CIRCULAR TO ALERT STEEL SHAREHOLDERS

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION The definitions and interpretation commencing on page 4 of this circular apply to this circular, including this cover page. If you are in any doubt as to what action to take in relation to this circular, please consult your CSDP, stockbroker, banker or other professional adviser immediately. ACTION REQUIRED 1. This circular is important and should be read with particular attention to page 2 entitled Action required which sets out the action required by shareholders of Alert Steel with regard to this circular. 2 If you have disposed of all your shares in Alert Steel, please forward this circular to the purchaser of such shares or to the CSDP, broker, banker or other agent through whom the disposal was effected. ALERT STEEL HOLDINGS LIMITED (Incorporated in the Republic of South Africa) Registration number: 2003/005144/06 JSE code: AET ISIN: ZAE ( Alert Steel or the company ) CIRCULAR TO ALERT STEEL SHAREHOLDERS regarding approval of a proposed specific issue of shares for cash to a related party; authorisation of the issue of more than 30% of the shares currently in issue; increase of authorised share capital to shares, and incorporating: a notice convening a general meeting of the shareholders of the company; and a form of proxy in respect of the general meeting of shareholders (for use by certificated shareholders and dematerialised shareholders who have selected own name registration only). Designated Adviser Reporting accountants Attorneys Exchange Sponsors KPMG Incorporated Gattoo Attorneys Date of issue: 17 September 2013 This circular is available in English only and copies thereof may be obtained from the offices of the company at the address reflected on the Corporate Information page of this circular from the date of issue to 30 September In addition, this circular is available in electronic form on the company s website (

2 TABLE OF CONTENTS Page Corporate information 1 Action required 2 Salient dates and times 3 Definitions and interpretations 4 Circular to Alert Steel shareholders 1. Introduction 7 2. Proposed specific issue to a related party 7 3. Terms and conditions of the loans 8 4. Conditions precedent 8 5. Purpose of this circular 9 6. Share capital 9 7. Effects of the specific issue on shareholding of Cannistraro Increase in authorised shares Financial information Listing of new ordinary shares Information relating to Alert Steel Information relating to the directors General General meeting and voting rights Approval requirements at the general meeting Documents available for inspection 20 Annexure 1 Pro forma financial information 21 Annexure 2 Independent reporting accountant s assurance report on the compilation of pro forma financial information included in a circular 23 Annexure 3 Trading history of Alert Steel shares on the JSE 25 Annexure 4 Corporate governance 27 Notice of general meeting of Alert Steel shareholders 32 Form of proxy general meeting of shareholders Attached

3 CORPORATE INFORMATION REGISTERED OFFICE OF ALERT STEEL Corner of Engelbrecht and Lanham Streets East Lynne, Pretoria, 0186 (PO Box 29607, Sunnyside, 0132) Telephone: (012) Facsimile: (012) Date of incorporation: 3 July 2003 Place: Pretoria TRANSFER SECRETARIES Computershare Investor Services Proprietary Limited (Registration number 2004/003647/07) Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) Telephone: (011) Facsimile: (011) DESIGNATED ADVISER Exchange Sponsors (2008) Proprietary Limited (Registration number 2008/019553/07) 44a Boundary Road, Inanda, 2196 (PO Box , Craighall, 2024) Telephone: (011) Facsimile: (011) ATTORNEYS Gattoo Attorneys Suite 1001, 1st Floor 82 on Maude, 82 Maude Street, Sandton, 2196 Telephone: Facsimile: (011) REPORTING ACCOUNTANTS KPMG Incorporated (Registration number 1999/021543/21) KPMG Crescent, 85 Empire Road, Parktown, 2193 (Private bag X9, Parkview, 2122) Telephone: (011) Facsimile: (011) COMPANY SECRETARY M Pretorius (BCom(Law) LL. B) Corner of Engelbrecht and Lanham Streets East Lynne, Pretoria, 0186 (PO Box 29607, Sunnyside, 0132) Telephone: (012) Facsimile:

