms of the
Agreement, save for a breach of clause 5(b) above.
6. UNDERTAKINGS BY THE COMPANY
(a) The Company undertakes:
(i) to comply with the relevant requirements of the
Companies Act and the JSE Listings Requirements in
relation to the Specific Issue;
(ii) that the Subscription Shares will have been legally
created and will be unencumbered;
(iii) that the Directors will have authorised the allotment
and issue of the Subscription Shares;
(iv) to allocate all of its annual budgeted spend that
enables a minimum B-BBEE score of Level 2 allocated
to (a) Skills Development Expenditure, (b) Enterprise
and Supplier Development Contributions, and (c)
Socio-Economic Development Contributions in South
Africa, as contemplated within the Codes (“B-BBEE
Spend”), to beneficiaries identified by the
Subscriber as suitable beneficiaries, to benefit from
such B- BBEE Spend, and in order to further improve
the Company’s B-BBEE scorecard as provided for and
approved by the shareholders of the Company in the
circular in terms of which the transaction herein
contemplated was approved by shareholders of the
Company. To the extent that such B-BBEE Spend does
not enable the Company to achieve a maximum
achievable score relative to the budgeted spend, for
any specific B-BBEE pillar with the beneficiaries
(identified by the Subscriber), as contemplated in the
B-BBEE Act and Codes, only then will the Company be
entitled to direct the relevant portion of such spend
to another B-BBEE beneficiary (the “Redirection
Entitlement”). The Redirection Entitlement shall not
apply in relation to commitments made by the Company
and in relation to which Absorption Bonus points
under the Skills Development element have been earned
by the Company (i.e. in terms of Clause 2.1.3 of the
Skills Development scorecard and Paragraph 3.5 in
Statement 300 read together with the definition of
“Absorption” in Schedule 1 of the Generic B-BBEE
Codes, as amended on 31 May 2019, which require the
Company to appoint the learners as permanent
employees and the number of learners may be in excess
of the permanent employees required by the Company);
and
(v) to do the YES (Youth Employment Services) programme
using the Subscriber as the implementation partner
with the intention of improving the B-BBEE Status of
the Company.
(b) The Company shall be responsible for the payment of all
of its costs of and incidental to:
(i) the making of the Specific Issue and the
implementation of all matters incidental thereto; and
(ii) the allotment and issue of the Subscription Shares
pursuant to the Specific Issue.
(c) The Company (i) undertakes to apply the proceeds of the
Subscription Price to improve its operations and/or
financial position in order to endeavour to increase
returns for the shareholders of the Company; and (ii)
confirms that it has a written confirmation from
Standard Bank that it has no intention to sweep the
Subscription Proceeds towards a reduction of the
Standard Bank loan.
7. SUBSCRIBER UNDERTAKINGS
The Subscriber confirms, acknowledges, represents, warrants
and undertakes for the benefit of the Company that:
(a) it has obtained all necessary consents and authorities and
has the necessary funding to enable it to give and execute
its commitment to subscribe for the Subscription Shares;
and
(b) it may lawfully subscribe for the Subscription Shares
without any additional lodgement, registration or other
formality or consents required.
8. B-BBEE UNDERTAKINGS BY THE SUBSCRIBER
For so long as it is a shareholder in the Company, the
Subscriber undertakes and warrants to and in favour of the
Company that it shall:
(a) procure that the person appointed by the Subscriber to the
Board of the Company shall have the necessary experience;
(b) maintain a Level 1 B-BBEE Status (which it warrants it
holds at the Signature Date) for as long as the Subscriber
is a shareholder in the Company;
(c) ensure that the B-BBEE Credentials are maintained for the
Lock-in Period as follows: 100% black person-owned and 60%
black women-owned;
(d) not sell, transfer, cede or otherwise alienate its Shares,
or any right or interest therein, other than in accordance
with any rights and/or obligations which it has in terms
of the Agreement and/or the MOI;
(e) not in any way encumber and/or grant any right or option
to any other person, save as provided for in the
Agreement, in respect of the Subscription Shares; and
(f) with effect from the Issue Date, on each anniversary of
the Issue Date and upon request by the Company at any
time, make itself available to the Company’s B-BBEE
accreditation agency in order to obtain a qualified
certificate to the Company indicating the voting, Control
and 100% of the economic interest in the Subscriber which
is, and will continue to be held, directly or indirectly,
by black people for the preceding 12-month period and the
Subscriber shall ensure it provides all reasonably
requested information timeously to ensure that the B-BBEE
accreditation agency is able to provide the Company with
the certificate concerned before the last day of the
relevant anniversary of the Issue Date, with the first
certificate to be issued to the Company within one month
from the Issue Date, which certificate will reflect at
least a Level 1 B-BBEE Status in relation to the Company,
as contemplated in terms of the B-BBEE Act as read with
the Codes (B-BBEE Credentials).
