Peermont Global (Proprietary) Limited

Transcription

IMPORTANT NOTICE
THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED
INSTITUTIONAL BUYERS WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT OR
(2) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT
IMPORTANT: You must read the following before continuing. The following applies to the offering
memorandum following this notice, and you are therefore advised to read this carefully before reading, accessing
or making any other use of the offering memorandum. In accessing the offering memorandum, you agree to be
bound by the following terms and conditions, including any modifications to them any time you receive any
information from us as a result of such access.
NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES
FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE
NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE OR LOCAL SECURITIES LAWS.
THE FOLLOWING OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED
TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY
FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART
IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION
OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.
Confirmation of your Representation: In order to be eligible to view the offering memorandum or
make an investment decision with respect to the securities, investors must be either (1) Qualified Institutional
Buyers within the meaning of Rule 144A under the Securities Act ("QIBs") or (2) in offshore transactions outside
the United States in reliance on Regulation S under the Securities Act outside the United States. The offering
memorandum is being sent at your request. By accepting the e-mail and accessing the offering memorandum, you
shall be deemed to have represented to us that:
(1)
you consent to delivery of such offering memorandum by electronic transmission, and
(2)
either:
(a)
you and any customers you represent are QIBs, or
(b)
the e-mail address that you gave us and to which the e-mail has been delivered is not located in the
United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam,
American Samoa, Wake Island and the Northern Mariana Islands), any State of the United States
or the District of Columbia.
Prospective purchasers that are QIBs are hereby notified that the seller of the notes may be relying on the
exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.
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You are reminded that the offering memorandum has been delivered to you on the basis that you are a
person into whose possession the offering memorandum may be lawfully delivered in accordance with the laws of
the jurisdiction in which you are located and you may not, nor are you authorized to, deliver the offering
memorandum to any other person.
The materials relating to the offering do not constitute, and may not be used in connection with, an offer or
solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the
offering be made by a licensed broker or dealer and the initial purchaser or any affiliate of the initial purchaser is a
licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the initial purchaser or
such affiliate on behalf of the Issuer in such jurisdiction.
Under no circumstances shall the offering memorandum constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful.
The offering memorandum has been sent to you in an electronic form. You are reminded that documents
transmitted via this medium may be altered or changed during the process of electronic transmission and
consequently neither the initial purchaser, nor any person who controls the initial purchaser, nor any of its
directors, officers, employees or agents accepts any liability or responsibility whatsoever in respect of any
difference between the offering memorandum distributed to you in electronic format and the hard copy version
available to you on request from the initial purchaser.
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€520,000,000
Peermont Global (Proprietary) Limited
7 % Senior Secured Notes due 2014
Guaranteed on a senior basis by
Peermont Global Holdings II (Proprietary) Limited, as parent guarantor, and
Peermont Global (North West) (Proprietary) Limited, Peermont Global (KZN) (Proprietary) Limited,
Peermont Global (Limpopo) (Proprietary) Limited,
Peermont Global Management (NW&L) (Proprietary) Limited and
Peermont Global Management (KZN) (Proprietary) Limited, as guarantors
___________
The 7 % Senior Secured Notes due 2014 (the "notes") will be the senior obligations of Peermont Global
(Proprietary) Limited (the "issuer") and will be guaranteed on a senior basis by Peermont Global Holdings II
(Proprietary) Limited (the "parent guarantor") and by certain South African subsidiaries of the issuer (the
"guarantors"). The notes will bear interest at a rate of 7.750% per year. Interest on the notes is payable on 30 April
and 30 October of each year, beginning on 30 October 2007. The notes will mature on 30 April 2014. We may
redeem the notes in whole or in part at any time on or after 30 April 2010 at the redemption price specified herein.
Prior to 30 April 2010, we may also redeem all or part of the notes by paying a "make-whole" premium. In
addition, prior to 30 April 2010, we may also redeem up to 35% of the aggregate principal amount of the notes
with the net proceeds from certain equity offerings.
The notes will be the issuer's senior obligations and will rank equal in right of payment with all of the
issuer's existing and future unsubordinated indebtedness and senior in right of payment to all of the issuer's
existing and future indebtedness that is subordinated in right of payment to the notes.
The guarantee of the notes by the parent guarantor (the "parent guarantee") will rank equal in right of
payment with all of the existing and future unsubordinated indebtedness of the parent guarantor and senior in right
of payment to all of the existing and future indebtedness of the parent guarantor that is subordinated in right of
payment to the parent guarantee. The guarantees of the notes by the guarantors (the "guarantees") will rank equal
in right of payment with all of the existing and future unsubordinated indebtedness of the guarantors and senior in
right of payment to all of the existing and future indebtedness of the guarantors that is subordinated in right of
payment to the guarantees. The obligations of the issuer under the notes, of the parent guarantor under the parent
guarantee and of the guarantors under the guarantees will also be guaranteed (the "spv notes guarantee") on a
second ranking limited recourse basis under South African law by Maxitrade 85 Security Holding Company
(Proprietary) Limited (the "security spv") in connection with the security structure being established to support the
obligations of the issuer under the notes, of the parent guarantor under the parent guarantee and of the guarantors
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under the guarantees. The spv notes guarantee will rank (i) equally and rateably with the security spv's obligations
under a second ranking limited recourse guarantee under South African law (the "spv hedging guarantee") of the
issuer's obligations under a hedging agreement that will be entered into in respect of the notes, and (ii) junior to
the security spv's obligations under a first ranking limited recourse guarantee under South African law (the "spv
revolver guarantee") of the issuer's obligations under a R400 million (€43 million) new revolving credit facility.
The security spv's obligations under the spv notes guarantee, the spv hedging guarantee and the spv revolver
guarantee will be supported by security interests over all of the parent guarantor's interest in the capital stock of
the issuer and substantially all of the assets of the issuer and certain of its South African subsidiaries, other than
certain non-material assets (the "collateral").
Application has been made to the Irish Stock Exchange for the notes to be listed on the Official List of the
Irish Stock Exchange and to be admitted for trading on its Alternative Securities Market. This offering
memorandum constitutes listing particulars for such an application. There is no assurance that the notes will be
admitted to trade on the Alternative Securities Market of the Irish Stock Exchange.
___________
Investing in the notes involves risks. See "Risk Factors" beginning on page 21.
The notes have not been registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities
Act"), or any state securities laws. Accordingly, the notes are being offered and sold only to qualified institutional
buyers in accordance with Rule 144A under the U.S. Securities Act ("Rule 144A") and outside the United States
in accordance with Regulation S under the U.S. Securities Act ("Regulation S"). Prospective purchasers that are
qualified institutional buyers are hereby notified that the seller of the notes may be relying on the exemption from
the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A. For a description of certain
restrictions on transfers of the notes and related guarantees, see "Plan of Distribution" and "Notice to Investors."
___________
Price: 100.00% plus accrued interest, if any, from 23 April 2007
___________
The initial purchaser expects to deliver the notes to purchasers on or about 23 April 2007.
Citigroup
24 May 2007
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You should rely only on the information contained in this offering memorandum. None of the issuer,
the parent guarantor, the guarantors or the initial purchaser has authorised anyone to provide you with
different information. None of the issuer, the guarantors or the initial purchaser is making an offer of these
securities in any jurisdiction where this offer is not permitted. You should not assume that the information
contained in this offering memorandum is accurate as of any date other than the date on the front of this
offering memorandum.
TABLE OF CONTENTS
Page
Summary........................................................................................................................................................... 1
Risk Factors..................................................................................................................................................... 24
The Transactions ............................................................................................................................................. 43
Use of Proceeds............................................................................................................................................... 45
Pro Forma Capitalisation ................................................................................................................................. 47
Unaudited Pro Forma Consolidated Financial Information............................................................................... 49
Selected Historical Financial Information ........................................................................................................ 55
Management’s Discussions and Analysis of Financial Condition and Results of Operations ............................ 59
Industry........................................................................................................................................................... 78
Business .......................................................................................................................................................... 84
Regulation ......................................................................................................................................................102
Management...................................................................................................................................................108
Our Principal Shareholders .............................................................................................................................113
Related Party Transactions .............................................................................................................................115
Description of Certain Other Indebtedness......................................................................................................123
Description of the Notes .................................................................................................................................129
Book-Entry; Delivery and Form .....................................................................................................................206
Tax Considerations.........................................................................................................................................210
Exchange Controls .........................................................................................................................................216
Plan of Distribution ........................................................................................................................................217
Notice to Investors..........................................................................................................................................220
Service of Process and Enforceability of Civil Liabilities................................................................................223
Legal Matters .................................................................................................................................................225
Independent Auditors .....................................................................................................................................225
Where You Can Find More Information .........................................................................................................225
Listing and General Information .....................................................................................................................226
Index to Consolidated Financial Statements....................................................................................................... 1
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IMPORTANT INFORMATION
This offering memorandum has been prepared by the issuer solely for use in connection with the
proposed offering of the securities described in this offering memorandum. This offering memorandum is
personal to each offeree and does not constitute an offer to any other person or to the public generally to
subscribe for or otherwise acquire securities. Distribution of this offering memorandum to any other
person other than the prospective investor and any person retained to advise such prospective investor with
respect to its purchase is unauthorised, and any disclosure of any of its contents, without the issuer's prior
written consent, is prohibited. Each prospective investor, by accepting delivery of this offering
memorandum, agrees to the foregoing and to make no photocopies of this offering memorandum or any
documents referred to in this offering memorandum.
The initial purchaser makes no representation or warranty, express or implied, as to the accuracy
or completeness of the information contained in this offering memorandum. Nothing contained in this
offering memorandum is, or shall be relied upon as, a promise or representation by the initial purchaser as
to the past or future.
The issuer, the parent guarantor, the guarantors and the security spv accept responsibility for the
information contained in this offering memorandum. To the best of the issuer's, the parent guarantor's, the
guarantors' and the security spv's knowledge and belief, the information contained in this offering
memorandum is in accordance with the facts and does not omit anything likely to affect the import of such
information. However, the information set out in relation to sections of this offering memorandum
describing clearing arrangements, including the section entitled "Book-Entry; Delivery and Form," is
subject to any change in or reinterpretation of the rules, regulations and procedures of Euroclear Bank
S.A./N.V., as operator of the Euroclear System ("Euroclear") or Clearstream Banking, société anonyme
("Clearstream Banking"), currently in effect. The issuer, the parent guarantor, the guarantors and the
security spv accept responsibility for accurately summarising the information concerning Euroclear and
Clearstream Banking. In addition, this offering memorandum contains summaries believed to be accurate
with respect to certain documents, but reference is made to the actual documents for complete information.
All such summaries are qualified in their entirety by such reference. Copies of documents referred to
herein will be made available to prospective investors upon request to us or the initial purchaser. Where
information has been sourced from a third party, this information has been accurately reproduced and as
far as the issuer is aware and is able to ascertain from information published by that third party, no facts
have been omitted which would render the reproduced information inaccurate or misleading. In addition,
the issuer will identify the source of the information.
The initial purchaser will provide you with a copy of this offering memorandum and any related
amendments or supplements. By receiving this offering memorandum, you acknowledge that you have had
an opportunity to request from the issuer for review, and that you have received, all additional information
you deem necessary to verify the accuracy and completeness of the information contained in this offering
memorandum. You also acknowledge that you have not relied on the initial purchaser in connection with
your investigation of the accuracy of this information or your decision whether to invest in the notes.
None of the U.S. Securities and Exchange Commission (the "SEC"), any state securities commission
or any other regulatory authority, has approved or disapproved the securities nor have any of the foregoing
authorities passed upon or endorsed the merits of this offering or the accuracy or adequacy of this offering
memorandum. Any representation to the contrary is a criminal offence.
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The notes are subject to restrictions on transferability and resale and may not be transferred or
resold except as permitted under the U.S. Securities Act and the applicable state securities laws pursuant to
registration or exemption therefrom. As a prospective purchaser, you should be aware that you may be
required to bear the financial risks of this investment for an indefinite period of time. Please refer to the
sections in this offering memorandum entitled "Plan of Distribution" and "Notice to Investors."
In making an investment decision, prospective investors must rely on their own examination of the
issuer, the parent guarantor, the guarantors and the security spv and the terms of the offering, including
the merits and risks involved. In addition, none of the issuer, the parent guarantor, the guarantors, the
security spv or the initial purchaser or any of our or its respective representatives is making any
representation to you regarding the legality of an investment in the notes, and you should not construe
anything in this offering memorandum as legal, business or tax advice. You should consult your own
advisors as to legal, tax, business, financial and related aspects of an investment in the notes. You must
comply with all laws applicable in any jurisdiction in which you buy, offer or sell the notes or possess or
distribute this offering memorandum, and you must obtain all applicable consents and approvals; none of
the issuer, the parent guarantor, the guarantors, the security spv or the initial purchaser shall have any
responsibility for any of the foregoing legal requirements.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO PERSONS IN THE EUROPEAN ECONOMIC AREA
Application has been made for the notes to be listed on the Official List of the Irish Stock Exchange and to
be admitted for trading on its Alternative Securities Market. Documents used in connection with such listing
("Listing Documents") are likely to contain similar information to that contained in this offering memorandum.
However, it is possible that the issuer may be required (under applicable law, rules, regulations or guidance
applicable to the listing of securities or otherwise) to make certain changes or additions to or deletions from the
description of its business, financial statements and other information contained herein. Furthermore, certain
events might occur or circumstances might arise between publication of this document and the listing that would
require additional or different disclosure to be made in the Listing Documents. If the listing referred to above is
achieved, potential investors in the European Economic Area and elsewhere may wish to refer to Listing
Documents in the context of any investment decision relating to the notes.
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CERTAIN REGULATORY ISSUES RELATED TO THE UNITED KINGDOM
This offering memorandum is for distribution only to persons who (i) have professional experience in
matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling within
Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc") of the Financial Promotion
Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in
investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in
connection with the issue or sale of the notes may otherwise lawfully be communicated or caused to be
communicated (all such persons together being referred to as "relevant persons"). This offering memorandum is
directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons.
Any investment or investment activity to which this offering memorandum relates is available only to relevant
persons and will be engaged in only with relevant persons. In connection with the offering, the initial purchaser is
not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing
the protections afforded to its clients nor for providing advice in relation to the offering.
CERTAIN REGULATORY ISSUES RELATED TO ITALY
The offering of the notes has not been cleared by CONSOB (Commissione Nazionale per le Società e la
Borsa, or the Italian Securities Exchange Commission) pursuant to Italian securities legislation and, accordingly,
no notes may be offered, sold or delivered, nor may copies of this offering memorandum or of any other document
relating to the notes be distributed in the Republic of Italy, except (i) to qualified investors (operatori qualificati),
as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of 1 July 1998, as amended,
provided that such professional investors will act in their own capacity and not as depositaries or nominees for
other shareholders, or (ii) in circumstances that are exempted from the rules on solicitation of investments
pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the "Italian Financial
Services Act"), and its implementing CONSOB regulations, including Article 33, first paragraph, of CONSOB
Regulation No. 11971 of 14 May 1999, as amended. Any offer, sale or delivery of the notes or distribution of
copies of this offering memorandum or any other document relating to the notes in the Republic of Italy under
(i) or (ii) above must be (a) made by an investment firm, bank or financial intermediary permitted to conduct such
activities in the Republic of Italy in accordance with the Italian Financial Services Act and Legislative Decree
No. 385 of 1 September 1993 (the "Italian Banking Act"), as amended, and the implementing guidelines of the
Bank of Italy, and (b) in compliance with Article 129 of the Italian Banking Act and the implementing guidelines
of the Bank of Italy pursuant to which the issue or the offer of securities in the Republic of Italy may need to be
preceded and followed by an appropriate notice to be filed with the Bank of Italy depending, among other things,
on the aggregate value of the securities issued or offered in the Republic of Italy and their characteristics, and in
accordance with any other applicable laws and regulations including any relevant limitations which may be
imposed by CONSOB or the Bank of Italy. No such notice has or will be filed with the Bank of Italy. In any case,
the notes cannot be offered or sold to any individuals in the Republic of Italy either in the primary market or the
secondary market.
CERTAIN REGULATORY ISSUES RELATED TO SOUTH AFRICA
Pursuant to South African Exchange Control regulations it is not permissible to offer or sell, either directly
or indirectly, the notes to prospective investors in South Africa. Accordingly, the notes are not being offered or
sold to prospective investors in the Republic of South Africa. The offer of the notes is not an "offer to the public"
as defined in Section 142 of the Companies Act, No. 61 of 1973 (as amended) and this document does not, nor is
it intended to, constitute a prospectus prepared and registered under the Companies Act.
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___________
The notes will be issued in the form of one or more global notes. The global notes will be deposited and
registered in the name of a common depositary for Euroclear and Clearstream Banking. Transfers of interests in
the global notes will be effected through records maintained by Euroclear, Clearstream Banking and their
respective participants. The notes will not be issued in definitive registered form except under the circumstances
described in the section "Book-Entry; Delivery and Form."
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STABILISATION
In connection with the offering of the notes, the initial purchaser (or persons acting on behalf of the
initial purchaser) may over-allot notes (provided that, the aggregate principal amount of notes allotted does
not exceed 105% of the aggregate principal amount of the notes that are the subject of this offer) or effect
transactions with a view to supporting the market price of the notes at a level higher than that which might
otherwise prevail. However, there is no assurance that the initial purchaser (or persons acting on behalf of
the initial purchaser) will undertake stabilisation action. Any stabilisation action may begin on or after the
date on which adequate public disclosure of the terms of the offer of the notes is made and, if begun, may
be ended at any time, but it must end no later than 30 days after the date on which the issuer received the
proceeds of the issue, or no later than 60 days after the date of the allotment of the relevant securities.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The following cautionary statements identify important factors that could cause our actual results to differ
materially from those projected in the forward-looking statements made in this offering memorandum. Any
statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and may be forward-looking. These statements are often, but not always, made through the use of
words or phrases such as "will likely result," "are expected to," "will continue," "believe," "is anticipated,"
"estimated," "intends," "expects," "plans," "seek," "projection" and "outlook." These statements involve estimates,
assumptions and uncertainties that could cause actual results to differ materially from those expressed in them.
Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this
offering memorandum. Among the key factors that have a direct bearing on our results of operations are:
•
our dependence on a single property, Emperors Palace, and the relatively concentrated casino market
in Gauteng Province to generate a significant portion of our revenue, profits and cash flow;
•
competition from other casinos in Gauteng Province and other regions of South Africa;
•
our ability to amend current licence terms to increase our gaming positions and introduce new games
and our ability to renew our licences;
•
changes in the gaming laws and the wider regulatory and legal environment in South Africa;
•
general economic conditions that impact growth trends in disposable income and discretionary
consumer spending;
•
our dependence on a functional and efficient transport infrastructure to provide access to our casinos
and hotels; and
•
our ability to integrate newly acquired operations.
These and other factors are discussed in "Risk Factors" and elsewhere in this offering memorandum.
Because the risk factors referred to in this offering memorandum could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made in this offering memorandum by
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us or on our behalf, you should not place undue reliance on any of these forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to
update any forward-looking statement to reflect events or circumstances after the date on which the statement is
made or to reflect the occurrence of unanticipated events. New factors will emerge in the future, and it is not
possible for us to predict which factors they will be. In addition, we cannot assess the effect of each factor on our
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those described in any forward- looking statements.
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CERTAIN DEFINITIONS
Opalton Investments (Proprietary) Limited (Registration Number 2006/006340/07) (the "issuer") was
recently formed for the purpose of acquiring all of the operations, assets and liabilities of Peermont Global
Limited and substantially all its subsidiaries (the "Corporate Reorganisation"), which forms part of the
Transactions (as defined herein). See "The Transactions." Following the completion of the Transactions, which is
expected to occur on or about 25 April 2007, the issuer will change its legal name to Peermont Global
(Proprietary) Limited, will directly own and operate all of the assets of Peermont Global Limited and will be
wholly owned by Linkton Investments (Proprietary) Limited (Registration Number 2006/006232/07), which, in
turn, will be wholly owned by MRX 80 Investment Holdings (Proprietary) Limited (Registration
Number 2006/023109/07), each a newly established private company with no trading history, assets or liabilities.
Following the completion of the Transactions, Linkton Investments (Proprietary) Limited will change its legal
name to Peermont Global Holdings II (Proprietary) Limited, and MRX 80 Investment Holdings (Proprietary)
Limited will change its legal name to Peermont Global Holdings I (Proprietary) Limited.
In this offering memorandum, references to "Peermont" are to Peermont Global Limited, references to
"Holdco 1" are to Peermont Global Holdings I (Proprietary) Limited, the issuer's ultimate parent company, and
references to "Holdco 2" are to Peermont Global Holdings II (Proprietary) Limited, the issuer's immediate parent
company. In addition, references to "we," "us," "our," the "company" and "group" are, in respect of periods before
the Transactions, to the operations of Peermont and its consolidated subsidiaries and in respect of periods
following the Transactions, to the operations of the issuer giving effect to the Transactions. "Shareholders" refers
to investors that beneficially hold ordinary voting shares of Holdco 1 following the completion of the
Transactions.
Holdco 2 (in such capacity, the "parent guarantor") will guarantee the issuer's obligations under the notes
on a senior basis (the "parent guarantee"). The following subsidiaries (in such capacity, the "guarantors") will
guarantee the issuer's obligations under the notes on a senior basis (the "guarantees"): (1) Maxitrade 87 General
Trading (Proprietary) Limited (Registration Number 2006/028470/07); (2) Maxitrade 88 General Trading
(Proprietary) Limited (Registration Number 2006/029290/07); (3) Maxitrade 94 General Trading (Proprietary)
Limited (Registration Number 2006/034446/07); (4) Maxitrade 89 General Trading (Proprietary) Limited
(Registration Number 2006/029265/07); (5) RedBrick 9 Trading (Proprietary) Limited (Registration Number
2006/000558/07). Following the completion of the Transactions, these entities will change their legal names as
follows: (1) Maxitrade 87 General Trading (Proprietary) Limited will change its legal name to Peermont Global
(North West) (Proprietary) Limited; (2) Maxitrade 88 General Trading (Proprietary) Limited will change its legal
name to Peermont Global (KZN) (Proprietary) Limited; (3) Maxitrade 94 General Trading (Proprietary) Limited
will change its legal name to Peermont Global (Limpopo) (Proprietary) Limited; (4) Maxitrade 89 General
Trading (Proprietary) Limited will change its legal name to Peermont Global Management (NW&L) (Proprietary)
Limited; and (5) RedBrick 9 Trading (Proprietary) Limited will change its legal name to Peermont Global
Management (KZN) (Proprietary) Limited.
