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Category 2 Transaction Announcement
GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1997/003548/06)
Share code: GPL
ISIN: ZAE000119814
(“GPI” or “the Company”)
CATEGORY 2 TRANSACTION ANNOUNCEMENT
1. INTRODUCTION
Shareholders are advised that the Company has concluded a number of agreements,
relating to the acquisition and disposal of certain rental enterprises, in relation to the
settlement of a dispute with Gumboot Investments Proprietary Limited. The particulars of
the transaction, description of key terms, purchase consideration and other related
matters are detailed in this announcement. For the avoidance of doubt, there are no
related parties of the Company involved in the transactions described below.
2. RATIONALE FOR THE CONCLUSION OF THE TRANSACTIONS
2.1. In June 2016 Mac Brothers Catering Equipment Proprietary Ltd (“Mac Brothers”) (a
subsidiary, at the time, of GPI) and the Company entered into a sale and lease back
agreement with Gumboot Investments Proprietary Limited (“Gumboot”) to sell two
properties owned and occupied by Mac Brothers, being Erf 32496 Cape Town, in the
City of Cape Town, Cape Division, Western Cape Province, situated at 32 – 34
Benbow Avenue, Epping Industria 1, measuring 13 048 m2 (“Epping Property”) and
Erf 86 in the Ekurhuleni Metropolitan Municipality, Gauteng Province situated at 138
Terrance Road, Sebenza, Edenvale, Gauteng, measuring 5 565m2 (“Sebenza
Property”) (collectively, the “Properties”). One of the suspensive conditions of the
aforesaid transaction between Mac Brothers and Gumboot was that Mac Brothers
enters into a triple net, self-repairing agreement of lease in respect of the Epping
Property with an initial base rental of R552 018 per month (excluding operational
costs), an escalation of 7% per annum and a rental term of 10 years.
2.2. The lease agreement was entered into by Mac Brothers with a parent company
guarantee and indemnity provided by GPI on 20 June 2016. In addition, an undertaking
to replace the asbestos roof of the Epping Property was provided by Mac Brothers. As
at the end of June 2022 the net present value of the outstanding rental was
approximately R41m and the total cost to replace the roof was approximately R5m.
The total exposure under the guarantee/indemnity as at the end of June 2022 was
estimated at approximately R46m.
2.3. In April 2022 Mac Brothers was placed under voluntary liquidation and the lease
agreement between Mac Brothers and Gumboot was cancelled in June 2022 by the
appointed liquidator. This opened GPI to a potential damages claim under the
indemnity provided by GPI. The extent of the damages would however have to be
established by a court unless agreed between GPI and Gumboot.
2.4. In order to limit the exposure and prevent a lengthy litigious process, GPI agreed to
purchase the rental enterprises conducted at the Properties from Gumboot, on the
terms and conditions set out more fully below, for an aggregate amount of
approximately R66.5m, which was calculated as the market value of the buildings plus
a premium which included the net present value of the portion of the rental that was
higher than a market related rental.
2.5. The reason for the premium is that the rentals guaranteed by GPI are higher than the
current market rental. The purchase of the aforesaid rental enterprises is conditional
on GPI simultaneously selling the Epping Property and Sebenza Property for R35m
and R9m, respectively, to Karez Trading Proprietary Limited (“Karez”). Karez is owned
as to 50% by The Zaa Trust (registration number IT2001/99) and 50% by Namstat
Proprietary Limited (registration number 2016/198774/07), both unrelated to GPI.
2.6. The net effect of the transaction is that GPI will generate a loss of R22.5m (excluding
legal and brokerage fees) which can be attributed to the cost of the indemnity provided
by GPI. The transaction allows GPI to limit its exposure under the guarantee /indemnity
and prevent a lengthy litigious process which would delay the implementation of GPI’s
strategy to unlock value through a controlled sale of assets.