9. RESTRICTIONS ON TRANSFERS AND ENCUMBRANCE OF SHARES
Subject to the provisions of the MOI, the pre-emptive rights
set out in paragraph 10 below, but save as specifically
otherwise agreed to in writing by the Parties or specifically
permitted by the Agreement, the Subscriber shall for the
duration of the Lock-in Period not directly or indirectly
dispose of or encumber any of the Subscription Shares or its
rights or interest therein (or enter into any option,
derivative or other transaction, the effect of which is or
will be to dispose of or encumber or require it to dispose of
or encumber any of its Shares or its rights or interest
therein).
10. PRE-EMPTIVE RIGHT
(a) If the Subscriber wishes to dispose of any of its Shares,
the Subscriber shall offer such Shares by notice in
writing to the Company and/or its nominee (“Offer”)
stating:
(i) the number of Shares which the Subscriber proposes to
sell;
(ii) the price (in ZAR) at, and the terms and conditions
upon which, the Subscriber proposes to sell the Shares;
and
(iii) to the extent applicable, the name of the proposed
transferee to whom the Subscriber intends selling and
its ultimate holding company (if any), including a copy
of any offer received.
(b) Should the Offer not be accepted in full in writing within
30 business days after the date upon which the Offer is
made, the Company shall be deemed to have declined the
Offer.
(c) Notwithstanding the provisions in clause 10(a) above, the
acceptance of the Offer by the Company shall be subject
to:
(i) the Takeover Regulation Panel granting an exemption to
the Company in terms of section 119(6) of the Companies
Act; and
(ii) the Board of Directors of the Company having approved
and authorised the entering into of the Agreement and
the transactions contemplated herein, including:
(A) authorising the Company to repurchase from the
Subscriber the Subscription Shares in terms of
section 48(2)(a), as read with section 46, of the
Companies Act, subject to the requirements of
section 48(8)(b) of the Companies Act; and
(B) acknowledge that the Board of the Company has
applied the solvency and liquidity test, as set out
in section 4 of the Companies Act, and reasonably
conclude that the Company will satisfy the solvency
and liquidity test immediately after the repurchase
of the Shares following the acceptance of the
Offer.
(d) Should the Offer have not been accepted in accordance
with the aforegoing procedure, and a proposed transferee
has been identified, then:
(i) the Subscriber will then be entitled to Dispose of all
of its Shares offered, within a further period of 30
business days, to the proposed transferee referred to
in clause 10(a)(iii) at a price not lower and on terms
and conditions not more favourable to such person than
the price and terms stated in the Offer; and
(ii) unless the Subscriber disposes of all its said Shares
to the proposed transferee within the said further
period of 30 business days, it may not thereafter
Dispose of any Shares without again adopting the
procedure referred to herein.
(e) Following the expiration of the Lock-in Period, the
Subscriber shall be entitled to dispose of the
Subscription Shares and the Subscriber shall engage in
reasonable consultation with the Company relating to whom
the Subscription Shares are sold and that the
Subscription Shares are not (i) “dumped” in the market
(i.e. in large amounts at the same time with little or no
concern for the price or market effect); and/or (ii)
unreasonably sold below the market price; and/or (iii)
sold to a competitor of the Company.
11. COMPANY CALL OPTION
(a) A Trigger Event shall be deemed to have occurred in
relation to the Subscriber if the Subscriber:
(i) commits a material breach of the provisions of the
Agreement through an event or circumstance within its
control and fails to remedy such breach in accordance
with the Agreement;
(ii) should the Subscriber not maintain its B-BBEE
Credentials and fails to action the appropriate
amendments and do all things that is reasonably
practicable, in order to achieve the required B-BBEE
Credentials within three months or such reasonable
time considering legislation and regulation
procedures;
(iii) without the prior written consent of the Company,
makes any amendments to the Trust Deed that would
reduce the B-BBEE Credentials of the Subscriber;
(iv) without the prior written consent of the Company,
becomes Controlled, whether directly or indirectly, by
a person other than the person(s) who ultimately
Controlled it, directly or indirectly at the Issue
Date;
(v) takes any action regarding the winding up and/or
deregistration of its affairs;
(vi) fails to comply with the undertakings in paragraphs 7
and 8 above; or
(vii) reduces its B-BBEE Credentials as confirmed by the
Company’s verification agent.
