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THE PIVOTAL FUND LIMITED - Conclusion of various transactions in fulfilment of certain conditions precedent to the scheme of arrangement

Release Date: 11/11/2016 12:22
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Conclusion of various transactions in fulfilment of certain conditions precedent to the scheme of arrangement

THE PIVOTAL FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2005/030215/06)
JSE share code: PIV  ISIN: ZAE000196440
(“Pivotal”)


CONCLUSION OF VARIOUS TRANSACTIONS IN FULFILMENT OF CERTAIN CONDITIONS PRECEDENT TO THE SCHEME OF ARRANGEMENT


1      INTRODUCTION AND RATIONALE

       Pivotal shareholders are referred to the announcement released on the Stock Exchange News Services ("SENS") of the JSE
       Limited ("JSE") on 30 August 2016 relating to the proposed acquisition by Redefine Properties Limited of the entire
       issued share capital of Pivotal by way of a scheme of arrangement in terms of section 114 of the Companies Act, No. 71 of
       2008, as amended ("Companies Act"), to be proposed by the board of directors of Pivotal between Pivotal and the Pivotal
       shareholders (“scheme”) and the posting of the circular incorporating the notice of the general meeting announcement
       released on SENS on 31 October 2016, and are advised that Pivotal has concluded agreements which will result in:

       1.1    the disposal of Pivotal's direct and/or indirect co-ownership interests in the Lakeview land and the West End
              development;

       1.2    an acceleration of potential and future rights to subscribe for ordinary shares in Pivotal ("Pivotal shares"), save for
              such potential and future rights held by the trustees for the time being of the Corob Trust (“Corob Trust”), which
              rights are being accelerated by way of an amendment to the memorandum of incorporation of Pivotal; and

       1.3    the disposal of Pivotal's interests in Abreal Proprietary Limited (“Abreal”) to Abman Proprietary Limited
              (“Abman”),

       (collectively the "transactions").

       The conclusion of the transactions referred to in paragraph 1 above, save for the amendment of the memorandum of
       incorporation of Pivotal, are among the conditions precedent required to be fulfilled in terms of the scheme as further
       detailed in the circular issued to Pivotal shareholders on 31 October 2016 (“the circular”).

2      TERMS OF THE TRANSACTIONS

       2.1    Disposal of Pivotal's direct and/or indirect co-ownership interests in Lakeview land and the West End
              development

              2.1.1    26.67% undivided share in Lakeview land

                       During 2014 Pivotal entered into a sale agreement in terms of which Pivotal purchased from Standard Bank
                       Properties Proprietary Limited ("Standard Bank Properties") a 26.67% undivided share in the real right
                       of extension relating to the developable floor area that may be created on (i) Erf 920 Constantia Kloof
                       Extension 22 Township, Registration Division IQ, Province of Gauteng, measuring 2 406 square metres
                       ("Erf 920"); and (ii) Remaining Extent of Erf 984 Constantia Kloof Extension 25, Registration Division
                       IQ, Province of Gauteng, measuring 2.0682 hectares (collectively the "Lakeview land").

                       Pivotal and Abman have entered into a sale of property agreement in respect of which, inter alia, subject to
                       the fulfilment of certain conditions precedent, Pivotal will dispose of its co-ownership interests in the
                       remaining 26.67% undivided share in the Lakeview land to Abman, in consideration for a purchase price of
                       R2 702 204 (excluding VAT), payable in cash. Pivotal shall use the sale proceeds to reduce debt.

                       The effective date of the abovementioned agreement is 7 days after the fulfilment of the conditions
                       precedent as further detailed in paragraph 4 below.