The obligations of the issuer under the notes, of the parent guarantor under the parent guarantee and of the
guarantors under the guarantees will also be guaranteed on a limited recourse basis under South African law by
Maxitrade 85 Security Holding Company (Proprietary) Limited in connection with the security structure being
established to support the obligations of the issuer under the notes, of the parent guarantor under the parent
guarantee and the guarantors under the guarantees. In this offering memorandum, the term "security spv" refers to
Maxitrade 85 Security Holding Company (Proprietary) Limited (Registration Number 2006/025081/07).
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For a description of the "Corporate Reorganisation," "Tusk minorities buy-out" and "Emperors Palace
Reorganisation," see "The Transactions." For a description of the "Tusk Acquisition," see "Management's
Discussion and Analysis of Financial Condition and Results of Operations—Primary Factors Affecting Results—
Acquisitions—The Tusk Acquisition."
INDUSTRY AND MARKET DATA
This offering memorandum contains information about our markets and our competitive position therein,
including the overall size of the South African gaming, hotel and convention industries and our market share
within those industries. We have assembled the information about these markets included in this offering
memorandum as follows:
•
information relating to the size of the South African gaming industry is based upon information
provided by the National Gambling Board, the Casino Association of South Africa and the Gauteng
Gambling Board;
•
information relating to the size of the hotel and convention industries is based upon information
provided by Grant Thornton SA and information relating to hotel performance (occupancy and average
room rate) is provided by HotelBenchmark™ Survey by Deloitte & Touche LLP;
•
estimates of our and our competitors' market share within the South African gaming industry is based
upon publicly available information, informal contacts with industry participants and other
communications; and
•
our position within the South African hotel and convention industries is based upon the market data
referred to above and our actual revenue in the relevant market.
While we have compiled, extracted and reproduced market or other industry data from external sources
which we believe is reliable, including third party or industry or general publications, neither we nor the initial
purchaser have independently verified all of such data. We believe that the market data contained in the offering
memorandum provide fair and adequate estimates of the size of our markets and fairly reflect our competitive
position within these markets. However, we cannot guarantee you that a third party using different methods to
assemble, analyse or compute market size and market share information would obtain or generate the same results.
In addition, our competitors may define our markets differently than we do. In describing the South African
gaming and casino market and our market share in those markets, we use the terms "casino revenue" and "gross
gaming revenue." The term "casino revenue" refers to gaming revenue generated by one or more casinos in South
Africa including all VAT and other gaming levies. Other than for purposes of Management's Discussion and
Analysis of Financial Condition and Results of Operations, the term "gross gaming revenue" refers to gaming
revenue, including all VAT and other gaming levies, generated by casinos, horse racing and other sports betting,
bingo and limited payout machines in South Africa, but excludes the South African national lottery.
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viii
PRESENTATION OF FINANCIAL INFORMATION
The issuer was recently formed for the purpose of acquiring Peermont's business, including the operations,
assets and liabilities of Peermont and substantially all its subsidiaries. It did not have any assets or operations prior
to the Transactions. Following the completion of the Transactions, the issuer will own all of the currently existing
assets of Peermont. In this offering memorandum, we present historical financial information for Peermont.
We present in this offering memorandum audited consolidated financial statements for Peermont, as of 31
December 2004, 2005 and 2006 and for the years then ended prepared in accordance with International Financial
Reporting Standards ("IFRS"). These audited financial statements have been audited by KPMG Inc., Registered
Accountants and Auditors, Chartered Accountants (South Africa), our independent auditors. References to "2006,"
"2005" and "2004" are to our financial years ended 31 December 2006, 2005 and 2004, respectively.
We also present in this offering memorandum unaudited pro forma consolidated financial information for
Peermont as of 31 December 2006 and for the year then ended giving pro forma effect to the Tusk Acquisition
and the Transactions, as if each had occurred on 1 January 2006. Unless the context otherwise requires, references
to "pro forma" are to such financial information.
In addition, we present in this offering memorandum certain unaudited pro forma consolidated financial
information for Peermont and the issuer as of 31 December 2006 and for the year then ended giving pro forma
effect to the Tusk Acquisition and the Transactions as well as the issuance of the notes offered hereby and the
application of the proceeds therefrom.
Rounding adjustments have been made in calculating some of the financial information included in this
offering memorandum. As a result, figures shown as total in some tables may not be exact arithmetic aggregations
of the figures that precede them.
The financial statements included in this offering memorandum are presented in South African rand. We
have translated, for your convenience, certain rand amounts presented as part of the financial information in this
offering memorandum into euro using the Bloomberg Composite Rate on 29 December 2006, which was €1.00 =
R9.2458. Certain pro forma financial information and amounts included under “Summary Historical and Pro
Forma Financial Information,” “Risk Factors,” “Use of Proceeds,” and “Pro Forma Capitalisation” have been
translated at the forward exchange rate of €1.00 = R9.6050 as of 25 April 2007. You should not view such
translations as a representation that such euro or rand amounts could have been converted into rand or euro,
respectively, at the rates indicated or at any other rates. See "Exchange Rates."
In this offering memorandum, we present certain measures that are not IFRS measures, particularly
earnings before interest, taxes, depreciation and amortisation ("EBITDA") and pro forma EBITDA, in describing
our operating results and financial position. For an explanation of how we define EBITDA and pro forma
EBITDA and a reconciliation of profit for the year to EBITDA and pro forma profit for the year to pro forma
EBITDA, see note (6) to "Summary historical financial information" and note (4) to "Summary pro forma
financial information," in each case in "Summary Historical and Pro Forma Financial Information."
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ix
CURRENCY PRESENTATION
In this offering memorandum, reference to "rand," "R" and "SA cents" are to the South African rand and
cents, the lawful currency of the Republic of South Africa. Reference to "€" or to "euro" are to the single currency
of the participating member states in the Third Stage of European Economic and Monetary Union of the Treaty
Establishing the European Community, as amended from time to time. Reference to "U.S. dollars," "$" and "US$"
are to the United States dollar, the lawful currency of the United States of America.
EXCHANGE RATES
Rand-euro exchange rate
The following table sets forth, for the period from January 2002 through 17 April 2007, the Bloomberg
Composite Rate expressed as rand per €1.00. The Bloomberg Composite Rate is a “best market” calculation. At
any point in time, the bid rate is equal to the highest bid rate of all contributing bank indications. The ask rate is set
to the lowest ask rate offered by these banks. The Bloomberg Composite Rate is a mid-value rate between the
applied highest bid rate and the lowest ask rate. We do not represent that the rand amounts referred to below could
be or could have been converted into euro at any particular rate indicated or any other rate.
The average rate for a year means the average of the Bloomberg Composite Rates on the last day of each
month during a year. The average rate for a month, or for any shorter period, means the average of the daily
Bloomberg Composite Rates during that month, or during any shorter period, as the case may be.
Period
End
Year
2002 .........................................................................................................
2003 .........................................................................................................
2004 .........................................................................................................
2005 .........................................................................................................
2006 .........................................................................................................
Month
October 2006 ............................................................................................
November 2006 ........................................................................................
December 2006.........................................................................................
January 2007 ............................................................................................
February 2007...........................................................................................
March 2007 ..............................................................................................
April 2007 (through 17 April) ...................................................................
Average
High
Low
8.99
8.42
7.68
7.52
9.25
9.90
8.52
8.00
7.91
8.52
11.21
9.70
9.29
8.43
10.03
8.95
7.51
7.36
7.41
7.17
9.41
9.47
9.25
9.40
9.56
9.76
9.60
9.64
9.34
9.29
9.35
9.38
9.74
9.60
10.03
9.48
9.65
9.50
9.64
9.97
9.73
9.37
9.23
9.11
9.17
9.28
9.57
9.51
The Bloomberg Composite Rate for the euro on 17 April 2007 was €1.00 = R9.5299.
Rand-U.S. dollar exchange rate
The following table sets forth, for the period from January 2002 through 17 April 2007, the Bloomberg
Composite Rate expressed as rand per $1.00. The Bloomberg Composite Rate is a "best market" calculation. At
any point in time, the bid rate is equal to the highest bid rate of all contributing bank indications. The ask rate is set
to the lowest ask rate offered by these banks. The Bloomberg Composite Rate is a mid-value rate between the
Doc #:NY7:390196.4
x
applied highest bid rate and the lowest ask rate. We do not represent that the rand amounts referred to below could
be or could have been converted into U.S. dollars at any particular rate indicated or any other rate.
The average rate for a year means the average of the Bloomberg Composite Rates on the last day of each
month during a year. The average rate for a month, or for any shorter period, means the average of the daily
Bloomberg Composite Rates during that month, or during any shorter period, as the case may be.
Period
End
Year
2002 .........................................................................................................
2003 .........................................................................................................
2004 .........................................................................................................
2005 .........................................................................................................
2006 .........................................................................................................
Month
October 2006 ............................................................................................
November 2006 ........................................................................................
December 2006.........................................................................................
January 2007 ............................................................................................
February 2007...........................................................................................
March 2007 ..............................................................................................
April 2007 (through 17 April) ...................................................................
Average
High
8.57
6.68
5.67
6.33
7.00
10.50
7.54
6.43
6.37
6.77
12.47
9.05
7.31
6.92
7.88
8.57
6.20
5.62
5.65
5.96
7.37
7.15
7.01
7.22
7.23
7.33
7.07
7.63
7.25
7.04
7.19
7.17
7.36
7.14
7.88
7.43
7.24
7.32
7.29
7.50
7.26
7.37
7.12
6.93
6.91
7.06
7.21
7.02
The Bloomberg Composite Rate for the U.S. dollar on 17 April 2007 was $1.00 = R7.0216.
Doc #:NY7:390196.4
xi
Low
SUMMARY
This summary highlights information from this offering memorandum. It is not complete and does not
contain all of the information that you should consider before investing in the notes. You should read this offering
memorandum carefully in its entirety, including the "Risk Factors" section, the financial statements provided and
the notes to those financial statements.
Overview
We are the holder of the second largest number of casino licences in South Africa and are also the second
largest casino resort operator in Gauteng Province, with a market share in this province of approximately 26%
based on casino revenue. Gauteng Province is South Africa's largest casino market and home to Johannesburg, the
country's business capital and most affluent city. Casinos in Gauteng Province have on average accounted for
approximately 42% of all casino revenue generated each year in South Africa since 2004.
We operate a total of 12 properties, nine in South Africa and three in neighbouring Botswana. Together, as
of 31 December 2006, these included 3,105 slot machines, 143 gaming tables and 1,312 hotel rooms. Our flagship
property is Emperors Palace casino resort, which is strategically located in the Johannesburg metropolitan area
and was recently voted "Africa's Leading Casino Resort" in a poll of over 167,000 travel professionals worldwide.
We established Emperors Palace in 1998 as a joint venture with Caesars World Inc. of Las Vegas and purchased,
together with minority investors, Caesars' 25% interest in March 2005. Emperors Palace generated 71% of our pro
forma revenue and 70% of our pro forma EBITDA in our 2006 financial year.
In addition to Emperors Palace, our property portfolio includes five other casino resorts, two stand-alone
casinos and four stand-alone hotels. Our casino resorts offer our guests a variety of distinct gaming areas
containing a wide selection of slot machines and gaming tables, a selection of hotels ranging from three star to
five star luxury properties, various restaurants including popular recognised chains, and a variety of fine dining
options, a number of differently themed bars, amusement arcades and child care centres. Certain of our larger
casino resorts also feature convention facilities and theatres.
The majority of our revenue is generated in the attractive South African casino market, where casino
revenue has grown overall at a compound annual growth rate of approximately 18% in the three years to 31 March
2006 and legislation has limited the total number of casino licences to 40. Since 2003, we have achieved
compound annual revenue growth of approximately 25%. In addition, the majority of our revenue is generated by
our flagship Emperors Palace casino resort in Gauteng Province, where current legislation governing our industry
prohibits the allocation of any additional casino licences.
We generated revenue of R1,632.8 million (€176.6 million) and EBITDA of R632.1 million
(€68.4 million) in the year ended 31 December 2006, approximately 80% of which was generated by our casino
operations. During the same period we generated, on a pro forma basis after giving effect to the Transactions and
the Tusk Acquisition as if they had occurred on 1 January 2006, revenue of R2,064.5 (€223.3 million) million and
EBITDA of R815.0 million (€88.1 million). Approximately 82% of this pro forma revenue was generated by our
casino operations.
Our Strengths
We believe that we benefit from the following competitive strengths:
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1
Leading market position in South Africa's largest casino market. Emperors Palace is the second largest
generator of casino revenue in Gauteng Province, South Africa's largest casino market. Gauteng Province is home
to Johannesburg, South Africa's business capital and most affluent metropolitan area, as well as Pretoria, the
country's administrative capital. In 2006, approximately 20% of the South African population lived in Gauteng
Province, and, in the same period, generated 34% of the country's gross domestic product. In 2006, Emperors
Palace had approximately a 26% share of the casino gaming market in Gauteng Province with only 21% of the
province's total gaming positions. Emperors Palace is strategically situated in the heart of this market, with its
75km catchment area including both the Johannesburg and Pretoria metropolitan areas. We estimate that we draw
at least 77% of our guests at Emperors Palace from this catchment area. Easily accessible by major motorways
and the national railway network, Emperors Palace also offers a five-minute complimentary shuttle service to and
from the Johannesburg international airport. It is also the only casino located near the planned route of the
Gautrain, a high-speed rail link, which, when completed, will connect the Johannesburg and Pretoria metropolitan
areas with the Johannesburg international airport.
Attractive South African market with high barriers to entry. Our South African operations generated
approximately 93% of our pro forma revenue in 2006. We believe South Africa is an attractive market for casino
operators due primarily to the country's relatively high rate of economic growth in recent years, the legislative
framework established to regulate its gaming industry and the barriers new entrants to the market would have to
overcome in order to compete successfully. We expect that South Africa will continue to experience relatively
high GDP growth along with corresponding increases in disposable income and consumer spending. Historically,
casino revenue has tended to increase along with increases in consumer spending. The South African casino
market is also attractive due to the current legislation governing the gaming industry in the country, which limits
the number of casino licences that may be granted to 40 for South Africa as a whole. All but six of these licences
have already been allocated to local casino operators, such as ourselves, and no licences remain to be allocated in
Gauteng Province, the country's largest casino market and home to our flagship Emperors Palace casino resort. In
addition, we believe that, in order to compete effectively with us, any new entrant to the South African casino
market would require operations in Gauteng Province on a scale comparable to ours. Establishing such operations
would require substantial capital investment that could be difficult to recoup in a market that is already served by
existing casinos. More importantly, such operations would have to be licensed and, at present, no further casino
licences remain to be allocated in Gauteng Province. Casinos in South Africa also tend to draw their patrons from
their surrounding catchment areas, each of which has a radius of approximately 75km. Any given casino,
therefore, tends to compete only with casinos with catchment areas that overlap significantly with its own 75km
catchment area. Accordingly, we believe that Emperors Palace only effectively competes with the three casinos
out of the remaining six in Gauteng Province whose catchment areas overlap significantly with that of Emperors
Palace, and that our casino properties located outside of Gauteng Province effectively have no direct competition
due to the absence of other licensed casinos with catchment areas significantly overlapping those of our own
casinos in these areas.
Attractive diversified product offering. We believe that our casino resorts offer our guests an attractive
array of combined gaming and entertainment offerings. At the heart of these offerings are the wide variety of
gaming options available in each of our casino resorts and stand-alone casinos. These range from traditional
gaming tables hosted by experienced dealers to modern, themed video slot machines. All of our gaming options
are situated in what we believe are attractive, well-kept surroundings whose ambience is aimed at offering our
guests an enjoyable and comfortable gaming experience. Our hotels range from attractively priced three star
hotels, such as the Metcourt Inn and the Metcourt Lodge, to the five star D'Oreale Grande, the most exclusive of
our three hotels within Emperors Palace and a property that is aimed at satisfying the most discerning guests.
Some of our casino resorts also feature retail areas offering a range of restaurant options, bars, amusement arcades
and child care centres. Certain of these resorts also contain convention facilities and theatres, which regularly host
popular music concerts, comedy acts and other celebrity entertainers. For example, Emperors Palace hosted Laila
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2
Ali's recent super middleweight boxing world title fight and a charity event hosted by Pelé. Emperors Palace will
also continue to host the meetings of the FIFA 2010 World Cup organising committee. All of our product
offerings and events are supported by a range of marketing and promotional events.
Strong cash flow. In 2006, Emperors Palace generated a 39% EBITDA margin, the highest of any casino
operating in Gauteng Province for which financial statements are publicly available. Our cash conversion ratio,
which we define as free cash flow as a percentage of EBITDA, has been over 90% in the last five years. We
define free cash flow as EBITDA minus changes in working capital and maintenance capital expenditures net of
proceeds received from the sale of property, plant and equipment.
Black economic empowerment credentials. Following the completion of the Transactions, broad-based
BEE investment groups and BEE individuals will together effectively direct the voting of approximately 80% of
our ordinary shares, the highest level of BEE control of any casino operator in South Africa. BEE status is one of
the factors that is taken into consideration by regulators in awarding and amending licences. We believe that this
market leading BEE status will position us well to:
•
increase the number of licensed casino gaming positions at our existing properties;
•
maintain good relationships with our gaming regulators;
•
compete successfully for new gaming licences; and
•
obtain extensions, renewals and amendments to our existing gaming licences and permits.
Experienced and incentivised management team. Our senior management team consists of experienced
professionals with strong backgrounds in the casino and hotel industries in South Africa. Our nine senior
executive officers together have over 109 years of experience in the casino and hotel industries. In addition, upon
completion of the Transactions, members of our senior management team will own approximately 17.5% of our
share capital. We believe, therefore, that our management team will be well incentivised to continue to
successfully grow and develop our business in the future.
Our Strategy
The key elements of our strategy are as follows:
Continue increasing existing guest spend and attracting new guests. We intend to continue to build
upon our successful track record to grow revenue by increasing the amount our existing guests spend. We will
seek to do so by refining and increasing our product offerings and continuing to introduce the latest gaming
products and systems. We were among the first casino operators in South Africa to introduce lower denomination
slot machines and mystery jackpots. In addition, Emperors Palace casino resort is the only casino in Gauteng
Province that offers a choice of smartcard, token or cash play slot machines. We also intend to continue attracting
loyal guests through direct marketing campaigns and also new guests by expanding our other successful
promotional activities. We recently ran an innovative promotional campaign that involved the giving away of a
combination of cash, a car and a new house to registered guests, and intend to continue to develop similarly
successful campaigns in the future. We will also continue to target new guests through our entertainment offerings
and by further promotion of our complementary facilities, and to selectively target premium players from Asia by
offering them attractive tailor-made packages.
Continue to generate strong EBITDA margin and cash flow. Over the last three years, we have
consistently generated EBITDA margins exceeding 37%, and in 2006 generated an EBITDA margin of
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3
approximately 39%. We have been able to generate these strong margins by carefully managing our personnel
costs, aligning discretionary expenditures, such as those related to complimentary food and beverages offered to
guests, with gaming volume, and by taking advantage of purchasing efficiencies and economies of scale. We
intend to continue to build upon this successful track record by further centralisation of certain administrative and
other functions, such as payroll, by taking further advantage of purchasing efficiencies and economies of scale and
by expanding the facilities at our existing properties.
Selectively expand our operations. Due to the nature of the current South African gambling legislation,
much of our growth is expected to come from expanding our current operations. We intend to do so primarily by
leveraging existing facilities and management team infrastructure and by capitalising on the unused land on our
properties. Among other things we will seek to:
•
add new casino gaming positions;
•
build on our available space in our existing properties to accommodate expected increased demand for
casino gaming and hotels generated by expected increases in consumer spending; and
•
add new services to our existing properties.
In addition, we also believe that our position as a leading casino operator in South Africa provides us with
a strong platform to expand our business through strategic investments. We intend to carefully evaluate, select and
pursue opportunities to make such investments as they arise.
Recent Developments
During the month of January 2007, we generated revenue, on a pro forma basis, of R175.2 million
(€18.9 million), an increase of R26.8 million, or 18.1%, from R148.4 million (€16.0 million) for January 2006.
During the month of February 2007, we generated revenue, on a pro forma basis, of R180.9 million
(€19.6 million), an increase of R28.7 million, or 18.9%, from R152.2 million (€16.5 million) for February 2006.
For January and February 2007, we generated EBITDA margins in line with our historical three year
average of 38%.
On 9 March 2007, the casino licence at Emperors Palace was amended by the Gauteng Gambling Board to
permit us to operate an additional 12 traditional poker gaming tables. We intend to commence operating eight of
these tables by 30 September 2007.
___________
The Transactions
The proceeds from the issuance of the notes will be used to finance certain aspects of the Transactions
described below. See also "The Transactions" and "Use of Proceeds" for a more detailed description of these
financings.
In November 2006, the issuer made an offer to acquire the ordinary share capital of Peermont Global
Limited ("Peermont"). The offer will be effected through a scheme of arrangement between Peermont and its
shareholders pursuant to section 311 of the South African Companies Act (the "scheme"). On 12 March 2007, the
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4
requisite majority of shareholders of Peermont voted to approve the scheme. On 20 March 2007, the High Court
of South Africa sanctioned the scheme. The scheme is expected to become operative on or about 24 April 2007.
Upon the scheme becoming operative, Peermont shareholders will be entitled to receive cash consideration
of R12.90 per ordinary share of Peermont, representing aggregate consideration of R4,257 million (€460 million),
plus additional consideration determined with reference to interest from 20 March 2007 until the operative date of
the scheme. On the assumption that the scheme becomes operative on 24 April 2007, the aggregate scheme
consideration will be R4,316 million (€467 million). Upon the scheme becoming operative, Peermont will become
a wholly owned subsidiary of the issuer.