4 ACTION REQUIRED Please take careful note of the following provisions regarding the action required by Alert Steel shareholders. If you are in any doubt as to what action to take, please consult your CSDP, broker, banker, attorney, accountant or other professional adviser immediately. This circular contains information relating to the transactions. You should read this document carefully and decide how you wish to vote on the resolutions to be proposed at the general meeting. The general meeting, convened in terms of the notice incorporated in this document, will be held at the company s offices, corner of Engelbrecht and Lanham streets, East Lynne, Pretoria at 10:00 on Wednesday, 16 October If you have disposed of all your shares in Alert Steel, please forward this circular to the purchaser of such shares or to the CSDP, broker, banker or other agent through whom the disposal was effected. DEMATERIALISED SHAREHOLDERS OTHER THAN WITH OWN-NAME REGISTRATION: You are entitled to attend or be represented by proxy at the general meeting. You must NOT, however, complete the attached form of proxy. You must advise your CSDP or broker timeously if you wish to attend or be represented at the general meeting. If your CSDP or broker does not contact you, you are advised to contact your CSDP or broker and provide them with your voting instructions. If your CSDP or broker does not obtain instructions from you, they will be obliged to act in terms of the mandate entered into between yourselves. If you wish to attend, or to be represented at, the general meeting, your CSDP or broker will be required to issue the necessary letter of representation to you to enable you to attend or to be represented at the general meeting. CERTIFICATED SHAREHOLDERS AND SHAREHOLDERS WHO HOLD SHARES WITH OWN-NAME REGISTRATION IN DEMATERIALISED FORM: You are entitled to attend, or to be represented by proxy at, the general meeting. However, if your shares are held through a nominee or broker, you must inform that nominee or broker of your intention to attend the general meeting and obtain the necessary letter of representation from that nominee or broker or provide your nominee or broker with your voting instructions should you not be able to attend the general meeting in person. If you are unable to attend the general meeting, but wish to be represented thereat, you must complete and return the attached form of proxy, in accordance with the instructions contained therein, to be received by the transfer secretaries by no later 10:00 on Monday, 14 October 2013, or you may hand the completed form of proxy to the chairman of the general meeting at any time prior to the commencement of voting on the resolutions. Alert Steel does not accept any responsibility and will not be held liable for any failure on the part of the broker or CSDP (as the case may be) of a dematerialised shareholder to notify such dematerialised shareholder of the details of this circular. ELECTRONIC PARTICIPATION In terms of section 61(10) of the Companies Act, every shareholders meeting of a public company must be reasonably accessible within South Africa for electronic participation by shareholders. Shareholders wishing to participate electronically in the general meeting are required to deliver written notice to the Company at corner Engelbrecht and Lanham Streets, East Lynne, Pretoria (marked for the attention of Mr M Patel) by no later than 10:00 on Wednesday, 9 October 2013, that they wish to participate via electronic communication at the general meeting (the electronic notice ). In order for the electronic notice to be valid it must contain: (a) (b) (c) (d) if the shareholder is an individual, a certified copy of his identity document and/or passport; if the shareholder is not an individual, a certified copy of a resolution by the relevant entity and a certified copy of the identity documents and/or passports of the persons who passed the relevant resolution. The relevant resolution must set out who from the relevant entity is authorised to represent the relevant entity at the general meeting via electronic communication; a valid address and/or facsimile number (the contact address/number ); and if the shareholder wishes to vote via electronic communication, set out that the shareholder wishes to vote via electronic communication. By no later than 10:00 on Friday, 11 October 2013, the company shall use its reasonable endeavours to notify (at its contract address/number) each shareholder who has delivered a valid electronic notice of the relevant details through which such shareholder can participate in the general meeting via electronic communication. 2

5 SALIENT DATES AND TIMES 2013 Circular posted to Alert Steel shareholders recorded in the register at the close of business on Friday, 30 August 2013 Last date to trade in order to be eligible to vote at the general meeting Record date to be eligible to vote at the general meeting Last date for receipt of forms of proxy for the general meeting by 10:00 on General meeting to be held at 10:00 on Results of the general meeting released on SENS on JSE lists the new shares issued in terms of the Specific Issue on or about Thursday, 12 September Friday, 4 October Friday, 11 October Monday, 14 October or they may be handed to the chairman of the general meeting at any time prior to the commencement of voting on the resolutions tabled at the general meeting as contemplated by the Act Wednesday, 16 October Wednesday, 16 October Friday, 18 October Note: 1. The above dates and times are subject to amendment and any amendment will be released on SENS. 3

6 DEFINITIONS AND INTERPRETATIONS In this circular, unless the context indicates otherwise, reference to the singular shall include the plural and vice versa, words denoting one gender include the others, words and expressions denoting natural persons include juristic persons and associations of persons and the words and expressions in the first column have the meanings stated opposite them in the second column. Act Aggregate Subscription Price AKM Alert Steel or the company ALT x the Build Kwik Sale Agreement Cannistraro the Companies Act, 2008 (Act 71 of 2008), as amended and including the regulations to such Act from time to time; means an amount of R (ninety-six million Rand); AKM Sons Property Trust, a trust registered with the Master of the High Court, with Master s reference number IT 1549/2008, the trustees are Mohammed Ferouze Moosa, Fayyaz Moosa and Asif Moosa; Alert Steel Holdings Limited (Registration number 2003/005144/06), a public company incorporated in accordance with the laws of South Africa and the shares of which are listed on ALT x ; the Alternative Exchange of the JSE; the Sale Agreement between the Build Kwik Wholesalers Proprietary Limited and Alert Steel Proprietary Limited, dated 5 August 2013 for purchase of the business of Build Kwik Wholesalers Proprietary Limited as a going concern for R ; Cannistraro Investments 282 Proprietary Limited (Registration number 2011/008136/07), a private company incorporated in accordance with the laws of South Africa and which is 100% owned by Mr Rayhaan Hassim; Capital Africa Steel Capital Africa Steel Proprietary Limited (Registration number 2003/008668/07), a private company incorporated in accordance with the laws of South Africa which is owned by WBHO Limited and Brait Private Equity; CAS Sale cents certificated shareholders certificated shares circular Commission or CIPC CSDP dematerialised shareholder dematerialised shares the sale by Capital Africa Steel to Cannistraro of all of its shares in Alert Steel, comprising 47,5% of the shares in issue at such time; South African cents; Alert Steel shareholders who hold certificated shares; Alert Steel shares in respect of which physical Alert Steel share certificates have been issued; this circular, dated 17 September 2013, including all annexures thereto, the notice of general meeting and the form of proxy; the Companies and Intellectual Property Commission established in terms of section 185 of the Act; Central Securities Depository Participant accepted as a participant in terms of the Custody and Administration of Securities Act, 1992 (Act 85 of 1992), appointed by an individual shareholder for purposes of, and in regard to, the dematerialisation of documents of title for purposes of incorporation into the Strate system; a shareholder who holds dematerialised shares; shares which have been incorporated into the Strate system and which are no longer evidenced by physical documents of title, but the evidence of ownership of which is determined electronically and recorded in the sub-register maintained by the CSDP; 4