              2.1.2    40% undivided share in Lakeview land and redemption of series 2 B preference shares

                       During 2014 Pivotal entered into:

                       -    a sale agreement to purchase a 40% undivided share in Lakeview land from the trustees for the time
                            being of the MPI Trust ("MPI Trust") in consideration for a purchase price to be settled by taking
                            over the existing debt of the MPI Trust in respect of its 40% undivided share in Lakeview land and
             the issue of Pivotal shares; and

        -    a preference share subscription agreement and a relationship agreement ("relationship agreement")
             relating to Erf 920, in terms whereof, inter alia, the MPI Trust subscribed for 919 000 B redeemable,
             convertible, non-participating preference shares in the issued share capital of Pivotal, designated as
             series 2 B preference shares ("series 2 B preference shares"). The MPI Trust provided Pivotal with
             funding to develop Erf 920, and if and when the development achieves a 60% loan to value ratio,
             Pivotal shall discharge the development funding provided by MPI Trust and the series 2 B preference
             shares shall convert into so many Pivotal shares as (at their then prevailing market price) have a value
             equivalent to the net asset value of MPI Trust attributable to the development. Furthermore, in terms
             of the relationship agreement, upon the redemption of the series 2 B preference shares, Pivotal has a
             put option to require the MPI Trust to purchase Erf 920 from Pivotal.

        Pivotal and the MPI Trust have entered into the following agreements:

        -    a rectification of the relationship agreement, in terms whereof the parties rectify, with retroactive
             effect, the relationship agreement to include the correct description of Lakeview land, and to allow for
             the payment of the purchase price in respect of Erf 920 either in cash or by set off ("rectification of
             relationship agreement"). The effective date of this agreement is the date on which the agreement is
             signed by the party last signing;

        -    a redemption agreement, in terms whereof, inter alia, subject to the fulfilment or waiver of certain
             conditions precedent, the series 2 B preference shares, constituting 100% of the issued series 2 B
             preference shares, are redeemed by Pivotal for a redemption price of R4 595 000 ("redemption
             price"), being an amount equal to the original issue price for the series 2 B preference shares, which
             redemption price is payable in cash to the MPI Trust and funded in full from the contributed tax
             capital (as defined in section 1 of the Income Tax Act, No. 58 of 1962) of Pivotal by way of a
             reduction of the issued series 2 B preference share capital, and after such redemption, Pivotal shall
             cancel the redeemed series 2 B preference shares. The effective date of the redemption agreement is
             the business day after the fulfilment or waiver of the condition precedent; and

        -    a sale of property agreement with the MPI Trust, in terms whereof, inter alia, subject to the fulfilment
             or waiver of certain conditions precedent, as a result of the exercise by Pivotal of the put option
             contained in the relationship agreement, upon the redemption of the series 2 B preference shares, 40%
             undivided share in Lakeview land, will be sold by Pivotal to the MPI Trust for a purchase price of
             R4 595 000 (excluding VAT), being an amount equal to the sum of the redemption price and the
             amounts owing by Pivotal to the MPI Trust, and which amount is payable in cash to Pivotal ("sale of
             Lakeview land agreement"). The effective date of the sale of Lakeview land agreement is 7 business
             days after fulfilment of the last condition precedent. The proceeds will be used to redeem the series 2
             B preference shares referred to above.

2.1.3   25% undivided share in the West End development

        During 2014 Pivotal entered into a sale agreement in terms of which Pivotal purchased from Standard Bank
        Properties a 25% undivided share in 805 Die Hoewes Extension 286, Registration Division JR, Province of
        Gauteng, in extent 1.5428 hectares; and the Remaining Extent of Portion 267 of the Farm Lyttleton 381,
        Registration Division JR, Province of Gauteng in extent 5.0900 hectares ("West End development").

        Pivotal and the trustees for the time being of the West End Trust ("West End Trust") have entered into a
        sale of property agreement in respect of which, inter alia, subject to the fulfilment or waiver of certain
        conditions precedent, Pivotal will dispose of its co-ownership interests in a 25% undivided share in the
        West End development to West End Trust, in consideration for a purchase price of R49 259 000 (excluding
        VAT), payable in cash ("sale of West End development agreement"). Pivotal shall use the sale proceeds
        to reduce debt.

        The effective date of this agreement is the date of registration of transfer of the West End development into
        the name of the West End Trust.