In connection with the scheme, certain minority shareholders of the joint venture entity that currently owns
Emperors Palace will effectively exchange their joint venture interests for cash, ordinary shares and preference
shares of Peermont Global Holdings I (Proprietary) Limited ("Holdco 1") and Maxshell 114 Investments
(Proprietary) Limited ("BEE Holdco") (the "Emperors Palace Reorganisation"). See "Related Party
Transactions—Share for share transaction agreement—Marang share transaction agreement." As a result of the
Emperors Palace Reorganisation, the joint venture entity that currently owns Emperors Palace will become a
wholly owned subsidiary of Peermont, which will be accounted for on a fully consolidated basis.
Following the scheme becoming operative, the issuer and certain of its newly formed subsidiaries will
acquire Peermont's business, including the operations, assets and liabilities of Peermont and substantially all of its
subsidiaries (the "Corporate Reorganisation" and, together with the Emperors Palace Reorganisation, the
"Reorganisations"). In addition, the issuer will acquire for cash from certain minority shareholders of Peermont
Global Tusk Holdings (Proprietary) Limited ("Tusk Holdings") their equity interests in Tusk Holdings (the "Tusk
minorities buy-out"). See "Related Party Transactions—Share for share transaction agreement—Tusk minorities
buy-out agreements." As a result of the Tusk minorities buy-out, Tusk Holdings will become a wholly owned
subsidiary of the issuer. In addition, pursuant to the Corporate Reorganisation, the current and future minority
shareholders, which are staff incentive trusts (the "staff trusts"), of certain subsidiaries of Tusk Holdings will
become staff trusts of certain of the newly formed subsidiaries of the issuer. In this offering memorandum, we
refer to the scheme, the Reorganisations and the Tusk minorities buy-out collectively, as the "Transactions."
The gross proceeds from the offering of the notes (the "escrow funds") will be deposited into an escrow
account pending the completion of the Corporate Reorganisation under the terms of an escrow agreement. If the
Corporate Reorganisation is not completed by the fifth business day following the issuance of the notes, the
escrow funds will be used to fund a special mandatory redemption of all of the notes at a redemption price equal to
100% of the aggregate principal amount of the notes. See "Description of the Notes—Disbursement of Funds;
Escrow Account" and "Description of the Notes—Special Mandatory Redemptions."
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5
Corporate Structure
The following diagram summarises our corporate structure and outstanding financing arrangements
following the completion of the Transactions. For a summary of the debt obligations referred to below, see
"Description of Certain Other Indebtedness" and "Description of the Notes." See "Our Principal Shareholders," for
further detail regarding our shareholders.
MIC Leisure
(Proprietary) Limited
and BEE Trusts(2)
Financial
Institutions(5)
66.7%
33.3%
Maxshell 114 Investments
(Proprietary)
Limited
Management
17.5%(4)
Certain
Individuals
7.5%(4)
75%(4)
Peermont Global Holdings I
R1,086.3 million (£117.5 million)
PIK Preferred Equity Loan (5)(11)
Deeply subordinated shareholder
loan R1,086.3 million
(£117.5 million)(5)(11)
Issuer
100%
Parent guarantor
Guarantors
Peermont Global Holdings II
(Proprietary) Limited(6)
R887.0 million (£95.9 million)
PIK Notes(5)(11)
loan R1,973 million
(£213.4 million)(5)(11)
£520 million (R5 billion)
Senior Secured Notes offered
hereby(6)
Credit Facilities(9)(11)
100%
(10)
Peermont Global
(Proprietary) Limited(1)
Guarantor
Subsidiaries(6)(12)
Non-Guarantor
Subsidiaries(12)
New Revolving Credit Facility(8)(11)
Forward Exchange
Contract(7)
Credit Facilities(9)(11)
___________
(1)
Peermont Global (Proprietary) Limited is the issuer of the notes offered hereby. See "Certain Definitions." It was recently formed for the
purpose of acquiring all of the operations, assets and liabilities of Peermont and substantially all of its subsidiaries. See "The Transactions." The
following table sets forth the pro forma assets, pro forma revenue and pro forma EBITDA of the issuer on a stand-alone basis as well as the
issuer and guarantor subsidiaries on a combined basis, as a proportion of our total consolidated pro forma assets, pro forma revenue and
pro forma EBITDA as of 31 December 2006 and for the financial year then ended, as if the Transactions had occurred on 1 January 2006:
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6
Pro forma for the
financial year ended
31 December 2006
Issuer and
guarantors
Issuer
combined
(percentages)
Assets................................................................................................................................
67.1
Turnover................................................................................................................................ 73.7
EBITDA] ............................................................................................................................... 74.3
___________
(a)
89.0
88.9
91.6
For description of how we calculate EBITDA and pro forma EBITDA, see note (6) to "Summary
historical financial information" and note (4) to "Summary pro forma financial information," in
each case in "—Summary Historical and Pro Forma Financial Information."
(2)
Represents former minority shareholders of the joint venture entity that currently owns Emperors Palace,
and that will effectively exchange their joint venture interests for cash and ordinary and preference shares
of Peermont Global Holdings I (Proprietary) Limited ("Holdco 1") and Maxshell 114 Investments
(Proprietary) Limited ("BEE Holdco") pursuant to the Emperors Palace Reorganisation. See "The
Transactions."
(3)
Represents a group of investors, which include entities affiliated with: Avenue Europe Investments L.P.,
Goldentree Ltd, Noonday Asset Management; Cheyne Special Situations Fund LP and Citigroup Financial
Products Inc. These are investors under the PIK preferred equity loan agreement, as defined in
footnote (5), under which Holdco 1 will receive certain funds to be lent to Peermont Global Holdings II
(Proprietary) Limited ("Holdco 2"), its direct, wholly owned subsidiary, in connection with the
Transactions.
(4)
Represents percentage ownership of ordinary voting share capital of Holdco 1. Holdco 1 will also issue
class B ordinary shares to the investors described above in connection with the PIK preferred equity loan
agreement. The class B ordinary shares will represent approximately 31% of the economic rights in the
share capital of Holdco 1 and carry nominal voting rights. See "Related Party Transactions—Holdco 1
Shareholders' Agreement—Description of share capital of Holdco 1."
(5)
In connection with the Corporate Reorganisation, the issuer will receive R1,973.3 million (€213.4 million)
from Holdco 2 in the form of a deeply subordinated shareholder loan (the "deeply subordinated
shareholder loan"). See "The Transactions." The deeply subordinated shareholder loan will be comprised
of two tranches (i) a R1,086.3 million (€117.5 million) tranche (the "PIK preferred equity loan tranche")
representing (a) gross proceeds that will be received by Holdco 1 under a payment-in-kind preferred equity
loan agreement (the "PIK preferred equity loan agreement") and (b) proceeds from the issuance of class B
ordinary shares of Holdco 1 to the investors under the PIK preferred equity loan agreement, such amounts
in (a) and (b) having been received by Holdco 2 in the form of a deeply subordinated shareholder loan
from Holdco 1, and (ii) a R887.0 million (€95.9 million) tranche (the "PIK notes tranche") representing
gross proceeds from the issuance by Holdco 2 of payment-in-kind notes (the "PIK notes"). We will use
amounts advanced under the deeply subordinated shareholder loan to pay for the Corporate
Reorganisation. The terms of the PIK preferred equity loan tranche will be (except as to its tenor)
substantially the same as the terms of the PIK preferred equity loan agreement. The terms of the PIK notes
Doc #:NY7:390196.4
7
tranche will be (except as to its tenor) substantially the same as the terms of the PIK notes. For a
description of the terms of the deeply subordinated shareholder loan, see "Description of Certain Other
Indebtedness—Deeply subordinated shareholder loan."
(6)
The obligations of the issuer under the notes will be guaranteed by (i) Holdco 2 (in such capacity, the
"parent guarantor") on a senior basis (the "parent guarantee") and (ii) certain of the South African
subsidiaries of the issuer (in such capacity, the "guarantors") on a senior basis (the "guarantees"). The
obligations of the issuer under the notes, of the parent guarantor under the parent guarantee, and of the
guarantors under the guarantees will also be guaranteed on a second ranking limited recourse basis under
South African law (the "spv notes guarantee") by the security spv. The spv notes guarantee will rank
(i) equally and rateably with the security spv's obligations under a second ranking limited recourse
guarantee under South African law (the "spv hedging guarantee") of the issuer's obligations under the
hedging agreement (as defined in footnote (7)), and (ii) junior to the security spv's obligations under a first
ranking limited recourse guarantee (the "spv revolver guarantee") under South African law of the issuer's
obligations under the new revolving credit facility (as defined in footnote (8). The security spv's
obligations under the spv notes guarantee, the spv hedging guarantee and the spv revolver guarantee will
be supported by security interests over all of the parent guarantor's interest in the capital stock of the issuer
and substantially all of the assets of the issuer and certain of its South African subsidiaries, other than
certain non-material assets (the "collateral"). See "Description of the Notes—Security."
(7)
The notes will be hedged in respect of foreign exchange risk in connection with the issuance of the notes
pursuant to a four-year forward exchange contract for the rand equivalent of all or substantially all of the
principal amount of, and four years of interest under, the notes (the "hedging agreement"). See
"Description of Certain Other Indebtedness—Hedging agreement."
(8)
On or about the date of the issuance of the notes, we will enter into a R400 million (€43 million) working
capital facility (the "new revolving credit facility"). The issuer's obligations under the new revolving credit
facility will be supported by first ranking security interests over the collateral that will support the notes,
the parent guarantee and the guarantees. See "Description of Certain Other Indebtedness—New revolving
credit facility."
(9)
Following the completion of the Transactions, R216.6 million (€23.4 million) will remain outstanding
under existing credit facilities of certain subsidiaries of the issuer. R64.9 million (€ 7.0 million) of this debt
has been incurred by subsidiaries of the issuer that will guarantee the issuer's obligations under the notes,
and R151.7 million (€16.4 million) of this debt has been incurred by subsidiaries of the issuer that will not
guarantee the issuer's obligations under the notes. Of this latter amount, approximately R43 million is
guaranteed by certain subsidiaries of the issuer. See "Description of Other Indebtedness—Botswana
indebtedness," "—Financings relating to Frontier Inn," "—Tusk retention creditors," "—Tusk promissory
notes" and "—Iskhus finance leases."
(10)
The entities within the box formed by the broken line (the "Restricted Group") will be subject to the
covenants and other restrictions contained in the indenture governing the notes and summarised in the
section "Description of the Notes." The Restricted Group on the date of the indenture governing the notes
will consist of the issuer and its subsidiaries.
(11)
For your convenience, we have translated the rand amounts presented in the above table into euro using
the Bloomberg Composite Rate of the euro on 29 December 2006, which was €1.00 = R9.2458. You
should not view such translations as a representation that such rand amounts actually represent such euro
amount, or could be or could have been converted into euro at the rate indicated or any other rate. See
"Presentation of Financial Information" and "Exchange Rates."
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8
(12)
Certain of these subsidiaries will have minority shareholders after the completion of the Transactions.
(13)
We have translated the amount using the forward exchange rate of €1.00 = R9.6050 as of 25 April 2007.
You should not view such translations as a representation that such rand amounts actually represent such
euro amount, or could be or could have been converted into euro at the rate indicated or any other rate. See
“Presentation of Financial Information” and “Exchange Rates.”
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9
The Offering
The summary below describes the principal terms of the notes, the parent guarantee and the guarantees.
Certain of the terms and conditions described below are subject to important limitations and exceptions. The
"Description of the Notes" section of this offering memorandum contains a more detailed description of the terms
and conditions of the notes, the parent guarantee and the guarantees, including the definitions of certain terms used
in this summary.
Issuer................................... Opalton Investments (Proprietary) Limited, which, following the completion of
the Transactions, will change its legal name to Peermont Global (Proprietary)
Limited. See "Certain Definitions."
Notes offered ....................... €520,000,000 aggregate principal amount of 7 % Senior Secured Notes due
2014.
Maturity date ....................... 30 April 2014.
Interest payment dates.......... 30 April and 30 October of each year, commencing on 30 October 2007.
Denominations..................... Each note will have a minimum denomination of €50,000 and will be offered only
in integral multiples of €1,000 above €50,000.
Ranking of the notes ............ The notes will be the senior obligations of the issuer and will:
• rank equal in right of payment with all of the issuer's existing and future
unsubordinated indebtedness; and
• rank senior in right of payment to all of the issuer's existing and future
indebtedness that is subordinated in right of payment to the notes.
Guarantees........................... The notes will be guaranteed on a senior basis by Peermont Global Holdings II
(Proprietary) Limited, as parent guarantor, and by Peermont Global (North West)
(Proprietary) Limited, Peermont Global (KZN) (Proprietary) Limited,
Peermont Global (Limpopo) (Proprietary) Limited, Peermont Global
Management (NW&L) (Proprietary) Limited and Peermont Global Management
(KZN) (Proprietary) Limited, as guarantors.
Ranking of the guarantees .... The parent guarantee will be the parent guarantor's senior obligation and will:
• rank equal in right of payment with all of the existing and future unsubordinated
indebtedness of the parent guarantor, and
• rank senior in right of payment to all of the existing and future indebtedness of
the parent guarantor that is subordinated in right of payment to the parent
guarantee.
Each guarantee of a guarantor will be such guarantor's senior obligation and will:
• rank equal in right of payment with all of the existing and future unsubordinated
indebtedness of such guarantor, and
• rank senior in right of payment to all of the existing and future indebtedness of
such guarantor that is subordinated in right of payment to such guarantor's
guarantee.
Security ............................... The obligations of the issuer under the notes, of the parent guarantor under the
parent guarantee and of the guarantors under the guarantees will be guaranteed on
a second ranking limited recourse basis under South African law by the
security spv (the "SPV Notes Guarantee") in connection with the security
structure being established to support the obligations of the issuer under the notes,
of the parent guarantor under the parent guarantee and of the guarantors under the
guarantees. The security spv's obligations under the SPV Notes Guarantee will
Doc #:NY7:390196.4
10
rank (i) equal in right of payment with the security spv's obligations under a
second ranking limited recourse guarantee under South African law (the "Hedging
Guarantee") of the issuer's obligations under the Hedging Agreements, and
(ii) junior to the security spv's obligations under a first ranking limited recourse
guarantee under South African law (the "SPV Revolver Guarantee") of the
issuer's obligations under a R400 million revolving credit facility (the "New
Revolving Credit Facility"). The security spv's obligations under the SPV Notes
Guarantee, the SPV Hedging Guarantee and the SPV Revolver Guarantee will be
supported by security interests over all of the capital stock of the issuer and
substantially all of the assets of the issuer and the guarantors, other than (i) certain
non-material assets, (ii) assets over which a security interest cannot be granted
under South African law, and (iii) assets over which a security interest cannot be
granted under the terms of leases or other agreements to which such assets are
subject including certain assets financed by way of capitalized leases, mortgage
financings and purchase money financings (the "Collateral"). These security
interests will not be granted directly to the holders of the notes or the trustee for
the holders of the notes. The security interests will instead be granted to the
security spv, which will guarantee the obligations of the issuer under the notes,
the Hedging Agreement and the Revolving Credit Facility, of the parent guarantor
under the parent guarantee and of the guarantors under the guarantees. The trustee
for the holders of the notes will not be entitled to take any enforcement action
with respect to the security other than through the spv guarantee. See "Description
of the Notes—Security."
Upon the closing of the offering of the notes, €520 million (R 5 billion), being the
Escrow Account; special
mandatory redemption ....... gross proceeds from the sale of the notes (the "Escrow Funds"), will be deposited
into an escrow account (the "Escrow Account"). In the event the Corporate
Reorganisation is not completed by the fifth business day following the closing of
the offering of the notes, the Escrow Funds will be used to fund, subject to the
approval of the South African exchange control authorities, a special mandatory
redemption of all of the notes at a redemption price equal to 100% of the
aggregate principal amount of the notes. See "Description of the Notes—
Disbursement of Funds; Escrow Account" and "Description of the Notes—
Special Mandatory Redemption."
Optional redemption ............ The issuer may redeem all or part of the notes at any time on or after 30 April
2010 at the redemption prices specified under "Description of the Notes—
Optional Redemption," plus accrued and unpaid interest.
In addition, at any time prior to 30 April 2010, the issuer may redeem up to 35%
of the aggregate principal amount of the notes at a redemption price of 107.75%
of their principal amount, plus accrued and unpaid interest, with the net proceeds
of certain public equity offerings. See "Description of the Notes—Optional
Redemption."
Furthermore, at any time prior to 30 April 2010, the issuer may also redeem all or
part of the notes at a redemption price equal to 100% of the principal amount of
the notes redeemed plus a "make-whole" premium, plus accrued and unpaid
interest, if any.
Any such optional redemption will be subject to the approval of the South African
exchange control authorities.
All payments in respect of the notes will be made without withholding or
Additional amounts; tax
redemption ........................ deduction for any taxes or other governmental charges, except to the extent
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11
Change of control ................
Certain covenants.................
Use of proceeds ...................
Listing .................................
Form of notes.......................
Transfer restrictions .............
No prior market ...................
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required by law. If withholding or deduction is required by law, subject to certain
exceptions, the issuer will pay additional amounts so that the net amount you
receive is no less than that you would have received in the absence of such
withholding or deduction. See "Description of the Notes— Additional Amounts."
If certain changes in the law of any relevant taxing jurisdiction become effective
that would impose withholding taxes or other deductions on the payments on the
notes, the issuer may redeem the notes in whole, but not in part, at any time, at a
redemption price of 100% of the principal amount, plus accrued and unpaid
interest, if any, and additional amounts, if any, to the date of redemption.
If we experience an event treated as a "change of control," we will be required to
offer to repurchase the notes at a purchase price equal to 101% of their aggregate
principal amount, plus accrued and unpaid interest, if any, to the date of the
purchase. For a summary of what constitutes a change of control, see "Description
of the Notes—Purchase of Notes upon a Change of Control." Any such offer to
purchase will be subject to the approval of the South African exchange control
authorities.
The indenture governing the notes will contain covenants limiting, among other
things, the issuer's ability and the ability of the issuer's restricted subsidiaries to:
• incur additional debt;
• pay dividends or distributions on, redeem or repurchase our capital stock;
• make certain restricted payments;
• create certain liens;
• transfer or sell assets;
• engage in sale and leaseback transactions;
• merge or consolidate with other entities;
• change the nature of their businesses; and
• enter into transactions with affiliates.
The net proceeds of the offering will be used, together with common equity
contributions and funds received from a deeply subordinated shareholder loan to
(i) effect the Corporate Reorganisation in the manner described under "The
Transactions"; and (ii) pay certain transaction costs related to the offering and to
the Transactions.
Application has been made for the notes to be listed on the Official List of the
Irish Stock Exchange and to be admitted for trading on its Alternative Securities
Market.
The notes initially will be issued in the form of one or more global notes and will
be deposited with, and registered in the name of, a common depositary for
Euroclear and/or Clearstream Banking or a nominee of such common depositary.
Transfers of notes will be effected in accordance with the rules and operating
procedures of Euroclear and/or Clearstream Banking and their participants. See
"Book-Entry; Delivery and Form."
We have not agreed, and do not intend in the future, to register the notes under the
U.S. Securities Act. You may only offer or sell the notes in transactions that are
exempt from, or not subject to, the registration requirements of the U.S. Securities
Act. See "Plan of Distribution" and "Notice to Investors."
The notes will be new securities for which there is currently no market. Although
the initial purchasers have informed us that they intend to make a market in the
notes, they are not obligated to do so and may discontinue market-making at any
time without notice. Accordingly, we cannot assure you that a liquid market for
12
the notes will develop or be maintained.
Trustee ................................ BNY Corporate Trustee Services Limited.
Registrar and principal
The Bank of New York.
paying agent ......................
Governing laws.................... The notes, the parent guarantee, the guarantees and the indenture governing the
notes will be governed by the laws of the State of New York. The SPV Notes
Guarantee, the SPV Hedging Guarantee, the SPV Revolver Guarantee and the
security documents will be governed by the laws of the Republic of South Africa.
Doc #:NY7:390196.4
13
Risk Factors
Investing in the notes involves certain risks. See "Risk Factors" for a description of some of the risks you
should consider before investing in the notes.
The issuer is a limited liability company organised under the laws of the Republic of South Africa on 3
March 2006 with Registration No. 2006/006340/07. Our principal executive office is located at Bridgeport House,
Hampton Park, 20 Georgian Crescent East, Bryanston, South Africa. Our telephone number at our principal
executive office is +27 11 267 9200. We maintain an internet website at www.peermont.com. Information on our
internet website is not part of this offering memorandum.
Doc #:NY7:390196.4
14
Summary Historical and Pro Forma Financial Information
assets and liabilities of Peermont and substantially all of its subsidiaries. See "The Transactions." It did not have
any assets or operations prior to the Transactions. Following the completion of the Transactions the issuer will
own all of the currently existing assets of Peermont. In this offering memorandum, we present historical financial
information for Peermont prepared in accordance with IFRS.
We present below the following summary financial information for Peermont:
•
audited historical consolidated financial information as of 31 December 2004, 2005 and 2006 and for
the years then ended;
•
unaudited pro forma consolidated financial information as of 31 December 2006 and for the year then
ended giving pro forma effect to:
•
•
the Tusk Acquisition as if it occurred on 1 January 2006; and
•
the Transactions as if they occurred on 1 January 2006, in the case of income statement
information, and as if they occurred on 31 December 2006, in the case of balance sheet
information; and
certain unaudited pro forma consolidated financial information as of 31 December 2006 and for the
year then ended giving pro forma effect to:
•
the Tusk Acquisition as if it occurred on 1 January 2006; and
•
the Transactions, in the case of income statement information, as if they occurred on 1 January
2006 and as if they occurred on 31 December 2006, in the case of balance sheet information; and
•
the issuance of the notes offered hereby and the application of the proceeds therefrom as if they
occurred on 1 January 2006, in the case of income statement information, and as if they occurred
on 31 December 2006, in the case of balance sheet information.
You should read the summary historical and pro forma financial information presented below in
conjunction with the information contained in "Presentation of Financial Information," "Risk Factors," "Pro
Forma Capitalisation," "Unaudited Pro Forma Consolidated Financial Information," "Selected Historical Financial
Information," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," as
well as the consolidated financial statements of Peermont, including the related notes, appearing elsewhere in this
offering memorandum.
