THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION The final JSE approval is conditional upon the sign-off from all the members of the Board. A SENS announcement will be released to update the market regarding the aforementioned. If you are in any doubt as to the action you should take, please consult your broker, CSDP, banker, accountant, legal adviser or other professional advisor immediately. The definitions on pages 4 to 7 have been used on this front cover. Recommended action If you have disposed of all your Aveng Shares, please forward this Circular to the purchaser of such Shares or the broker, CSDP, banker or other agent through whom such disposal was effected. The General Meeting will take place at the registered offi ce of Aveng, 204 Rivonia Road, Morningside, Sandton, 2196 at 11:00 on Thursday, 3 November 2011 or so soon thereafter as the annual general meeting of Aveng convened for 10:00 on the same day and at the same venue, shall have been concluded or adjourned, for Shareholders to vote on the proposed ordinary and special resolutions contained in the notice of General Meeting which forms part of this Circular. If you are a Certifi cated Shareholder or an Own Name Dematerialised Shareholder and are unable to attend the General Meeting and wish to be represented thereat, you must complete and return the attached form of proxy (blue), in accordance with the instructions contained therein, to the Transfer Secretaries, Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), which forms, in order to be valid, must be received by them by no later than 11:00 on Tuesday, 1 November 2011. Shareholders, who have dematerialised their Aveng Shares through a broker or CSDP, other than Own Name Dematerialised Shareholders, and who wish to attend the General Meeting must request their broker or CSDP to provide them with the necessary letter of representation to attend the General Meeting. Should Dematerialised Shareholders, other than Own Name Dematerialised Shareholders wish to vote at the General Meeting by proxy, they must provide their broker or CSDP with their voting instructions in terms of the custody agreement entered into between them and their broker or CSDP. These instructions must be provided to the CSDP or broker by the cut-off time and date advised by the CSDP or broker for instructions of this nature. Aveng Limited (Incorporated in the Republic of South Africa) (Registration number 1944/018119/06) Share code: AEG ISIN: ZAE000111829 ( Aveng or the Company ) CIRCULAR TO AVENG SHAREHOLDERS relating to: the proposed amendments to the Black Economic Empowerment transaction in which Black Economic Empowerment partners were introduced into Aveng (Africa) and Trident Steel in 2004; and incorporating: a notice of the General Meeting; and a form of proxy (blue) for use by Certificated Shareholders and Own Name Dematerialised Shareholders only. Investment Bank and Transaction Sponsor Corporate Law and Tax Advisors Sponsor Reporting Accountants Independent Expert Date of issue: 5 October 2011 This document is only available in English and copies hereof may be obtained during normal business hours from the registered offi ce of Aveng, the offi ces of the Sponsor and from the Transfer Secretaries whose addresses are set out in the Corporate Information section of this Circular.
CORPORATE INFORMATION Directors A W B Band** (Chairman) W R Jardine (Chief Executive Offi cer) H J Verster (Financial Director) J J A Mashaba D G Robinson (Australian) P J Erasmus** T M Mokgosi-Mwantembe** K C Rumble** M A Hermanus** M J D Ruck** N L Sowazi* P K Ward** R L Hogben** * Non-executive ** Independent non-executive K Robinson (Company Secretary) Company Secretary and Registered Office Karen Robinson 204 Rivonia Road Morningside Sandton, 2196 (PO Box 6062, Rivonia, 2128) Investment Bank and Transaction Sponsor Investec Bank Limited (Registration number 1969/004763/06) 100 Grayston Drive, Sandton, 2196 (PO Box 78055, Sandton, 2146) Corporate Law and Tax Advisors Webber Wentzel Attorneys 10 Fricker Road Illovo Boulevard Illovo, 2196 Reporting Accountants Ernst & Young Incorporated (Practice number 918 288) Wanderers Offi ce Park 52 Corlett Drive Illovo, 2196 (PO Box 2322, Johannesburg, 2000) Sponsor JP Morgan Equities Limited (Registration number 1995/011815/06) 1 Fricker Road, Corner Hurlingham Road Illovo, 2196 (Private Bag X9936, Sandton, 2146) Independent Expert Rand Merchant Bank, a division of FirstRand Bank Limited 1 Merchant Place, Fredman Drive Sandton, 2196 (PO Box 786273, Sandton 2146) Transfer Secretaries Computershare Investor Services (Pty) Limited (Registration number 2000/006082/06) 70 Marshall Street Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
CONTENTS CORPORATE INFORMATION Inside front cover IMPORTANT LEGAL NOTES AND FORWARD-LOOKING STATEMENTS 2 SALIENT DATES AND TIMES 3 DEFINITIONS 4 SALIENT FEATURES 8 CIRCULAR TO AVENG SHAREHOLDERS 13 1. INTRODUCTION AND RATIONALE 13 2. THE ORIGINAL BEE TRANSACTION 13 3. BACKGROUND TO THE TRANSACTION 14 4. THE PROPOSED RESTRUCTURING 15 5. FINANCIAL EFFECTS OF THE PROPOSED RESTRUCTURING 18 6. INDEPENDENT EXPERT 19 7. CONDITIONS PRECEDENT 19 8. INFORMATION ON AVENG 19 9. MATERIAL CHANGES 20 10. SHARE CAPITAL 20 11. MAJOR SHAREHOLDERS 22 12. DIRECTORS 22 13. DIRECTORS RECOMMENDATION AND RESPONSIBILITY STATEMENT 26 14. LITIGATION STATEMENT 27 15. DIRECTORS RESPONSIBILITY STATEMENT 27 16. CONSENTS 27 17. ESTIMATED COSTS 27 18. DOCUMENTS AVAILABLE FOR INSPECTION 28 19. GENERAL MEETING OF AVENG SHAREHOLDERS 28 ANNEXURE I TRADING HISTORY OF AVENG SHARES 29 ANNEXURE II REPORTING ACCOUNTANTS REPORT 31 ANNEXURE III INDEPENDENT EXPERT OPINION 33 ANNEXURE IV DIRECTORS OF AVENG 37 ANNEXURE V CORPORATE GOVERNANCE 41 ANNEXURE VI PRO FORMA FINANCIAL STATEMENTS 48 NOTICE OF GENERAL MEETING 51 FORM OF PROXY (blue) Attached 1