        During 2010 Pivotal entered into an agreement in terms of which Pivotal acquired the rights as the vested
        income and capital beneficiary of the West End Trust and rights to repayment of any loans advanced by
        Pivotal to the West End Trust ("West End trust rights"). Therefore, to ensure that Pivotal does not
        indirectly own the West End development after the implementation of the sale of West End development
        agreement, Pivotal has to cede the West End trust rights.

        In order to implement the cession of the West End trust rights, Pivotal entered into an agreement with –
              -      the trustees for the time being of Abcon Incentive Trust, CRH Investments Proprietary Limited, the
                     trustees for the time being of the Fern Trust, Golden Circle Investments 132 Proprietary Limited,
                     Lougardia Proprietary Limited and East and West Investments Proprietary Limited (collectively the
                     "investors") and the West End Trust, in terms whereof, inter alia, subject to the fulfilment or waiver
                     of certain conditions precedent, Pivotal will redeem the convertible redeemable preference shares,
                     designated series A preference shares, with a par value of 1 cent in the share capital of Pivotal (“A
                     preference shares”) held by the investors, being all the A preference shares, for an aggregate
                     redemption price of R3 952 482, being an amount equal to the aggregate issue price per A preference
                     share, payable in cash; and

              -      the investors, the West End Trust and Pivotman Proprietary Limited, in terms whereof, inter alia,
                     subject to the fulfilment or waiver of certain conditions precedent, upon the redemption of the A
                     preference shares, Pivotal will cede the West End trust rights to the investors for an aggregate cession
                     price of R3 952 482 payable by the investors to Pivotal in cash,

              (collectively the "West End cession of rights agreements"). The proceeds will be used to redeem the A
              preference shares referred to above.

              The effective dates of the West End cession of rights agreements are the later of the dates of fulfilment or
              waiver of the conditions precedent of the West End cession of rights agreements as further detailed in
              paragraph 4 below or the 10th business day after the signature of the West End cession of rights agreements
              by the party last signing.

              The details of Lakeview land and the West End development are as follows:
 
                                                                              Monthly
                                                                             weighted
                                                                              average                Net
                  Property                 Pivotal                         rental per           property       Attributable           Attributable
                  name                shareholding         Sector                  m²             income           GLA (m²)             Valuation¹
                  Lakeview land            66.67%          Land                     -                  -              3 379             R7 500 000
                  West End land               25%          Land                     -                  -              4 456            R10 025 000
                  West End
                  buildings
                  A&B                         25%          Office                R145        R3 984 140*              2 460            R35 000 000
                  TOTAL                                                                                              10 295            R52 525 000
              *Net property income attributable to West End building A only due to the fact that Building B was only completed post year end.

              Note:
              1. The Lakeview land was valued as at 31 August 2016 by Peter Parfitt (Dip. Val. MIV (SA) RICS
                 (Registration No.: 2712/2)) of Quadrant Properties (Pty) Ltd., an independent valuer registered in
                 terms of the Property Valuers Profession Act, No. 47 of 2000.

              2. The Westend development was valued as at 31 August 2016 by Roger Long BSc MBA FRICS
                 MIV(SA) Chartered Valuation Surveyor (59664) Professional Valuer (2649/5) of Jones Lang LaSalle
                 (Pty) Ltd., an independent valuer registered in terms of the Property Valuers Profession Act, No. 47 of
                 2000.

2.2   Acceleration of potential and future rights to subscribe for Pivotal shares

      2.2.1   Tadvest Industrial Proprietary Limited (previously "Old Abland") ("Old Abland")

              During 2014 Pivotal acquired an interest in three of the properties owned by Ptn 113 Weltevreden
              Proprietary Limited ("Portion 113"), namely “22 Bree Street” (being a 50% undivided share in and to Erf
              173682 Cape Town, in the City of Cape Town, Cape Division, Western Cape Province) ("50% of 22 Bree
              Street property"), and “Stoneridge Office Park Buildings D and E” (being a 20% undivided share in and
              to Erven 1660 & 1661, Greenstone Hill Ext 34 Township, Registration Division IR, Province of Gauteng)
              ("Stoneridge properties") by way of, inter alia, the subscription of shares in Portion 113, in terms of a set
              of agreements to which Old Abland was also a party ("Portion 113 agreements").

