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ADVANCED HEALTH LIMITED - Detailed terms announcement regarding the disposal of Advanced Health Vergelegen Surgical Centre Proprietary Limited

Release Date: 28/01/2021 15:00
Code(s): AVL     PDF:  
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Detailed terms announcement regarding the disposal of Advanced Health Vergelegen Surgical Centre Proprietary Limited

ADVANCED HEALTH LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2013/059246/06)
(“the Company” or “Advanced Health”)
ISIN Code: ZAE000189049        JSE Code: AVL


DETAILED TERMS ANNOUNCEMENT REGARDING THE DISPOSAL OF ADVANCED VERGELEGEN
SURGICAL CENTRE PROPRIETARY LIMITED


1 INTRODUCTION AND BACKGROUND TO THE TRANSACTION
  Shareholders are referred to the cautionary announcement released on SENS on Wednesday, 23
  September 2020, in which Shareholders were advised that as part of the restructuring, the board
  of directors has taken the decision to dispose of its underperforming facilities. As a result the
  assets and liabilities attributable to these subsidiaries have been classified as a disposal group as
  at 30 June 2020.

  Shareholders are further advised that Advanced Health, together with Advanced Health South
  Africa Proprietary Limited (“AHSA”) and Advanced Vergelegen Surgical Centre Proprietary
  Limited (“Vergelegen”) (a 60% subsidiary of AHSA) (together the “Seller”), has entered into an
  agreement with Hibosys Proprietary Limited, operating as Summerhill Surgical Centre ( “Hibosys”
  or the “Purchaser”) in terms of which the Seller will sell to the Purchaser, it’s business as a going
  concern for a maximum consideration of R18 150 000 (“Transaction” and “Transaction
  Agreement”).

2 BACKGROUND TO EAST VERGELEGEN
  Vergelegen opened its doors in 2016. Situated in Somerset West, it conducts business as a day
  hospital, including short procedure surgical services which can be performed on a same day basis
  (the “Business”).

3 BACKGROUND TO THE PURCHASER
  Hibosys, operating as Summerhill Surgical Centre, is a physician-led company consisting of eleven
  world-class experts working together across specialties to give unparalleled care. Dedicated to
  improving the quality of healthcare through safe, cost effective and excellent healthcare service.

4 RATIONALE FOR THE TRANSACTION
  In the reviewed condensed consolidated annual financial statements for the year ended 30 June
  2020, which was released on SENS on 25 September 2020, attention was drawn to Going Concern
  of the Advanced Health group.

   The reviewed condensed consolidated annual financial statements were prepared on the basis
   of accounting policies applicable to a going concern. This basis presumed that funds will be
   available to finance future operations and the realisation of assets and settlement of liabilities,
   contingent obligations and commitments will occur in the ordinary course of business. The ability
   of the Group to continue as a going concern was dependent on the directors procuring funding
   for the ongoing operations of the Group.

   The conclusion of the Transaction will contribute in securing such funding for the Advanced
   Health Group and secure the ability of the group to continue operating as a going concern.
5 KEY TERMS OF THE TRANSACTION
   5.1 Transaction Agreement
       In terms of the Transaction Agreement the Purchaser will acquire and the Seller will sell, the
       Business as a going concern, which includes all the assets of Vergelegen used in or in
       connection with the Business, comprising:

       5.1.1 Assets, as per the inventory listed in the Transaction Agreement, but not limited to,
             and includes in general all furniture; equipment; generator; fixtures and fittings;
             linen; instruments and IT infrastructure used in connection with the Business;

       5.1.2 Vergelegen’s rights, title and interests in and to the contracts detailed in the
             Transaction Agreement, entered into or to be entered into by the Seller, on or before
             the Effective Date, for the purposes of conducting the Business and which contracts
             are essential for the continued operation of the Business following the Effective Date
             (the “Continuing Contracts”);

       5.1.3 Vergelegen’s rights, title and interests in and to the employment contracts in place
             between Vergelegen and those individuals employed by Vergelegen in the Business
             (the “Employees”) (the “Employment Contracts”);

       5.1.4 the stock in trade of Vergelegen relating to the Business as detailed in the Transaction
             Agreement (the “Stock”);

             The parties will undertake a full and complete stocktaking of all the Stock and Assets
             of the Business as soon as possible after the Effective Date, which will determine the
             value of the Stock. The Stock will be valued at the lower of cost or the net realisable
             value.

             All Stock items that are materially damaged, or unsalable or unusable, incomplete,
             redundant, obsolete or not of normal commercially accepted standards, or which will
             become obsolete/ unusable within two months of the Effective Date will be excluded
             from Stock and will remain the property of the Seller.