IMPORTANT LEGAL NOTES AND FORWARD-LOOKING STATEMENTS IMPORTANT LEGAL NOTES The release, publication or distribution of this Circular in certain jurisdictions may be restricted by law and therefore persons in any such jurisdictions into which this Circular is released, published or distributed should inform themselves about, and observe, such restrictions. Any failure to comply with the applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. This Circular does not constitute an offer to sell or issue, or the solicitation of an offer to purchase or subscribe for, any shares or other securities or a solicitation of any vote or approval in any jurisdiction in which such offer or solicitation would be unlawful. FORWARD-LOOKING STATEMENTS This Circular contains statements about Aveng that are or may be forward-looking statements. All statements, other than statements of historical facts included in this Circular, may be forward-looking statements. Without limitation any statements preceded or followed by or that include the words targets, plans, believes, expects, aims, intends, will, may, anticipate, or similar expressions or the negative thereof are forward-looking statements. Forward-looking statements include, but are not limited to, statements relating to the following: (i) future capital expenditure, revenue, operating expenses, economic performance, fi nancial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of Aveng s operations and (iii) the effects of Government regulation on Aveng s operating divisions. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Aveng, or industry results, to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on numerous assumptions regarding the present and future business strategies of Aveng and the environment in which each will operate in the future. All subsequent oral or written forward-looking statements attributable to Aveng or any Aveng group company expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to refl ect any change in their expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. 2
SALIENT DATES AND TIMES Circular and notice of General Meeting posted to Shareholders Last day to trade in order to be eligible to vote at the General Meeting Record date in order to vote at the General Meeting Form of proxy for the General Meeting to be lodged by no later than 11:00 Annual General Meeting held at 10:00 General Meeting to be held at 11:00 (1) Results of General Meeting to be released on SENS Results of General Meeting to be published in the press 2011 Wednesday, 5 October Friday, 21 October Friday, 28 October Tuesday, 1 November Thursday, 3 November Thursday, 3 November Thursday, 3 November Friday, 4 November (1) The General Meeting will take place at the registered offi ce of Aveng, 204 Rivonia Road, Morningside, Sandton, 2196 at 11:00 on Thursday, 3 November 2011 or so soon thereafter as the Annual General Meeting of Aveng convened for 10:00 on the same day and at the same venue, shall have been concluded or adjourned Notes: The definitions on pages 4 to 7 of this Circular apply, mutatis mutandis, to these salient dates and times. 1. The above dates and times are subject to amendment. Any such amendment will be released on SENS and published in the press. 2. All times indicated above are given in South African time. 3. To be valid, the completed forms of proxy must be lodged with the Transfer Secretaries of the Company, Computershare Investor Services (Proprietary) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), South Africa, to reach the Company on or before 11:00 on Tuesday, 1 November at least 48 hours (excluding Saturdays and Sundays and public holidays in South Africa) before the time appointed for the holding of the General Meeting. 3
DEFINITIONS Throughout this Circular, the Annexures hereto, the notice of General Meeting and Form of Proxy, unless otherwise stated or the context otherwise requires, a reference to the singular includes the plural and vice versa, words denoting one gender include the other gender, words denoting natural persons include legal persons and associations of persons and vice versa and the words in the fi rst column have the meanings stated opposite them in the second column: Agreements Aveng, the Company or the Group Aveng (Africa) Aveng Management Company Aveng Shareholders or Shareholders Aveng Shares BEE BEE Consortium Board or Directors Business Day Call Option Certifi cated Shareholders Circular Community Investment Trust Companies Act Competition Authorities collectively, the sale agreement dated 19 August 2004 between Aveng and Four Arrows, the shareholders agreement dated 19 August 2004, amongst Four Arrows, KTH (formerly Tiso Group (Pty) Ltd), and Aveng, and the sale of shares agreement, dated 19 August 2004, between Aveng and Qakazana and any addenda thereto, which agreements govern the Original BEE Transaction and the Proposed Restructuring; Aveng Limited (Registration number 1944/018119/06), a company incorporated in South Africa and whose shares are listed on the JSE; Aveng (Africa) Limited (Registration number 1931/003300/06), a company incorporated in South Africa and a 75% majority owned subsidiary of Aveng; Aveng Management Company (Proprietary) Limited (Registration number 1998/021960/07), a private company incorporated in South Africa and a wholly- owned subsidiary of Aveng; holders of Aveng Shares; ordinary shares of fi ve cents each in the issued share capital of Aveng; black economic empowerment; the black economic empowerment consortium collectively comprising the Qakazana Shareholders; the board of directors of Aveng whose names commence on page 38 of this circular; any day other than a Saturday, Sunday or offi cial public holiday in South Africa; the call option in respect of the Qakazana Shares granted by the BEE Consortium to Aveng, the full details of which are set out in the Original Circular; Aveng Shareholders who have not dematerialised their Aveng Shares; this bound document, including all annexures and attachments contained in the bound document, incorporating the notice of general meeting and the form of proxy (blue); the Aveng Community Investment Trust (Master s reference number IT276/05), a trust established by Aveng; the Companies Act, No. 71 of 2008 (as amended); the Competition Commission, the Competition Tribunal and/or the Competition Appeal Court established in terms of the Competition Act, No. 89 of 1998 (as amended); Conditions Precedent the conditions precedent to the Proposed Restructuring as set out in page 19; Corporate Action any transaction which allows Aveng shareholders generally (excluding Aveng Shareholders proposing the transaction and their concert parties) to dispose of all or any part of their Aveng Shares (including without limitation under a scheme of arrangement, general offer, amalgamation, merger, share repurchase, 4