3. THE ACQUISITIONS BY THE COMPANY
Particulars of the Acquisitions
3.1. On 4 October 2022, the Company entered into a written agreement (“Gumboot Sale
Agreement”) with Gumboot, in terms of which the Company will purchase the rental
enterprises conducted by Gumboot at the Properties (including the Properties)
(“Acquisitions”), from Gumboot for a purchase consideration of R45,500,000 in
respect of the Epping Property (“Epping Purchase Consideration”) and R21,000,000
in respect of the Sebenza Property (“Sebenza Purchase Consideration”). Gumboot
is wholly-owned by Pointbreak Property Proprietary Limited, registration number
2002/027488/07, which is unrelated to GPI.
Payment of the purchase consideration
3.2. The Epping Purchase Consideration and the Sebenza Purchase Consideration is
payable by the Company to Gumboot on the date of registration of transfer of
ownership of the Properties into the name of the Company (“Acquisition Transfer
Date”).
3.3. The Epping Purchase Consideration and the Sebenza Purchase Consideration will be
paid in cash by the Company.
Conditions Precedent
3.4. The Acquisitions are inter-conditional and subject to the fulfilment (or, where
applicable, waiver) of the following conditions precedent:
3.4.1. the entry into of the Epping Sale Agreement (as defined in paragraph 4.1 below)
between the Company and Karez and such agreement becomes unconditional in
accordance with its terms, save for any condition therein requiring that the Gumboot
Sale Agreement becomes unconditional and save for the condition relating to transfer
of the Epping Property set forth in paragraph 4.4.5 below;
3.4.2. the entry into of the Sebenza Sale Agreement (as defined in paragraph 4.7 below)
between the Company and Karez, and such agreement becomes unconditional in
accordance with its terms, save for any condition therein requiring that the Gumboot
Sale Agreement becomes unconditional and save for the condition relating to transfer
of the Sebenza Property set forth in paragraph 4.10.5 below;
3.4.3. the entry into of the Settlement Agreement (as defined in paragraph 5.1 below)
between Gumboot and the Company and such agreement becomes unconditional in
accordance with its terms, save for any condition therein requiring that the Gumboot
Sale Agreement becomes unconditional;
3.4.4. the entry into of lease agreements between Gumboot and GPI Management Services
Proprietary Limited (“GPIMS”) (a wholly-owned subsidiary of the Company) in terms
whereof, inter alia, Gumboot leases the Properties to GPIMS with effect from
1 July 2022 until the date of transfer of the Properties to Karez, save for any condition
therein requiring that the Gumboot Sale Agreement becomes unconditional (“Lease
Agreements”); and
3.4.5. the shareholders of Gumboot have passed a special resolution in terms of
section 112 read with section 115 of the Companies Act, 2008 approving the disposal
by Gumboot of the rental enterprises conducted at the Properties (including the
Properties),
which conditions precedent must be fulfilled by not later than 7 October 2022, which
date may be extended by the parties to the Gumboot Sale Agreement, in writing.
Effective date of the Acquisitions
3.5. Possession, occupation and control of the rental enterprises conducted at the
Properties will be given to the Company on the Acquisition Transfer Date, which is
currently anticipated to occur by not later than 31 January 2023.
Warranties and other significant terms of the agreements
3.6. The Sale Agreement contains representations and warranties by Gumboot in favour of
the Company which are standard for a transaction of this nature.
4. THE DISPOSALS BY THE COMPANY
Particulars of the Epping Sale Agreement
4.1. On 4 October 2022, the Company, concluded a written agreement (“Epping Sale
Agreement”) with Karez, in terms of which the Company will dispose of the rental
enterprise conducted at the Epping Property (including the Epping Property) to be
acquired by the Company under the Gumboot Sale Agreement, to Karez, for a
purchase consideration of R35,000,000 (“Epping Disposal Consideration”).
Payment of the Epping Disposal Consideration
4.2. The Epping Disposal Consideration is payable by Karez in cash to the conveyancers
nominated under the Epping Sale Agreement, within 30 days following the signature
date of the Epping Sale Agreement, to be held in trust by the conveyancers until the
date on which the Epping Property is registered in the name of Karez (“Epping
Transfer Date”), whereupon it will be paid to Gumboot.