       5.1.5 all intellectual property rights, including all copyrights, patent rights and potential
             patent rights relating to methods, inventions, discoveries, information, reports,
             contact lists, methodologies, frameworks, training materials, templates and other
             proprietary or protectable matters relating to the Seller’s Business, whether or not
             such intellectual property rights are of a registrable nature, as detailed in the
             Transaction Agreement (“Intellectual Property Rights”) and any subject matter,
             whether tangible or intangible, that attracts or is susceptible to protection by
             Intellectual Property Rights in respect of the Business (“Intellectual Property”);

       5.1.6 all current telephone number(s), facsimile number(s), website(s) and e-mail(s) used
             in the Business;

       5.1.7 the operating license of the Seller issued by the Department of Health in order to
             conduct the Business (the “Operating License”); and

       5.1.8 other licenses to the extent that such are assignable.

       (together the “Business Assets”)
    The sale of the Business does not include trade and other debtors. The Seller shall be entitled
    to for its own gain and at its own cost recover all amounts due by its debtors.

5.2 Effective date
    The effective date is 1 March 2021, subject to the fulfilment of the last of the Suspensive
    Conditions, as detailed in paragraph 5.4 below.

    The Seller is obliged to, at its cost, advertise the sale of the Business in terms of Section 34
    of the Insolvency Act 24 of 1936 as amended, before 1 February 2021. If the 30 day notice
    period of such advertisement expires earlier than 1 March 2021, then such earlier date will
    be the effective date.
    (together the “Effective Date”)

5.3 Transaction Consideration
    The total maximum transaction consideration is the sum of R17 000 000, including VAT, plus
    the value of the Stock, estimated at less than R1 150 000 (“Transaction Consideration”).

    In determining the final amount payable, the following will be deducted from the
    Transaction Consideration:

    •   The agreed value in respect of the excluded assets. The excluded assets will be identified
        on the Effective Date during the stocktake. Any assets which are encumbered, missing,
        materially damaged, incapable of being used or will become incapable of being used
        within a period of 12 months from the Effective Date due to any reasons other than
        normal wear and tear, or out of normal commercially acceptable standards, will be
        removed from the Business Assets (“Excluded Assets”). A replacement value will be
        determined for the Excluded Assets and this value will be deducted from the Transaction
        Consideration;
    •   Any amount outstanding/ unpaid by the Seller as at the Effective Date, in respect of
        accrued leave, bonus or other payments due to Employees arising before and up to the
        Effective Date.

    The Transaction Consideration will be payable in cash, within 5 days of the Effective Date.

    The Proceeds of the Transaction will be utilised towards settling outstanding creditors as at
    the Effective Date.

5.4 Linked Agreements
    The parties will enter into the following agreements that is linked to the Transaction
    Agreement:
   • A management/service level agreement in terms of which the Seller is appointed by the
       Purchaser to provide the necessary management and other services to the Purchaser to
       ensure that the Business continues to operate fully and effectively, subject to certain
       minimum performance requirements, which appointment shall endure for a minimum
       period of one year;
   • An agreement to cede and assign the Operating License and all other licenses capable of
       being transferred from the Seller to the Purchaser, if required; and
   • An new lease agreement to be concluded between the Purchaser and the owner of the
       Business premises, effective form the Effective Date.
    (together the “Linked Agreements”).

5.5 Suspensive Conditions
    As at the date of this announcement, the Transaction Agreement is subject to the fulfilment
    of the following suspensive conditions, unless the conditions are waived by the relevant
    parties in terms of the Transaction Agreement:
    • The Linked Agreements are concluded between the parties by 22 February 2021;
    • That all or any suspensive conditions contained in the Linked Agreements are fulfilled by
      22 February 2021, with the result that the Linked Agreements accordingly become
      binding and unconditional within the stated period;
    • The seller obtains, in writing and provide to the Purchaser, by 22 February 2021, the
      relevant approval and authorisation from the Department of Health to transfer the
      Operating License from the Seller to the Purchaser;
    • The Purchaser obtains, by 5 February 2021, approval for bank finance for at last 80% of
      the Transaction Consideration and confirmation that the funds will be available by the
      Effective Date. (The Seller acknowledges that the registration of a notarial bond over the
      Assets will be required in order to secure such funding and the Seller shall provide the
      necessary information and such reasonable assistance to the Purchaser to ensure that
      the required notarial bond can be registered. It is recorded that there is a current bond
      in favour of ABSA bank, and the Seller and the Purchaser will co-operate so that the
      current bond can be cancelled and the new bond registered simultaneously on payment
      of the Transaction Consideration);
    • Approval of the Transaction by special resolution of the shareholders of Vergelegen in
      terms of sections 112 and 115 of the Companies Act by 22 February 2021;
    • All other necessary board and/ or shareholder approvals of the Seller and the Purchaser
      to be obtained by 22 February 2021;
    • The parties shall obtain any and all legislative/ regulatory requirements for the
      Transaction by 22 February 2021; and
    • The Seller providing written confirmation to the Purchaser, to the satisfaction of the
      Purchaser, on the Effective Date that no material adverse change has occurred in
      relation to the Business during the period between signature of the Transaction
      Agreement and the Effective Date.