(b) If a Trigger Event as contemplated in clause 11(a) above
has occurred, then the Subscriber hereby grants in favour
of the Company or its nominee, the irrevocable right and
option (“Call Option”), to repurchase from the
Subscriber, the Subscription Shares on the following
terms:
(i) the Company shall, without prejudice to any of its
other rights, be entitled, but not obliged, to
exercise the Call Option at any time (“Call Option
Period”) by giving the Subscriber written notice
(“Call Notice”) of its intention to exercise the Call
Option;
(ii) with effect from the date of the receipt by the
Subscriber of the Call Notice (“Call Sale Date”), the
Subscriber shall sell to the Company, who shall
repurchase from the Subscriber, the Subscription
Shares (“Repurchase”); and
(iii) the purchase price for the Subscription Shares during
the Call Option Period, shall be the 30-day volume
weighted average price of a Share as at the Call Sale
Date.
(c) Notwithstanding the provisions in clause 11(b) above, the
exercise and implementation of the Call Option shall be
subject to:
(i) the Takeover Regulation Panel granting an exemption to
the Company in terms of section 119(6) of the
Companies Act in respect of the Repurchase;
(ii) the Board having approved and authorised the entering
into of the Agreement and the transactions
contemplated herein, including:
(A) authorising the Company to repurchase from the
Subscriber the Subscription Shares in terms of
section 48(2)(a), as read with section 46, of the
Companies Act, subject to the requirements of
section 48(8)(b) of the Companies Act; and
(B) acknowledge that the Board has applied the
solvency and liquidity test, as set out in section
4 of the Companies Act, and reasonably conclude
that the Company will satisfy the solvency and
liquidity test immediately after completing the
Repurchase.
12. FINANCIAL INFORMATION
The financial effect of the proposed Specific Issue on
Ellies is a maximum cash inflow of approximately
R18 524 207,00 and an increase in number of shares in issue
to 805 400 305 and an increase in share capital. The
estimated once-off transaction costs will be set out in the
circular to shareholders.
13. IRREVOCABLE UNDERTAKINGS AND LETTERS OF SUPPORT
Ellies has received irrevocable undertakings and letters of
support from the following shareholders to vote in favour of
the authorised share increase, the Specific Issue, the
Repurchase and the B-BBEE Spend:
13.1 Irrevocable undertakings
Name of Number of Percentage
Shareholders Shares holding (%)
Mr Elliot Salkow 75 275 961 12,1%
Dr Shaun Prithivirajh 500 000 0,1%
Mr KS Bhala 2 025 0,0%
Mr ML Bhala 2 025 0,0%
Total 75 780 011 12,2%
13.2 Letters of support
Name of Number of Percentage
Shareholders Shares holding (%)
Mazi Asset Management
(Pty) Ltd 124 140 214 20%
Total 124 140 214 20%
Shareholders will be advised when additional irrevocable
undertakings and/or letters of support are obtained.
14. JSE RULING
Shareholders are advised that Ellies had received a formal
JSE ruling that the proposed B-BBEE Spend by Ellies to Imvula
will not be treated as a related party transaction after the
implementation of the Proposed B-BBEE Transaction, subject to
Ellies shareholders pre-approving the capped B-BBEE Spend over
the Lock-in Period at the general meeting, taking into account
that Imvula is not a related party at the time of entering
into the Subscription Agreement. Further details in this
regard will be included in the circular to be issued to
shareholders.
15. DIRECTORS’ RECOMMENDATION
The Board has considered the terms and conditions and is of
the opinion that the Proposed B-BBEE Transaction is beneficial
to the Company in that the Proposed B-BBEE Transaction will
improve the level of B-BBEE ownership in the Company and
consequently the Company’s overall B-BBEE Status. The Board
recommends that Shareholders vote in favour of the resolutions
to be proposed at the general meeting. The Directors intend
voting the Shares held by them in favour of the resolutions to
be proposed at the general meeting.
16. SHAREHOLDER APPROVAL
The Specific Issue is subject to Ellies’ shareholder approval.
A circular, containing the full details of the Proposed B-BBEE
Transaction, incorporating a notice convening a shareholders
meeting to shareholders, will be issued in due course in
compliance with the JSE Listings Requirements. The salient
dates and times of the Proposed B-BBEE Transaction, including
the date of the shareholders meeting, will also be announced
on SENS at the time of distributing the circular.
Johannesburg
6 July 2021
Corporate Advisor: Khanda Capital Proprietary Limited
Transaction Sponsor: Deloitte & Touche Sponsor Services
(Proprietary) Limited
Legal Advisor: Baker & McKenzie Incorporated
Date: 06-07-2021 05:28:00
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