Massmart Annual Report 2008

Notice of sale of shares currently held as treasury shares to the black non-executive Directors

Definitions

In this Notice, unless the context indicates otherwise:
reference to the singular shall include the plural and vice versa, and words denoting one gender include the others;
expressions denoting natural persons include juristic persons and associations of persons, and vice versa; and
the words in the first column have the meanings stated opposite them in the second column, as follows:
   
  ‘act of wrongdoing’ Any action or behaviour contrary to morality, law or regulation; misconduct; and/or a failure to act in the proper fulfilment of a non-executive director’s duties; which shall be decided by the Massmart Remuneration and Nominations Committee;
  ‘annual general meeting’ The annual general meeting of members, convened to be held at 08:30 on Wednesday, 26 November 2008, at 16 Peltier Drive, Sunninghill Ext 6, to consider and if deemed appropriate to approve, inter alia, the resolutions regarding the sale of shares for cash as contemplated in this Notice;
  ‘BBBEE Act’ Broad-Based Black Economic Empowerment Act, 2003 (Act 53 of 2003), as amended;
  ‘black persons’ or ‘black people’ Black people as defined in the BBBEE Act;
  ‘black non-executive Directors’ Black directors on the Board of Massmart who are not involved in the day-to-day management of Massmart;
  ‘Board’ The Board of Directors of Massmart;
  ‘Companies Act’ The Companies Act, 1973 (Act 61 of 1973), as amended;
  ‘JSE’ JSE Limited (registration number 2005/022939/06), a company licensed to operate an exchange under the Securities Services Act, 2004 (Act 36 of 2004), as amended;
   ‘Listings Requirements’ The Listings Requirements of the JSE, as amended from time to time by the JSE;
  ‘Massmart’ or ‘the Company’   Massmart Holdings Limited (registration number 1940/014066/06), a public company duly registered and incorporated with limited liability in accordance with the company laws of South Africa, all the ordinary shares of which are listed on the JSE;
  ‘Massmart shareholders’ Holders of the ordinary shares of 1 cent each and/or the ‘A’ convertible redeemable non-cumulative participating preference shares of 1 cent each and/or the ‘B’ convertible redeemable non-cumulative participating preference shares of 1 cent each in the issued share capital of Massmart;
  ‘Notice’ This notice relating to the sale of shares to the black non-executive Directors;
  ‘this document’ The document of which this Notice forms part, being the 2008 Annual Report to members of Massmart, dated 1 October 2008;
  ‘the transaction’ the sale of an aggregate of 100 000 treasury shares to the black non-executive Directors; and
  ‘treasury shares’ Massmart shares in the issued share capital of Massmart held as treasury shares by Massmart Management & Finance Company (Proprietary) Limited (Registration number 1992/004084/07), a wholly-owned subsidiary of Massmart.
   

1. Introduction and rationale

 

The Board considers it appropriate to assist its black non-executive Directors to become shareholders in the Company. When the BEE employee share trust schemes were implemented in 2006, the black non-executive Directors were not included as the Board was of the view that the design of those schemes was geared more generally to the Group’s staff. It is now proposed that the five designated black persons will each be given the opportunity to purchase 20 000 ordinary shares at par (which shares will represent 0,05% in aggregate of Massmart’s total issued share capital after the sale) and be restricted in the sale of these shares – half for three years and half for five years.

The Company regards the cost of this transaction as part of the engagement cost of these Directors over the five-year period in addition to their annual fees. The Board has considered the effect of this sale of treasury shares on the continued independence of the Directors and believes that the limited size of the transaction and its once-off nature are sufficient to ensure their continued ability to act independently on the Board.

In accordance with the provisions of section 38 of the Companies Act, Massmart shareholders are required to pass a special resolution as the sale of treasury shares constitutes the giving of financial assistance by a subsidiary of the Company. Massmart shareholders will be requested to vote separately on resolutions, authorising the sale of treasury shares to each of the directors concerned, as specified in paragraph 3 below.

In addition, in order to comply with the Listings Requirements, Massmart shareholders will be requested to consider and vote on a resolution authorising the sale of these treasury shares to the five designated black persons in the manner set out in these requirements. Accordingly, the resolutions necessary to implement this initiative have been proposed as part of the resolutions to be placed before shareholders at the annual general meeting, the notice convening which is included in this document.