Summary historical financial information
The summary historical consolidated financial and other information presented below as of 31 December
2004, 2005 and 2006 and for the years then ended have been derived from our audited consolidated financial
statements, as of 31 December 2004, 2005 and 2006 and for the years then ended, prepared in accordance with
IFRS and included elsewhere in this offering memorandum. These consolidated financial statements have been
audited by KPMG Inc., Registered Accountants and Auditors, Chartered Accountants (South Africa), our
independent auditors.
Doc #:NY7:390196.4
15
2004
Financial year ended 31 December
2005
2006
2006
(R in millions)
(€ in
millions)(1)
Income statement data:
Revenue
Gaming ................................................................
738.5
Rooms................................................................
62.2
Food and beverage................................................................
88.1
Other revenue ................................................................ 28.0
985.7
92.6
119.1
39.4
1,302.3
125.0
138.8
66.7
140.9
13.5
15.0
7.2
Total revenue ................................................................ 916.8
Other income ................................................................
1.9
Operating costs
Employee costs................................................................(200.3)
VAT and gaming levies on gross gaming
(145.4)
revenue ................................................................
Promotions and marketing costs ................................
(42.1)
Depreciation and amortisation................................
(63.1)
Property and equipment rentals ................................
(11.8)
Other operational costs................................................................
(174.9)
1,236.8
0.4
1,632.8
2.1
176.6
0.2
(260.0)
(191.8)
(328.4)
(255.6)
(35.5)
(27.6)
(81.0)
(65.6)
(15.6)
(221.2)
(101.9)
(78.2)
(23.7)
(293.2)
(11.0)
(8.5)
(2.6)
(31.7)
Total operating costs................................................................
(637.6)
(835.2)
(1,081.0)
(116.9)
Operating profit ................................................................ 281.1
Financial (expenses)/income
Financial income ................................................................15.6
Financial expenses ................................................................
(52.4)
402.0
553.9
59.9
45.3
(101.3)
8.6
(130.2)
0.9
(14.0)
(36.8)
(56.0)
(121.6)
(13.1)
Profit before taxation................................................................
244.3
Taxation ................................................................
(69.7)
346.0
(118.6)
432.3
(143.3)
46.8
(15.5)
Profit for the year ................................................................174.6
227.4
289.0
31.3
Attributable to:
Equity holders of Peermont ................................
167.3
Minority shareholders ................................................................
7.3
220.0
7.4
275.4
13.6
29.8
1.5
174.6
227.4
289.0
31.3
60.0
1,808.3
2,647.9
170.0
2,199.3
3,633.7
18.4
237.9
393.0
Net financial (expenses)/income ................................
Balance sheet data (at period end):
Cash and cash equivalents ................................................................
50.8
Property, plant and equipment ................................
1,302.5
Total assets ................................................................
1,572.8
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16
Total debt(2) ................................................................
234.5
Net debt(3) ................................................................
183.7
Total equity(4) ................................................................ 1,065.1
Cash flow data: (5)
Cash flow from operating activities................................
223.9
Cash flow from investing activities ................................ (133.4)
Cash flow from financing activities................................ (149.2)
Other data:
EBITDA(6) ................................................................
344.2
Capital expenditure(7) ................................................................
142.7
Number of slot machines licensed (at period
2,168
end)................................................................................................
Number of gaming tables licensed (at period
96
end)................................................................................................
Total number of hotel rooms operated (at period
601
end)................................................................................................
1,076.9
1,016.9
1,180.7
1,622.8
1,452.8
1,486.8
175.5
157.1
160.8
267.4
(940.3)
614.7
400.6
(544.3)
274.9
43.3
(58.9)
29.7
467.6
168.0
2,168
632.1
149.1
3,105
68.4
16.1
96
143
870
1,312
___________
(1)
We have translated, for your convenience, the rand amounts presented in the column "Financial year ended 31 December 2006" into euro using
the Bloomberg Composite Rate of the euro on 29 December 2006, which was €1.00 = R9.2458. You should not view such translations as a
representation that such rand amount actually represents such euro amounts, or could be or could have been converted into euro at the rate
indicated or at any other rate. See "Presentation of Financial Information" and "Exchange Rates."
(2)
Includes interest-bearing long-term borrowings and preference share liabilities (including current portion of interest-bearing long-term
borrowings and preference share liabilities) and borrowings under bank overdrafts.
(3)
Net debt is defined as interest-bearing long-term borrowings and preference share liabilities (including current portion of interest-bearing
long-term borrowings and preference share liabilities) and borrowings under bank overdrafts less cash and cash equivalents.
(4)
Total equity consists of share capital and premium, various reserves, retained earnings and minority interest.
(5)
Cash flow from operating activities includes operating profit adjusted for non-cash items including depreciation and amortisation, changes in
working capital, net finance expenses, taxes and dividends paid on our preference shares. Cash flow from investing activities primarily includes
cash used for maintenance and expansion capital expenditure, acquisitions, investments, change in investments and cash received from
proceeds from disposals of property, plant and equipment. Cash flow from financing activities includes any form of long-term debt or equity
financing raised or repaid and dividends paid.
(6)
We calculate EBITDA on the basis of profit for the year, as determined in accordance with IFRS, plus taxation, financial expenses net of
financial income and depreciation and amortisation. We believe that EBITDA serves as a useful supplementary financial indicator to investors
because it is commonly reported and widely accepted by analysts and investors in measuring a company's ability to service its long-term debt
and other fixed obligations and to fund its continued growth. Further, EBITDA is a widely accepted indicator in comparing a company's
underlying operating profitability with that of other companies in the same industry. EBITDA is not an IFRS measure and you should not
consider EBITDA as an alternative to net profit, as an indicator of operating performance, as a measure of cash flow from operations or as an
indicator of liquidity/(loss) under IFRS. Funds depicted by this measure may not be available for our discretionary use (due to covenant
restrictions, debt service payments and other commitments). You should note that EBITDA is not a uniform or standardised measure and the
calculation of EBITDA, may, therefore, vary significantly from company to company, and by itself our presentation and calculation of
EBITDA may not be comparable to that of other companies. A reconciliation of profit for the year to EBITDA for the financial years ended 31
December 2004, 2005 and 2006 is presented below:
2004
2005
2006
2006
(R in millions)
(€ in
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17
millions)
Profit for the year......................................................................................
Taxation ...................................................................................................
Net financial expenses...............................................................................
Amortisation.............................................................................................
Depreciation .............................................................................................
174.6
69.7
36.8
2.0
61.1
227.4
118.6
56.0
6.1
59.5
289.0
143.3
121.6
4.6
73.6
31.3
15.5
13.1
0.5
8.0
EBITDA...................................................................................................
344.2
467.6
632.1
68.4
(7)
Capital expenditure represents cash payments for property, plant and equipment, net of proceeds received
from the sale of property, plant and equipment.
Summary pro forma financial information for the Tusk Acquisition and the Transactions
The summary unaudited pro forma financial information presented below has been derived from the
unaudited pro forma consolidated financial information appearing elsewhere in this offering memorandum.
The unaudited pro forma income statement information for the financial year ended 31 December 2006
gives effect to the Tusk Acquisition and the Transactions as if they had occurred on 1 January 2006. It is based on
the audited income statement of Peermont for the financial year ended 31 December 2006, adjusted to reflect
(i) the inclusion of an additional 17.04% of the results of PGER Holdings (Proprietary) Limited ("PGERH") for
the full financial year in order to reflect the completion of the Emperors Palace Reorganisation following which
PGERH will become our wholly owned subsidiary, (ii) the inclusion of 100% of the unaudited combined results
of the Tusk Casino and Resort Group ("the Tusk Group") acquired in the Tusk Acquisition for the additional
eight-month period from 1 January 2006 to 31 August 2006 in order to reflect the results of the Tusk Group for
the full financial year, (iii) the financing of the Tusk Acquisition and (iv) the elimination of the 21% minority
interest in Peermont Global Tusk Holdings (Proprietary) Limited ("Tusk Holdings"), our 79% owned subsidiary
that acquired the Tusk Group in the Tusk Acquisition on 1 September 2006 in order to reflect the Tusk minorities
buy-out, as a result of which Tusk Holdings will become our wholly owned subsidiary. See "The Transactions."
The unaudited pro forma balance sheet information as of 31 December 2006, gives effect to the
Transactions as if they had occurred on that day. It is based on the audited balance sheet of Peermont as of
31 December 2006, adjusted to reflect (i) the inclusion of an additional 17.04% of the assets, liabilities and
shareholders' equity of PGERH, in order to reflect the completion of the Emperors Palace Reorganisation as a
result of which Emperors Palace will become our wholly owned subsidiary and (ii) the elimination of the 21%
minority interest in Tusk Holdings, in order to reflect the Tusk minorities buy-out, as a result of which Tusk
Holdings will become our wholly owned subsidiary.
For a detailed discussion of the basis of presentation of the pro forma financial information and the
adjustments made, see "Unaudited Pro Forma Consolidated Financial Information."
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18
The pro forma financial information is presented for illustrative purposes only and does not purport to
represent what our results of operations and financial position would have been had the events listed above
occurred on the dates indicated, or to project our future results of operations for any future period or our financial
condition at any future date.
Pro forma for the
31 December 2006
(R in
(€ in
millions) millions(1)
(unaudited)
Revenue
Gaming ............................................................................................................................... 1,699.4
Rooms.................................................................................................................................
147.6
Food and beverage...............................................................................................................
153.4
Other revenue......................................................................................................................
64.1
Total revenue ....................................................................................................................
Other income .........................................................................................................................
Operating costs
Employee costs....................................................................................................................
VAT and gaming levies on gross gaming revenue ................................................................
Promotions and marketing costs...........................................................................................
Depreciation and amortisation..............................................................................................
Property and equipment rentals ............................................................................................
Other operational costs ........................................................................................................
183.8
16.0
16.6
6.9
2,064.5
1.3
223.3
0.1
(406.5)
(355.2)
(123.4)
(104.9)
(29.4)
(336.3)
(44.0)
(38.4)
(13.3)
(11.3)
(3.2)
(36.4)
Total operating costs ......................................................................................................... (1,355. (146.6)
7)
Operating profit .....................................................................................................................
710.1
Financial (expense)/income
Financial income .................................................................................................................
16.3
Financial expenses............................................................................................................... (186.4)
76.8
1.8
(20.2)
Net financial (expenses)/income ........................................................................................ (170.1)
(18.4)
Profit before taxation..............................................................................................................
540.0
Taxation ................................................................................................................................ (183.4)
58.4
(19.8)
Profit for the year...................................................................................................................
356.6
38.6
Attributable to:
Equity holders of Peermont..................................................................................................
Minority shareholders..........................................................................................................
346.5
10.1
37.5
1.1
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Cash and cash equivalents ......................................................................................................
Property, plant and equipment ................................................................................................
Total assets............................................................................................................................
Total debt(2) ............................................................................................................................
Net debt(3) ..............................................................................................................................
Total equity ...........................................................................................................................
Other data:
Pro forma EBITDA(4) .............................................................................................................
356.6
38.6
175.0
2,506.2
4,094.1
1,888.3
1,713.3
1,610.5
18.9
271.1
442.8
204.2
185.3
174.2
815.0
88.1
___________
(1)
(2)
(3)
(4)
A reconciliation of pro forma profit for the year to pro forma EBITDA for the financial year ended 31 December 2006 is presented below:
Pro forma for the
31 December 2006
(R in
(€ in
millions) millions)
(unaudited)
Pro forma profit for the year ...................................................................................................
Pro forma taxation .................................................................................................................
Pro forma net financial expenses ............................................................................................
Pro forma amortisation...........................................................................................................
Pro forma depreciation...........................................................................................................
356.6
183.4
170.1
6.2
98.7
38.6
19.8
18.4
0.6
10.7
Pro forma EBITDA................................................................................................................
815.0
88.1
Pro forma financial information for the Tusk Acquisition, the Transactions and the issuance of the
notes offered hereby and the application of the proceeds therefrom
The unaudited pro forma financial information presented below is based on the audited consolidated
financial statements of Peermont as of 31 December 2006 and for the year then ended, adjusted to give effect to
the Tusk Acquisition, the Transactions and the issuance of the notes and the application of the proceeds therefrom.
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The pro forma financial information is presented for illustrative purposes only and does not purport to
represent what our results of operation and financial position would have been had the events listed above
occurred on 1 January 2006, or to project our future results of operations for any future period or our financial
condition at any future date.
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Pro forma for the
31 December 2006
(1)
(R)
(€)
(in millions
other than ratios)
(unaudited)
Pro forma net debt (at period end) .......................................................................................... 5,102.1
Pro forma net cash interest expense ........................................................................................
422.5
Ratio of pro forma EBITDA to pro forma net cash interest expense.........................................
1.9x
Ratio of pro forma net debt to pro forma EBITDA..................................................................
6.3x
531.2
44.0
___________
(1)
We have translated this amount using the forward exchange rate of €1.00 = R9.6050 as of 25 April 2007. You should not view such
translations as a representation that such rand amounts actually represent such euro amount, or could be or could have been converted into euro
at the rate indicated or any other rate. See “Presentation of Financial Information” and “Exchange rates.”
(2)
Pro forma net debt is calculated as pro forma total debt (adjusted to give effect to the offering of the notes and the application of the proceeds
therefrom as if the offering of the notes had occurred on 31 December 2006) less total cash and cash equivalents. The following shows the
various components of pro forma net debt.
Pro forma as of
31 December
2006
(R in millions)
(unaudited)
Pro forma total debt (before giving effect to the issuance of the notes)...............................................
Notes offered hereby........................................................................................................................
Repayment of overdrafts ..................................................................................................................
Settlement of preference share liabilities and long-term borrowings (including current portion of
long-term borrowings) ...................................................................................................................
1,888.3
4,994.6
(81.5)
(1,590.2)
Pro forma total debt .........................................................................................................................
Cash and cash equivalents ................................................................................................................
5,211.2
(109.1)
Pro forma net debt............................................................................................................................
5,102.1
(3)
Pro forma net cash interest is calculated as interest expense on the pro forma net debt, assuming the
offering of the notes occurred on 1 January 2006, less pro forma financial income for the twelve-month
period ended 31 December 2006. Interest expense on the notes offered hereby is calculated at the interest
rate of 7.75% and is converted into rand by adjusting the interest expense with the rand forward exchange
rates under the forward exchange contract that the issuer entered into in connection with the offering of the
notes on 18 April 2007. Interest expense on borrowings including the current portion of long-term debt, is
the actual interest expense, for the financial year ended 31 December 2006, relating to debt not being
refinanced as part of the Transactions.
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Pro forma for
the financial
year ended
31 December
2006
(R in millions)
(unaudited)
Cash interest expense on pro forma borrowings ................................................................................
Interest expense on notes offered hereby...........................................................................................
18.5
420.3
Total interest expense.......................................................................................................................
Financial income..............................................................................................................................
438.8
(16.3)
Pro forma net cash interest expense ................................................................................................
422.5
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RISK FACTORS
An investment in the notes involves a high degree of risk. You should carefully consider the following
risks, together with other information provided to you in this offering memorandum, in deciding whether to invest
in the notes. The occurrence of any of the events discussed below may harm us. If these events occur, the trading
price of the notes may decline and we may not be able to pay all or part of the interest or principal on the notes,
and you may lose all or part of your investment. Additional risks not currently known to us or that we now deem
immaterial may also harm us and affect your investment.
This offering memorandum contains "forward-looking" statements that involve risks and uncertainties.
Our actual results may differ significantly from the results discussed in such forward-looking statements. Factors
that might cause such differences include those discussed below. See "Information Regarding Forward-Looking
Statements."
Risks related to our business
We derive a significant portion of our revenue, profit and cash flow from a single property, Emperors Palace,
and a relatively concentrated casino market in Gauteng Province, South Africa. Our revenue, profitability and
cash flow are highly dependent upon the performance of this property and market.
In 2006, Emperors Palace, our only casino resort located in Gauteng Province, generated approximately
71% of our pro forma revenue. In the same year, we derived approximately 93% of our total pro forma revenue
from South Africa. Our revenue, profitability and cash flow are highly dependent upon the performance of this
property and market. Any material adverse change affecting our operations at Emperors Palace, such as a terrorist
attack or other event that damages any of our properties, or affecting the casino or broader gaming market in
Gauteng Province, such as a change in local gaming legislation, general competitive conditions, general economic
conditions, interest rates, the availability of consumer credit, the availability of labour, the occurrence of a natural
disaster, or increased energy and insurance costs, could have a material adverse effect on our total revenue,
profitability and cash flow.
The Gauteng Province casino market is highly competitive. If we are unable to compete successfully in this
market, we may not be able to generate sufficient cash flow to fund our operations or service our debt.
The Gauteng Province casino market is highly competitive. In 2006, Emperors Palace had a 26% market
share in Gauteng Province based on gross gaming revenue. Our principal competitors in this market are:
Montecasino operated by Tsogo Sun Gaming, which we estimate had a 29% market share in 2006, and is located
approximately 42km from Emperors Palace; Carnival City operated by Sun International, which had a 17%
market share in 2006, and is located approximately 21km from Emperors Palace; Gold Reef City, operated by
Gold Reef Casino Resorts, which had a 19% market share in 2006, and is located approximately 35km from
Emperors Palace; Emerald Casino Resort, operated by London Clubs International, which we estimate had a 5%
market share in 2006, and is located approximately 85km from Emperors Palace and Morula Sun, operated by Sun
International, which had an estimated 4% market share in 2006, and is located approximately 80km from
Emperors Palace. Silverstar Casino, a new casino to be operated by Gold Reef Casino Resorts, is anticipated to
open in 2008 and will be located approximately 70km from Emperors Palace. Some of our competitors are
licensed to operate more slot machines and gaming tables than we are, and some may have substantially greater
financial resources, lower costs and/or substantially less financial leverage than we do. They may succeed in
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developing more attractive casinos and hotels than ours, and may also be more successful than we are in
marketing their casinos and hotels.
We also compete, to a limited extent, with alternative forms of gambling such as electronic bingo
terminals, limited payout machines and illegally operated casinos. In some of the provinces in which we operate,
such as Gauteng and Mpumalanga Provinces, the number of licensed electronic bingo terminals and limited
payout machines has increased and we expect this trend to continue. Limited payout machines may be licensed to
be operated in a wider variety of venues than licensed casinos. We believe that illegal casinos remain a source of
competition in certain provinces, such as North West Province.
If we are unsuccessful in competing with our competitors or managing competitive pressures or other
factors that may have a material adverse effect on our market shares, our revenue and profitability and we may not
be able to generate sufficient cash flow to fund our operations or service our debt.
An increase in the number of available casino licences and the resulting increased competition may reduce our
market share and have a material adverse effect on our revenue and profitability.
Current legislation governing the gaming industry in the country limits the number of casino licences that
may be granted to 40 for South Africa as a whole, and in Gauteng Province to seven. All but six of the 40 licences
Gauteng Province. Any future change in legislation that would allow for the allocation of additional licences and
that would allow new competitors to enter the market, particularly in Gauteng Province, could result in a loss of
our market share, which, in turn, could have a material adverse effect on our revenue and profitability.
A downturn in the South African economy or changes to other factors affecting consumer preferences or
spending may have a material adverse effect on our revenue and profitability.
Consumer spending on gaming and entertainment and demand for hotels, resorts and convention facilities,
are particularly sensitive to general macroeconomic conditions and consumer preferences. Any significant
downturn in such conditions or changes to other factors affecting consumer preferences or spending, such as an
economic recession, an increase in unemployment rates, fears of recession, war or acts of terrorism or changes in
consumer confidence in the economy could reduce the number of our guests and the amount they spend at our
properties. We cannot predict, or have control over these factors, any of which may have a material adverse effect
on our revenue, profitability and cash flow.
Our casinos depend primarily on the patronage of residents from within a radius of approximately 75km of our
casinos. Factors affecting access to our casinos may hinder or prevent guests from reaching us.
Casinos in South Africa tend to draw their patrons from their surrounding catchment areas, each of which
has a radius of approximately 75km. Any given casino, therefore, tends to compete only with casinos with
catchment areas that overlap significantly with its 75km catchment area. Because South Africa does not yet have a
highly developed public transport system, most guests drive to casinos; therefore, our operations, particularly at
Emperors Palace, are dependent upon a functioning and efficient road transport infrastructure. Factors affecting
our guests' ability to reach our casinos, such as road congestion, closures, crime and bad weather or natural
disasters, may adversely affect the number of guests coming to our properties. In addition, local negative news
reports (for example, news of a robbery such as the one that occurred in September 2005 at Emperors Palace)
could also impact the number of guests visiting our properties. We cannot predict or have control over these
factors, any of which could have a material adverse effect on our revenue, profitability and cash flow.
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If we are not allowed to increase the number of gaming positions at Emperors Palace, we may not be able to
capitalise on organic growth opportunities.
One of our strategies is to add new casino gaming positions at our existing properties. The number of
gaming positions we are allowed to operate at Emperors Palace is limited by the Gauteng Gambling Board. In
order to increase the number of gaming positions at Emperors Palace, we would have to obtain the approval of the
Gauteng Gambling Board, which may not be forthcoming. If the Gauteng Gambling Board does not allow us to
increase our gaming positions at Emperors Palace, we will be unable to grow our market share in Gauteng
Province, which could have a material adverse effect on our revenue, profitability and cash flow.
We are currently in the development stage of several projects, each of which is subject to a variety of
contingencies and risks that may ultimately prevent us from realising our plans and/or have a material adverse
effect on our profitability and cash flow.
We have several ongoing and planned property development projects including: the expansion of our hotel
facilities at Emperors Palace, the development of a hotel with at least 45 rooms at each of Tusk Umfolozi and
Tusk Rio that we are required to build, in each case, as conditions to the gaming licences to operate each of the
casinos at these properties, an application for a casino licence in Mthatha, in Eastern Cape Province, for which we
have been selected as the preferred bidder by the provincial gaming board; and an application for a casino licence
in Burgersfort, in Limpopo Province, for which a preferred bidder has yet to be selected by the provincial gaming
board. Our selection as preferred bidder for the Mthatha licence is being challenged in the High Court of South
Africa by the unsuccessful bidder. Resolution of this challenge may take a significant amount of time and may not
be in our favour. Development projects are generally subject to various risks that may result in cost overruns or
delays. If our projects are not completed with our currently anticipated budgets or schedules, we may be forced to
increase our capital expenditures, which could have a material adverse effect on our profitability and financial
position.