7 Designated Adviser directors or board of directors effective date general meeting Group IFRS JSE last practicable date Listings Requirements the loans mandatory offer Nedbank Nedbank Sale overdraft facility Reporting Accountants resolutions SENS Share Capital increase shares shareholders Exchange Sponsors (2008) Proprietary Limited (Registration number 2008/019553/07), a private company incorporated in accordance with the laws of South Africa, a designated adviser as contemplated in the Listings Requirements; the board of directors of Alert Steel, further details of whom appear on page 16; the third business day succeeding the date on which all the conditions precedent relating to the Specific Issue have been fulfilled or waived, which date is expected to be the third business day succeeding the general meeting of shareholders to be held on 16 October 2013; the general meeting of shareholders to be held at 10:00 on Wednesday, 16 October 2013, convened in terms of the notice of general meeting included in this circular; Alert Steel and all its subsidiaries; International Financial Reporting Standards; the JSE Limited (Registration number 2005/022939/06), a limited liability public company incorporated in accordance with the laws of South Africa which operates a securities exchange licensed in terms of the Securities Services Act, 2004; the last practicable date prior to the finalisation of this circular, which date was Tuesday, 10 September 2013; the Listings Requirements of the JSE, as amended from time to time; collectively the 2-Year Term loan, 5-Year Term loan, the Southern Palace Loan and the overdraft facility; the mandatory offer made by Cannistraro to all the shareholders of Alert Steel (other than Capital Africa Steel and Nedbank), to acquire all their shares in Alert Steel at a consideration of 54,58 cents per share, as referred to in paragraph 1.5 below; Nedbank Limited (Registration number 1951/000009/06), a public company incorporated in accordance with the laws of South Africa; the sale by Nedbank to Cannistraro of 19,78% of the issued shares in Alert Steel at such time; means the overdraft facility originally advanced by Nedbank to Alert Steel Proprietary Limited, which was ceded by Nedbank to Southern Palace on 1 February 2013, the amount owing by Alert Steel Proprietary Limited at 19 August 3013, was R ; KPMG Incorporated (Registration number 1999/021543/21), a company incorporated in accordance with the laws of South Africa; the resolutions recorded in the notice of general meeting attached to this circular; the Stock Exchange News Service; the proposed increase in the authorised share capital of the company from shares to shares, as referred to in paragraph 8 and in the resolutions; ordinary no par value shares in Alert Steel; holders of shares; 5

8 South Africa Southern Palace Southern Palace Loan Southern Palace Loan Agreement Specific Issue Specific Issue Agreement Strate subscription share 5-Year Term Loan Agreement 2-Year Term Loan Agreement transactions transfer secretaries 2-Year Term loan 5-Year Term loan the Republic of South Africa; Southern Palace Investments 265 Proprietary Limited (Registration number 2005/005086/07), a company duly registered and incorporated with limited liability in accordance with the laws of South Africa and which is 100% owned by Mr Rayhaan Hassim; means the loan of R21 million advanced by Southern Palace to the company, on the terms and conditions recorded in the Southern Palace Loan Agreement; means the agreement of loan concluded between Southern Palace, the company and Alert Steel Proprietary Limited on 19 August 2013 recording the terms and conditions pertaining to the loan by Southern Palace to the company of an amount of R21 million (together with the addendum thereto dated 7 September 2013); the specific issue of shares in Alert Steel at 200 cents per shares to Cannistraro on the effective date, as recorded in the Specific Issue Agreement and referred to in this circular; the agreement entered into on 19 August 2013 between Alert Steel, Alert Steel Proprietary Limited, Southern Palace and Cannistraro in respect of the Specific Issue; the settlement and clearing system used by the JSE, managed by Strate Limited (Registration number 1998/022242/06), a company duly registered and incorporated with limited liability in accordance with the laws of South Africa; the subscription by Alert Steel for one share in Alert Steel Proprietary Limited; means the loan agreement concluded between Alert Steel Proprietary Limited and Nedbank on 6 June 2011 recording the terms and conditions pertaining to the 5-Year Term Loan; means the loan agreement concluded between Alert Steel Proprietary Limited and Nedbank on 6 June 2011 recording the terms and conditions pertaining to the 2-Year Term Loan; the Specific Issue, the Share Capital increase and the other resolutions; Computershare Investor Services Proprietary Limited (Registration number 2004/003647/07), a private company duly registered and incorporated in accordance with the laws of South Africa. means the loan originally advanced by Nedbank to Alert Steel Proprietary Limited in an original amount of R20 million, which was ceded by Nedbank to Southern Palace on 1 February 2013, the amount owing by Alert Steel Proprietary Limited at 19 August 3013, was R ; and means the loan originally advanced by Nedbank to Alert Steel Proprietary Limited in an original amount of R70 million, which was ceded by Nedbank to Southern Palace on 1 February 2013 and which loan was ceded by Southern Palace to Cannistraro on the effective date, the amount owing by Alert Steel Proprietary Limited at 19 August 3013, was R ,84. 6