Pursuant to the Listings Requirements Massmart will only be entitled to implement the sale of the treasury shares which are the subject of ordinary resolution number 11 if that resolution is passed by a majority of 75% or more of the votes cast by all Massmart shareholders present and voting at the annual general meeting, excluding any votes cast by the five designated black persons and the Massmart Holdings Limited Employee Share Trust.

2. Salient features of the transaction

 

The salient features of the transaction include the following:

  • The Massmart shares to be sold to the Massmart directors named in paragraph 3 below rank pari passu with the existing ordinary shares in the issued share capital of Massmart and will be sold at their par value, being 1 cent per share.
  • At the current share price (R76,50), this represents shares worth a total of R7,65m, or R1,53m per director.
  • The shares will have full voting and dividend rights.
  • The shares will be released to the directors in equal tranches at the end of year three and year five from date of sale.
  • The date of sale will be three days after the Wednesday, 26 November 2008 annual general meeting.
  • The sale of shares is subject to approval of the shareholders at the annual general meeting.
  • If a director is dismissed for an act of wrongdoing, or is not re-elected by shareholders at the annual general meeting of the company following an act of wrongdoing, any unreleased shares will be forfeited.
  • If a director dies or is incapacitated during his/her term in office, then the remaining unreleased shares will be released to him/her or to his/her estate.
  • If a director resigns from the Board before the third anniversary of the sale date, that director’s shares will be forfeited to the Company.
  • If a director resigns from the Board after the third anniversary of the sale date, then all unreleased shares shall be released to that director, but those shares may not be disposed of for a period of at least six months from date of resignation.

The shares to be sold are treasury shares and are currently listed on the JSE.

3. Related-party considerations

 

The following black non-executive directors of Massmart will each be entitled to purchase 20 000 Massmart ordinary shares with a par value of 1 cent each:

Zitulele Luke Combi

Kuseni Douglas Dlamini

Nolulamo Nobambiswano Gwagwa

Phumzile Langeni

Dawn Noncebe Merle Mokhobo

A short resumé of each director can be found here.

In terms of the Listings Requirements, if treasury shares are used, such use must comply with the Listings Requirements as if such use was a fresh issue of shares. Therefore, the sale of shares for cash to directors of Massmart must comply with the Listings Requirements for a specific issue of shares for cash. In terms of these requirements:

  • Massmart has appointed Deloitte & Touche to provide an independent fairness opinion on the terms of the sale.
  • The sale of shares is subject to the achievement of a 75% majority of the votes cast at the AGM on the respective resolutions by all shareholders present or represented by proxy at the annual general meeting, excluding the directors participating in the sale of shares for cash, and their associates and the Massmart Holdings Limited Employee Share Trust.

The black non-executive Directors are classified as related parties in terms of the Listings Requirements, although the aggregate value of the transaction falls below the Listings Requirements’ threshold of a small related party transaction. Messrs ZL Combi and KD Dlamini and Mmes NN Gwagwa, P Langeni and DNM Mokhobo will therefore refrain from voting on the resolutions in terms of which the sale of shares will be implemented, and have instructed their associates, if relevant, to do the same.

The remuneration of the black non-executive Directors will not change as a result of this transaction.

4. Interests of the Directors

 

The interests of the Massmart directors, including the black non-executive directors, in the ordinary shares of Massmart are set out here.

The interests of the black non-executive Directors in this sale of treasury shares for cash are disclosed in paragraph 3 above. None of the directors of Massmart have been materially interested in any transaction which occurred during the current or immediately preceding financial year, or during an earlier financial year and which remains in any respect outstanding or unperformed.

5. Financial e ects of the sale of shares

 

The sale of treasury shares will have a negligible effect on the net asset value per share, the net tangible asset value per share, the earnings per share and the headline earnings per share of Massmart. For this reason pro forma effects of the transaction are not shown.

The par value of the shares sold, being an aggregate amount of R1 000, will be paid by the black non-executive Directors. All other costs will be borne by Massmart. The estimated costs involved in effecting the transaction include:

 
Capacity Provider Amount
Sponsor Deutsche Securities SA (Proprietary) Limited 100 000
Independent expert Deloitte & Touche 80 000
Legal adviser Edward Nathan Sonnenbergs 25 000
SA Revenue Service Issue duty 100
Transfer secretaries Computershare Investor Services (Proprietary) Limited 250
Total   R205 350
   

6. Opinion of the board

 

The Board of Directors of Massmart, excluding the five black non-executive directors concerned, has considered and approved the proposed sale of treasury shares. In doing so, the non-conflicted Board members have taken into account all the factors surrounding the sale of treasury shares and the terms at which the sale is to take place, and they are of the opinion that the sale is fair insofar as the shareholders of Massmart are concerned. In arriving at this opinion, the non-conflicted members of the Board have taken into account the fairness opinion received from Deloitte & Touche. Deloitte & Touche has provided Massmart with the opinion here.