unbundling or other fundamental transaction as defi ned in the Companies Act, or which involves the disposal of any business or asset which constitutes a Category 1 transaction for purposes of the Listings Requirements provided that in this latter case the proceeds of the disposal are to be distributed to Aveng Shareholders. For the avoidance of doubt Corporate Action shall not include a rights offer; CSDP Debt Provider Deferral Period Dematerialisation or Dematerialise Dematerialised Shareholders Employees Empowerment Trust Final Shares Four Arrows General Meeting Gross Agreed Aveng Shares Income Tax Act Independent Expert Initial Shares Investec JSE KTH Central Securities Depository Participant, accepted as a participant in terms of the Securities Services Act, No. 36 of 2004 (as amended); Investec acting as the provider of fi nance to the Empowerment Trust to facilitate the monetisation of a portion of the Empowerment Trust s stake in Qakazana and its future Aveng Shares; the time period commencing on the issue date of the Initial Shares and ending on the issue date of the Final Shares estimated to be, at the date of this Circular as at 30 June 2014; the process by which shares held by certifi cated shareholders are converted to an electronic form as dematerialised shares and recorded in the sub-register of shareholders maintained by a CSDP; Aveng Shareholders who have dematerialised their Aveng Shares; the benefi ciaries of the Empowerment Trust; the Aveng Empowerment Trust (Master s reference number IT153/05) established by Aveng; the difference between the Gross Agreed Aveng Shares and the Initial Shares, to be issued to Qakazana Shareholders at the end of the Deferral Period; Four Arrows Investments 39 (Proprietary) Limited (Registration number 2003/028993/07), a private company incorporated in South Africa and a whollyowned subsidiary of KTH; the general meeting of Aveng Shareholders to be held at 11:00 on 3 November 2011 or so soon thereafter as the annual general meeting of Aveng convened for 10:00 on the same day and at the same venue, shall have been concluded or adjourned at the registered offi ce of Aveng; the 26 833 103 Aveng Shares to be issued to the Qakazana Shareholders in exchange for their Qakazana Shares to settle the Settlement Consideration arising from the exercise of the Put Option; Income Tax Act, No. 58 of 1962 (as amended); Rand Merchant Bank, a division of FirstRand Bank Limited (Registration number 1929/001225/06), a public company duly registered and incorporated with limited liability in accordance with the company laws of South Africa; an initial amount of 269 Aveng Shares of the Gross Agreed Aveng Shares issued to Qakazana Shareholders immediately upon exercise of the Put Option in 2011; Investec Bank Limited (Registration number 1969/004763/06), a company incorporated in South Africa; the JSE Limited; Kagiso Tiso Holdings Proprietary Limited (RF) (Registration number 2011/000848/07), the merged entity of Tiso Group (Proprietary) Limited (Registration number 1999/010875/07) and Kagiso Trust Investments (Proprietary) Limited (Registration number 1968/006415/06), all of which are incorporated in South Africa; 5
Last Practicable Date Listings Requirements Legal Advisors Thursday, 29 September 2011 being the last practicable date prior to the fi nalisation of this Circular; Listings Requirements of the JSE (as amended); Webber Wentzel Attorneys, acting as legal advisors to Aveng in respect of the Proposed Restructuring; Notice of General Meeting the notice of the general meeting of Shareholders to be held at 11:00 on Thursday, 3 November 2011 or so soon thereafter as the annual general meeting of Aveng convened for 10:00 on the same day and at the same venue, shall have been concluded or adjourned, at the registered offi ce of Aveng; Own Name Dematerialised Shareholders Original BEE Transaction dematerialised shareholders who have instructed their CSDP to hold their dematerialised shares in their own name on the sub register (the list of shareholders maintained by the CSDP and forming part of Aveng s shareholders register); the transaction entered into in 2004 as detailed in the Original Circular, involving the introduction of a black economic empowerment partner into Aveng (Africa) and Trident Steel; Original Circular the circular issued for the Original BEE Transaction, dated 25 August 2004; PBO Preference Dividend Pref Funding Rate Prior Transaction Prior Transaction Documents Prior Transaction Funding Agreements Put Expiry Date Put Option Proposed Restructuring Public Benefi t Organisation registered and approved by the Commissioner for the South African Revenue Services in terms of section 30 of the Income Tax Act; the dividend that the holder of the Qakazana Preference Shares is entitled to in terms of the Original BEE Transaction, as amended under the Proposed Restructuring; the rate of dividend entitlement on the Qakazana Preference Shares; the transactions, to be effected as soon as possible after the addendum dated 20 September 2011 to the original shareholders agreement in Qakazana, dated 19 August 2004 becomes unconditional, in terms of which the trustees for the time being of the Empowerment Trust will vest some of its ordinary shares in Qakazana to a bewind trust established for the benefi t of its existing benefi ciaries and then subsequently repurchase those ordinary shares from that bewind trust using the funding raised in terms of the Prior Transaction Funding Agreements; those agreements and/ or other documents entered or to be entered into by the Empowerment Trust which are required in order to record and implement the Prior Transaction, including but not limited to the Prior Transaction Funding Agreements; agreements entered or to be entered into by the Empowerment Trust in terms of which it raises funding to purchase the Empowerment Trust s Qakazana Shares sold to the bewind trust back from the bewind trust under the Prior Transaction; as per the Original BEE Transaction, the dates on which the Put Option may be exercised by KTH on behalf of the BEE Consortium, being a date which is 30 days after the distribution of the Aveng annual report to Aveng Shareholders for the fi nancial years ending 30 June 2011 or 30 June 2012, as the case may be; the put option granted by Aveng to the BEE Consortium pursuant to the Agreements, the full terms of which are set out in the Original Circular and as amended under the Proposed Restructuring; the proposed amendments to the Original BEE Transaction as detailed in this Circular; 6