9 ALERT STEEL HOLDINGS LIMITED (Incorporated in the Republic of South Africa) Registration number: 2003/005144/06 JSE code: AET ISIN: ZAE ( Alert Steel or the company ) DIRECTORS: Non-executive: M M Patel (Independent Non-Executive Chairman), W van der Merwe (Independent Non-Executive Director), G Mahuma (Independent Non-Executive Director), A Loonat (Independent Non-Executive Director) Executive: P Dodson (Chief Executive Officer), MSI Gani (Chief Financial Officer) CIRCULAR TO ALERT STEEL SHAREHOLDERS 1. INTRODUCTION 1.1 Shareholders of Alert Steel were informed on 4 February 2013 that Nedbank had assigned all of its rights and obligations under the 5-Year Term Loan Agreement, to Southern Palace. 1.2 On 8 February 2013, Cannistraro entered into the CAS Sale with Capital Africa Steel, in terms of which Cannistraro agreed to acquire 47,5% of the shares in issue in Alert Steel from Capital Africa Steel for R6 million and also undertook to procure the release of Capital Africa Steel from a bank guarantee of R7,5 million. Therefore the aggregate purchase consideration in respect of the CAS Sale equated to a price of 54,58 cents per share. 1.3 On 15 February 2013, Cannistraro entered into the Nedbank Sale with Nedbank in terms of which Cannistraro agreed to acquire a further 19,78% of the shares in issue in Alert Steel from Nedbank for R1 million (and therefore at a purchase price of 9,72 cents per share). 1.4 On 11 April 2013, it was announced, inter alia, that Southern Palace informed Alert Steel that it had assigned the rights and obligations which it had acquired from Nedbank (referred to in paragraph 1.1 above) to Cannistraro, with effect from 27 February Cannistraro made an unconditional mandatory offer to all of the shareholders other than CAS and Nedbank at 54,58 cents per share on 15 July According to the circular issued on 15 July 2013, the offer closed on 30 August PROPOSED SPECIFIC ISSUE TO A RELATED PARTY 2.1 On 11 April 2013, it was announced that Alert Steel had decided to change the previously announced subscription and clawback offer to a specific issue of shares for cash to Cannistraro. The Specific Issue Agreement was concluded on the 19 August 2013, subject to the fulfilment of certain conditions precedent. 2.2 Alert Steel will, in accordance with the provisions of the Specific Issue Agreement, subject to the fulfilment of the conditions precedent recorded in such agreement, undertake a specific issue of shares to Cannistraro at 200 cents per share for cash to raise R96 million. The purpose of the Specific Issue is to redeem debt owing by Alert Steel to Cannistraro. 7

10 2.3 The Specific Issue is subject to the fulfilment of the conditions precedent set out in paragraph 4 below. 2.4 Cannistraro will cede and delegate to Alert Steel all of its rights and obligations against Alert Steel Proprietary Limited to discharge the aggregate subscription price as follows: R75 million will be set off against Alert Steel s obligations to Cannistraro in terms of the loans which originated from Nedbank (refer to paragraph 1.4 above); R10 million arising from a prior loan from Cannistraro to Alert Steel Proprietary Limited; and R11 million arising from an undertaking by Cannistraro to lend and advance such amount to Alert Steel Proprietary Limited by 31 August Subject to the fulfilment or waiver of the below conditions precedent, Alert Steel will subscribe for the subscription share in Alert Steel Proprietary Limited. 2.6 An amount of R20 million will be advanced to Alert Steel Proprietary Limited, in terms of the Southern Palace loan agreement. 3. TERMS AND CONDITIONS OF THE LOANS 3.1 Southern Palace Loan Alert Steel entered into the Southern Palace Loan Agreement with Southern Palace on 19 August 2013, in terms of which Southern Palace agreed to lend and advance an amount of R20 million to Alert Steel Proprietary Limited, with interest on such loan to accrue at the prime interest rate, on the advance date, being 31 August 2013 or such earlier date as agreed between the parties. Interest is payable on the repayment date, being 31 October Alert Steel Proprietary Limited shall be entitled, prior to the repayment date of 31 October 2014, without penalty, to effect full or partial repayment to Southern Palace of all or any portion of the Southern Palace loan The security held by Southern Palace in respects of the loans shall apply equally to all amounts lent and advanced by Southern Palace in terms of the Southern Palace Loan Agreement Year Term loan On 6 June 2011, Alert Steel Proprietary Limited, a wholly owned subsidiary of Alert Steel, entered into the 5-Year Term Loan Agreement with Nedbank. In terms of the 5-Year Term Loan Agreement, Nedbank lent and advanced an amount of R70 million to Alert Steel Proprietary Limited, with interest accruing thereon at the prime interest rate minus 2%, and which loan is repayable after five years Shareholders of Alert Steel were informed on 4 February 2013 that Nedbank had assigned all of the rights and obligations under the 5-Year Term Loan Agreement, to Southern Palace. With effect from 27 February 2013, Southern Palace assigned the rights and obligations which it had acquired from Nedbank, to Cannistraro Year Term loan On 6 June 2011, Alert Steel Proprietary Limited, a wholly owned subsidiary of Alert Steel, entered into the 2-Year Term Loan Agreement with Nedbank. In terms of the 2-Year Term Loan Agreement, Nedbank lent and advanced an amount of R20 million to Alert Steel Proprietary Limited, with interest accruing thereon at the prime interest rate and which loan is repayable after two years Shareholders of Alert Steel were informed on 4 February 2013 that Nedbank had assigned all of the rights and obligations under the 2-Year Term Loan Agreement, to Southern Palace. With effect from 27 February 2013, Southern Palace assigned the rights and obligations which it had acquired from Nedbank, to Cannistraro. 4. CONDITIONS PRECEDENT The Specific Issue is subject, inter alia to the fulfilment of the following conditions precedent on or before 31 December 2013: 4.1. Approval in terms of Section 5.51 of the Listings Requirements In terms of section 5.51 (g) of the Listings Requirements a specific issue of shares for cash must be approved by a 75% majority of votes of all shareholders, excluding parties participating in the specific issue and their associates. Such approval is therefore required in relation to the Specific Issue, and such approval has accordingly been sought in the resolutions to be considered at the general meeting. 8