Although we expect that our cash flow generated from operations, supplemented by our borrowings, will
cover our anticipated capital expansion costs, we may not have sufficient funds available to complete our property
development projects. Our competitors may have greater financial resources than our own, allowing them to
effectively compete with us for casino licences and in opening new casinos, which could have a material adverse
effect on our ability to win new licences and open new casinos. See "Industry—The South African gaming
industry—The competitive environment."
Even if we are successful in completing our development projects they may not be successful. The success
of each of these projects depends on a number of factors, including our ability to identify target guests and place
casinos and hotels in areas convenient to those targeted guests. We may not achieve revenue and profitability
levels at these properties that are in line with our expectations or that are comparable to those of our established
casinos and hotels within estimated time periods, or at all. Any such failure may have a material adverse effect on
our revenue, profitability and cash flow.
Our expansion strategy may have a material adverse effect on our operations, profitability and financial
condition.
We believe that our position as a leading casino resort operator in South Africa provides us with a strong
platform to expand our business through strategic investments. We intend to carefully evaluate, select and pursue
opportunities to make such investments as they arise. Given the cash generating capabilities of casinos, we believe
that we may expand our current facilities with modest equity and relatively high levels of financial leverage.
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Therefore, we may need to contemplate further increases in our leverage in the future in connection with our
expansion strategy. Such high levels of financial leverage may have a material adverse effect on our profitability,
cash flow and financial condition.
We may experience difficulties in the integration of our Tusk properties or of any operations we may acquire.
In August 2006, we acquired the properties and operations of the Tusk Casinos and Resorts Group. As a
result of this acquisition, we added two casino resorts, two stand-alone casinos and a stand-alone hotel to our
property portfolio. The integration of these properties and operations, or of any properties or operations that we
may acquire in the future, into our business involves risks that may make such integration costly and may
adversely affect our business. These risks include, among others:
•
the need to divert more management resources than we planned to integration, which may have an
adverse effect, among other things, on our ability to manage our existing business;
•
the failure to retain key employees of the newly acquired business may result in an inability to replace
them on favourable terms with employees of equal skill;
•
difficulties in coordinating geographically separated organisations, integrating personnel with disparate
business backgrounds and combining different corporate cultures; and
•
acquiring liabilities or adverse operating issues that we failed to discover through our due diligence
review prior to the acquisition that, if in excess of the indemnification obligations of the sellers, could
result in unforeseen costs. For example, we have recently learned that the lease agreements related to
the Tusk Mmbatho and Tusk Taung properties were improperly ceded to the prior owner and the
consent of the relevant government agency will be required for the leases to be properly transferred to
us.
Any of the above factors may affect the integration of our Tusk properties and operations, or of any
properties or operations we may acquire in the future, which could have a material adverse effect on our
operations, profitability and financial condition.
Interruptions in electrical power supply may have a material adverse effect on our operations and profitability.
We rely upon electrical power to operate our casinos and hotels. To attain maximum performance, casinos
and hotels must often operate on a continuous basis. As a result, any shortage or interruption in electrical power
supply may have a material adverse effect on our operations. We procure electrical power from Eskom, South
Africa's state owned electrical power generator. We have from time to time experienced electrical shortages at
each of our properties due to interruptions in the local power supply. In the past, we have been able to bridge
temporary electrical power interruptions by using electrical power generators that are installed at most of our
properties. Any extended period of electrical power supply shortages or interruptions may force us to shut down
one or more of our properties or operate at reduced capacity, which may have a material adverse effect on our
operations and profitability.
Our business may suffer if we fail to attract and retain key executives or other qualified personnel.
The success of our business depends, in part, upon the continued service of our key executive officers and
qualified personnel, and our ability to continue to attract, motivate and retain such individuals. If one or more of
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27
our key senior executive officers were to leave their present positions, we may not be able to replace them on a
timely basis. We are not insured against such an event. We may not be able to attract and retain the key personnel
necessary to achieve our business objectives, and our inability to do so could have a material adverse effect on our
operations, profitability and financial condition. In addition, any retraction or revocation of any work permits
currently awarded by the Botswana authorities and our failure to replace those permits, would result in a shortage
of qualified personnel that could have a material adverse effect on our operations, profitability and financial
condition.
Our existing insurance coverage may be insufficient and future coverage may be difficult or expensive to
obtain.
Although we believe that our insurance policies provide adequate coverage for the risks inherent in our
business, including those from theft or fraud by employees, these insurance policies typically exclude certain risks
and are subject to certain thresholds and limits. We cannot assure you that our properties and equipment will not
suffer damages due to unforeseen events or that the proceeds available from our insurance policies will be
sufficient to protect us from all possible loss or damage resulting from such events. Our insurance policies may
not cover all events that may cause significant disruption to our operations. Such uncovered events may have a
material adverse effect on our revenue, profitability or financial condition.
We may suffer indirect losses, such as disruption of our business or third party claims of damages, as a
result of an insured risk event. While we carry business interruption insurance and general liability insurance, they
are subject to certain limitations, thresholds and limits, and may not fully cover all indirect losses.
We renew our insurance policies on an annual basis. The cost of coverage may increase to an extent that
we may choose to reduce our policy limits or agree to certain exclusions from our coverage. Among other factors,
adverse political developments, security concerns and natural disasters in any country or province in which we
operate may have a material adverse effect on our ability to maintain adequate insurance coverage and may result
in increased premiums for and additional exclusions from our insurance coverage.
Our business is subject to environmental regulations, workers health and safety regulations and money
laundering legislation, exposing us to potential claims and compliance costs that could have a material adverse
effect on our business.
In addition to the national and provincial gaming authorities, our operations are subject to extensive laws
and regulations governing employee health and safety in the work place, minimum wage requirements, overtime
and working conditions, as well as the legislation governing the measures for combating money laundering
activities, smoking in public places and environmental management. Violations of these laws and regulations
could result in significant fines, injunctions, seizures, criminal sanctions and/or corrective actions, as well as other
claims and liabilities. We cannot predict the impact of future regulatory liabilities, investigations or claims arising
under current or future regulations.
Significant labour disputes, work stoppages, increased employee expenses and the cost of compliance with
South African labour laws could disrupt our business, which may have a material adverse effect on our
business.
We are party to collective bargaining agreements with trade unions, which represent approximately 42%
of our non-management employees. We renegotiate and enter into new wage agreements with trade unions
annually or bi-annually. South African trade unions, including those representing our employees, have links to
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28
various political parties and have had an influence in South Africa on social and political reform and collective
bargaining processes. South Africa has various labour laws that enhance the rights of employees. Employees are
consulted on a variety of issues that may affect employee terminations, including workplace restructuring, partial
or total facility closures, mergers and transfer of ownership, among others. A major disagreement or prolonged
compensation negotiations between our management and our employees could result in work stoppages and
picketing at our facilities. Significant labour disputes and work stoppages may disrupt our operations. In addition,
increased wages and cost of compliance with labour laws could have a material adverse effect on our profitability
and financial condition.
In August 2005, we experienced industrial action involving approximately 43% of our non-management
employees at Emperors Palace, which lasted approximately one week. The financial cost to us in relation to this
industrial action amounted to approximately R2 million. The dispute was successfully resolved with a two year
wage agreement. This agreement will be expiring in July 2007. We intend to begin renegotiating this agreement
by May 2007. We cannot assure you that these renegotiations will be successful, that they will not result in
increased employee expenses or in strike action. Although we were not forced to shut down Emperors Palace as a
result of this industrial action, we may be forced to do so as a result of industrial actions in the future.
Legal proceedings or claims to which we are or may become a party may have a material adverse effect on our
operations, profitability and financial condition.
We are party to various claims and legal actions in the ordinary course of our business. While we believe
that such claims and actions, either individually or in the aggregate, will not have a material adverse effect on our
operations, profitability or financial condition, any such claims or actions, either individually or in the aggregate,
could have a material adverse effect on our operations, profitability or financial condition. In addition, we may
become party to claims or legal actions that may in the future have a material adverse effect on our operations,
profitability and financial condition.
The South African Revenue Service ("SARS") recently conducted audits in respect of certain of our
subsidiaries' income tax returns. SARS disputed the tax deductibility of certain expense items at Emperors Palace
relating to pre-opening expenses of approximately R26 million, royalties of approximately R73 million and the
wear and tear write-off periods claimed in respect of certain asset categories, predominantly slot machines.
Although we provided a comprehensive presentation to SARS disputing their position, we may not be successful
in contesting SARS's interpretation of the deductibility of these expenses and write-offs. We have not yet made
any provisions for reserves in connection with this dispute. Our failure to successfully contest SARS's
interpretation, and our failure to set aside sufficient reserves to cover the potential liability, may have a material
adverse effect on our profitability and financial condition.
MIC, our principal shareholder, is able to exercise significant influence on our management and operations.
Following the Transactions, MIC Leisure (Proprietary) Limited ("MIC Leisure") will become our principal
shareholder, effectively directing the voting of approximately 75% of our ordinary shares. Accordingly, our
principal shareholder can directly and indirectly exercise significant influence over our management and affairs,
including blocking significant decisions made by our board of directors, such as the approval of acquisitions and
other business transactions. Our principal shareholder may take actions that conflict with and have an adverse
effect on your interests. For example, the interests of our principal shareholder would conflict with your interests
if we faced financial difficulties and were unable to comply with our obligations to you under the notes. Our
principal shareholder may also cause us to pursue strategic objectives that may adversely affect your interests as a
holder of notes. In addition, our principal shareholder may have an interest in pursuing acquisitions, divestitures,
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29
additional financing or other transactions that, in their judgment, could enhance the value of their equity
investment, although such transactions might involve risks to you as a holder of notes. Members of MIC Leisure
or their affiliates may also, currently or in the future, own businesses that directly compete with ours.
We may not own two casino licences prior to the completion of the Transactions.
To obtain the approval for the transfer of each casino licence from Peermont to us, we have applied to each
gaming board in the provinces in which we operate. We have obtained approvals from the gaming board of each
province in which we operate except from KwaZulu-Natal and Limpopo Provinces relating to the casino licences
for Tusk Venda and Tusk Umfolozi, respectively. We expect that these two gaming boards will meet prior to or
immediately following the completion of the Transactions. We cannot assure you that these meetings will result in
our obtaining gaming board approval for the transfer of these casino licences. Tusk Venda and Tusk Umfolozi
together comprise 3.55% of total assets and 5.85% of total EBITDA.
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Risks related to the gaming industry
The gaming industry is subject to extensive regulation, licensing requirements and severe fines for noncompliance. Our failure to comply with the extensive regulations and requirements that govern our operations
and the ownership of our securities could result in the loss of one or more of our casino licences or severe
fines, which could have a material adverse effect on our operations, profitability and financial condition.
The gaming industry in South Africa is subject to extensive regulation and requirements by each of the
South African provincial licensing authorities. Each South African provincial licensing authority imposes its own
requirements for casinos in their respective provinces, including those relating to black economic empowerment
("BEE"). In addition, the Botswana Casino Control Board regulates the gaming industry in Botswana. These
gaming authorities have broad authority with respect to both licensing and registration of gaming companies,
monitoring operations and individuals investing in or otherwise involved with gaming companies.
Gaming authorities may also revoke the casino licence of any corporate entity or the registration of a
registered corporation or any entity registered as a holding company of a corporate licensee for violations of
gaming regulations. In addition, the South African gaming authorities may, under certain conditions, revoke the
licence or finding of suitability of any officer, director, controlling person, stockholder, noteholder, employer or
key employee of a licensed or registered entity. If our casino licences were revoked for any reason, the relevant
South African gaming authorities would require us to close the relevant casino, which could have a material
adverse effect on our operations, profitability and financial condition.
We are registered with, and we hold casino licences issued by, the relevant South African and Botswana
gaming authorities. These authorities may, among other things, impose severe fines for non-compliance with
legislation, which could be as high as 10% of annual gross gaming revenue on a corporate entity and of up to 10%
of annual salary for individual staff members. In addition to the terms under which we can conduct our operations,
some of our licences also include commitments to the relevant provincial gambling boards to build hotels or
provide certain infrastructure and facilitate provincial BEE ownership. These commitments have expiry dates. If
we do not fulfill our commitments before the expiry dates, it is possible that the respective gambling boards may
impose additional licence conditions, or require additional fees to be paid, prior to amending the licences or to
extending the expiry dates. The imposition of severe fines, additional conditions or additional fees may have a
material adverse effect on our operations, profitability and financial condition. See "Regulation."
Any change in gaming legislation and taxation could negatively affect our profitability and revenue.
The cost of complying with the legislation and licences applicable to our business and to the taxation of
our business is significant. Any changes to these laws, regulations or licences applicable to our business, or to
taxation of our business, could require us to make substantial expenditures or could otherwise have a material
adverse effect on our operations, profitability and financial condition. For example, current anti-smoking
legislation requires casinos to provide non smoking areas for their guests. We believe that a higher propensity to
gamble exists among guests who smoke. Therefore, providing smoking areas on gaming floors is a high priority
for us and for all casino resort operators. Although current proposed changes to legislation do not include a total
ban on smoking, any change in such legislation, or its interpretation that would lead to a total ban smoking on
casino premises, could reduce the number of guests who frequent casinos. In addition, the gaming industry is also
subject to gaming taxation in South Africa and Botswana. Additional taxes on gaming revenue may be created or
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increased or new and more detailed regulations may be enacted. Moreover, the Botswana government has
proposed and is considering new gaming legislation. We expect that the new gaming legislation will be very
similar to that of South Africa and that it will present similar risks and costs. As a result of any such changes in
laws, regulations or tax compliance, profitability and revenue could decrease throughout the industry and could
have a material adverse effect on our operations, profitability and financial condition. See "Regulation."
Theft and fraud in our casinos or hotels may have a material adverse effect on our profitability and financial
condition.
The integrity and security of our gaming operations are critical factors in attracting and retaining gaming
customers. We have invested significant amounts in training, security, preventive measures and equipment. We
maintain 24-hour video surveillance of all our gaming floors, along with uniformed and plain clothes security
personnel. Despite these efforts, theft and fraud occur from time to time and new methods of committing fraud
continue to be developed. Continued or expanded efforts to counteract this trend may not be effective or the cost
of such efforts may increase. The failure to control theft and fraud in a cost-effective manner could have a material
adverse effect on our profitability and financial condition.
Risks related to the Republic of South Africa
An adverse change in economic, political or social conditions in South Africa or regionally may adversely
affect macroeconomic conditions generally and demand for our products and services and cause our revenue,
profitability and cash flow to decline.
Our operations are primarily based in South Africa, where we derived approximately 93% of our pro
forma revenue in 2006. Economic, political or social conditions in South Africa have a significant impact on our
business. South Africa has relatively high levels of unemployment, poverty and crime, and a relatively low level
of education. These problems, in part, have hindered investments in South Africa, prompted the emigration of
skilled workers and negatively affected economic growth. Although it is difficult to predict the effect of these
problems on South African businesses or the South African government's efforts to solve them, these problems, or
the policy prescriptions proposed, may adversely affect economic conditions generally and demand for our
products and services specifically. There has also been economic, political and social instability in the countries
surrounding South Africa, which may negatively affect South African economic, political or social conditions. An
adverse change in the economic, political or social conditions in South Africa as well as regional instability may
have a material adverse effect on our operations, profitability and financial condition.
South Africa is generally considered by international investors to be an emerging market. Emerging
markets are associated with relatively certain characteristic risks, including:
•
adverse changes in economic and governmental policy;
•
relatively low levels and instability of disposable income and consumer spending habits;
•
relatively high levels of crime;
•
unstable institutions;
•
unpredictable changes in the legal and regulatory environment;
•
inconsistent application of existing laws and regulations; and
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•
slow or insufficient legal remedies.
An adverse change in economic, political or social conditions in South Africa or neighbouring countries or
emerging markets generally may adversely affect the value of the rand, economic conditions in South Africa
generally or demand for our products and services specifically, which may have a material adverse effect on our
operations, profitability and financial condition. In addition, any such adverse change may negatively affect
investor sentiment towards South Africa or emerging markets generally, which may have a material adverse effect
on the market value and liquidity of the notes.
South African exchange control restrictions may hinder our ability to make foreign investments and procure
foreign denominated financings.
South Africa's exchange control regulations restrict business transactions between residents of the
Common Monetary Area, which consists of South Africa, the Republic of Namibia and the Kingdoms of Lesotho
and Swaziland, and non-residents of the Common Monetary Area. In particular, South African companies:
•
are generally not permitted to export capital from South Africa, hold foreign currency in excess of
certain limits or incur indebtedness denominated in foreign currencies without the approval of the
South African exchange control authorities;
•
are prohibited from using transfer pricing and excessive interest rates on foreign loans as a means of
expatriating currency; and
•
are generally not permitted to acquire an interest in a foreign venture without the approval of the South
African exchange control authorities and subject to having complied with the investment criteria of the
South African exchange control authorities.
These restrictions, among others, may hinder our ability to make foreign investments and procure foreign
currency denominated financings in the future. While the South African government has relaxed exchange
controls in recent years, it is difficult to predict what action, if any, the government may take in the future with
respect to exchange controls. If the government were to tighten exchange controls, these restrictions may further
hinder our ability to make foreign currency denominated investments and procure foreign currency denominated
financings in the future and may materially adversely affect our operations, profitability and financial condition.
The issuance of the notes and the guarantees and our corresponding ability to make payments under the
notes and guarantees require the approval of the South African exchange control authorities, which we have
obtained. To repurchase or redeem notes prior to their stated maturity, including upon a change of control, or to
transfer any intellectual property outside South Africa, we would need to obtain the approval of the South African
exchange control authorities, which might not be forthcoming.
Fluctuations in the value of the rand may have a significant effect on our ability to service our foreign
currency denominated debt, including the notes.
In 2006, we realised 91% of our revenue, and incurred approximately 89% of our total costs in rand. After
giving effect to this offering, substantially all of our long term debt will be denominated in euro. In recent years,
the value of the rand as measured against the euro has fluctuated considerably. In particular, the rand significantly
appreciated against the euro in 2003, 2004 and 2005 compared to prior years.
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Foreign exchange rate fluctuations in the future, in particular in relation to the rand against the euro, will
continue to have a direct effect on our financial position, liquidity and results of operation. Volatility in the rand
exchange rate may have a material adverse effect on our ability to service our foreign currency denominated debt,
including interest payments in euro on the notes. We cannot assure you that we will be able to manage our foreign
currency risks effectively.
The high rates of HIV infection in South Africa and Botswana may cause us to lose skilled employees, increase
our employee-related costs, adversely affect economic conditions generally or demand for our products and
services specifically.
South Africa and Botswana have some of the highest reported HIV infection rates in the world. The exact
effect of increased mortality rates due to AIDS-related deaths on the cost of doing business in South Africa and
Botswana and the potential growth in the economy is unclear at this time. We may lose employees with valuable
skills due to AIDS-related deaths. In addition, employee-related costs in South Africa and Botswana are expected
to increase as a result of higher HIV infection rates. Finally, increased mortality rates due to AIDS-related deaths
may slow rates of population growth, cause the South African and Botswanan populations to decline or increase
the overall cost of doing business in South Africa significantly, which may affect economic conditions generally
or demand for our products and services specifically. The effects of HIV infection on both our employees and on
the South African and Botswanan markets may have a material adverse effect on our operations, profitability and
financial condition.
Risks related to our operations in the Republic of Botswana
Conducting business in Botswana has certain political and economic risks which may affect our profitability
and financial condition.
We currently operate Grand Palm casino resort and two stand-alone hotels in Botswana. In addition, we
operate the Gaborone International Convention Centre located on the premises of Grand Palm. Accordingly,
significant political, social and economic developments in Botswana and changes in policies of the government or
changes in laws and regulations or the interpretations thereof could have a material adverse effect on our
operations, profitability and financial condition. Our operations in Botswana are also exposed to the risk of
changes in laws and policies that govern operations of businesses located in Botswana and owned by companies
based outside of Botswana. Tax laws and regulations may also be subject to amendment or different interpretation
and implementation, thereby adversely affecting our profitability after tax.
Risks relating to the Transactions
Certain decisions and assumptions we have made with respect to the Transactions and related financings may
be questioned or rejected by South African or other tax authorities, which could have a material adverse effect
on our operations, profitability and financial condition.
We make certain decisions and apply certain assumptions in assessing our tax obligations related to the
Transactions and the financings thereof. We believe that the decisions that we and our advisors have made as to
the appropriate tax treatment for the Transactions, and the assumptions we have applied, are reasonable and
accurate. However, we cannot assure you that these decisions and assumptions will not be challenged by or
rejected by South African or other tax authorities. As it may take three to five years before the current tax year
treatment of the Transactions is reviewed, we remain subject to potential liability if, at such time, our assumptions
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regarding that treatment is determined by the South African taxing authorities to have been incorrect, which may
have a material adverse effect on our operations, profitability and financial condition.
Risks relating to the notes
Our business may be adversely affected as a result of our substantial indebtedness, which requires the use of a
significant portion of our cash flow to service our debt obligations and may limit access to additional capital.
Our ability to generate sufficient cash in the future depends on many factors, some of which are beyond our
control.
As of 31 December 2006, we had outstanding total debt of R1,622.8 million (€175.5 million), and
R5,211.2 million (€542.6 million, which amount is translated using the forward exchange rate of €1.00 = R9.6050
as of 25 April 2007) at such date on a pro forma basis after giving effect to the Transactions and the issuance of
the notes and application of proceeds therefrom, excluding deeply subordinated shareholder loans of
R1,973.3 million (€213.4 million). Our large amount of indebtedness and obligation to make principal and interest
payments under the notes, our other indebtedness and any additional indebtedness could have important
consequences and are likely to:
•
require us to dedicate a significant portion of our cash flow from operations to making payments on
our indebtedness, thereby reducing the availability of our cash flow to fund working capital and capital
expenditures and for other general corporate purposes;
•
increase our vulnerability to general adverse economic and industry conditions;
•
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate;
•
limit our ability to make strategic acquisitions or take other corporate action;
•
place us at a competitive disadvantage compared to competitors that have less indebtedness; and
•
limit our ability to borrow additional funds and increase the cost of any such borrowings, particularly
because of the financial and other restrictive covenants contained in the indenture governing the notes.