Qakazana Qakazana Preference Shares Qakazana Shares Qakazana Shareholders Reporting Accountants Revised Put Option Expiry Period Scrip Lending Agreement SENS Settlement Consideration South Africa Transfer Secretaries Qakazana Investment Holdings (Proprietary) Limited (Registration number 2004/022639/07), a company incorporated in South Africa; cumulative preference shares of R1.00 each in the share capital of Qakazana all of which are held by Aveng; ordinary shares of R1.00 each in the share capital of Qakazana, all of which are currently held by the Qakazana Shareholders; the holders of the Qakazana Shares, being Four Arrows, the Empowerment Trust and the Community Investment Trust; Ernst & Young Inc (Registration number 2005/002308/21), a private company incorporated in accordance with the company laws of South Africa; the period commencing on the earlier of: (i) 1 December 2011 and (ii) the business day succeeding the date on which the Prior Transaction is completed and terminating at 17:00, on the day which is 30 days after the distribution of Aveng s annual report to shareholders for the fi nancial year ending 30 June 2012; the scrip lending agreements entered or to be entered into between the Debt Provider and Aveng Management Company or any other wholly owned subsidiary of Aveng pursuant to which Aveng Management Company or such other wholly-owned subsidiary of Aveng lends 8 586 593 Aveng treasury shares to the Debt Provider in order to facilitate the debt to be provided to the Empowerment Trust, including the undertaking and pledge agreements by Aveng and the Aveng Management Company with the Debt Provider or another wholly-owned subsidiary of Aveng and any other agreements or documentation for the purposes of implementing these scrip lending agreements; the Securities Exchange News Service of the JSE; the Gross Agreed Aveng Shares to be issued by Aveng to Four Arrows, the Community Investment Trust and the Empowerment Trust upon exercise of the Put Option; the Republic of South Africa; the transfer secretaries of Aveng, Computershare Investor Services (Proprietary) Limited (Registration number 2004/003647/07), a company incorporated in South Africa; Trident Steel Trident Steel Holdings (Proprietary) Limited (Registration number 1981/003218/07), a company incorporated in South Africa and a 75% majority owned subsidiary of Aveng; and VWAP refers to the Volume Weighted Average Price of the security mentioned based on the methodology stipulated by the JSE. 7
SALIENT FEATURES This summary contains the salient features of the Proposed Restructuring as detailed in this Circular, which should be read in its entirety for a full appreciation of the issues involved. 1. INTRODUCTION AND RATIONALE Aveng supports the South African Government s BEE initiatives and over the years has been successful in introducing black shareholders into many of its operating companies, the details of which are contained in past annual reports to shareholders. In line with its commitment to transformation, Aveng concluded the Original BEE Transaction in 2004. This involved the introduction of BEE partners into Aveng s African operations namely Aveng (Africa) and Trident Steel. Since the initiation of the Original BEE Transaction in 2004, KTH has established a seven year long partnership with Aveng and has supported the management of Aveng in realising the Company s growth objectives. The Board has recognised their valuable contribution and the need for this meaningful relationship to be maintained. The continuation of the current structure will also ensure that Aveng s favourable BEE status is preserved, reinforcing Aveng s stated commitment to transformation and its reputation as a good corporate citizen in South Africa. As the fi rst Put Expiry Date in terms of the Original BEE Transaction is approaching, Aveng and the BEE Consortium have indicated their preference to lock in the value created of R941 841 908 in terms of the Original BEE Transaction, equivalent to 26 833 103 Gross Agreed Aveng Shares, while still continuing with the existing BEE structure. The Board therefore proposes to make certain amendments to the terms of the Original BEE Transaction to ensure the continuation of the existing BEE structure, while simultaneously achieving the objectives of the Original BEE Transaction as was previously intended. The Proposed Restructuring will provide the BEE Consortium with a structure that links their commercial value, upside and downside to Aveng Shares going forward. 2. BACKGROUND TO THE PROPOSED RESTRUCTURING In anticipation of the fi rst Put Expiry Date, Four Arrows and the Community Investment Trust have indicated that they would prefer to receive Aveng Shares on exercise of the Put Option. Alternatively, they would be willing to remain in the existing BEE structure for an extended period, provided their upside, downside and dividend fl ows are linked to Aveng Shares going forward. The Empowerment Trust will also remain as a shareholder in the existing BEE structure, but will initially distribute Qakazana shares to a bewind trust which shares it will subsequently buy-back resulting in an amount representing the present value of its investment in Qakazana being realised and distributed to the Employees. The Board therefore, proposes to make certain amendments to the terms of the Original BEE Transaction to ensure the continuation of the existing BEE structure, while facilitating the objectives of the various stakeholders. Four Arrows, controlled by KTH, will maintain an effective 36% interest in Qakazana. KTH will continue to be the strategic BEE partner to facilitate decision-making in Qakazana and to strengthen business relationships with Aveng, with the objective of creating value for Aveng. Following the Proposed Restructuring, the Community Investment Trust will continue to hold an effective 32% interest in Qakazana. The Community Investment Trust was established as a registered PBO with the mandate to focus, albeit not exclusively, on technical and business education and job creation initiatives aligned to the broader building and construction industry. The Empowerment Trust will retain a 32% interest in Qakazana. The objective of the Empowerment Trust is to provide employees of Aveng with the opportunity to participate in equity ownership of Aveng, thus enabling them to recognise their contributions to the development of the Company. 3. THE PROPOSED RESTRUCTURING 3.1 Deferral of Final Shares KTH, on behalf of the BEE Consortium, will exercise the Put Option on the fi rst Put Expiry Date and the Qakazana Shareholders will dispose of their Qakazana Shares to Aveng now, as per the terms of the Original BEE Transaction subject to the Conditions Precedent not being fulfi lled. However, if the Conditions Precedent are fulfi lled, KTH will exercise the Put Option, on behalf of the BEE Consortium at anytime during the Revised Put Option Expiry Period. In terms of the Proposed Restructuring however, while disposal will take place upon the Conditions Precedent being met, transfer of the Qakazana Shares and Final Shares respectively will be deferred and only take place at the end of the Deferral Period. The Initial Shares will be issued immediately upon the exercise of the Put Option and the fulfi lment of the Conditions Precedent, while the Final Shares will be issued at the end of the Deferral Period. 8