11 A fairness opinion will not be required although the Specific Issue is to a related party, as the issue price is at a 30% premium to Alert Steel s volume weighted average trading price over the 30 days ended 11 April Authorisation in terms of Section 41 (1) of the Act Section 41(1) of the Act requires approval by shareholders by a special resolution if the shares are issued to a related party. In terms of section 2(c) of the Act, a juristic person is related to a company if the one controls the other. Pursuant to the implementation of the CAS Sale and the Nedbank Sale, Cannistraro will control Alert Steel. A special resolution by shareholders will therefore be required in relation to the Specific Issue, and has been included in the resolutions to be considered at the general meeting Authorisation in terms of Section 41 (3) of the Act Section 41(3) of the Act requires approval by shareholders by special resolution if the shares that are to be issued in terms of the Specific Issue will be equal to or exceed 30% of the shares held by shareholders immediately before the Specific Issue. Alert Steel currently has shares of no par value authorized and shares of no par value in issue new shares will be issued in terms of the Specific Issue, which represent 92% of the shares currently in issue. A special resolution will therefore be required to authorise such issue and has been included in the resolutions to be considered at the general meeting. 4.4 Authorisation in terms of Section 44 of the Act Section 44 of the Act requires approval by shareholders by special resolution, that a general authority be given to the Board of Directors of the Company to provide financial assistance to all related and inter-related companies within the Alert Group of companies, at such times and on such terms and conditions as the Directors in their sole discretion deem fit, and subject to all relevant statutory and regulatory requirements being met. Specific authority to provide financial assistance is required regarding the subscription by Alert Steel for one share in Alert Steel Proprietary Limited, the execution by Alert Steel Proprietary Limited of a notarial bond over all stock and moveable assets held by Alert Steel Proprietary Limited, a cession of debts to Southern Palace and the execution by Alert Steel of a guarantee in favour of Southern Palace as security for all obligations of Alert Steel Proprietary Limited to Southern Palace in relation to the 5-Year Term loan, the 2-Year Term loan and the overdraft facility. A special resolution will therefore be required to authorise such financial assistance and has been included in the resolutions to be considered at the general meeting. 5. PURPOSE OF THIS CIRCULAR The purpose of this circular is to convene a general meeting of Alert Steel shareholders in order to pass, with or without amendment, the following resolutions: 5.1 an ordinary resolution in terms of Section 5.51 of the Listings Requirements, to approve the Specific Issue with a 75% majority of votes of all shareholders excluding Cannistraro and its associates (see 4.1 above); 5.2. a special resolution in terms of Section 41(1) of the Act to approve the issue of shares to Cannistraro, a related party, in terms of the Specific Issue (see 4.2 above); 5.3. a special resolution in terms of Section 41(3) of the Act to authorise the issue of more than 30% of shares in terms of the Specific Issue (see 4.3 above); 5.4. a special resolution in terms of Section 44 of the Act to authorise financial assistance(see 4.4 above); and 5.5 a special resolution to increase the authorised share capital of Alert Steel by shares of no par value from shares of no par value to shares of no par value (see 8 below), which resolutions are fully set out in the notice of general meeting attached to and forming part of this circular. Should the resolutions referred to in 5.1, 5.2, and 5.3 be passed, Alert Steel and Cannistraro will proceed with the Specific Issue at 200 cents per share. 6. SHARE CAPITAL 6.1 Authorised and issued share capital before the Specific Issue and the Share Capital increase On 10 December 2012, the authorised and issued share capital of the company was consolidated on the basis of one share for every 100 shares held. 9

12 The authorised and issued share capital of Alert Steel as at the date of this circular, prior to the implementation of the Specific Issue and the Share Capital increase, are set out below: Authorised share capital before Rand ordinary shares of no par value Issued share capital before ordinary no par value shares Treasury shares (76 000) Total issued share capital All authorised but unissued shares have been placed under the control of the directors until the next annual general meeting, subject to the provisions of the Act. The company did not issue any ordinary shares during the previous three years, save for the following: on 10 October 2011, a rights offer was successfully concluded with the shareholders shares were issued at 3,3 cents per share. All shares were fully paid resulting in a cash inflow of R50 million; on 28 June 2012, a further rights offer was concluded with shareholders. A further shares were issued at 2,8 cents per share. All shares were fully paid resulting in a cash inflow of R65 million; on 28 November 2012, a further shares were issued, of which were issued to Capital Africa Steel and were issued to Nedbank, in relation to a debt to equity conversion at 2,8 cents per share; on 10 December 2012 the company consolidated its shares at a ratio of 100:1. As a result of such conversion, the issued share capital was reduced by shares. 6.2 Authorised and issued share capital after the Specific Issue and the Share Capital increase The authorised and issued share capital of Alert Steel after the Specific Issue and the Share Capital increase will be as set out below: Authorised share capital after ordinary shares of no par value Issued share capital after Rand ordinary no par value shares Less: Treasury shares (76 000) Total issued share capital EFFECTS OF THE SPECIFIC ISSUE ON SHAREHOLDING OF CANNISTRARO Changes in shareholding: Number of shares Percentage holding Cannistraro before Specific Issue ,35 Specific Issue Cannistraro after Specific Issue ,02 Total shares in issue after Specific Issue ,00 Percentage of authorised shares 99,9 Cannistraro has confirmed in writing to Alert Steel that it does not intend invoking section 124 of the Act and intends remaining listed on the Alt x subsequent to the Specific Issue. 10