4.3. To the extent that Karez does not make payment of the Epping Disposal Consideration
as contemplated in the Epping Sale Agreement, Karez will instead be required to
provide the conveyancers with a bank guarantee acceptable to the Company, as
security for the payment of the Epping Disposal Consideration on the Epping Transfer
Date.
Conditions Precedent to the Epping Sale Agreement
4.4. The Epping Sale Agreement is subject to the fulfilment (or, where applicable, waiver)
of the following outstanding conditions precedent:
4.4.1. the entry into of the Gumboot Sale Agreement between Gumboot and the Company,
and such agreement becomes unconditional in accordance with its terms, save for
any condition therein requiring that the Epping Sale Agreement becomes
unconditional;
4.4.2. the entry into of the Sebenza Sale Agreement between the Company and Karez, and
such agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Epping Sale Agreement becomes unconditional;
4.4.3. the entry into of the Settlement Agreement between Gumboot and the Company and
such agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Epping Sale Agreement becomes unconditional;
4.4.4. the entry into of the Lease Agreement in respect of the Epping Property, and such
agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Epping Sale Agreement becomes unconditional;
and
4.4.5. transfer of the Properties from Gumboot to the Company having taken place pursuant
to the Gumboot Sale Agreement and the Properties being registered in the name of
the Company,
which conditions precedent must be fulfilled by not later than 30 November 2022, which
date may be extended by the parties to the Epping Sale Agreement, in writing.
Effective date of the Epping Sale Agreement
4.5. Possession, occupation and control of the rental enterprise conducted at the Epping
Property shall be given to Karez on the Epping Transfer Date, which is currently
anticipated to occur by not later than 31 January 2023.
Warranties and other significant terms of the Epping Sale Agreement
4.6. The Epping Sale Agreement contains limited representations and warranties by the
Company in favour of Karez. Subject to such warranties, the rental enterprise
(including the Epping Property) is sold voetstoots.
Particulars of the Sebenza Sale Agreement
4.7. On 4 October 2022, the Company, concluded a written agreement (“Sebenza Sale
Agreement”) with Karez, in terms of which the Company will dispose of the rental
enterprise conducted at the Sebenza Property (including the Sebenza Property) to be
acquired by the Company under the Gumboot Sale Agreement, to Karez, for a
purchase consideration of R9,000,000 (“Sebenza Disposal Consideration”).
Payment of the Sebenza Disposal Consideration
4.8. The Sebenza Disposal Consideration is payable by Karez in cash to the conveyancers
nominated under the Sebenza Sale Agreement, within 30 days following the signature
date of the Sebenza Sale Agreement, to be held in trust by the conveyancers until the
date on which the Sebenza Property is registered in the name of Karez (“Sebenza
Transfer Date”), whereupon it will be paid to Gumboot.
4.9. To the extent that Karez does not make payment of the Sebenza Disposal
Consideration as contemplated in the Sebenza Sale Agreement, Karez will instead be
required to provide the conveyancers with a bank guarantee acceptable to the
Company, as security for the payment of the Sebenza Disposal Consideration on the
Sebenza Transfer Date.
Conditions Precedent to the Sebenza Sale Agreement
4.10. The Sebenza Sale Agreement is subject to the fulfilment (or, where applicable, waiver)
of the following conditions precedent by 30 December 2022, which date may be
extended by the parties to the Sebenza Sale Agreement, in writing:
4.10.1. the entry into of the Gumboot Sale Agreement between Gumboot and the Company,
and such agreement becomes unconditional in accordance with its terms, save for
any condition therein requiring that the Sebenza Sale Agreement becomes
unconditional;
4.10.2. the entry into of the Epping Sale Agreement between the Company and Karez, and
such agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Sebenza Sale Agreement becomes unconditional;
4.10.3. the entry into of the Settlement Agreement between Gumboot and the Company and
such agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Sebenza Sale Agreement becomes unconditional;
4.10.4. the entry into of the Lease Agreement in respect of the Sebenza Property, and such
agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Sebenza Sale Agreement becomes unconditional;
and
4.10.5. transfer of the Properties from Gumboot to the Company having taken place pursuant
to the Gumboot Sale Agreement and the Properties being registered in the name of
the Company.