The Call Option granted to Aveng as part of the Original BEE Transaction will not be exercised and will lapse as part of the Proposed Restructuring. 3.2 Empowerment Trust cash distribution The Empowerment Trust has indicated its intention to monetise a portion of its value created. The value of its stake in Qakazana equates to 8 586 593 Aveng Shares, representing a 32% interest in Qakazana. In order to effi ciently facilitate the cash distribution by the Empowerment Trust, it has been proposed that a trigger sale agreement over Aveng Shares be implemented as detailed below. The Empowerment Trust will enter into the Prior Transaction Funding Agreements in order for the Debt Provider to provide loan funding to the Empowerment Trust against the Qakazana Shares. The Empowerment Trust will initially distribute Qakazana shares to a bewind trust, the benefi ciaries of which will be the Employees. The Empowerment Trust will subsequently buy-back the Qakazana shares using the loan funding obtained from the Debt Provider, in an amount representing the present value of its investment in Qakazana being realised and distributed to the Employees. The Employees will pay tax at their marginal income tax rates on the cash proceeds received. The balance of the Qakazana shares will remain restricted until the Deferral Period after which point a contingent distribution might be distributed, based on the performance of the Aveng share price over the Deferral Period. The Debt Provider will enter into a trigger sale arrangement, in terms of which a sale of an agreed number of Aveng Shares will be triggered at the end of the Deferral Period if the Aveng share price is: (i) at or above the upper trigger price, or (ii) at or below the lower trigger price. This arrangement will ensure that the Empowerment Trust will, in all circumstances, be in a position to settle the loan amount due to the Debt Provider. In the event that the Aveng share price, at the end of the Deferral Period, is between the upper and lower trigger price, no sale will be triggered. The Employees will receive no dividends or other distributions over the Deferral Period. Irrespective of whether or not a sale occurs in terms of the trigger sale agreement, this will have no effect on the Gross Agreed Aveng Shares to be issued or on the final number of treasury shares created by Aveng and held by Aveng Management Company. At the conclusion of the trigger sale agreement, Aveng will have no further obligation towards the Empowerment Trust. As part of the financing structure implemented, the Debt Provider will enter into a series of Scrip Lending Agreements with Aveng Management Company, whereby Aveng Management Company will borrow Aveng treasury shares during the Deferral Period for hedging purposes in order to secure the funding to the Empowerment Trust. The Debt Provider will enter into a trigger sale arrangement operating over Aveng Shares with the Empowerment Trust, in terms of which a sale will only occur should the relevant trigger levels be reached but not prior to the end of the Deferral Period. At the conclusion of the trigger sale agreement Aveng will have no further obligation towards the Empowerment Trust. The Employees will receive no dividends or other distributions over the Deferral Period. As part of the fi nancing structure implemented, the Debt Provider will enter into a series of Scrip Lending Agreements with Aveng Management Company whereby Aveng Management Company will lend Aveng treasury shares during the Deferral Period for hedging purposes in order to secure the funding to the Empowerment Trust. The shareholding structure of Qakazana after the Proposed Restructuring: Debt Provider Transfer of Final Shares at end of the Deferral Period Loan funding Four Arrows Community Trust Empowerment Trust 36% 32% 32% The owners of the shares in Qakazana would be transferred at the end of the Deferral Period Aveng 100% 75% 75% 100% Dividend fl ow as linked to Final Shares Qakazana Aveng Africa 25% 25% Trident Steel McConnell Dowell 9
3.3 Amendment to Qakazana Preference Share structure In terms of the Original BEE Transaction, Aveng subscribed for Qakazana Preference Shares to facilitate the acquisition by Qakazana of a 25% stake in Aveng (Africa) and Trident Steel. The Qakazana Preference Shares receive dividends at the Pref Funding Rate on the outstanding value of the Qakazana Preference Shares. These dividends are funded by dividends received from Aveng (Africa) and Trident Steel. It is the intention to amend the cash fl ow profi le of the Qakazana Preference Shares such that dividends received from Aveng (Africa) and Trident Steel will not initially be used to service the Qakazana Preference Shares as previously envisaged in the Original BEE Transaction, but will instead be paid to the Qakazana Shareholders as a dividend. The total dividends payable on the Qakazana Shares will equate to the dividend and/or distribution per share paid to Aveng Shareholders multiplied by the Final Shares, such that the Qakazana Shareholders receive dividends as though they actually held the Final Shares. In an instance where the dividend paid to the Qakazana Shareholders is less than the dividend they would have received had they held the Final Shares, Aveng will provide suffi cient funds to Qakazana in order to pay an adjustment dividend to fund the shortfall. If any dividends received by Qakazana are greater than what would be received on the Final Shares, the excess shall be used to service the Qakazana Preference Shares, such that the total dividends to be received by Qakazana Shareholders, shall be no more or less than what would be received on the Final Shares. The redemption date of the Qakazana Preference Shares will be extended to coincide with the ultimate acquisition by Aveng of the Qakazana Shares at the end of the Deferral Period, and they will continue to accrue dividends. 3.4 Issuance of additional treasury shares to an Aveng subsidiary It is the intention of Aveng to issue 8 586 593 additional treasury shares to Aveng Management Company or another wholly owned subsidiary of Aveng to facilitate the implementation of a series of Scrip Lending Agreements with the Debt Provider. This is to ensure the availability of an adequate number of Aveng treasury shares which the Debt Provider may borrow for hedging purposes in order to fund the Empowerment Trust. 