Our ability to make payments on and repay or refinance our indebtedness, including the notes, and to fund
working capital requirements, capital expenditures or business opportunities that may arise, such as acquisitions of
other businesses, will depend on our future operating performance and ability to generate cash. This will depend,
to some extent, on general economic, financial, competitive, market and other factors, many of which are beyond
our control. In addition, our ability to continue as a going concern will be dependent on our future operating
performance and ability to generate cash.
Our business may not generate sufficient cash flow from operations or future borrowings may not be
available to us in an amount sufficient to enable us to service and pay our indebtedness, including the notes, when
due or to fund our other capital requirements or any operating losses. If our future cash flow from operations and
other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may
be forced to:
•
reduce or delay our business activities and capital expenditures;
•
sell assets;
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•
obtain additional indebtedness or equity capital;
•
restructure or refinance all or a portion of our indebtedness, including the notes, on or before maturity;
or
•
forego opportunities such as acquisitions of other businesses.
We may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at
all. In addition, the terms of our existing and future indebtedness, including the notes, may limit our ability to
pursue any of these alternatives. We may also incur other indebtedness in the future that may contain financial or
other covenants more restrictive than those contained in the indenture governing the notes.
Despite our current levels of indebtedness, we and our subsidiaries may still be able to incur substantially more
debt.
We may be able to incur substantial additional indebtedness in the future, including in connection with
future acquisitions, some of which may also be secured. The terms of the indenture governing the notes will limit,
but not prohibit, us or our subsidiaries from incurring such indebtedness. Any such incurrence of additional
indebtedness could exacerbate the risks that we now face.
Restrictions in the indenture and other instruments governing our indebtedness may limit our ability to operate
our business.
Restrictions contained in the indenture governing the notes and/or our other indebtedness may limit our
ability to, among other things:
•
incur more debt;
•
create liens;
•
pay dividends and make distributions or repurchase shares;
•
make investments;
•
sell assets;
•
enter into new businesses;
•
enter into sale-leaseback transactions;
•
merge or consolidate or transfer and sell substantially all of our assets; and
•
engage in transactions with affiliates.
These restrictions may adversely affect our ability to finance our future operations or capital needs, or
engage in other business activities that may be in our interest.
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Fraudulent conveyance statutes under South African law may limit your rights as a holder of the notes to
enforce the security provided by us, the guarantors and our subsidiaries.
Our obligations under the notes are guaranteed by the parent guarantor and the guarantors, and this parent
guarantee and these guarantees may be subject to review under the "impeachable transactions" provisions of the
laws of the Republic of South Africa.
In an insolvency proceeding, it is possible that creditors of the parent guarantors or the guarantors may
challenge these guarantees and intercompany obligations as impeachable transactions. If so, such laws may permit
a court, if it makes certain findings, to:
•
avoid or invalidate all or a portion of the parent guarantor's obligation under the parent guarantee, or of
a guarantors' obligations under its guarantee;
•
direct that holders of the notes return any amounts paid under the parent guarantee to the parent
guarantor or under a guarantee to a guarantor or to a fund for the benefit of its creditors; or
•
take other action that is detrimental to you.
If we are unable to satisfy our obligations under the notes, the parent guarantees and the guarantees are
found to represent an impeachable transaction, we may not be able to repay in full any amounts outstanding under
the notes. In addition, the liability of the parent guarantor under its parent guarantee or of a guarantor under its
guarantee of the notes will be limited to the amount that will result in its parent guarantee not constituting an
impeachable transaction and it is uncertain what standard a court will apply in making a determination of the
maximum liability of the guarantors under their guarantees of the notes. For a description of certain impeachable
transactions, see "—The insolvency laws of the Republic of South Africa may not be as favourable to you as the
bankruptcy laws of the jurisdiction with which you are familiar."
The insolvency laws of the Republic of South Africa may not be as favourable to you as the bankruptcy laws of
the jurisdiction with which you are familiar.
In the event of our insolvency, the claims of holders of notes would be subject to the insolvency laws of
South Africa. The following is a brief description of certain aspects of insolvency law in South Africa.
Any creditor, or the debtor itself, may initiate insolvency proceedings in South Africa. Generally, a
company will be considered to be insolvent if it cannot pay its debts as and when they become due.
After the initiation of liquidation proceedings, the debtor must refrain from any actions that are not in the
ordinary course of business and which would reduce its assets. Under the Insolvency Act, 1936 (the "Insolvency
Act"), a court may set aside a disposition of property not made for value by an insolvent company. A court will set
aside such a disposition if:
•
the disposition was made two years before the liquidation of the insolvent company's estate, and it is
proved that, immediately after the disposition was made, the liabilities of the insolvent company
exceeded its assets; or
•
the disposition was made within two years before the liquidation of the insolvent company's estate, and
the person who benefited by the disposition is unable to prove that, immediately after the disposition
was made, the assets of the insolvent company exceeded its liabilities.
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In either case, if it is proved that "at any time after the making of the disposition" the liabilities of the
insolvent company exceeded its assets by an amount less than the "value of the property disposed of," the
disposition may be set aside only to the extent of such excess.
The Insolvency Act provides for the setting aside of a disposition of the debtor's property which is made
not more than six months before the liquidation of the debtor and had the effect of preferring one creditor over
another, if immediately after the making of such disposition the liabilities of the debtor exceeded the value of its
assets. If the person in whose favour the disposition was made proves that the disposition was made in the
ordinary course of business and that it was not intended thereby to prefer one creditor above another, then such
disposition may not be set aside.
The Insolvency Act provides that if a debtor made a disposition of its property at a time when its liabilities
exceeded its assets, with the intention of preferring one of its creditors above another, and it is thereafter
liquidated, the court may set aside the disposition. A surety for the debtor and a person in a position by law
analogous to that of a surety is deemed to be a creditor of the debtor concerned.
A disposition which was completed and set aside by the court, or a disposition which was not completed,
does not give rise to any claim in competition with the creditors of the estate. In the latter case, however, where
the disposition was one of suretyship, guarantee or indemnity, the creditors in whose favour the suretyship,
guarantee or indemnity was executed may compete with the creditors of the estate for an amount not exceeding
the amount of the excess of the insolvent company's assets over its liabilities immediately before making the
disposition.
The Insolvency Act provides for the setting aside of all dispositions in terms of which the insolvent
company, prior to insolvency and in collusion with another person, disposed of property belonging to the
company in a manner which had the effect of prejudicing its creditors or of preferring one creditor over another.
There is legal authority which states that in order for any transaction to be set aside under this provision, the
transaction must have been concluded with a fraudulent intention. This applies equally to actions by creditors
under South African common law.
Under South African common law, a disposition may be set aside where the creditors of the insolvent
estate can prove that:
•
the disposition reduces the assets of the company;
•
the company and the entity in favour of whom the disposition was made had a common intention to
defraud or prejudice the creditors of the insolvent; and
•
the prejudice to the insolvent's creditors was caused by the fraud referred to above.
The Insolvency Act provides that if a company transfers any business belonging to it or the goodwill of
such business or any goods or property forming part thereof (save in the ordinary course of that business or for the
purpose of securing the payment of a debt) and such company has not published a notice of the intended transfer
in the Government Gazette within a period of not less than thirty and not more than sixty days prior to the date of
such transfer, the transfer shall be void as against the creditors of the seller for a period of six months after such
transfer and in addition shall be void against the trustee if the estate of the seller is liquidated within such time
period.
Under South African insolvency law, there are three types of creditors, namely:
•
preferred creditors;
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•
secured creditors; and
•
concurrent creditors.
Preferred creditors are entitled to payment out of the free residue of the estate (that portion which is not
subject to any security interests) and rank in right of payment before concurrent creditors. A secured creditor is
one who holds security for its claim in the form of a special mortgage, landlord's legal hypothec, pledge or right of
retention. A secured creditor is entitled to be paid out of the proceeds of the property subject to the security, after
payment of certain expenses and any secured claim which ranks higher. If the proceeds of the encumbered
property are insufficient to cover the secured creditor's claim, it has a concurrent claim for the balance. Should the
secured creditor choose to rely exclusively on its security, it waives the right to participate in the free residue.
Concurrent creditors do not enjoy any advantage over other creditors of the insolvent company.
Concurrent creditors are paid out of the free residue after any preferred creditors have been paid. Concurrent
creditors all rank equally. Should the free residue be insufficient to meet their claims, each receives an equal
portion of its claim by way of a dividend.
If an insolvency proceeding were to be commenced by or against us or any of our subsidiaries prior to the
security spv having repossessed and disposed of the collateral or otherwise completed the realisation of the
collateral securing the notes, the realisation of the collateral over which the security spv holds security will occur
in terms of the provisions of the Insolvency Act. In terms of the Insolvency Act, a secured creditor such as the
security spv is prohibited from repossessing its security from a debtor after the commencement of the winding up
of the debtor. In terms of the Companies Act, the winding up of a debtor is deemed to commence at the time of the
presentation to the court of the application for the winding up, with the result that the commencement of the
winding up (provided that a winding up order is ultimately granted) is retrospective to the time that the application
was first presented to the court. The liquidator will then realise the property in question and pay the security spv
(as secured creditor) in priority to any other claim from the proceeds of the realisation of the collateral property
constituting the security after deduction from such proceeds of certain costs of realisation, including the
liquidator's remuneration. The liquidator may also, with creditors' authorisation, if the secured creditor has valued
the security when proving its claim, "take over" the property at such value within three months from the date of
his appointment or from the date of the proof of claim, whichever is the later. Accordingly, it is impossible to
predict how long payments under the notes could be delayed following the commencement of insolvency
proceedings and whether or to what extent holders of the notes would be compensated for any delay in payment.
During February 2007, the Companies Bill, 2007 (the "Companies Bill") was published for public
comment although it may be some time before the Companies Bill becomes operative as it currently provides that
it will come into effect no earlier than one year after it is signed by the President.
The Companies Bill seeks to completely overhaul the current laws governing companies in South Africa
(and in particular the Companies Act, 1973). The Companies Bill proposes, among other things, to introduce a
new concept of "business rescue" proceedings which will be triggered when an "insolvency event" occurs and
which, when instituted, may in certain circumstances suspend legal proceedings, including enforcement actions,
and would result in a temporary moratorium on the rights of claimants against the relevant company or in respect
of the property in its possession. The Companies Bill specifically provides that during business rescue
proceedings, a guarantee or surety of a company may not be enforced against any person, except with leave of the
court and in accordance with any terms the court considers suitable.
In addition to the "business rescue" provisions, the explanatory memorandum to the Companies Bill
records that the Department of Justice is currently developing uniform insolvency legislation which, if
implemented, would overlap and may conflict with the insolvency provisions set out in the current Companies
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Act, 1973 dealing with insolvent companies. In order to address this potential conflict, the Department of Trade
and Industry has proposed transitional arrangements which will retain the current regime (as set out in chapter 14
of the Companies Act, 1973) on an interim basis, until such time as any new insolvency legislation is passed.
The collateral will not be granted directly to the holders of the notes.
Due to South African law governing the creation and perfection of security interests, the security interests
in the collateral will not be granted directly to the holders of the notes, but will be granted only in favour of a
special purpose vehicle, the security spv, on an equal and ratable basis for the benefit of both the holders of the
notes and the providers of a hedging agreement in respect of the notes. The security spv will then guarantee the
notes and the providers of such hedging agreement and will be indemnified by us in respect of such guarantee,
which indemnities will be secured by the collateral.
The rights against the collateral will not therefore be granted directly to the holders of the notes or directly
in favour of the trustee. As a consequence, neither the holders of the notes nor the trustee will have direct security
or will be entitled to take enforcement action in respect of the security for the notes, the parent guarantor's
guarantee and any guarantor's guarantee of the notes, except through the security spv.
The value of the collateral may not be sufficient to satisfy our obligations under the notes.
The amount of proceeds that ultimately would be distributed in respect of the notes upon any enforcement
action or otherwise may not be sufficient to satisfy our obligations under the notes. The value of the collateral and
any amount to be received upon enforcement against the collateral will depend upon many factors including,
among others, whether or not our business is sold as a going concern, the jurisdiction in which the enforcement
action or sale is completed, the ability to sell the collateral in an orderly sale, the availability of buyers, the
condition of the collateral, and exchange rates. An appraisal of the collateral has not been prepared in connection
with the offering and sale of the notes. There may not be any buyer willing and able to purchase our business as a
going concern, or willing to buy a significant portion of our assets in the event of an enforcement action. In
addition, any transfer or sale of any of our licences requires the approval of the relevant gaming and competition
authorities. Each of these factors may reduce the likelihood of an enforcement action as well as reduce the amount
of any proceeds in the event of an enforcement action. The obligations of the issuer under the notes will be
secured by the security spv's guarantee (the "spv notes guarantee"). The spv notes guarantee will rank (i) equally
and rateably with the security spv's obligations under a second ranking limited recourse guarantee under South
African law (the "spv hedging guarantee") of the issuer's obligations under a hedging agreement that will be
entered into in respect of the notes, and (ii) junior to the security spv's obligations under a first ranking limited
recourse guarantee (the "spv revolver guarantee") under South African law of the issuer's obligations under a
R400 million (€43 million) new revolving credit facility. The security spv's obligations under the spv notes
guarantee, the spv hedging guarantee and the spv revolver guarantee will be supported by security interests over
all of the parent guarantor's interest in the capital stock of the issuer and substantially all of the assets of the issuer
and certain of its South African subsidiaries, other than certain non-material assets (the "collateral").
The value of the collateral may decrease because of obsolescence, impairment or certain casualty events.
The value of the collateral may be adversely affected by obsolescence, changes in technology in our
industry or business, changes in equipment or certain casualty events. The security documents do not require us to
improve the collateral. In addition, our existing collateral may become obsolete or be replaced by new assets that
may not be part of the collateral. Although we will be obligated under the security documents to maintain
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insurance with respect to the collateral, the proceeds of such insurance may not be sufficient to repurchase
adequate replacement collateral or may be used for other business purposes. Our insurance policies also may not
cover all events that may result in damage to the collateral.
Enforcing your rights as a holder of notes or under the parent guarantee or the guarantees across multiple
jurisdictions may be difficult.
The notes will be issued by the issuer, which is organised under the laws of South Africa, and guaranteed
by the parent guarantor and the guarantors, which are also organised under the laws of South Africa. In the event
of bankruptcy, insolvency or a similar event, proceedings could be initiated in South Africa or in the jurisdiction
of incorporation or organisation (if other than South Africa) of a future guarantor of the notes. Your rights under
the notes, the parent guarantee and the guarantee may thus be subject to the laws of multiple jurisdictions, and you
may not be able to effectively enforce your rights in multiple bankruptcy, insolvency or other similar proceedings.
Moreover, such multi-jurisdictional proceedings are typically complex and costly for creditors and often result in
substantial uncertainty and delay in the enforcement of your rights.
The bankruptcy, insolvency, administrative and other laws of such jurisdictions of organisation may be
materially different from, or conflict with, one another and those in the United States or other jurisdictions of
which you may be familiar in certain areas, including creditors' rights, priority of creditors, the ability to obtain
post-petition interest and the duration of the insolvency proceeding. The application of these various laws in
multiple jurisdictions may trigger disputes over which jurisdiction's law should apply and may adversely affect
your ability to enforce your rights and to collect payment in full under the notes and the guarantees.
In addition, all of the issuer's directors and executive officers reside in South Africa. Substantially all of
the assets of these persons and substantially all of the issuer's assets are located in South Africa. As a result, it may
not be possible for investors to effect service of process within the United States upon the issuer's directors and
officers, or to enforce against any of them judgments obtained in U.S. courts predicated upon civil liability
provisions of the federal securities laws of the United States. In addition, there is doubt as to the enforceability in
South Africa, in original actions or actions for the enforcement of judgments of U.S. courts, of civil liabilities
predicated solely upon the federal securities laws of the United States.
We may not be able to obtain enough funds to repurchase your notes if a change of control takes place.
A "change of control" is an event defined in the indenture governing the notes and includes certain
changes in ownership of or voting rights with respect to the issuer. If a change of control occurs, holders of the
notes may require us to purchase any or all of the notes at 101% of their principal amount together with accrued
and unpaid interest. We may not have enough money, however, to purchase the notes upon a change of control
and also may not be able to raise the money to do so. To repurchase the notes upon a change of control, we would
need to obtain the approval of the South African exchange control authorities, which may not be forthcoming. A
change of control may also require the approval of the South African or Botswana competition and gaming
authorities. Restrictions on a change of control contained in the indenture may make it more difficult for others to
obtain control of the issuer. The change of control provisions may not protect you in a transaction in which we
incur a large amount of debt, including a reorganisation, restructuring, merger or other similar transaction, because
that kind of transaction may not involve any shift in voting power or beneficial ownership, or may not involve a
shift large enough to trigger a change of control.
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An active liquid trading market for the notes may not develop.
The notes are a new class of securities which have never been traded. Application has been made for the
notes to be listed on the Official List of the Irish Stock Exchange and to be admitted for trading on its Alternative
Securities Market. In addition, because we were recently formed for the purpose of acquiring all of the assets of
Peermont, a request for omission of information has been made to the Irish Stock Exchange for an exemption
from presenting our financial statements and to present the consolidated financial statements of Peermont, our
predecessor. However, we cannot assure you that the notes will be listed on any exchange at the time the notes are
delivered to the initial purchaser or at any other time. The initial purchaser has informed us that it intends to make
a market in the notes. However, it is not obligated to do so, and may discontinue such market making at any time
without notice. An active trading market for the notes may not develop, or if one does develop, it may not be
sustained.
Historically, the market for non-investment grade debt has been highly volatile in terms of price. It is
possible that the market for the notes will also be volatile. This volatility in price or other factors may affect your
ability to resell your notes or the timing of their sale.
Transfers of the notes will be subject to certain restrictions.
We have not registered the notes under the U.S. Securities Act or any state securities laws. Therefore, you
may not offer or sell the notes, except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the U.S. Securities Act and applicable state securities laws. You should read the
discussion under the heading "Notice to Investors" for further information about the transfer restrictions that apply
to the notes. It is your obligation to ensure that your offers and sales of notes within the United States and other
countries comply with all applicable securities laws. We have not agreed to and do not intend to register the notes
under the U.S. Securities Act.
The notes will initially be held in book-entry form and therefore you must rely on the procedures of the relevant
clearing systems to exercise any rights and remedies.
Unless and until definitive registered notes are issued in exchange for book-entry interests in the notes,
owners of the book-entry interests will not be considered owners or holders of the notes. Instead, the registered
holder, or their respective nominee, will be the sole holder of the notes. Payments of principal, interest and other
amounts owing on or in respect of the notes in global form will be made to The Bank of New York (as paying
agent for the notes), which will make payments to the common depositary, which will in turn distribute payments
to Euroclear and Clearstream Banking. Thereafter, payments will be made by Euroclear and Clearstream Banking
to participants in these systems and then by such participants to indirect participants. After payment to the
common depositary neither we, the trustee nor the paying agent will have any responsibility or liability for any
aspect of the records relating to, or payments of, interest, principal or other amounts to Euroclear and/or
Clearstream Banking or to owners of book-entry interests.
Unlike holders of the notes themselves, owners of book-entry interests will not have the direct right to act
upon our solicitations or consents or requests for waivers or other actions from holders of the notes that we may
choose to make in the future. Rather, owners of book-entry interests will be permitted to act only to the extent that
they have received appropriate proxies to do so from Euroclear and/or Clearstream Banking or, if applicable, from
a participant. Procedures implemented for the granting of such proxies may not be sufficient to enable you to vote
on any such solicitations or requests for actions on a timely basis.
Doc #:NY7:390196.4
42
THE TRANSACTIONS
The proceeds from the issuance of the notes will be used to finance certain aspects of the Transactions
described below. See also "Use of Proceeds."
In November 2006, the issuer made an offer to acquire the ordinary share capital of Peermont Global
Limited ("Peermont"). The issuer is a direct wholly owned subsidiary of Peermont Global Holdings II
(Proprietary) Limited ("Holdco 2") and an indirect wholly owned subsidiary of Peermont Global Holdings I
(Proprietary) Limited ("Holdco 1"), which owns all of the issued shares of Holdco 2. See "Summary—Corporate
Structure" and "Our Principal Shareholders."
The offer will be effected through a scheme of arrangement between Peermont and its shareholders
pursuant to section 311 of the South African Companies Act (the "scheme"). On 12 March 2007, the requisite
majority of shareholders of Peermont voted to approve the scheme. On 20 March 2007, the High Court of South
Africa sanctioned the scheme. The scheme is expected to become operative on or about 24 April 2007.
Upon the scheme becoming operative, Peermont shareholders will be entitled to receive cash consideration
of R12.90 per ordinary share of Peermont, representing aggregate consideration of R4,257 million (€460 million),
plus additional consideration determined with reference to interest from 20 March 2007 until the operative date of
the scheme. On the assumption that the scheme becomes operative on 24 April 2007, the aggregate scheme
consideration will be R4,316 million (€467 million). Upon the scheme becoming operative, Peermont will become
a wholly owned subsidiary of the issuer.
In connection with the scheme, certain minority shareholders of the joint venture entity that currently owns
Emperors Palace will effectively exchange their joint venture interests for cash, ordinary shares and preference
shares of Holdco 1 and Maxshell 114 Investments (Proprietary) Limited ("BEE Holdco") (the "Emperors Palace
Reorganisation"). See "Related Party Transactions—Share for share transaction agreement—Marang share
transaction agreement." As a result of the Emperors Palace Reorganisation, the joint venture entity will become a
wholly owned subsidiary of Peermont, which will be accounted for on a fully consolidated basis.
Following the scheme becoming operative, the issuer and certain of its newly formed subsidiaries will
acquire Peermont's business, including the operations, assets and liabilities of Peermont and substantially all its
subsidiaries (the "Corporate Reorganisation" and, together with the Emperors Palace Reorganisation, the
"Reorganisations"). In addition, the issuer will acquire for cash from certain minority shareholders of Peermont
Global Tusk Holdings (Proprietary) Limited ("Tusk Holdings") their equity interests in Tusk Holdings (the "Tusk
minorities buy-out"). See "Related Party Transactions—Share for share transaction agreement—Tusk minorities
buy-out agreements." As a result of the Tusk minorities buy-out, Tusk Holdings will become a wholly owned
subsidiary of the issuer. In addition, pursuant to the Corporate Reorganisation, the current and future minority
shareholders, which are staff incentive trusts (the "staff trusts"), of certain subsidiaries of Tusk Holdings will
become staff trusts of certain of the newly formed subsidiaries of the issuer. In this offering memorandum, we
refer to the scheme, the Reorganisations and the Tusk minorities buy-out collectively, as the "Transactions."