Effective date of the Sebenza Sale Agreement
4.11. Possession, occupation and control of the rental enterprise conducted at the Sebenza
Property shall be given to Karez on the Sebenza Transfer Date, which is currently
anticipated to occur by not later than 31January 2023.
Warranties and other significant terms of the agreements
4.12. The Sebenza Sale Agreement contains limited representations and warranties by the
Company in favour of Karez. Subject to such warranties, the rental enterprise
(including the Sebenza Property) is sold voetstoots.
5. THE SETTLEMENT AGREEMENT
Key Particulars of the Settlement Agreement
5.1. On 4 October 2022, the Company, concluded a settlement agreement with Gumboot
(“Settlement Agreement”), in terms whereof, inter alia, the Company and Gumboot
agreed to fully and finally settle a dispute which had arisen between them regarding
the Company’s liability under a guarantee and indemnity agreement entered into
between them on 20 June 2016 (“Security Agreement”).
5.2. The various transactions which Gumboot and the Company agreed to conclude in
terms of the Settlement Agreement, are set out above, including the Gumboot Sale
Agreement and the Lease Agreements.
5.3. In addition, in terms of the Settlement Agreement, GPIMS agrees to pay rental to
Gumboot, the further details of which are set out in paragraph 6.4 below.
5.4. The Settlement Agreement also provides that GPI will pay legal costs to Gumboot on
the fulfilment date under the Settlement Agreement, being in aggregate R214,000 in
respect of the legal fees incurred by Gumboot in connection with the dispute in relation
to the Security Agreement.
Conditions Precedent
5.5. The Settlement Agreement is subject to the fulfilment (or, where applicable, waiver) of
the following conditions precedent:
5.5.1. the entry into of the Gumboot Sale Agreement between the Company and Gumboot,
and such agreement becomes unconditional in accordance with its terms, save for
any condition therein requiring that the Settlement Agreement becomes
unconditional;
5.5.2. the entry into of the Epping Sale Agreement between the Company and Karez and
such agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Settlement Agreement becomes unconditional
and save for the condition relating to transfer of the Epping Property set forth in
paragraph 4.4.5 above;
5.5.3. the entry into of the Sebenza Sale Agreement between the Company and Karez, and
such agreement becomes unconditional in accordance with its terms, save for any
condition therein requiring that the Settlement Agreement becomes unconditional
and save for the condition relating to transfer of the Sebenza Property set forth in
paragraph 4.10.5 above ; and
5.5.4. the entry into of Lease Agreements and such agreements become unconditional in
accordance with their terms, save for any condition therein requiring that the
Settlement Agreement becomes unconditional;
which conditions precedent must be fulfilled by not later than 7 October 2022, which
date may be extended by written agreement between the Company and Gumboot.
Effective date of the Settlement Agreement
5.6. The Settlement Agreement will be implemented on the fulfilment date, being the date
upon which the last of the conditions precedent under the Settlement Agreement are
fulfilled or waived, as the case may be.
5.7. The Settlement Agreement also contains two conditions subsequent being that: (i) the
Gumboot Sale Agreement is implemented by 31 January 2023; and (ii) the Sebenza
Sale Agreement and the Epping Sale Agreement are implemented by 31 January 2023
(“Conditions Subsequent”). To the extent that the Conditions Subsequent are not
fulfilled or waived by 31 January 2023 (or such later date to be agreed between the
Company and Gumboot), then the Settlement Agreement and any of the other
agreements which may have been concluded (i.e. the Gumboot Sale Agreement, the
Leases, the Epping Sale Agreement and/or the Sebenza Sale Agreement) shall
automatically terminate.
Warranties and other significant terms of the agreements
5.8. The Settlement Agreement contains limited representations and warranties by the
Parties.
6. FINANCIAL INFORMATION
6.1. The profits after tax attributable to the rental enterprise conducted at the Epping
Property and the rental enterprise conducted at the Sebenza Property (including such
Properties) for the previous financial period is not known to the Company as Gumboot
is unwilling to disclose such information. Given that the rental enterprises will be
acquired and then immediately disposed of by the Company, the Company does not
believe that the information regarding the profits are relevant to GPI shareholders.