3.5 Indemnity by Aveng to the Qakazana Shareholders In terms of the Proposed Restructuring Aveng will ensure that the after tax position of the Qakazana Shareholders will be no worse than if they had acquired the Aveng Shares upon the Conditions Precedent being met. The fi nancial consequences, if any, for Aveng fl owing from this indemnity will be immaterial. Qakazana Shareholders will be able to participate and fully benefi t in any Corporate Action affecting Aveng over the Deferral Period. If prior to the end of the Deferral Period, any Corporate Action is proposed which will either: (i) be implemented prior to the end of the Deferral Period or (ii) prescribe a record date for participation by Aveng Shareholders registered as such prior to the end of the Deferral Period, then the end of the Deferral Period will be brought forward to the implementation of such Corporation Action or relevant record date, as the case may be, to allow the Qakazana Shareholders to benefi t from and/or participate in such Corporate Action. Should Aveng undertake a rights offer, any Qakazana Shareholder shall be entitled, on written notice to Aveng, to participate in such rights offer as if it held its proportion of the Final Shares, but the end of the Deferral Period shall not be brought forward. 3.6 Conditions Precedent not fulfilled In the event that the Conditions Precedent are not fulfi lled for any reason, the Proposed Restructuring as detailed in the Circular shall not be implemented. The transaction shall revert back to the salient features of the Original BEE Transaction, whereby KTH, on behalf of the BEE Consortium, will be able to exercise the Put Option within the Put Expiry Date and will be settled based upon the Gross Agreed Aveng Shares that each Qakazana Shareholder is entitled to. 10
4. FINANCIAL EFFECTS OF THE PROPOSED RESTRUCTURING 4.1 Pro forma financial effects of the Proposed Restructuring The benefi ts of the existing BEE structure have been accounted for in the fi nancial statements in Aveng over the periods of the existing BEE structure through the diluted number of shares. If the Original BEE Transaction were to be implemented, there would be fi nancial effects on the net asset value, net tangible asset value, earnings and headline earnings per share. However, the Proposed Restructuring will only have a minimal effect on the net asset value, net tangible asset value, earnings and headline earnings per share in Aveng when compared to the fi nancial effects of the Original BEE Transaction. The independent reporting accountants report on the pro forma fi nancial effects of the Proposed Restructuring is included in Annexure II to this Circular. 4.2 Accounting treatment The effects of the transaction on the earnings, headline earnings, net asset value or net tangible asset value per share would be affected as a result of the issuance of the Gross Agreed Aveng Shares. The Gross Agreed Aveng Shares are currently calculated as part of the diluted ordinary number of shares but after the Proposed Restructuring term would consequently affect the number of ordinary shares in issue. The fi nancial effects are set out per the table to refl ect the issuance of the Gross Agreed Aveng Shares on a per share basis as a result of the Proposed Restructuring. In addition, in terms of the Proposed Restructuring, should there be any shortfall in Qakazana s ability to fund the required dividends, Aveng will be required to provide these funds to Qakazana so that it is able to pay an adjustment dividend that is equal to the dividend paid by Aveng to its shareholders. The additional payment made by Aveng will be recorded as a dividend in the consolidated fi nancial statements of Aveng. As the amount and likelihood of this shortfall is not determinable at this stage, it has not been refl ected in the pro forma fi nancial effects. Furthermore, in terms of the Proposed Restructuring, any dividends received from the Debt Provider, on the borrowed shares in terms of the Scrip Lending A greement, will be treated as income in the company fi nancial statements of the Aveng. However, in the consolidated fi nancial statements of Aveng only the company tax charge on this income will be refl ected. As the amount and likelihood of these dividends and associated tax is not certain at this stage, the maximum potential taxation, based on the current dividend levels, has been refl ected in the pro forma fi nancial effects. The transaction costs relating to the Proposed Restructuring will be expensed in Aveng s income statement in the period in which the expenses were incurred. 5. CONDITIONS PRECEDENT The Proposed Restructuring is conditional on the fulfi lment of, inter alia, the following Conditions Precedent: the passing, and to the extent required lodgement, of the resolutions as set out in the Notice of General Meeting by the requisite majority of Aveng Shareholders at the General Meeting for the following issues: the issue of shares for cash to approve the Proposed Restructuring; the approval to issue new Aveng Shares to create treasury shares for Aveng in order to implement the Scrip Lending Agreement with the Debt Provider for the funding of the Empowerment Trust; the approval of the Scrip Lending Agreement as proposed in the Circular as an issue of shares for cash; the passing and lodgement of a special resolution replacing the current memorandum and articles of association of Qakazana with a memorandum of incorporation embodying inter alia relevant terms of the shareholders agreement and the revised terms of the ordinary shares and preference shares of Qakazana. Such special resolution must, in order to fulfi l the suspensive condition: (i) be conditional in its entirety upon the fulfi lment of all the suspensive conditions to the agreements referred to in the defi nition of the Prior Transaction; (ii) be approved by Aveng as the holder of the preference shares of Qakazana; and the trustees of the Empowerment Trust delivering a letter to the remaining Parties confi rming that they have entered into the Prior Transaction Documents, and that the Prior Transaction Documents are unconditional save for any condition requiring the addendum to the Qakazana Shareholders agreement concluded by the parties thereto in anticipation of the Proposed Restructuring to become unconditional. 11