13 8. INCREASE IN AUTHORISED SHARES As set out in paragraph 7 above, the proposed Specific Issue will utilise virtually all the currently authorised but unissued shares of Alert Steel, and, subsequent to the implementation of the Specific Issue, only 364 authorised shares will remain unissued. The board of directors of the company has accordingly determined that the authorised share capital of the company should be increased for future use. A special resolution has therefore been proposed for consideration at the general meeting in terms of which the authorised share capital of the company will be increased by shares of no par value from shares of no par value to shares of no par value. A resolution in this regard is incorporated in the notice of general meeting included in this circular. 9. FINANCIAL INFORMATION 9.1 Pro forma financial effects of the Specific Issue The unaudited and unreviewed pro forma financial effects have been prepared for the purposes of illustrating how the Specific Issue would have affected the financial position, changes in equity, results of operation or cash flows of Alert Steel for the historical financial period indicated. Accordingly, such effects may not necessarily fairly represent the financial effects of the Specific Issue on Alert Steel s financial position, changes in equity and results of operations or cash flows. The unaudited and unreviewed pro forma financial effects have been compiled using accounting policies that comply with IFRS and that are consistent with those applied in the unaudited consolidated financial statements of Alert Steel for the six months ended 31 December The pro forma figures have been given no greater prominence than unadjusted financial figures, and are presented in a manner consistent with both the format and accounting policies adopted in the historical financial information and adjustments have been quantified on the same basis as would normally be calculated in preparing financial statements. The directors are responsible for the preparation of the unaudited and unreviewed pro forma financial effects. The table below sets out the unaudited and unreviewed pro forma financial effects of the Specific Issue on Alert Steel: Before the After the Specific Specific Percentage Issue (1) Issue (3) (5) change Loss per share (cents) (2) (62,8) (26,1) 58 Headline loss per share (cents) (2) (61,6) (25,6) 58 Net asset value per share (4) (0,5) 95, Net tangible asset value per share (4) (11,5) 89,3 880 Number of ordinary shares in issue ( 000) Weighted average number of ordinary shares in issue ( 000) Notes: (1) The Before the Specific Issue column is based on Alert Steel s published reviewed provisional results for the six months ended 31 December (2) The loss and headline loss per share was calculated as if the Specific Issue took place on 1 July (3) The After the Specific Issue column assumes that the shares were issued at 200 cents per share and the proceeds were received on 31 December (4) The net asset value and net tangible asset value in the After the Specific Issue column was calculated as if the Specific Issue took place on 31 December (5) The After the Specific Issue net asset value and net tangible asset value per share have been adjusted to include the issue of the ordinary shares at 200 cents per share less the payment of the estimated transaction costs which have been written off against share capital. (6) The After the Specific Issue column loss per share and Headline Loss per share has been adjusted to include the issue of the ordinary shares, the interest saving on interest bearing debt calculated at the prime interest rate and the portion of transaction costs of R equating to 43% of the total transaction costs of R per paragraph 13.3 of the circular that have been expensed. (7) All transactions with the exception of transaction costs, are expected to have a continuing effect. 11

14 9.2 Pro forma statement of comprehensive income and statement of financial position The pro forma statements of financial position and comprehensive income, before and after the Specific Issue, together with notes regarding the adjustments, are set out in Annexure 1. The independent reporting accountant s report on the compilation of the unaudited and unreviewed pro forma financial information is set out in Annexure Segmental information Group R 000 External revenues Branches Containers and express stores Reportable segment loss before tax Branches (32 313) Containers and express stores (28 458) Segment assets Branches Containers and express stores Segment liabilities Branches Containers and express stores 9.4 Responsibility and confirmation The financial information set out in this document is the responsibility of the directors The independent reporting accountants have provided confirmation to the JSE that they have reviewed this circular and that they have provided the necessary advice on the applicable Listings Requirements regarding the pro forma financial information for Alert Steel as described in this circular submitted to the JSE and have ensured that their advice has been applied. 9.5 Adequacy of capital The tough market conditions over the past three years resulted in declining revenue and continued losses for the Group. In May 2012, management implemented a restructuring plan in order to reduce costs and improve efficiencies. The continued losses placed the cash flows of the Group under severe pressure, resulting in a review of the Group s financing facilities with its financiers. The Group incurred a loss for the period ended 31 December 2012 of R28 million (31 December 2011: R18 million) and at that date the Group s liabilities exceeded its assets by R0,2 million. Notwithstanding the loss for the period and the current value of the net asset value of the Group, there have been considerable improvements to the company s financial performance, cost structures and cash flow during the period and its financial position at the end of December Market conditions continued to be depressed for the first six months of the financial year; this has been aggravated by strikes at the company and within the mining and transportation sectors. The going concern of the Group is very dependent on the successful conclusion of the debt restructuring and business plan as announced on SENS on 11 February 2013, including but not limited to the following: successful implementation of the Specific Issue for cash as described in this circular; the finalisation of the disposal of the Aquarella investment property; the finalisation of the disposal of two non-core properties; the implementation of the new business plan including expanding the Group s product range to include hardware and related materials. 12