6.2. Quadrant Properties Proprietary Limited was appointed as independent valuers by the
Company, valued the land and buildings at the Epping Property as R31 000 000 (thirty
one million Rand) and at the Sebenza Property as R11 000 000 (eleven million Rand),
Both valuations were done as at 31 August 2022.
6.3. The proceeds from the disposal of the rental enterprise conducted at the Epping
Property and the rental enterprise conducted at the Sebenza Property (including such
Properties) will be applied towards the settlement of the Epping Purchase
Consideration and the Sebenza Purchase Consideration.
6.4. In terms of the Lease Agreements, GPIMS will pay monthly rental to Gumboot until the
date of transfer of the Properties to Karez as follows, which is also a term of the
Settlement Agreement:
6.4.1. the monthly rental for the Sebenza Property, from 1 July 2022 up until the Sebenza
Transfer Date ("Sebenza Interim Period"), in the amount of R105,474.00 (one
hundred and five thousand four hundred and seventy-four thousand rand) per month
("Sebenza Rental Costs");
6.4.2. the monthly rental for the Epping Property, from 1 July 2022 up until the Epping
Transfer Date ("Epping Interim Period"), in the amount of R282,704.00 (two
hundred and eighty-two thousand seven hundred and four rand) per month ("Epping
Rental Costs");
6.4.3. the operational costs in respect of the Sebenza Property during the Sebenza Interim
Period, being all amounts payable in relation to maintenance, structural and other
charges payable by GPIMS in terms of the Lease Agreement in respect of the
Sebenza Property (“Sebenza Operational Costs”). The indicative Sebenza
Operational Costs based on the 12 month average for the preceding 12 months, is
anticipated to be approximately R123,625.83 (one hundred and twenty three
thousand six hundred and twenty five rand and eighty three cents) per month and the
actual Sebenza Operational Costs will be invoiced by Gumboot to GPIMS on a
monthly basis; and
6.4.4. the operational costs in respect of the Epping Property during the Epping Interim
Period, being all amounts payable in relation to maintenance, structural and other
charges payable by GPIMS in terms of the Lease Agreement in respect of the Epping
Property (“Epping Operational Costs”). The indicative Sebenza Operational Costs
based on the 12 month average for the preceding 12 months, is anticipated to be
approximately R153,635.73 (one hundred and fifty three thousand six hundred and
thirty five rand and seventy three cents) per month and the actual Epping Operational
Costs will be will be invoiced by Gumboot to GPIMS on a monthly basis;
6.5. Gumboot will refund to GPIMS within 5 business days of receipt of such amounts –
6.5.1. any and all rental payments from third parties actually received by Gumboot in
respect of the Sebenza Property during the Sebenza Interim Period up to the
maximum of the Sebenza Rental Costs;
6.5.2. any and all rental payments from third parties actually received by Gumboot in
respect of the Epping Property during the Epping Interim Period up to the maximum
of the Epping Rental Costs;
6.5.3. any and all operational costs actually received from third parties by Gumboot in
respect of the Sebenza Properties during the Sebenza Interim Period up to the
maximum of the actual Sebenza Operational Costs; and
6.5.4. any and all operational costs actually received from third parties by Gumboot in
respect of the Epping Property during the Epping Interim Period up to the maximum
of the Epping Operational Costs.
6.6. Gumboot will in good faith take all reasonable steps to recover all rental payments and
operational costs from third parties in respect of the Sebenza Property and the Epping
Property during the Sebenza Interim Period and the Epping Interim Period,
respectively.
7. CLASSIFICATION OF THE TRANSACTION
When aggregated, the Acquisitions contemplated in the Gumboot Sale Agreement and
the disposals contemplated in the Epping Sale Agreement and the Sebenza Sale
Agreement, constitute a category 2 transaction in terms of the JSE Limited Listings
Requirements.
Cape Town
5 October 2022
Sponsor
PSG Capital
Legal Advisor
Clyde & Co
Date: 05-10-2022 02:00:00
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