6. DIRECTORS RECOMMENDATION AND RESPONSIBILITY STATEMENT Taking into account the background information, the Board is of the opinion that the Proposed Restructuring will benefi t Shareholders and, accordingly, recommends that Shareholders vote in favour of the ordinary and special resolutions set out in the Notice of General Meeting. With respect to the information provided in this Circular, the Directors whose names are listed in this Circular: have considered all statements of fact and opinion in this Circular; collectively and individually accept full responsibility for the accuracy of the information provided; certify that, to the best of their knowledge and belief, there are no other facts or omissions of which would make any statement in this circular false or misleading; confi rm that they made all reasonable enquiries in this regard; and confi rm that this Circular contains all information required by the Listings Requirements. 7. GENERAL MEETING OF AVENG SHAREHOLDERS The General Meeting will take place at the registered offi ce of Aveng, 204 Rivonia Road, Morningside, Sandton, 2196 at 11:00 on Thursday, 3 November 2011 or so soon thereafter as the annual general meeting of Aveng convened for 10:00 on the same day and at the same venue, shall have been concluded or adjourned, for Shareholders to vote on the proposed ordinary and special resolutions contained in the Notice of General Meeting which forms part of this Circular. In accordance with the Listings Requirements, special resolutions, as set out in the Notice of General Meeting, will be required to be passed by at least 75% of Shareholders present in person or by proxy and voting at the General Meeting. Certifi cated Shareholders and Own Name Dematerialised Shareholders who are unable to attend the General Meeting and who wish to be represented thereat, are requested to complete and return to the Transfer Secretaries the attached form of proxy in accordance with the instructions contained therein, to be received by no later than 11:00 on Tuesday, 1 November 2011. Dematerialised Shareholders, other than Own Name Dematerialised Shareholders, should inform their CSDP or broker of their intention to attend the General Meeting and request their CSDP or broker to issue them with the necessary Letter of Representation to attend or provide their CSDP or broker with their voting instructions should they not wish to attend the General Meeting in person, in terms of the custody agreement entered into between the Dematerialised Shareholder and the CSDP or broker. 12
Aveng Limited (Incorporated in the Republic of South Africa) (Registration number: 1944/018119/06) Share code: AEG ISIN: ZAE000111829 CIRCULAR TO AVENG SHAREHOLDERS 1. INTRODUCTION AND RATIONALE Aveng supports the South African Government s BEE initiatives and over the years has been successful in introducing black shareholders into many of its operating companies, the details of which are contained in past annual reports to shareholders. In line with its commitment to transformation, Aveng concluded the Original BEE Transaction in 2004. This involved the introduction of BEE partners into Aveng s African operations namely Aveng (Africa) and Trident Steel. Since the initiation of the Original BEE Transaction in 2004, KTH has established a seven year long partnership with Aveng and has supported the management of Aveng in realising the Company s growth objectives. The Board has recognised their valuable contribution and the need for this meaningful relationship to be maintained. The continuation of the current structure will also ensure that Aveng s favourable BEE status is preserved, reinforcing Aveng s stated commitment to transformation and its reputation as a good corporate citizen in South Africa. As the fi rst Put Expiry Date in terms of the Original BEE Transaction is approaching, Aveng and the BEE Consortium have indicated their preference to lock in the value created of R941 841 908 in terms of the Original BEE Transaction, equivalent to 26 833 103 Gross Agreed Aveng Shares, while still continuing with the existing BEE structure. The Board therefore proposes to make certain amendments to the terms of the Original BEE Transaction to ensure the continuation of the existing BEE structure, while simultaneously achieving the objectives of the Original BEE Transaction as was previously intended. The Proposed Restructuring will provide the BEE Consortium with a structure that links their commercial value and upside and downside to Aveng Shares going forward. The purpose of this Circular is to provide Shareholders with relevant information relating to the Proposed Restructuring. This information will enable Shareholders to make an informed decision as to whether or not they should vote in favour of the ordinary and special resolutions to be proposed at the General Meeting in order to give effect to the Proposed Restructuring. These resolutions are set out in the Notice of General Meeting included with this Circular. 2. THE ORIGINAL BEE TRANSACTION Granting of put option for sale of Qakazana shares by Aveng Granting of call option for sale of Qakazana shares by Aveng Four Arrows Community Trust Empowerment Trust 36% 32% 32% Aveng Qakazana Qakazana Preference Shares 75% 75% 100% Aveng Africa 25% 25% Trident Steel McConnell Dowell 13
Qakazana was established by Aveng in 2004 in order to facilitate the introduction of a BEE Consortium into Aveng (Africa) and Trident Steel. In terms of the Original BEE Transaction, Aveng disposed of a 25% interest in Aveng (Africa) and Trident Steel to Qakazana at the independently determined market-related price of R496 million. Qakazana subsequently settled the purchase consideration by issuing the Qakazana Preference Shares to Aveng. The BEE Consortium then acquired all of the issued Qakazana Shares from Aveng for a consideration equal to their par value. In terms of the Agreements, the Qakazana Shareholders were granted inter alia, a Put Option to require Aveng to purchase all the Qakazana Shares from the Qakazana Shareholders. The Put Option can be exercised, by KTH on behalf of the entire BEE Consortium, within 30 days after the distribution of the Aveng annual report for the fi nancial years ended on 30 June 2011 or 30 June 2012. Aveng can settle the Put Option either in cash, or by issuing Aveng Shares, or a combination. The Qakazana Shareholders also granted Aveng the Call Option to ensure that Aveng could acquire the minority interests in Aveng (Africa) and Trident Steel (via Qakazana) should it wish to. Aveng may exercise the Call within 30 days after the distribution of the Aveng annual report for the 2013 fi nancial year. Aveng Shareholders have approved an issue of shares for cash resolution in 2004 thereby authorising Aveng to undertake the Original BEE Transaction and potentially issue the Gross Agreed Aveng Shares in future to settle the Put Option. KTH Employees 100% 100% Four Arrows 36% Community Investment Trust 32% Empowerment Trust 32% Qakazana Qakazana is currently held by Four Arrows (36%), the Empowerment Trust (32%) and the Community Investment Trust (32%). The Qakazana Shares carry full voting rights but are not entitled to dividend participation until Qakazana Preference Shares have been redeemed. At the end of the envisaged transaction period, the BEE Consortium will be entitled, through the Put Option, to realise 80% of any increase in the value of Qakazana, after deducting the amount due to the Qakazana Preference Shares at that time. Aveng continues to hold all of the issued Qakazana Preference Shares. The Qakazana Preference Shares do not have any voting rights unless: the Preference Dividend is in arrears; or a resolution is proposed that directly affects any of the rights attached to the Qakazana Preference Shares; or Qakazana or any of the BEE Consortium members have breached the provisions of the Agreements. The holder of the Qakazana Preference Shares is entitled to receive the Pref Funding Rate on the outstanding value of the Qakazana Preference Shares and, on the exercise of the Put or Call Option, 20% of the value created in Qakazana after deducting the value of the Qakazana Preference Shares. Shareholders are referred to the Original Circular dated 25 August 2004 for full details. 