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HUGE GROUP LIMITED - Disposal of an equity interest in Huge Connect to a B-BBEE investor

Release Date: 29/08/2019 13:45
Code(s): HUG     PDF:  
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Disposal of an equity interest in Huge Connect to a B-BBEE investor

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


   Shareholders of Huge (“Shareholders”) are advised that the Company and Huge Connect
   Proprietary Limited (“Huge Connect”), a wholly owned subsidiary company of Huge, have
   entered into an Implementation Agreement (“the Implementation Agreement”) with Windfall
   111 Properties Proprietary Limited (“Windfall”), an associate of Mr Vincent Mokholo, who is a
   non-executive director of the Company, and a related party to Huge.

   The Implementation Agreement contemplates the conclusion of various transaction
   agreements, including a Preference Share Subscription Agreement between Huge and Huge
   Connect, an Ordinary Share Subscription Agreement (“the Subscription Agreement”)
   between Huge Connect and Windfall and a Shareholders Agreement between Huge, Windfall
   and Huge Connect (“the Transaction Agreements”).

   In terms of the Preference Share Subscription Agreement, Huge will subscribe for 1 000
   preference shares in Huge Connect for a subscription price of R457 075 000.

   Thereafter, Huge Connect will declare an ordinary dividend of R457 075 000 to the holders of
   the ordinary shares in Huge Connect, being Huge. The obligation of Huge Connect to effect
   payment of the ordinary dividend will be discharged in toto by set-off against the obligation of
   Huge to effect payment of the preference shares subscription price.

   Thereafter, and in terms of the Subscription Agreement, Windfall will subscribe (“the
   Subscription”) for 36 ordinary no par value shares (“the Subscription Shares”) in the issued
   ordinary capital of Huge Connect, such that after the Subscription, Windfall will own 16.296%
   of the issued share capital of Huge Connect (“the Proposed Transaction”).

   The Implementation Agreement and the Subscription Agreement are subject to various
   suspensive conditions which are customary for transactions of this nature.

     Huge Connect is a telecommunications services company with a focus on growing its payment
     connectivity services. It was established in 2004 and provides connectivity to the card payment
     terminals of merchants, payment services providers and the commercial banks in South Africa
     by making use of secure, managed, dual SIM connectivity over GSM data networks. It has over
     32 000 merchants as customers. The Company has also expanded into other markets for
     payment connectivity, including connectivity for ATMs, integrated points of sale, medical/script
     verifications, telemetry applications, micro-lending applications and cash vaults.

     Huge is committed to transforming the businesses in which it invests by empowering these
     businesses in terms of the Codes of Good Practice on Broad-Based Black Economic
     Empowerment, as read with the Amended Information and Communication Technology Sector
     Code (“the B-BBEE Codes”), published by the Minister of Trade and Industry under section 9
     of the Broad-Based Black Economic Empowerment Act, 2003 (“the B-BBEE Act). In addition,
     the payment services providers and commercial banks, who are customers of Huge Connect,
     all have preferential procurement requirements, which require their suppliers to be empowered
     in terms of the B-BBEE Codes and the B-BBEE Act. The Proposed Transaction will empower
     historically disadvantaged individuals and it will also ensure that Huge Connect remains
     competitive in its chosen market segment.
    Windfall is a 100% black-owned company, which is 40% owned by Mr Vincent Mokholo, a non-
    executive director of Huge, and 60% owned by his wife, Mrs Sylvia Mokholo.

   The Company remains committed to driving transformation in ways that are sustainable,
   credible and of benefit to all its stakeholders. The Proposed Transaction is in keeping with this
   objective and the spirit of transformation and constitutes a positive step in aligning Huge
   Connect’s ownership structure to the ownership elements of the B-BBEE Codes. It is envisaged
   that the implementation of the Proposed Transaction will significantly improve Huge Connect’s
   B-BBEE credentials over the long-term, thus ensuring that it will continue to maintain its
   competitive advantage in both the private and public sector.

   The subscription price (“the Subscription Consideration”) for the Subscription Shares is an
   aggregate amount of R180 000 and will be settled by Windfall in cash. The Subscription
   Consideration will be used for the purposes of working capital.

   The effective date of the Proposed Transaction will be dependent on the fulfilment or waiver,
   as the case may be, of the conditions precedent set out in paragraph 6 below, and is expected
   to take place by no later than 28 February 2020.

   The Proposed Transaction is conditional upon:
   -  the written approval of Futuregrowth Asset Management Proprietary Limited, being the
      lender to Huge in terms of an agreement titled “Term Facility Agreement – ZAR200,000,000
   -  the delivery by Huge, Huge Connect and Windfall (“the Parties”) of all authorising
      resolutions required by the parties to the Transaction Agreements;
   -  the receipt of all shareholder and regulatory approvals legally required for the
      implementation of the transactions contemplated in the Transaction Agreements, including
      the Proposed Transaction (including, without limitation, the approval of the JSE Limited
      (“JSE”), and any other approvals required by the JSE), either unconditionally or subject to
      such conditions as are reasonably acceptable to Huge, Huge Connect and Windfall.

   The net asset value of Huge Connect as at 28 February 2019 was R144.7 million and profit
   after tax for that year was R41.1 million, as per its audited annual financial statements (“AFS”)
   for the year ended 28 February 2019. The AFS have been prepared in accordance with
   International Financial Reporting Standards and the requirements of the Companies Act of
   South Africa.

   Windfall is an associate of a related party to Huge, being Mr Vincent Mokholo, a non-executive
   director of the Company. Mr Vincent Mokholo holds 40% of the issued shares of Windfall and
   Sylvia Mokholo owns the remaining 60% issued shares.

   The Proposed Transaction is a related party transaction in terms of the Listings Requirements
   of the JSE.

    Accordingly, a fairness opinion is required in respect of the Proposed Transaction. The
    Company has appointed Moore Stephens Cape Town Corporate Services (Pty) Ltd (“Moore
    Stephens”) as the independent expert to opine on the fairness of the Proposed Transaction.

    The Proposed Transaction is subject to shareholders’ approval and a circular containing the
    full details of the Proposed Transaction (“Circular”) will be distributed to shareholders of the
    Company in due course. The Circular will include a notice convening the general meeting (“the
    General Meeting”) which will be required to be convened in order for shareholders of Huge to
    vote on the resolutions tabled by the Company to approve the Proposed Transaction. The
    salient dates and times of the Proposed Transaction, including the date of the General Meeting,
    will be announced on SENS and in the press.

29 August 2019

Questco Corporate Advisory (Pty) Ltd

Date: 29/08/2019 01:45:00
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