              In terms of the Portion 113 agreements, an additional amount shall also become payable to Old Abland if
              and when the loan to value ratio attributable to the relevant property is equal to or less than 60%, which
              additional amount shall be used by Old Abland to subscribe for additional Pivotal shares at a price equal to
              the 30-day volume weighted average price ("VWAP") thereof at the relevant time.

        Pivotal and Old Abland have entered into an agreement to accelerate the payment of this additional
        amount, and the subsequent application of such amount to subscribe for Pivotal shares, on the following
        terms –

        -    The additional amount in respect of the Stoneridge properties is R7 877 207.50, which amount shall
             be used by Old Abland to subscribe for 425 795 Pivotal shares; and

        -    The additional amount in respect of the 50% of 22 Bree Street property is R26 023 950.00, which
             amount shall be used by Old Abland to subscribe for 1 406 700 Pivotal shares.

        These additional amounts have been calculated using the formula contained in the Portion 113 agreements,
        but amended to take into account forecast property values, loan values, commercial viability dates,
        applying an appropriate discount factor to discount the value of the respective properties to the present
        value and using a 30-day VWAP of Pivotal shares as at 19 August 2016 of R18.50.

        The effective date of this agreement is the business day after the fulfilment or waiver of the last of the
        conditions precedent as further detailed in paragraph 4 below.

2.2.2   The trustees for the time being of the Primus Capital Partners Unit Trust ("Primus Trust"), the trustees for
        the time being of the Tirisano Trust ("Tirisano Trust"), the trustees for the time being of the Palm Trust
        ("Palm Trust") and Tadvest Commercial Proprietary Limited ("Tadvest")

        During 2014 Pivotal entered into an agreement to acquire the property at Sunninghill Extension 172,
        comprising two erven numbered 1636 (measuring 4815 square metres) to 1637 (measuring 4646 square
        meters), situated on portion 583 of the farm Rietfontein No. 2 IR, in Pretoria, Province of Gauteng ("Chilli
        on Top property"), through the purchase from the Primus Trust, Tirisano Trust, Palm Trust and Tadvest
        (collectively the "sellers") of certain claims of the sellers in respect of amounts owing to them by the
        trustees for the time being of the Sunninghill Trust ("Sunninghill Trust") and the settlement of those
        claims, by the Sunninghill Trust through the transfer of the Chilli on Top Property to Pivotal ("Chilli on
        Top agreement").

        In terms of the Chilli on Top agreement, the final purchase price shall become payable to the sellers if and
        when the loan to value ratio attributable to the Chilli on Top property is equal to or less than 60%, which
        final purchase price shall be settled by the issue of additional Pivotal shares at a price equal to the 30-day
        VWAP thereof at the relevant time.

        Pivotal, Sunninghill Trust and the sellers have entered into an agreement to accelerate the settlement of the
        final purchase price. The final purchase price is R9 047 554.50, which amount shall be settled by the issue
        of –

        -    144 907 Pivotal shares to Tadvest;

        -    75 168 Pivotal shares to Palm Trust;

        -    24 453 Pivotal shares to Tirisano Trust; and

        -    244 529 Pivotal shares to Primus Trust.

        The final purchase price has been calculated using the formula contained in the Chilli on Top agreement,
        but amended to take into account forecast property values, loan values, commercial viability dates,
        applying an appropriate discount factor to discount the value of the respective properties to the present
        value and using a 30-day VWAP of Pivotal shares as at 19 August 2016 of R18.50.

        The effective date of this agreement is the business day after the fulfilment or waiver of the last of the
        conditions precedent as further detailed in paragraph 4 below.