3. BACKGROUND TO THE TRANSACTION In anticipation of the fi rst Put Expiry Date, Four Arrows and the Community Investment Trust have indicated that they would prefer to receive Aveng Shares on exercise of the Put Option. Alternatively, they would be willing to remain in the existing BEE structure for an extended period, provided their upside, downside and dividend fl ows are linked to Aveng Shares going forward. The Empowerment Trust however, will also remain as a shareholder in the existing BEE structure, but will initially distribute Qakazana shares to a bewind trust which shares it will subsequently buy-back resulting in an amount representing the present value of its investment in Qakazana being realised and distributed to the Employees The Board therefore, proposes to make certain amendments to the terms of the Original BEE Transaction to ensure the continuation of the existing BEE structure, while facilitating the objectives of the various stakeholders. Four Arrows, controlled by KTH, will maintain an effective 36% interest in Qakazana. KTH will continue to be the strategic BEE partner to facilitate decision-making in Qakazana and to strengthen business relationships with Aveng, with the objective of creating value for Aveng. 14
Following the Proposed Restructuring, the Community Investment Trust will continue to hold an effective 32% interest in Qakazana. The Community Investment Trust was established as a registered PBO with the mandate to focus, albeit not exclusively, on technical and business education and job creation initiatives aligned to the broader building and construction industry. The Empowerment Trust will retain a 32% interest in Qakazana. The objective of the Empowerment Trust is to provide employees of Aveng with the opportunity to participate in equity ownership of Aveng, thus enabling them to recognise their contributions to the development of the Company. KTH was recently formed by the merger of Tiso Group (Pty) Ltd and Kagiso Trust Investments (Pty) Ltd. KTH is a majority black-owned diversifi ed investment company with assets in excess of R13 billion. Kagiso Trust, Tiso Foundation and employees of KTH contribute to the broad based shareholding of KTH which accounts for over 40% of the total shareholding of KTH. Tiso Foundation and Kagiso Trust are registered PBO s. Tiso Foundation and Kagiso Trust ensure that the broad-based equity participation in KTH goes beyond that of its employees and is a channel through which KTH contributes to and invests in social initiatives. It is intended that all income generated by the Tiso Foundation and Kagiso Trust from their respective shareholding in KTH will be utilised to further their objectives and to further enhance and improve community development as a channel whereby true economic empowerment of communities can be achieved. The Empowerment Trust was formed for the benefi t of the employees of Aveng. The Empowerment Trust will raise funding against their Qakazana Shares and future rights to the Gross Agreed Aveng Shares. The proceeds from this funding will be distributed to the Employees. The Community Investment Trust focuses principally on technical and business education projects as well as on job creation initiatives for the benefi t of disadvantaged communities, principally those within the context of the broader building and construction industry. 4. THE PROPOSED RESTRUCTURING 4.1 Deferral of Final Shares KTH, on behalf of the BEE Consortium, will exercise the Put Option on the fi rst Put Expiry Date and the Qakazana Shareholders will dispose of their Qakazana Shares to Aveng in accordance with the terms of the Original BEE Transaction; provided that upon fulfi lment of the Conditions Precedent, KTH will exercise the Put Option at any time during the Revised Put Option Expiry Period. In terms of the Proposed Restructuring however, disposal will take place upon the Conditions Precedent being met, but transfer of the Qakazana Shares and Final Shares respectively will be deferred and will only take place at the end of the Deferral Period. The Initial Shares will be issued immediately upon the exercise of the Put Option and the fulfi lment of the Conditions Precedent, while the Final Shares will be issued at the end of the Deferral Period. The Call Option granted to Aveng as part of the Original BEE Transaction will not be exercised and will lapse as part of the Proposed Restructuring. 4.2 Value of Qakazana attributable to Qakazana Shareholders Aveng and the Qakazana Shareholders have agreed upfront to the valuation terms of Qakazana and the number of Gross Agreed Aveng Shares to be issued in respect of the settlement consideration as determined by the principles tabled per the Original Circular. The equity value of Qakazana was determined after subtracting the face value of the Qakazana Preference Shares that were unredeemed as at 30 June 2011, including any unpaid preference dividends. The Qakazana Shareholders stake in the equity value of Qakazana will be equal to 80% of the amount calculated above. To this extent, the value of the BEE Consortium s shareholding in Qakazana was calculated at R941 841 908. 4.3 Calculation of Settlement Consideration The number of Gross Agreed Aveng Shares to be issued to the Qakazana Shareholders in exchange for their Qakazana Shares was calculated by dividing the value of Qakazana attributable to the ordinary Qakazana Shares, by the 30-day VWAP of Aveng Shares from 14 July 13 August 2011, being R35.10 per Aveng Share, as agreed between Aveng and KTH, on behalf of the BEE Consortium. The settlement of the Gross Agreed Aveng Shares will be executed with Initial Shares to be issued immediately upon exercise of the Put Option and fulfi lment of the Conditions Precedent and Final Shares to be issued at the end of the Deferral Period. 15