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HUGE GROUP LIMITED - Lock-in undertaking, profit warranty waiver and withdrawal of cautionary

Release Date: 30/07/2019 15:30
Code(s): HUG     PDF:  
 
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Lock-in undertaking, profit warranty waiver and withdrawal of cautionary

HUGE GROUP LIMITED
(Registration number 2006/023587/06)
Share code: HUG ISIN: ZAE000102042
(“Huge” or “the Company”)


LOCK-IN UNDERTAKING, PROFIT WARRANTY WAIVER AND WITHDRAWAL
OF CAUTIONARY


1.   Introduction

     Huge, CNET Empowerment Proprietary Limited, DataWireless
     Proprietary Limited, DM Holdco Proprietary Limited, Stephanus
     Marius Oberholzer, Unwire Communications Proprietary Limited
     (the Relevant Shareholders) and Connectnet Broadband Wireless
     Proprietary Limited (Connectnet) concluded a Subscription and
     Repurchase Agreement on or about 17 November 2016.

     As a consequence of the Subscription and Repurchase
     Agreement, Connectnet and its wholly owned subsidiary
     company, Sainet Internet Proprietary Limited (Sainet), became
     subsidiary companies of Huge. Subsequent to the closing date of
     the Subscription and Repurchase Agreement, which was
     30 March 2017 (the Closing Date), Connectnet was renamed
     Huge Connect and Sainet was renamed Huge Networks.

     In terms of the Subscription and Repurchase Agreement, the
     Relevant Shareholders warranted in favour of Huge that the
     cumulative aggregate operating profit (calculated by taking
     reported profit after taxation and adding back interest, taxation
     and the after-tax impact of certain extraordinary expenses) of
     Huge Connect and Huge Networks (formerly Connectnet and
     Sainet, respectively) (the Cumulative Aggregate Operating Profit),
     for the years ending on the last day of February 2018, 2019 and
     2020 would be equivalent to at least R191 920 000 (the Profit
     Warranty), failing which Huge would be able to institute a claim
     against the Relevant Shareholders for a breach of the Profit
     Warranty.

     Subsequent to the Closing Date, the trustees of the Connectnet
     Share Incentive Trust, K2017082648 South Africa Proprietary Limited
     (K648), K2017038068 South Africa Proprietary Limited (K068),
     K2017038129 South Africa Proprietary Limited, K2017038086 South
     Africa Proprietary Limited (K086), K2017038099 South Africa
     Proprietary Limited (K099) and K2017038154 South Africa
     Proprietary Limited (the Subsequent Shareholders) acquired
     25 208 333 ordinary shares (the Consideration Shares) in the
     authorised share capital of Huge from the Relevant Shareholders
     and thereafter have had an interest in the Subscription and
     Repurchase Agreement and its provisions.

     In terms of the Subscription and Repurchase Agreement,
     14 872 915 Consideration Shares (the Pledged Shares) were
     subject to a cession and pledge in favour of Huge. The Pledged
     Shares have been pledged by the Subsequent Shareholders to
     Huge as security for the payment of any claims of Huge instituted
     against the Relevant Shareholders for, amongst other things, a
     breach of a Subsequent Shareholders’ warranty, including the
     Profit Warranty. Huge is able to institute a claim against the
     Subsequent Shareholders for any breach of a Subsequent
     Shareholders’ warranty at any time on or before 30 March 2020.

     The Subsequent Shareholders currently hold 23 677 666
     Consideration Shares, of which 14 872 915 represent the Pledged
     Shares.

     With effect from 30 July 2019 (the Effective Date), each of the
     Subsequent Shareholders (each a Lock-in Party and collectively
     the Lock-in Parties) have irrevocably undertaken in favour of
     Huge that, during the period between the Effective Date and
     1 August 2021 (the Lock-in Period), each Lock-in Party shall not
     dispose of its Consideration Shares, including its Pledged Shares,
     (Lock-in Shares) without the prior written consent of Huge, which
     consent Huge may withhold in its discretion (the Lock-in
     Undertaking).

     With effect from the Effective Date, Huge and the Subsequent
     Shareholders have agreed to vary the provisions of the
     Subscription and Repurchase Agreement whereby Huge
     irrevocably and in perpetuity waives all and any rights it may have
     to rely on the Profit Warranty (the Profit Warranty Waiver).

2.   Rationale for the Profit Warranty Waiver

     Huge is very pleased with the performance of Huge Connect and
     Huge Networks subsequent to them becoming subsidiary
     companies of Huge. As of the date of this announcement, Huge
     estimates that the Cumulative Aggregate Operating Profit of
     Huge Connect and Huge Networks for the years ending on the
     last day of February 2018, 2019 and 2020 will be exceeded.

3.   Future Prospects

     Messrs Andre Lessing, the managing director of Huge Connect,
     and Marius Oberholzer, the managing director of Huge Networks
     are representatives of two of the Subsequent Shareholders,
     namely K068 and K648 respectively. Messrs Keven Sinclair, the
     commercial director of Huge Connect, and Kurt Schmulian, the
     operations director of Huge Connect, are representatives of
     another two Subsequent Shareholders, namely K086 and K099
     respectively.

     Messrs Lessing, Oberholzer, Sinclair and Schmulian have
     committed to assisting Huge in achieving the Growing Huge
     Strategy, referenced in the 2019 Integrated Report, during and
     after the expiry of the Lock-in Period.

4.   Withdrawal of cautionary

     Shareholders are referred to the cautionary announcement
     released on 25 July 2019 and are advised that caution is no longer
     required when dealing in the Company’s securities.

The forecast financial information contained in this announcement is the
sole responsibility of the board of directors of Huge and has not been
reviewed or reported on by the Company’s external auditors.

Johannesburg
30 July 2019


Sponsor
Questco Corporate Advisory (Pty) Ltd

Date: 30/07/2019 03:30:00
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