In connection with the Transactions, Peermont's former share incentive schemes will be cash settled by the
issuer with an aggregate cash payment of approximately R43 million (€5 million) to beneficiaries of those share
incentive schemes.
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43
The scheme, the Emperors Palace Reorganisation and the Tusk minorities buy-out will be financed with
drawings of approximately R4,993 million (€540 million) under a temporary bridge facility, which is expected to
be drawn immediately prior to the operative date of the scheme and repaid immediately thereafter.
The Corporate Reorganisation will be financed with:
•
R381.2 million (€41.2 million) of proceeds from the issuance by Holdco 1 of class A ordinary shares,
class B ordinary shares and preference shares, which Holdco 1 will apply to subscribe for ordinary
shares of Holdco 2. Holdco 2 will, in turn, apply such funds to subscribe for ordinary shares of the
issuer;
•
R1,086.3 million (€117.5 million) drawn by Holdco 1 under the terms of the PIK preferred equity loan
agreement, which Holdco 1 will on-lend to Holdco 2 under the terms of a deeply subordinated
shareholder loan. Holdco 2 will, in turn, on-lend such funds to the issuer under the terms of a deeply
subordinated shareholder loan;
•
R887.0 million (€95.9 million) of proceeds from the issuance by Holdco 2 of PIK notes, which
Holdco 2 will on-lend together with proceeds of R1,086.3 million (€117.5 million) of the PIK
preferred equity loan to the issuer under the terms of a deeply subordinated shareholder loan; and
•
€520 million (R4,994.6 million) of proceeds from the issuance of the notes offered hereby, a portion of
which the issuer will on-lend to certain of its subsidiaries to finance a portion of the Corporate
Reorganisation.
Following the Reorganisations, Peermont and certain of its subsidiaries will distribute to the issuer and to
staff trusts, by way of a dividend, the cash consideration received from the issuer and its subsidiaries pursuant to
the Corporate Reorganisation, net of amounts applied towards repayment of amounts outstanding under existing
debt of Peermont and its subsidiaries and related fees and expenses. The amount to be distributed to staff trusts
will be approximately R55 million (€5.9 million). These staff trusts will have an obligation to reinvest a portion of
these funds into certain of the newly formed subsidiaries of the issuer. The issuer will use the proceeds of such
dividend to repay all amounts outstanding under the temporary bridge facility.
The gross proceeds from the offering of the notes (the "escrow funds") will be deposited into an escrow
account pending the completion of the Corporate Reorganisation under the terms of an escrow agreement. If the
Corporate Reorganisation is not completed by the fifth business day following the closing of the offering of the
notes, the escrow funds will be used to fund a special mandatory redemption of all of the notes at a redemption
price equal to 100% of the aggregate principal amount of the notes. See "Description of the Notes—Disbursement
of Funds; Escrow Account" and "Description of the Notes—Special Mandatory Redemptions."
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44
USE OF PROCEEDS
We estimate the net proceeds to the issuer from the sale of the notes offered hereby will be approximately
€505.7 million after deducting the initial purchaser's discounts and other fees and expenses associated with the
offering of the notes and the Transactions. We intend to use these net proceeds to effect the Corporate
Reorganisation. The following table sets forth our expected sources and uses of funds in connection with the
Corporate Reorganisation:
Sources of funds
(in millions)
(R)
Notes offered hereby..............................4,994.6
Shareholders' funds:
Ordinary shares ................................... 381.2
1,973.3
(2)
loan ................................................
Total shareholders' funds........................2,354.5
Total sources .........................................7,349.1
(€(1))
Uses of funds
(in millions)
(R)
520. Corporate Reorganisation(3) ....................6,777.7
0
Fees and expenses(4) ............................... 571.4
39.7
205.
4
245.
1
765. Total sources..........................................7,349.1
1
(€])
705.
6
59.5
765.
1
___________
(1)
For your convenience, we have translated the rand amounts presented in the above table into euro using the forward exchange rate of €1.00 =
R9.6050 as of 25 April 2007. You should not view such translations as a representation that such rand amount actually represents such euro
amount, or could be or could have been converted into euro at the rate indicated or at any other rate. See "Presentation of Financial
Information" and "Exchange Rates."
(2)
In connection with the Corporate Reorganisation, the issuer will receive R1,973.3 million (€205.4 million) from Holdco 2 in the form of a
deeply subordinated shareholder loan. The deeply subordinated shareholder loan will be comprised of two tranches (i) the R1,086.3 million
(€113.1 million) PIK preferred equity loan tranche representing (a) gross proceeds that will be received by Holdco 1 under the PIK preferred
equity loan agreement and (b) proceeds from the issuance of class B ordinary shares of Holdco 1 to the investors under the PIK preferred
equity loan agreement, such amounts in (a) and (b) having been received by Holdco 2 in the form of a deeply subordinated shareholder loan
from Holdco 1, and (ii) the R887.0 million (€92.3 million) PIK notes tranche representing gross proceeds from the issuance by Holdco 2 of the
PIK notes. The terms of the PIK preferred equity loan tranche will be (except as to its tenor) substantially the same as the terms of the PIK
preferred equity loan agreement. We will use amounts advanced under the deeply subordinated shareholder loan to pay for the Corporate
Reorganisation. The terms of the PIK notes tranche will be (except as to its tenor) substantially the same as the terms of the PIK notes. For a
description of the terms of the deeply subordinated shareholder loan, see "Description of Certain Other Indebtedness—Deeply subordinated
shareholder loan."
(3)
Includes R1,427.9 million (€148.7 million) reflecting the estimated pro forma debt as of the expected date of completion of the Corporate
Reorganisation that will be repaid by Peermont and its subsidiaries from the proceeds received pursuant to the Corporate Reorganisation. As of
31 December 2006 this pro forma debt amount would have been R1,671.7 million (€174.0 million). The difference reflects repayment of debt
during the period between 1 January 2007 and the expected date of completion of the Corporate Reorganisation from cash generated from
operations during this period. Includes approximately R55 million (€5.7 million) to be paid to staff trusts and R15.6 million (€1.6 million) cash
remaining after giving effect to the issuance of the notes and the application of the proceeds thereof. See "The Transactions."
Doc #:NY7:390196.4
45
(4)
Includes, among other things, break fees related to the repayment of debt outstanding by Peermont and its subsidiaries from the proceeds
received pursuant to the Corporate Reorganisation.
You should read "The Transactions," "Pro Forma Capitalisation," "Description of Certain Other
Indebtedness" and "Description of Notes" for a more detailed description of our expected use of proceeds,
capitalisation and financing arrangements.
Doc #:NY7:390196.4
46
PRO FORMA CAPITALISATION
The following table sets forth on a pro forma basis the cash position and capitalisation as of 31 December
2006 of:
•
Peermont, derived from Peermont's pro forma balance sheet as of 31 December 2006 giving effect to
the Transactions;
•
the issuer, as adjusted to give effect to the Transactions and the financing thereof, including the
issuance of the notes and the application of the proceeds therefrom.
This table should be read in conjunction with the financial statements and information included elsewhere
in this offering memorandum. See also "The Transactions," "Use of Proceeds," "Unaudited Pro Forma
Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and capital resources."
Peermont
(1)
pro forma
capitalisation
Financing
adjustments
(2)
Issuer as
adjusted
175.0
(65.9) (4)
(3)
(€ in
millions)
(R in millions)
(unaudited)
Cash and cash equivalents................................................................
Total debt:
Working capital facility(5)................................................................
Current portion of long-term borrowings ..........................................
Interest-bearing long-term borrowings..............................................
Preference share liabilities(8).............................................................
Issuer as
adjusted
109.1
11.4
81.5 (81.5) (6)
—
(6)
160.9 (145.3)
15.6
566.8 (365.8) (6) 201.0(7)
1,079.1 (1,079.1)
—
—
1.6
20.9
—
(6)
Notes offered hereby........................................................................
—
4,994.6 4,994.6
520.0
Total debt......................................................................................
Shareholders' funds:
Equity holders of Peermont..............................................................
1,888.3
3,322.9 5,211.2
542.6
1,569.1
(1,187.9)
381.2
39.7
Minority interests.............................................................................
41.4
—
41.4
4.3
Total shareholders' equity ..............................................................
Deeply subordinated shareholder loan(10) ..........................................
1,610.5
—
(1,187.9) 422.6
1,973.3 1,973.3
44.0
205.4
Total shareholders' equity and loan.....................................................
1,610.5
785.4 2,395.9
249.4
Total capitalisation...........................................................................
3,498.8
4,108.3 7,607.1
792.0
Doc #:NY7:390196.4
47
(9)
___________
(1)
The information presented in this column has been derived from the unaudited pro forma consolidated balance sheet of Peermont as of
31 December 2006. For a discussion of the basis of presentation and adjustments made, see "Unaudited Pro Forma Consolidated Financial
Information."
(2)
Represents adjustments made to reflect the financing of the Corporate Reorganisation, including the notes offered hereby. See "The
Transactions."
(3)
We have translated amounts presented in this table using the forward exchange rate of €1.00 = R9.6050 as of 25 April 2007. You should not
view such translations as a representation that such rand amounts actually represent such euro amounts, or could be or could have been
converted into euro at the rate indicated or at any other rate. See "Presentation of Financial Information" and "Exchange Rates."
(4)
For purposes of this table, we reflect an adjustment to cash of R81.5 million to offset balances under our current working capital facility as of
31 December 2006 net of R15.6 million (€1.6 million) cash remaining after giving effect to the issuance of the notes and the application of the
proceeds thereof. Cash and cash equivalents does not reflect cash generated from our operations since 1 January 2007.
(5)
Balances outstanding as of the expected date of completion of the Corporate Reorganisation under our current working capital facility will be
fully repaid by Peermont and its subsidiaries from proceeds received pursuant to the Corporate Reorganisation. On or about the date of the
issuance of the notes, we will enter into a R400 million (€41.6 million) new revolving credit facility. At the closing of the offering and the
completion of the Transactions, we do not expect to have any borrowings under our new revolving credit facility.
(6)
Reflects a portion of debt to be repaid by Peermont and is subsidiaries from the proceeds received pursuant to the Corporate Reorganisation.
We estimate that the pro forma debt to be so repaid will amount to R1,427.9 million (€148.7 million) as of the expected date of completion of
the Corporate Reorganisation. As of 31 December 2006 this pro forma debt amount would have been R1,671.7 million (€174.0 million). The
difference reflects repayment of debt during the period between 1 January 2007 and the expected date of completion of the Corporate
Reorganisation from cash generated from operations during this period.
(7)
R201.0 million reflects the principal amount of long-term borrowings that will remain outstanding following the offering of the notes and the
application of the proceeds therefrom. See "Description of Certain Other Indebtedness."
(8)
Preference share liabilities relate to class A cumulative non-convertible redeemable preference shares and cumulative variable rate redeemable
preference shares. See Note 20 to the audited consolidated financial statements included elsewhere in this offering memorandum.
(9)
Reflects allocation of the purchase price received in the Corporate Restructuring.
(10)
In connection with the Corporate Reorganisation, the issuer will receive R1,973.3 million (€205.4 million) from Holdco 2 in the form of a
deeply subordinated shareholder loan. The deeply subordinated shareholder loan will be comprised of two tranches (i) the R1,086.3 million
(€113.1 million) PIK preferred equity loan tranche representing (a) gross proceeds that will be received by Holdco 1 under the PIK equity loan
agreement and (b) proceeds from the issuance of class B ordinary shares of Holdco 1 to the investors under the PIK preferred equity loan
agreement, such amounts in (a) and (b) having been received by Holdco 2 in the form of a deeply subordinated shareholder loan from
Holdco 1, and (ii) the R887.0 million (€92.3 million) PIK notes tranche representing gross proceeds from the issuance by Holdco 2 of the PIK
notes. The terms of the PIK preferred equity loan tranche will be (except as to its tenor) substantially the same as the terms of the PIK preferred
equity loan agreement. The terms of the PIK notes tranche will be (except as to its tenor) substantially the same as the terms of the PIK notes.
For a description of the terms of the deeply subordinated shareholder loan, see "Description of Certain Other Indebtedness—Deeply
subordinated shareholder loan."
Doc #:NY7:390196.4
48
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma financial information presented below has been prepared to show the effect of the
Tusk Acquisition and the Transactions. For a discussion of these transactions, see "The Transactions" and
"Management's Discussion and Analysis of Financial Condition and Results of Operations—Primary Factors
Affecting Results."
The pro forma adjustments are based on preliminary estimates, currently available information and certain
assumptions that we believe are reasonable, and may be revised as additional information becomes available. The
pro forma adjustments and certain assumptions are described in the accompanying notes.
Our pro forma financial information is presented for illustrative purposes only and does not purport to
represent what our results of operation and financial position would have been had the events listed above
occurred on 1 January 2006 or 31 December 2006, respectively, or to project the future results of operations of the
issuer for any future period or its financial condition at any future date.
The unaudited pro forma financial information set forth below should be read in conjunction with the
financial information included elsewhere in this offering memorandum and the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The unaudited pro forma balance sheet as of 31 December 2006 gives effect to the Transactions as if they
had occurred on that day. It is based on the audited balance sheet of Peermont as of 31 December 2006 adjusted to
reflect (i) the inclusion of an additional 17.04% of the assets, liabilities and shareholders' equity of PGER
Holdings (Proprietary) Limited ("PGERH"), the joint venture that currently owns Emperors Palace, in order to
reflect the completion of the Emperors Palace Reorganisation as a result of which PGERH will become our
wholly owned subsidiary, and (ii) the elimination of the 21% minority interest in Tusk Holdings, our 79% owned
subsidiary that acquired the Tusk Group on 1 September 2006, in order to reflect the Tusk minorities buy-out as a
result of which Tusk Holdings will become our wholly owned subsidiary. See "The Transactions."
The unaudited pro forma income statement for the financial year ended 31 December 2006 gives effect to
the Tusk Acquisition and the Transactions as if they had occurred on 1 January 2006. It is based on the audited
income statement of Peermont for the financial year ended 31 December 2006, adjusted to reflect (i) the inclusion
of an additional 17.04% of the results of PGERH for the full financial year in order to reflect the completion of the
Emperors Palace Reorganisation following which PGERH will become our wholly owned subsidiary, (ii) the
inclusion of 100% of the unaudited combined results of the Tusk Group for the additional eight-month period
from 1 January 2006 to 31 August 2006 in order to reflect the results of the Tusk Group for the full financial year,
(iii) the financing of the Tusk Acquisition and (iv) the elimination of the 21% minority interest in Tusk Holdings,
in order to reflect the Tusk minorities buy-out as a result of which Tusk Holdings will become our wholly owned
subsidiary.
Doc #:NY7:390196.4
49
PEERMONT GLOBAL LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF 31 DECEMBER 2006
Pro forma as of 31 December 2006
Peermont
Adjustments(2) Pro forma(3)
(1)
historical
(R in millions)
Assets
Property, plant and equipment ..........................................
Intangible assets...............................................................
Amount due by joint venture ............................................
Derivative instruments .....................................................
Deferred taxation asset .....................................................
2,199.3
1,153.4
3.9
4.1
8.8
306.9
112.5
—
0.3
—
2,506.2
1,265.9
3.9
4.4
8.8
Total non-current assets .................................................
Inventories.......................................................................
Accounts receivable .........................................................
Amounts due by joint ventures .........................................
Current portion of derivative instruments..........................
Taxation ..........................................................................
Cash and cash equivalents ................................................
3,369.5
29.5
51.5
1.8
7.0
4.4
170.0
419.7
3.9
30.5
(0.1)
1.4
—
5.0
3,789.2
33.4
82.0
1.7
8.4
4.4
175.0
Total current assets ........................................................
264.2
40.7
304.9
Total assets..................................................................
3,633.7
460.4
4,094.1
Equity and liabilities
Equity holders of Peermont ............................................
Minority interests...........................................................
1,322.6
164.2
246.5
(122.8)
1,569.1
41.4
Total equity.................................................................
Interest-bearing long-term borrowings ..............................
Preference share liability ..................................................
Derivative instruments .....................................................
Deferred taxation liabilities ..............................................
1,486.8
449.1
959.1
—
220.6
123.7
117.7
120.0
—
33.3
1,610.5
566.8
1,079.1
—
253.9
Total non-current liabilities ............................................
Accounts and other payables ............................................
Provisions........................................................................
Amounts due to related parties..........................................
Current portion of long-term borrowings...........................
Current portion of derivative instruments..........................
Taxation liabilities............................................................
Bank overdraft .................................................................
1,628.8
178.9
68.5
4.1
147.0
2.6
49.4
67.6
271.0
27.9
1.9
1.7
13.9
0.6
5.8
13.9
1,899.8
206.8
70.4
5.8
160.9
3.2
55.2
81.5
Doc #:NY7:390196.4
50
Total current liabilities ...................................................
518.1
65.7
583.8
Total equity and liabilities............................................
3,633.7
460.4
4,094.1
Doc #:NY7:390196.4
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NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF 31 DECEMBER 2006
(1)
Peermont historical audited balance sheet information
The information presented in this column was derived from the audited consolidated balance sheet of
Peermont as of 31 December 2006, included elsewhere in this offering memorandum.
(2)
Adjustments
The information presented in this column represents adjustments necessary to reflect (i) the inclusion of an
additional 17.04% of the assets, liabilities and shareholders' equity of PGERH, the joint venture that currently
owns Emperors Palace, in order to reflect the completion of the Emperors Palace Reorganisation as a result of
which PGERH will become our wholly owned subsidiary, and (ii) the elimination of the 21% minority interest of
Tusk Holdings, our 79% owned subsidiary that acquired the Tusk Group on 1 September 2006, in order to reflect
the Tusk minorities buy-out as a result of which Tusk Holdings will become our wholly owned subsidiary.
(3)
Pro forma as of 31 December 2006
The information presented in this column reflects PGERH and Tusk Holdings at 100%.
Doc #:NY7:390196.4
52
PEERMONT GLOBAL LIMITED
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
Pro forma for the financial year ended 31 December 2006
Peermont
Adjustments(2)
Pro forma(3)
(1)
historical
(R in millions)
Revenue
Gaming .........................................................................
Rooms...........................................................................
Food and beverage.........................................................
Other revenue................................................................
1,302.3
125.0
138.8
66.7
397.1
22.6
14.6
(2.6)
1,699.4
147.6
153.4
64.1
Total revenue ..............................................................
Other income ...................................................................
Operating costs
Employee costs..............................................................
VAT and gaming levies on gross gaming revenue ..........
Promotions and marketing costs.....................................
Depreciation and amortisation........................................
Property and equipment rentals ......................................
Other operational costs ..................................................
1,632.8
2.1
431.7
(0.8)
2,064.5
1.3
(328.4)
(255.6)
(101.9)
(78.2)
(23.7)
(293.2)
(78.1)
(99.6)
(21.5)
(26.7)
(5.7)
(43.1)
(406.5)
(355.2)
(123.4)
(104.9)
(29.4)
(336.3)
Total operating costs ...................................................
(1,081.0)
(274.7)
(1,355.7)
Operating profit ...............................................................
Financial (expense)/income
Financial income ...........................................................
Financial expenses.........................................................
553.9
156.2
710.1
8.6
(130.2)
7.7
(56.2)
16.3
(186.4)
Net financial (expenses)/income ..................................
(121.6)
(48.5)
(170.1)
Profit before taxation........................................................
Taxation ..........................................................................
432.3
(143.3)
107.7
(40.1)
540.0
(183.4)
Profit for the year.............................................................
289.0
67.6
356.6
Attributable to:
Equity holders of Peermont............................................
Minority shareholders....................................................
275.4
13.6
71.1
(3.5)
346.5
10.1
289.0
67.6
356.6
Doc #:NY7:390196.4
53
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006
(1)
Peermont historical audited income statement information
The information presented in this column was derived from the audited consolidated income statement of
Peermont for the financial year ended 31 December 2006, included elsewhere in this offering memorandum.
(2)
Adjustments
The information presented in this column represents the combination of adjustments necessary to reflect:
(3)
(i)
the inclusion of an additional 17.04% of the results of PGERH for the full financial year,
(ii)
the inclusion of the results of the Tusk Group for the additional eight-month period from 1 January
2006 to 31 August 2006,
(iii)
the financing of the Tusk Acquisition, and
(iv)
the elimination of a minority interest of 21% in PGTH from 1 September 2006 to 31 December
2006.
Pro forma for the financial year ended 31 December 2006
The information presented in this column reflects the results of operations of:
(i)
PGERH at 100% for the full financial year, and
(ii)
Tusk Holdings at 100% for the full financial year.
Doc #:NY7:390196.4
54
SELECTED HISTORICAL FINANCIAL INFORMATION
assets and liabilities of Peermont and substantially all its subsidiaries. See "The Transactions." It did not have any
assets or operations prior to the Transactions. Following the completion of the Transactions the issuer will own all
of the currently existing assets of Peermont. In this offering memorandum, we present historical financial
information for Peermont prepared in accordance with IFRS.
We present below selected historical consolidated financial information for Peermont as of 31 December
2004, 2005 and 2006 and for the years then ended, which has been derived from Peermont's audited consolidated
financial statements prepared for those periods and included elsewhere in this offering memorandum. These
consolidated financial statements have been audited by KPMG Inc., Registered Accountants and Auditors,
Chartered Accountants (South Africa), our independent auditors.
You should read the selected historical financial information presented below in conjunction with the
information contained in "Presentation of Financial Information," "Risk Factors," "Pro Forma Capitalisation" and
"Management Discussion and Analysis of Financial Condition and Results of Operations," as well as the financial
statements, including the related notes, appearing elsewhere in this offering memorandum.
Doc #:NY7:390196.4
55
2004
2005
2006
2006
(R in millions)
(€ in
millions)
(1)
Revenue
Gaming ..................................................................................................
Rooms....................................................................................................
