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BRAINWORKS LIMITED - Proposed Specific Issue of Shares

Release Date: 06/09/2019 15:24
Code(s): BWZ     PDF:  
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Proposed Specific Issue of Shares

Brainworks Limited
(Incorporated in the Republic of Mauritius)
(Registration number: 115883 C1/GBL)
Share Code: BWZ ISIN: MU0548S00000
(“Brainworks” or “the Company”)


1. Introduction

Debt Settlement Agreements

Shareholders are advised that the Company has entered into debt settlement agreements (“the Debt
Settlement Agreements”) on 02 September 2019 with Argentum Limited (“Argentum”), Brett Ivor Child
(“BI Childs”) and Red Rock Capital Limited (“Red Rock Capital”) (collectively “the 2017 and 2018
Lenders”), in terms of which the Company will settle loans advanced by Argentum, BI Childs and Red
Rock Capital to Brainworks during 2017 and 2018 (“the 2017 and 2018 Loans”) through the issue of
7 985 581 Brainworks ordinary shares (“Shares”).

The 2017 and 2018 Loans would have an aggregate amount of capital and accrued interest of USD
3 444 870.52 outstanding as at the anticipated settlement date of 1 November 2019, which implies an
issue price per Share of ZAR6.50 (“Issue Price”), based on the agreed ZAR/USD exchange rate of
ZAR15.0677 to 1 USD as at the date of the Debt Settlement Agreement.

Conversion Options

Shareholders are further advised that Brainworks concluded loan agreements in March 2019 (“the
2019 Loan Agreements”) with Blue Air Capital Limited (“Blue Air Capital”), Red Rock Capital and a
consortium of the Company’s shareholders (“Consortium Lenders”), in terms of which an amount of
USD1 491 788 was advanced to the Company (“the 2019 Loans”).

The loan agreements concluded with Blue Air Capital and Red Rock Capital provide Blue Air Capital
and Red Rock Capital with an option to convert their loan into Shares, whilst the loan agreement
concluded with the Consortium Lenders provides Brainworks with the option to convert the Consortium
Lenders’ loan into Shares (collectively “the Conversion Options”).

The Conversion Options may be exercised at any time prior to 30 November 2019, at a price of ZAR6.50
per Share, with the ZAR amount to be determined based on exchange rate on the date of receipt of the
necessary shareholder approval set out in paragraph 5 below.

The 2019 Loans would have an aggregate amount of capital and accrued interest of USD1 561 770.61
outstanding as at the anticipated settlement date of 1 November 2019. Based on the ZAR/USD rate on
the last practicable date prior to release of this announcement, being 05 September 2019, the number
of Shares to be issued pursuant to the Conversion Options would equal 3 544 787.

2. Rationale

The board of directors of Brainworks (“the Board”) believes that the settlement of the loans through the
issue of Shares will be beneficial to the Company as it allows the group to reduce its debt level
significantly, thereby decreasing its financial risk profile, and simultaneously allowing the Company to
save on interest costs associated with the loans.

3. Conditions precedent

The Debt Settlement Agreements are subject to the fulfilment, or waiver if applicable, of the following
material conditions precedent:

    -   the Board resolving to unanimously and unconditionally recommend to shareholders that they
        vote in favour of resolutions to approve the Specific Issue;
    -   approval of the Specific Issue by the requisite majority of shareholders, as set out in paragraph
        5 below; and
    -   approval from the JSE for the Specific Issue and, if applicable, the South African Reserve Bank.

The settlement of each of the 2017 and 2018 Loans in Shares are inter-conditional.

4. Categorisation

The issue of Shares pursuant to the Debt Settlement Agreements and pursuant to the anticipated
exercise of the Conversion Options constitute a specific issue of shares for cash to related parties in
terms of the JSE’s Listings Requirements (collectively, “the Specific Issue”).

Argentum is an associate of Mr SFW Village, a current non-executive director and Chairman of the
Company and Mr BI Childs is a past executive director of the Company. Blue Air Capital and Red Rock
Capital are associates of a material shareholder of the Company and the Consortium Lenders are
collectively material shareholders of the Company.

5. Shareholder approval

The Specific Issue is subject to the approval by a majority of Shareholders (excluding any parties and
their associates participating in the Specific Issue), present and voting, in terms of the JSE Listings

Accordingly, a circular to shareholders, in terms of which shareholders will be requested to approve the
issue of a maximum of 12 500 000 Shares, will be dispatched in due course, together with the required
fairness opinion on the Specific Issue, and a notice of general meeting (the Circular”).

6. Pro-forma financial effects

The table below illustrates the financial effects of the Specific Issue based on two scenarios:

-   Scenario 1: the issue of Shares based on the exchange rate as at the Last Practicable Date; and
-   Scenario 2: the issue of Shares based on the maximum authority that will be requested, being
    authority to issue up to 12 500 000 Shares.

The table also shows the impact of the certain events after the Company’s last reporting period
(31 December 2018), being the drawdown by the Company on the 2019 Loans (“Loan Drawdown”),
and the rights offer announced by the Company on SENS on Tuesday, 27 August 2019 (“the Rights

                   Before    Loan Drawdown         Rights Offer                   Specific Issue (4)

 USD Cents          (1)       Pro        %         Pro         %       Scenario      %        Scenario        %
                             forma     Change     forma      Change       1        Change        2          Change
                              After               After
                               (2)                 (3)
 Basic earnings      6.18     6.315      2.1%      5.835     (5.6%)      5.490    (11.2%)       5.464      (11.6%)
 per Share
 Basic headline    (3.138)   (3.006)    (4.2%)    (2.167)   (30.9%)     (1.632)   (48.0%)      (1.593)     (49.2%)
 earnings per
 Basic net
 asset value         71.2      71.2        0%       67.6     (5.1%)        64.7    (9.1%)         64.1       (10%)
 per Share
 Basic tangible      59.8      59.8        0%       57.7     (3.5%)        55.8    (6.7%)         55.3      (7.5%)
 net asset value
 per Share
 Number of         88 578    88 578        0%     101 778     14.9%     113 308     27.9%      114 278      29.01%
 shares in issue


   1.      The “Before” column is based on the unadjusted published audited consolidated results of the Group
           for the financial year ended 31 December 2018.
   2.      The “Pro forma after (2)” column illustrates the pro forma financial effects after the Loan Drawdown,
           the proceeds of which was used to settle short-term debt which carried interest at a rate of 18% per
   3.      The “Pro forma after (3)” column illustrates pro forma financial effects of the Rights Offer of up to
           13 199 997 Shares at a price of ZAR6.50 per Share, the proceeds of which will be used to repay
           existing borrowings which carry an interest rate of 18% per annum. Note that the outcome if the
           Rights Offer is uncertain as at the date of this announcement and therefore the impact of the Rights
           Offer can range from having no impact in the event of no take-up on the Rights Offer to the full dilution
           in the event of a 100% take up on the Rights Offer.
   4.      The “Pro forma after various scenarios” column illustrates the impact of the Specific Issue for two
           scenarios being:
           i.         Scenario 1: the issue of 11 530 368 Shares pursuant to the Specific Issue, being the number
                      of Shares to be issued based on the exchange rate as at the Last Practicable Date; and
           ii.        Scenario 2: the issue of the maximum of 12 500 000 Shares pursuant to the Specific Issue.

           Detailed notes explaining the adjustment will be contained in the Circular.

The above financial information has not been reported on by the Company’s auditors.

06 September 2019
Grand Baie, Mauritius

Transaction sponsor
Questco Corporate Advisory Proprietary Limited

Date: 06/09/2019 03:24:00
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