15 Based on the restructuring plans being successfully implemented, budgets and cash flow forecasts for the ensuing year (which are based on the current expected economic and market conditions changing positively), and the continued support of the Group s financiers, the directors believe that the company will have adequate financial resources to continue as a going concern during the ensuing year. 9.6 Material changes The directors report that, other than the events described in this circular, there have been no material changes in the financial or trading position or the assets and liabilities of Alert Steel between 31 December 2012, the date of release of the unaudited financial results for the six months that ended 31 December 2012 and the last practicable date save for the acquisition by Alert Steel Proprietary Limited of the business of Build Kwik Wholesalers Proprietary Limited as a going concern for R in terms of the Build Kwik Sale Agreement. 9.7 Material borrowings of Alert Steel and its subsidiaries Group R 000 Loans and borrowings Opening non-current liabilities Opening current liabilities New issues Interest capitalised on loan Interest capitalised on Aquarella bond 330 Repayments Long-term loan 2 advanced by Nedbank (1 667) Mortgage bonds (579) Instalment sale liabilities (3 493) Non-current liabilities Current liabilites Total Long term loan 1 bears interest at prime less 2% and interest is capitalised on the loan. The loan is repayable in one instalment on the maturity date, being 1 October Long term loan 2 bears interest at prime less 2%. The loan is repayable in 24 equal instalments commencing on 1 October The Group was in breach of its covenants with Nedbank as at 31 December These loans have therefore been classified as current. Subsequent to the 31 December 2012, Nedbank assigned the rights and obligations under its Banking Facilities, Property Loan Agreement and Securities to AKM and Southern Palace. There is no material difference between the fair value of other borrowings and their book value. The loans arose from the funding of assets, losses as well as for the purchase of subsidiaries. In terms of the Memorandum of Incorporation of the company, the borrowing powers of the directors shall be unlimited. 9.8 Financial director In terms of the Listings Requirements, the company has an incumbent executive financial director and the Audit Committee has satisfied itself of the appropriateness of his experience and expertise. 10. LISTING OF NEW ORDINARY SHARES 10.1 Subject to all the resolutions to be proposed at the general meeting in respect of the Specific Issue being passed, the JSE has granted the listing of the shares to be issued in terms of the Specific Issue from the commencement of trade on Friday, 18 October The shares to be issued in terms of the Specific Issue represent 48% of Alert Steel s issued shares after the Specific Issue. 13

16 10.3 On listing all the issued shares (including the shares to be issued in terms of the Specific Issue) will be of the same class and will rank pari passu in all respects Cannistraro is a company registered in South Africa and the approval by the Exchange Control Department of the South African Reserve Bank of the Specific Issue is thus not required. 11. INFORMATION RELATING TO ALERT STEEL 11.1 Nature of business The Group, through its 52 operations in Gauteng, North West, Limpopo, and Mpumalanga, is a large retailer of prime steel and steel related products. Approximately 70% of the Group s revenue is derived from the sale of approximately tonnes of steel per month. With an experienced team and a fleet of 200 vehicles, the group is well equipped to meet the needs of its growing customer base. The Group does not receive any government protection and there is no investment encouragement law affecting the Group s businesses. The Group s footprint is made up as follow: 12 Alerts Steel branches; 10 Alert Express stores; and 30 Alert Steel containers Alert Steel deploys container depots in strategic locations to serve rural areas. The Alert Express containers stock all fast moving steel and steel-related items. Alert Steel s customers consist of all sectors of the market such as engineering, fabrication, manufacturing, construction, agricultural, mining and parastatals and rural markets through the Alert Steel containers. Its products and services are distributed mainly through the retail, wholesale and contract sectors of the economy History Wynand Schalekamp, an entrepreneur, established Alert Steel 31 years ago as a small one-man business operating from a garage providing a variety of steel products to the building industry. The Group, through its operating branches/subsidiaries, is currently a distributor of steel and steel related products. The Alert Steel group listed on the JSE Alt x on 1 March Thereafter several acquisitions were made that increased Alert s national footprint to 16 retail branches/subsidiaries situated in Gauteng, North West, Mpumalanga and Limpopo Prospects The trading for the six months from 1 July 2012 to 31 December 2012 continued to be challenging. The strike in the mining sector had a major impact on the trading for November and December 2012 and continued to impact on the January 2013 results. The group s split between cash business and credit continues to grow and the cash business has increased to more than 60% of the group s revenue. Alert Steel has however seen a slowdown in contracting and credit business during the six months to 31 December Revenue due to the slowdown in contracting business impacted on the overall performance of the Group and the net result was that the Group did not achieve the revenue forecast. The Group made substantial progress in the Alert Container roll out projects and now has 29 containers, which were fully operational by the end of December The Group was also able to roll out five new Alert express stores during this period. Both these projects are on-going and form part of the Group s future strategy. The Group also made huge strides in cutting costs, reducing the overhead cost for the period by 15,8%. The monthly overhead cost continues to be a key focus area to ensure that Alert becomes the lowest cost producer in the industry and this will continue to be one of the main focus areas in the next six months. Part of the Group s restructuring plan for the six months was to reduce its inventory holding in order to improve working capital, as well as to ensure that the Group has the correct product mix to be in line with its strategy of selling only steel and steel related products. This restructuring plan included an improvement in the collections of debtors in order to increase cash resources, to settle suppliers on time. Alert Steel was also able to settle more creditors than in the prior years as there was more cash resources available in the current period than in the prior period. 14