2.2.3   MPI Trust

        During 2014 Pivotal entered into an option agreement in terms of which the MPI Trust granted Pivotal an
        option to acquire the remaining 50% undivided share in the land comprising a portion of the remaining
        extent of Erf 827 Parktown Township, Registration Division IR. Province of Gauteng, measuring
        approximately 19 932 hectares (“Hill on Empire land”) from the MPI Trust. If and when the loan to value
        ratio of the MPI Trust attributable to the Hill on Empire land is equal to or less than 60%, and if Pivotal
        exercises the option, the purchase price payable for the Hill on Empire land shall be settled by Pivotal
        assuming the MPI Trust's third party debt related to the property and the issue of Pivotal shares at a price
        equal to the 30-day VWAP thereof at the relevant time ("Hill on Empire option agreement").
             
              Similarly, Pivotal entered into an option agreement in terms of which the MPI Trust granted an option to
              Pivotal to acquire the remaining 50% undivided share in:

              -     Portion 414 of the Farm Elandspoort 357, Registration Division JR, Province of Gauteng, in extent
                    12,4776 hectares; and

              -     Portion 418 of the Farm Elandspoort 357, Registration Division JR, Province of Gauteng, in extent
                    7009 square metres, measuring 3,2305 hectares,

              (collectively the “Loftus property”) from the MPI Trust. If and when the loan to value ratio of the MPI
              Trust attributable to the Loftus property is equal to or less than 60%, and if Pivotal exercises the option, the
              purchase price payable for the Loftus property shall be settled by Pivotal assuming the MPI Trust's third
              party debt related to the property and the issue of Pivotal shares at a price equal to the 30-day VWAP
              thereof at the relevant time ("Loftus property option agreement").

              Pivotal and the MPI Trust have entered into two cancellation agreements in terms of which, inter alia,
              subject to the fulfilment or waiver of certain conditions precedent, the Hill on Empire option agreement is
              cancelled for no consideration; and the Loftus property option agreement is cancelled for no consideration.
              The effective date of both cancellation agreements is the business day after the fulfilment or waiver of the
              last condition precedent mentioned in the agreement as further detailed in paragraph 4 below.

      2.2.4   Corob Trust

              During 2014 Pivotal and the Corob Trust entered into a subscription agreement in terms of which, inter
              alia, the Corob Trust subscribed for 82 456 redeemable, convertible, non-participating B preference shares,
              in the issued share capital of Pivotal designated as series 1A, and 112 651 redeemable, convertible, non-
              participating B preference shares, designated as series 1B, in the issued share capital of Pivotal
              (collectively the "series 1A and 1B B preference shares"), constituting all the series 1A and 1B B
              preference shares.

              The series 1A and 1B B preference shares relate to a –

              -     40% undivided share to Erf 1660, Greenstone Hill Ext 34 Township, Registration Division IR,
                    Province of Gauteng (commonly referred to as Stoneridge Office Park Building D land); and

              -     40% undivided share to Erf 1661, Greenstone Hill Ext 34 Township, Registration Division IR,
                    Province of Gauteng (commonly referred to as Stoneridge Office Park Building E land),

              As set out in the circular, Pivotal is proposing an early conversion of the series 1A and 1B B preference
              shares into Pivotal shares, through an amendment of the memorandum of incorporation of Pivotal in terms
              of which the terms of the series 1A and 1B B preference shares will be amended so that if the scheme
              becomes unconditional, all of the series 1A and 1B B preference shares shall compulsorily and
              automatically convert into and become, in aggregate, 811 908 Pivotal shares ("MOI amendment").

              These number of Pivotal shares has been calculated using the formulas contained in the existing terms of
              the series 1A and 1B B preference shares, but amended to take into account forecast property values, loan
              values, commercial viability dates, applying an appropriate discount factor to discount the value of the
              respective properties to the present value and using a 30-day VWAP of Pivotal shares as at 19 August 2016
              of R18.50.

              The MOI amendment is being proposed for approval by special resolution of the –

              -     shareholders of Pivotal shares, at the same shareholders meeting at which the scheme is being voted
                    on; and

              -     sole shareholder of the series 1A and 1B B preference shares, being the Corob Trust.