Deloitte & Touche have given, and have not withdrawn, their consent to the issue of this Notice including references to their fairness opinion. This consent is included in the letter from Deloitte & Touche referred to in paragraph 10 below.

7. Directors’ responsibility statement

  The Directors, whose names and details are given here in this document, collectively and individually accept full responsibility for the accuracy of the information given, and certify that, to the best of their knowledge and belief, there have been no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this annexure, read together with the rest of this document, contains all the information required by the Listings Requirements.

8. Issue of securities over the last three years

  Massmart has made the following allotments over the last three years:
  • 9 September 2005 – 100 000 ordinary shares were issued to the Employee Share Trust.
  • 23 May 2006 – 1 300 000 ordinary shares were issued to the Employee Share Trust.
  • 1 October 2006 – 20 000 000 preference shares were issued to the Thuthukani and Black Scarce Skills Trusts.

9. Share price history

  Quarterly
 
Date High Low Volume
  (cents) (cents)  
30/09/06 5 797 4 300 56 093 985
31/12/06 7 072 5 605 67 637 237
31/03/07 8 800 6 702 45 538 999
30/06/07 9 997 8 271 63 082 226
30/09/07 9 724 7 675 55 492 580
31/12/07 8 900 6 815 92 013 595
31/03/08 7 480 6 299 64 481 442
30/06/08 7 650 5 910 38 188 511
30/09/08 8 699 5 650 50 095 872
  Monthly
 
Date High Low Volume
  (cents) (cents)  
31/08/07 9 200 7 675 21 894 730
30/09/07 9 255 8 100 12 836 704
31/10/07 8 900 7 764 32 687 165
30/11/07 8 300 6 815 35 748 742
31/12/07 7 600 6 903 23 577 688
31/01/08 7 400 6 299 34 100 386
29/02/08 7 480 6 650 16 393 850
31/03/08 7 467 6 323 13 987 206
30/04/08 7 475 6 604 10 808 799
31/05/08 7 650 6 827 14 376 648
30/06/08 7 100 5 910 13 003 064
31/07/08 7 573 5 650 19 016 265
31/08/08 8 330 6 980 19 594 059
  Daily
 
Date High Low Volume
  (cents) (cents)  
01/09/08 8 321 8 026 663 677
02/09/08 8 350 8 048 1 006 291
03/09/08 8 445 8 154 348 172
04/09/08 8 467 8 200 1 199 462
05/09/08 8 699 8 180 2 072 789
08/09/08 8 600 8 400 645 950
09/09/08 8 600 8 455 1 931 390
10/09/08 8 600 8 351 1 474 684
11/09/08 8 569 8 050 994 186
12/09/08 8 185 7 914 1 148 947
15/09/08 8 149 7 600 1 246 850
16/09/08 7 700 7 517 3 317 009
17/09/08 7 899 7 531 953 871
18/09/08 7 723 7 511 1 449 126
19/09/08 8 000 7 550 1 387 260
22/09/08 8 148 7 505 386 874
23/09/08 7 990 7 512 743 975
25/09/08 7 875 7 351 568 048
26/09/08 7 700 7 500 165 460
29/09/08 7 659 7 100 521 793

10. Documents available for inspection

  Copies of the following documents will be available for inspection at any time during normal business hours from 1 October 2008, until the close of the annual general meeting at 16 Peltier Drive, Sunninghill Ext 6, South Africa:
 
10.1 the Memorandum and Articles of Assocended 30 June 2008
10.2 the audited annual financial statements of the Company for the last three years ended 30 June 2008
10.3 the signed agreements between the Company, Massmart Management & Finance Company (Pty) Ltd and the black non-executive Directors
10.4 the signed fairness opinion referred to in paragraph 6 above
10.5 the trust deeds applicable to the Thuthukani Trust and the Black Scarce Skills Trust
10.6 this Notice, signed on behalf of the Directors.