17 In addition to the above, the overdraft balance decreased due to improved collection of debtors, decreased inventory levels and the proceeds from the disposal of branches not generating enough cash flow and finally proceeds from the disposal of investments not in use anymore. This is in line with the restructuring plans as discussed above. Alert Steel s vision is to maximise returns for its stakeholders, who comprise shareholders, customers, colleagues, suppliers, service providers and the community. The Alert group pledges to serve its stakeholders through relationships built on trust, respect, enthusiasm, loyalty and a positive attitude. The Group continuously pursues growth opportunities where the potential for improved returns can be optimised through its unique value proposition Major shareholders and controlling shareholders At the last practical date, the shareholder holding directly or indirectly 5% or more of the company s shares was: Name % Cannistraro 67,35 The shareholding of Cannistraro will increase as a result of the implementation of the Specific Issue (as set out in paragraph 7 above). There will not be a change in the controlling shareholder of Alert Steel resulting from the Specific Issue, which will be Cannistraro both before and after the implementation of the Specific Issue. There have been changes in the controlling shareholders and trading objectives of Alert Steel and its subsidiaries since incorporation Litigation statement There are no legal or arbitration proceedings against the Group nor, as far as the directors are aware, are there any legal or arbitration proceedings pending or threatened against the company, which have or may have had, in the 12 months preceding the last practicable date, a material effect on the Group s financial position Material changes The directors report that no material changes in the affairs or financial position of the Group have taken place since the publication of the unaudited financial results for the six months ended 31 December 2012, save as announced on SENS on 6 February 2013, 11 February 2013, 26 March 2013, 27 March 2013 and 11 April Material contracts No other material contracts have been entered into (either verbally or in writing) by Alert Steel and/or its subsidiaries, other than in the ordinary course of business, during the two years preceding the last practicable date save for: The material contracts referred to in the circular issued to shareholders dated 29 August 2011; the Specific Issue Agreement; Build Kwik Sale Agreement; and Alert Steel Tshwane, a subsidiary of Alert Steel Holdings has entered into a three year supply contract with Transnet from 1 July The contract entails the supply of Carbon steel to Transnet s Koedoespoort and Germiston plants for a three year period. The total contract value is estimated to be at least R over the contract period. No agreements have been entered into which contain an obligation or settlement that is material to the company. The executive directors have standard employment contracts with the company. At the last practicable date, the company had not entered into any agreements relating to the payment of technical, administration or secretarial fees nor is it a party to any material restraint of trade agreement other than as disclosed in the circular. 15

18 11.8 Corporate governance The Group s corporate governance policy is set out in Annexure Share price information A table setting out the price history of the company s shares is included in Annexure INFORMATION RELATING TO THE DIRECTORS 12.1 Directors Details relating to the directors of Alert Steel are set out below: Director Age Occupation Brief curriculum vitae MM Patel 38 Independent CA(SA). Mitesh is an audit partner of Nkonki Inc. Non-Executive Director Mitesh qualified as a Chartered Accountant in He has been in the audit and advisory profession for the past twelve years. Mitesh is also the chairperson of the audit committees of Wearne Limited and StratCorp Limited. WP van der Merwe 44 Independent CA(SA). Wessel has been involved with Alert Steel Non-Executive Director since its initial listing and brings a wealth of experience and knowledge to the board. He has served as a member of the Alt x Advisory Committee since 2007 and previously headed a corporate advisory business for more than fourteen years. His directorships include Imbalie Beauty Limited, Taste Holdings Limited, WG Wearne Ltd and Moneyweb Holdings Ltd. G Mahuma 41 Independent BCom (Hons). Gwen is Chief Executive Officer of Non-Executive Director Mahuma Investment Holdings, an investment vehicle with interests in the steel, concrete and the infrastructure sector. Previously, she was the managing director of a supplier of roof bolts to the mining industry. Her current directorships include Capital Africa Steel, WSP Africa, CAS Enviro and Alert Steel Tshwane. A Loonat 34 Independent CA(SA). Afzal is an audit partner at Bismilla CA Inc Non-Executive Director and has been actively involved in audit and related services for the past ten years. P Dodson 62 Chief Executive Officer Peter Dodson started in retailing in 1974 with Pick & Pay and over the past thirty eight years has been a director of Pick & Pay and OK Bazaars and was a founder shareholder and director of the Pie City Group. Mr Dodson was more recently employed as the Chief Executive Officer of the Metro Cash & Carry Group. He took over the reign as Chief Executive Officer of Alert Steel in February MSI Gani 60 Chief Financial Officer CA(SA). Mr Gani is a qualified chartered accountant as well as a member of SAICA and IRBA. He was a partner at PWC form 2003, until his retirement in June 2013 and prior to that he had been a partner at MSGM Auditors. All directors are South African citizens and their respective business addresses are the same as that of the company. 16