2.3   Disposal of Pivotal's 25% interest in Abreal to Abman

      Pivotal through Pivotman (being a wholly-owned subsidiary of Pivotal) holds 25% of the ordinary shares in Abreal.
      As a condition to the implementation of the scheme, Pivotal must agree terms for the disposal of its interests in
      Abreal, together with the assumption of any associated debt, conditional upon the scheme becoming unconditional,
      to Abman.

      As such, Pivotman, Abreal and Abman entered into a sale of shares and claims agreement in terms of which, inter
      alia, subject to the fulfilment of certain conditions precedent, Pivotman shall sell 250 ordinary shares in the issued
      share capital of Abreal and cede the claims of whatsoever nature which Pivotman has against Abreal, if any, to
      Abman, as one indivisible transaction, in consideration for a purchase price of R1.00, payable to Pivotman without
      deduction or set off, by electronic funds transfer into an account nominated by Pivotman ("Abreal sale
      agreement"). Upon the implementation of the scheme, the property management function of the majority of
      Pivotal’s property portfolio will be undertaken internally by Redefine. As a result, Abreal will lose a significant
      portion of its income-stream and will become loss-making for the foreseeable future. Therefore, no value has been
      attributed to the Abreal equity.

      The effective date of the Abreal sale agreement is the date on which the scheme becomes legally effective.

3     CONDITIONS PRECEDENT

      3.1      All the transactions referred to in paragraph 2 above, save for the MOI amendment, are subject to the condition
               precedent that all conditions to the scheme have been fulfilled or waived, as the case may be, other than the entering
               into of the agreement which forms the subject of the specific transaction; and that the Takeover Panel has issued a
               compliance certificate in relation to the scheme in terms of section 121(b) of the Companies Act.

      3.2      In addition to paragraph 3.1, the transactions in paragraph 2.2 are also subject to the condition precedent that all the
               other agreements to accelerate future rights or potential rights to be issued and/or subscribe for Pivotal shares, save
               for such rights of the holder of the series 1A and 1B B preference shares, have been entered into.

      3.3      In addition to paragraph 3.1, the sale of West End development agreement is also subject to the condition precedent
               that the West End Trust is granted a loan in writing of an amount of not less than R30 000 000, by a registered bank
               or other financial institution, upon security of a first mortgage bond to be passed over the West End development.

      3.4      The implementation of the rectification of relationship agreement is not subject to any condition precedent.

4     CATEGORISATION, SMALL RELATED PARTY CONSIDERATIONS AND FAIRNESS OPINION

      As Dave Savage and Thys Neser (who are directors of Pivotal) are trustees and/or potential beneficiaries of Tirisano Trust,
      Palm Trust, West End Trust, MPI Trust and Corob Trust, and are directors and/or indirect beneficial shareholders of
      Abman, Abreal, Old Abland, CRH Investments Proprietary Limited and Tadvest, the transactions referred to in paragraph 2
      above are transactions with related parties. Given the size of each of the transactions, each transaction does not separately
      constitute a small related party transaction, however, on an aggregated basis the transactions constitute a single small
      related party transaction in terms of 10.7 of the JSE Listings Requirements.

      The small-related party transactions are not subject to shareholder approval, provided an independent expert has confirmed
      that the terms of the transactions are fair as far as the Pivotal shareholders are concerned. As such and in accordance with
      10.7(b) of the JSE Listings Requirements, Pivotal has appointed BDO Corporate Finance Proprietary Limited ("BDO
      Corporate Finance") as the independent expert to provide the fairness opinion.

      Accordingly, a further announcement will be published on finalisation of the fairness opinion provided by BDO Corporate
      Finance.

11 November 2016


Sponsor to Pivotal
Java Capital


Legal advisor to Redefine
Cliffe Dekker Hofmeyr


Legal advisor to Pivotal
enS Africa

Date: 11/11/2016 12:22:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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