5.5 Other key terms of the Transaction Agreement

    5.5.1 Creditors and Business Liabilities

            The Sale of the Business does not include liabilities of the Seller that arose from the
            conduct of the Business prior to and existing at the Effective Date (“Business
            Liabilities”), including all the claims by creditors of the Business against the Seller on
            the Effective Date (“Accounts Payable”).

            As stated in paragraph 5.2, the Seller is obliged to, at its cost, advertise the sale of
            the Business in terms of Section 34 of the Insolvency Act 24 of 1936 as amended,
            before 1 February 2021.

            The Seller undertakes to settle all Business Liabilities and all claims in respect of the
            business that arose up to the Effective Date and settle all creditors of the Business in
            accordance with the trade terms of such creditors, as and when the creditors fall due
            for payment or pursuant to any claims which may be lodged by the creditors after
            the placing of the advertisement of the Business.

            Vergelegen, AHSA and Advanced Health jointly and severally indemnify the Purchaser
            from any liability in respect of all acclaims arising from/ in connection with the
            Business up to the Effective Date and any claims from any third party which may arise
            due to non-payment of amounts due by the Seller in respect of the Business Liabilities
            however arising as well as claims arising from the sale and purchase of the Business.
            On the event that any creditor of the Business should make any claims against the
            Purchaser, the Seller shall make payment of such claim immediately and shall provide
            the Purchaser with proof of such payment.

            The Seller warrants that all credit account loans, finance and other agreements,
            suretyships, warranties and other obligations undertaken by the Business in the 36
            months prior to the Effective Date shall have been settled in full and/or cancelled
            lawfully by the Seller by the Effective Date, unless otherwise agreed between the
            parties in writing.

5.5.2 Transferring of employees

      As part of the sale of the Business and in terms of section 197(2) of the LRA, the
      Purchaser will take over the employment of all the Employees of the Business, upon
      transfer of the Business on the Effective Date, on the same terms and conditions, or
      on terms and conditions that are on the whole not less favourable to the Employees.

      Vergelegen and the Purchaser have provided cross indemnities to each other,
      regarding any claims or liabilities that may arise from transferring the Employment
      Contracts, upon the Effective date as may be relevant.

5.5.3 Operating License

      With effect from the Effective Date the Seller will cede and assign to the Purchaser,
      and the Purchaser will accept, all the Seller’s rights and obligations under the
      Operating License and every other license related to the Business and being capable
      of being transferred or assigned to the Purchaser.

      The costs associated with such transfer shall be borne by the Purchaser up to a
      maximum amount of R50 000 and any additional costs shall be shared equally
      between the Seller and the Purchaser.

      Where any license cannot be assigned or transferred to the Purchaser, the Seller shall
      notify the Purchaser prior to the Effective Date and the purchaser shall be
      responsible to procure such a license and the Seller shall provide any assistance that
      may be reasonably required in this regard.

      The Purchaser shall make application for a BHF Number (the practice number issued
      by The Board of Healthcare Funders, allocated to all registered healthcare providers,
      providing services to private patients) to the Board of Healthcare Funders. If the
      Purchaser’s application is not completed by the Effective Date, the Purchaser and the
      Seller shall co-operate with each other to enable the Purchaser to continue to
      operate under the Seller’s BHF Number, to achieve continuation of the Business as
      far as it is lawfully possible to do so.

      The Seller shall further assist the Purchaser to become a designated service provider
      to the appropriate medical aids.

5.5.4 Warranties

      The Transaction Agreement further contains legal warranties and indemnities which
      are considered normal in respect of a transaction of this nature.

6 PROFIT AND NET ASSET VALUES ATTRIBUTABLE TO VERGELEGEN
  The net assets of Vergelegen, as per the audited annual financial statements for Advanced Health
  for the 12 months ended 30 June 2020, were R3 658 703. The profit after tax attributable to the
  net assets of Vergelegen, for the same period were R17 202 683.

  The audited annual financial statements for Advanced Health were prepared in accordance with
  International Financial Reporting Standards (“IFRS”) as appropriate for-profit-oriented entities.

7 CATEGORISATION OF THE TRANSACTION

  The Transaction is categorised as a category 2 disposal for Advanced Health in terms of the
  Listings Requirements of the JSE Limited and is therefore not subject to Advanced Health
  shareholder approval.

Johannesburg
28 January 2021

Designated Advisor
Grindrod Bank Limited

Date: 28-01-2021 03:00:00
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