Food and beverage..................................................................................
Other revenue.........................................................................................
738.5
62.2
88.1
28.0
985.7 1,302.3
92.6
125.0
119.1
138.8
39.4
66.7
140.9
13.5
15.0
7.2
Total revenue .......................................................................................
916.8 1,236.8 1,632.8
Other income ............................................................................................
1.9
0.4
2.1
Operating costs
Employee costs....................................................................................... (200.3) (260.0) (328.4)
VAT and gaming levies on gross gaming revenue ................................... (145.4) (191.8) (255.6)
Promotions and marketing costs.............................................................. (42.1) (81.0) (101.9)
Depreciation and amortisation................................................................. (63.1) (65.6) (78.2)
Property and equipment rentals ............................................................... (11.8) (15.6) (23.7)
Other operational costs ........................................................................... (174.9) (221.2) (293.2)
176.6
0.2
(35.5)
(27.6)
(11.0)
(8.5)
(2.6)
(31.7)
Total operating costs ............................................................................ (637.6) (835.2) (1,081. (116.9)
0)
Operating profit ........................................................................................
Financial income ....................................................................................
Financial expenses..................................................................................
553.9
59.9
15.6
45.3
8.6
(52.4) (101.3) (130.2)
0.9
(14.0)
(36.8)
(56.0) (121.6)
(13.1)
Profit before taxation.................................................................................
Taxation ...................................................................................................
244.3
346.0
432.3
(69.7) (118.6) (143.3)
46.8
(15.5)
174.6
227.4
289.0
31.3
Attributable to:
Equityholders of Peermont......................................................................
Minority shareholders.............................................................................
167.3
7.3
220.0
7.4
275.4
13.6
29.8
1.5
174.6
227.4
289.0
31.3
Cash and cash equivalents .........................................................................
50.8
60.0
170.0
Property, plant and equipment ................................................................... 1,302.5 1,808.3 2,199.3
18.4
237.9
Net financial (expenses)/income ...........................................................
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56
281.1
402.0
Total assets...............................................................................................
Total debt(2) ..............................................................................................
Net debt(3) .................................................................................................
Total equity(4) ...........................................................................................
Cash flow data: (5)
Cash flow from operating activities ...........................................................
Cash flow from investing activities............................................................
Cash flow from financing activities ...........................................................
Other data:
EBITDA(6) ................................................................................................
Capital expenditure(7) ................................................................................
Number of slot machines licensed (at period end) ......................................
Number of gaming tables licensed (at period end)......................................
Total number of hotel rooms operated (at period end) ................................
1,572.8
234.5
183.7
1,065.1
2,647.9
1,076.9
1,016.9
1,180.7
3,633.7
1,622.8
1,452.8
1,486.8
393.0
175.5
157.1
160.8
223.9
267.4
400.6
(133.4) (940.3) (544.3)
(149.2)
614.7
274.9
43.3
(58.9)
29.7
344.2
142.7
2,168
96
601
467.6
168.0
2,168
96
870
632.1
149.1
3,105
143
1,312
68.4
16.1
___________
(1)
(2)
(3)
(4)
Total equity consists of share capital and premium, various reserves, retained earnings and minority interest.
(5)
Cash flow from operating activities includes operating profit adjusted for non-cash items including depreciation and, amortisation changes in
working capital, net finance expenses, taxes and dividends paid on our preference shares. Cash flow from investing activities primarily includes
cash used for maintenance and expansion capital expenditure, acquisitions, investments, change in investments and cash received from
proceeds from disposals of property, plant and equipment. Cash flow from financing activities includes any form of long-term debt or equity
financing raised or repaid and dividends paid.
(6)
and other fixed obligations and to fund its growth. Further, EBITDA is a widely accepted indicator in comparing a company's underlying
operating profitability with that of other companies in the same industry. EBITDA is not an IFRS measure and you should not consider
EBITDA as an alternative to net profit, as an indicator of operating performance, as a measure of cash flow from operations or as an indicator
of liquidity/(loss) under IFRS. Funds depicted by this measure may not be available for our discretionary use (due to covenant restrictions, debt
service payments and other commitments). You should note that EBITDA is not a uniform or standardised measure and the calculation of
EBITDA, may, therefore, vary significantly from company to company, and by itself our presentation and calculation of EBITDA may not be
comparable to that of other companies. A reconciliation of profit for the year to EBITDA for the financial years ended 31 December 2004,
2005 and 2006 is presented below:
2004
2005
2006
2006
(R in millions)
(€ in
millions)
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57
Taxation ...................................................................................................
Net financial expenses...............................................................................
Amortisation.............................................................................................
Depreciation .............................................................................................
174.6
69.7
36.8
2.0
61.1
227.4
118.6
56.0
6.1
59.5
289.0
143.3
121.6
4.6
73.6
31.3
15.5
13.1
0.5
8.0
EBITDA...................................................................................................
344.2
467.6
632.1
68.4
(7)
Capital expenditure represents cash payments for property, plant and equipment, net of proceeds received
from the sale of property, plant and equipment.
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MANAGEMENT’S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to,
our consolidated financial statements and the related notes included in this offering memorandum. The following
discussion should also be read in conjunction with "Selected Historical Financial Information." The discussions
in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ
materially from those discussed below. See "Risk Factors" and "Information Regarding Forward-Looking
Statements."
Unless otherwise indicated, all financial information has been prepared in accordance with IFRS.
Overview
largest casino resort operator in Gauteng Province, with a market share in this Province of approximately 26%
five star luxury properties, various restaurants including popular recognised chains, and a variety of fine dining
options, a number of differently themed bars, amusement arcades and child care centres. Certain of our larger
casino resorts also feature convention facilities and theatres.
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59
Financial statements discussed
General
assets and liabilities of Peermont and substantially all its subsidiaries. See "The Transactions." It did not have any
assets or operation prior to the Transactions. Following the completion of the Transactions, the issuer will own all
of the currently existing assets of Peermont. The financial statements included elsewhere in this offering
memorandum and discussed below are the audited consolidated financial statements for Peermont as of 31
December 2004, 2005 and 2006 and for the years then ended, prepared in accordance with IFRS.
Proportional consolidation of Emperors Palace and Graceland joint ventures
In preparing the financial statements for the periods discussed, the results of operations of Emperors
Palace were required, under IFRS, to be proportionately consolidated with the results of Peermont's other
operations rather than fully consolidated because during such periods, Emperors Palace was owned and operated
as a joint venture that was not under Peermont's exclusive control. From 1 January 2004 to 31 March 2005, 62.2%
of Emperors Palace's results were included in Peermont's consolidated results of operations. This percentage
increased to 83.0% for the period from 1 April 2005 to 31 December 2006 following the acquisition by Peermont
of a further 20.7% interest then held in the Emperors Palace joint venture by Caesars South Africa Inc.
("Caesars"). This acquisition is discussed further below and is referred to as the "Caesars buy-out."
Graceland is not a subsidiary of Peermont and will not become a subsidiary in connection with the
Transactions. It was also operated as a joint venture that was not under Peermont's exclusive control during the
periods discussed. Its results of operations were, however, only proportionately consolidated with the results of
Peermont's other operations during the period from 1 May 2005 to 31 December 2006. From 1 January 2004 to 30
April 2005, Graceland's results were fully consolidated with those of Peermont's other operations because, during
this period, Graceland did not have any retained earnings. From 1 May 2005 to 31 December 2006, 97% of
Graceland's results were included in Peermont's consolidated results of operations. We currently own 50% of the
issued ordinary shares in Peermont Global (Southern Highveld) (Proprietary) Limited ("PGSH"), the entity that
owns and operates Graceland. Under the terms of the shareholders agreement entered into with our joint venture
partners in respect of Graceland, we are entitled to dilute our joint venture partner's holdings so that we will own
up to approximately 97% of the issued share capital in PGSH, any such dilution being subject to the approval of
the relevant gaming board. Having regard to the gaming board's requirements, we may not be able to exercise our
rights in full. Subject to the approval of the relevant gaming board, we intend to partially exercise these rights so
that we will, within three to six months following the completion of the Transactions, directly or indirectly, hold
approximately 75% of the issued share capital in PGSH. Following such event, PGSH will become our subsidiary
and, accordingly, we will fully consolidate its results of operations, assets and liabilities in our consolidated
financial statements.
During the periods discussed, the results of Peermont's other operations were included in its financial
statements on a fully consolidated basis.
Primary factors affecting results of operations
Acquisitions
Peermont effected the acquisitions described below (collectively, the "Acquisitions") in 2005 and 2006,
each of which had an effect on Peermont's results of operations during the corresponding financial years.
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60
The Syringa Acquisition. On 1 March 2005, Peermont acquired two properties in Botswana from the
Syringa Hotel group for a total cash purchase price of R58.3 million. We refer to this acquisition as the "Syringa
Acquisition." We renamed the first property, which is located in the city of Gaborone, the Mondior Summit Hotel.
We renamed the second property, which is located in the city of Francistown, the Metcourt Lodge. As a result of
the Syringa Acquisition, the results of operations from these two properties were included in Peermont's
consolidated results of operations from 1 March 2005.
Caesars buy-out. On 31 March 2005, Peermont concluded the Caesars buy-out pursuant to which it
acquired from Caesars a further 20.7% interest in Emperors Palace for a cash purchase price of R532.2 million. As
discussed above, as a result of the Caesars buy-out, from 1 April 2005 the percentage of the results of the
Emperors Palace business included in Peermont's consolidated results of operations increased from 62.2% to
83.0%. In addition, Peermont also purchased the 50% interest held by Caesars in the management company that
operates Emperors Palace for a cash purchase price of R183.4 million, increasing Peermont's interest in such
company to 100%. Total cash paid for the Caesars buy-out was R715.6 million.
The Tusk Acquisition. On 1 September 2006, Peermont, through Tusk Holdings, its 79% owned
subsidiary, acquired an interest of approximately 74% in the Tusk Casino and Resort Group (the "Tusk Group")
for a total cash purchase price of R395.7 million. We refer to this acquisition as the "Tusk Acquisition." As a
result of the Tusk Acquisition, the results of the Tusk Group were included in Peermont's consolidated results of
operations on a fully consolidated basis from 1 September 2006.
Increases in South African gross domestic product
According to Statistics South Africa and the International Monetary Fund, during the periods discussed
below the growth rate of nominal gross domestic product, or nominal GDP, in South Africa was 10.9% in 2004,
10.1% in 2005 and 9.0% in 2006. We believe that this increase in nominal GDP led to a corresponding increase in
disposable income among our customers, which led in turn to corresponding increases in their spending at our
various properties.
Ordinary capacity expansion and improvements
During the periods discussed, we made various capital expenditures in the ordinary course of our business
in order to improve and expand our existing properties. These included the acquisition in 2004 from Emerald
Safari Resort of rights to operate an additional 140 slot machines and 17 gaming tables in Gauteng Province.
These slot machines and gaming tables were deployed in two phases, 140 slot machines and 6 gaming tables in
November 2004 and 11 gaming tables in August 2005, in each instance, as part of an expansion of the gaming
area at Emperors Palace, at a total cost of R112.0 million. Other ordinary course capital expenditures during the
periods discussed included a R22.7 million upgrade and refurbishment of the Mondazur Resort Estate Hotel at San
Lameer in September 2005, the opening of the 150-room Mondior Concorde Hotel at Emperors Palace in
March 2006 at a total cost of approximately R78.0 million, the opening of the 149-room Metcourt Inn in
Botswana in February 2005 at a total cost of R33.7 million, and the opening in November 2006 of the Frontier Inn
and Casino Resort in Bethlehem, South Africa, which included 20 rooms, 12 gaming tables and 120 slot machines
at a total cost of approximately R103.0 million, of which development costs of R13.9 million were incurred in
2005 and R77.9 million were incurred in 2006.
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61
Going forward effects of the transactions
As part of the Transactions, Emperors Palace will cease to be operated as a joint venture and will become
wholly owned by the issuer. Accordingly, its results of operations will in the future be fully consolidated with
those of the issuer's other operations.
Key income statement items
Revenue
Our revenue consists of gaming revenue, rooms revenue, food and beverage revenue and other revenue.
For the year ended 31 December 2006, we generated 79.8% of our total revenue from gaming, 8.5% from food
and beverage, 7.6% from rooms and 4.1% from other revenue.
We generate gaming revenue from the slot machines and gaming tables in our casinos. Gaming revenue
consists of the net cash amounts received from bets placed by guests less winnings paid to them.
We generate rooms revenue from room nights sold at our various hotels, which is a function of average
room rate and occupancy rate. We define occupancy rate as room nights sold as a percentage of total room nights
available in a given period. The average room rate is calculated based on total rooms revenue divided by the
number of room nights sold in a given period.
We generate food and beverage revenue from the sale of food and beverages in our hotel restaurants and
through room service, catering services at our convention facilities and revenue from renting banquet rooms and
equipment.
We generate other revenue primarily from rental payments received from our retail shop tenants, from
sales of goods at our own shops, from ticket receipts for our various entertainment offerings, and from child care
facilities and parking and other entrance fees.
In line with industry practice in South Africa, we recognise gaming revenue on a cash received basis. We
recognise all other revenue on an accrual basis, net of VAT. Gaming revenue includes VAT and other gaming
levies on gross gaming revenue. VAT is deducted as an operating cost at an effective rate of 12.28% of gross
gaming revenue net of gaming levies paid. Gaming levies on gross gaming revenue are set at variable rates as a
percentage of gross gaming revenue and are also deducted as an operating cost. Gaming levy rates vary across the
provinces in which our casinos operate. The gaming levy in Gauteng Province is currently 9% of gaming revenue.
Other income
Other income is primarily non-operational income, which consists of items such as the net profit generated
on the disposal of assets in the normal course of business at our properties.
Operating costs
Our operating costs consist of employee costs, other operational costs, VAT and gaming levies on gross
gaming revenue, promotions and marketing costs, depreciation and amortisation and property and equipment
rentals. These represented 30.4%, 27.1%, 23.7%, 9.4%, 7.2% and 2.2% of total operating costs, respectively, for
the financial year ended 31 December 2006.
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62
Employee costs consist of salaries, wages and employee benefits for all of our employees, including
management.
Other operational costs consist primarily of cost of sales of food and beverage; utilities and taxes; property
and related facilities and equipment maintenance costs; cash handling costs and credit card commissions; security
and public safety costs; property cleaning costs; information technology support and maintenance costs; corporate
social investment costs; insurance costs; and training costs.
VAT and gaming levies on gross gaming revenue are as discussed above.
Promotions and marketing costs consist primarily of costs associated with all complimentary food,
beverage and hotel accommodation given to our gaming guests; advertising costs (which include costs for radio,
press and outdoor advertising and the production thereof and prizes given as part of promotions); costs relating to
loyalty programmes; costs of public relations events and activities; publishing costs for guest magazines, flyers,
posters and other promotional materials; and costs relating to our participation in domestic and international travel
fairs and exhibitions.
Depreciation and amortisation consists of depreciation costs on assets other than land and capital work in
progress and amortisation of intangible assets other than goodwill and intangible assets that have an indefinite life,
such as our casino licenses.
Property and equipment rentals consist of rental expenses paid under operating leases primarily for our slot
machines, office equipment and property leases.
Results of Operations
The following table shows certain items from the consolidated financial statements of Peermont included
elsewhere in this offering memorandum. It also shows each of these items as a percentage of Peermont's total
revenue for the same periods.
2004
(R in
millions)
Revenue
Gaming .....................................................................
Rooms.......................................................................
Food and beverage.....................................................
Other revenue............................................................
Total revenue ..........................................................
Other income ...............................................................
Operating costs
Employee costs..........................................................
VAT and gaming levies on gross gaming revenue ......
Promotions and marketing costs.................................
Depreciation and amortisation....................................
Property and equipment rentals ..................................
Other operational costs ..............................................
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63
738.5
62.2
88.1
28.0
2005
2006
%
(R in
%
(R in
millions)
millions)
80.6
6.8
9.6
3.0
%
985.7
92.6
119.1
39.4
79.7 1,302.3
7.5
125.0
9.6
138.8
3.2
66.7
79.8
7.6
8.5
4.1
916.8
1.9
100.0 1,236.8
—
0.4
100.0 1,632.8
—
2.1
100.0
—
(200.3)
(145.4)
(42.1)
(63.1)
(11.8)
(174.9)
(21.8) (260.0)
(15.8) (191.8)
(4.6) (81.0)
(6.8) (65.6)
(1.3) (15.6)
(19.1) (221.2)
(21.0)
(15.5)
(6.5)
(5.3)
(1.3)
(17.9)
(20.1)
(15.7)
(6.2)
(4.8)
(1.4)
(18.0)
(328.4)
(255.6)
(101.9)
(78.2)
(23.7)
(293.2)
Total operating costs ...............................................
(637.6)
(69.4) (835.2)
Operating profit ...........................................................
Financial income .......................................................
Financial expenses.....................................................
281.1
30.6
15.6
(52.4)
Net financial (expenses)/income ..............................
33.8
1.7
45.3
(5.7) (101.3)
3.7
8.6
(8.2) (130.2)
0.5
(7.9)
(36.8)
(4.0)
(56.0)
(4.5) (121.6)
(7.4)
Profit before taxation....................................................
Taxation ......................................................................
244.3
(69.7)
26.6 346.0
(7.6) (118.6)
28.0
432.3
(9.6) (143.3)
26.4
(8.7)
Profit for the year.........................................................
174.6
19.0
227.4
18.4
289.0
17.7
Attributable to:
Equity holders of Peermont........................................
Minority Shareholders ...............................................
167.3
7.3
18.2
0.8
220.0
7.4
17.8
0.6
275.4
13.6
16.9
0.8
174.6
19.0
227.4
18.4
289.0
17.7
344.2
32.5
(66.2)
553.9
EBITDA] .....................................................................
402.0
(67.5) (1,081.
0)
467.6
632.1
___________
(1)
and other fixed obligations and to fund its continued growth. Further, EBITDA is a widely accepted indicator in comparing a company's
underlying operating profitability with that of other companies in the same industry. EBITDA is not an IFRS measure and you should not
consider EBITDA as an alternative to net profit, as an indicator of operating performance, as a measure of cash flow from operations or as an
indicator of liquidity/(loss) under IFRS. Funds depicted by this measure may not be available for our discretionary use (due to covenant
restrictions, debt service payments and other commitments). You should note that EBITDA is not a uniform or standardised measure and the
calculation of EBITDA may, therefore, vary significantly from company to company, and by itself our presentation and calculation of
EBITDA may not be comparable to that of other companies. A reconciliation of EBITDA to operating profit for the financial years ended 31
December 2004, 2005 and 2006 is presented below:
Financial year ended
31 December
2004
2005
2006
(R in millions)
Profit for the year....................................................................................................
Taxation .................................................................................................................
Net financial expenses.............................................................................................
Amortisation...........................................................................................................
Depreciation ...........................................................................................................
174.6
69.7
36.8
2.0
61.1
227.4
118.6
56.0
6.1
59.5
289.0
143.3
121.6
4.6
73.6
EBITDA.................................................................................................................
344.2
467.6
632.1
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64
Financial year ended 31 December 2006 compared to financial year ended 31 December 2005
Revenue
Total revenue for the financial year ended 31 December 2006, was R1,632.8 million, an increase of
R396.0 million, or 32.0%, from R1,236.8 million, for the financial year ended 31 December 2005. Approximately
48%, or R189.4 million, of this increase was due to the Acquisitions, primarily the Caesars buy-out. Excluding the
Acquisitions, revenue grew by 16.7%, from R1,236.8 million to R1,443.4 million.
Gaming revenue accounted for 79.8%, or R1,302.3 million, of total revenue for the financial year ended
31 December 2006, an increase of R316.6 million, or 32.1%, from the prior year. Approximately 54% or
R170.6 million, of this increase was due to the Acquisitions. Excluding the Acquisitions, gaming revenue grew by
R146.0 million, or 14.8%, from R985.7 million to R1,131.7 million. This increase was due primarily to higher
average guest spend at our properties, which we believe reflected higher levels of consumer disposable income.
This increase was also due to an increased number of guests following the commissioning of additional gaming,
rooms and restaurant capacity, primarily at Emperors Palace.
Gaming revenue at Emperors Palace (on a 100% basis) increased by 16.0%, from R1,092.2 million to
R1,266.9 million, and our proportionate share of the R1,266.9 million, which amounted to R1,051.0 million,
represented 80.7% of our gaming revenue for the financial year ended 31 December 2006. This increase was due
primarily to combined growth in table and slot machine revenue and, to a lesser extent, to the opening of the
Mondior Concorde Hotel in March 2006. The growth in tables and slot machine revenue was due primarily to the
commissioning of 11 new gaming tables at Emperors Palace in August 2005. The opening of our new Mondior
Concorde Hotel in March 2006 contributed to higher gaming revenue as it resulted in an increased number of
guests at Emperors Palace.
Gaming revenue at Graceland (on a 100% basis) increased by 11%, from R80.2 million to R88.8 million,
of which we proportionately consolidated R86.1 million, and the increase of which was ahead of nominal GDP
growth.
Rooms, food and beverage and other revenue accounted for 20.2%, or R330.5 million, of total revenue
for the financial year ended 31 December 2006, an increase of R79.4 million, or 31.6%, from the prior year.
Approximately 23.7%, or R18.8 million, of this increase was due to the Acquisitions.
Rooms revenue accounted for 7.6%, or R125.0 million, of total revenue for the financial year ended 31
December 2006, an increase of R32.4 million, or 35.0%, from the prior year. This increase was due primarily to
the Acquisitions. Excluding the Acquisitions, rooms revenue grew by R23.0 million or 24.8%, due primarily to
the opening of the 150-room Mondior Concorde Hotel at Emperors Palace in March 2006 and the reopening in
September 2005 of the Mondazur Hotel following a six-month upgrade and refurbishment programme. These
properties generated rooms revenue of R16.6 million and R16.4 million, respectively, during the period. The
increase in rooms revenue during the period was also due, to a lesser extent, to an increase in average room rates
slightly above inflation and higher occupancy rates, which we believe resulted from increased domestic and
international tourism, and to the introduction of improved room management systems aimed at optimising revenue
per available room.
Food and beverage revenue accounted for 8.5%, or R138.8 million, of total revenue for the financial year
ended 31 December 2006, an increase of R19.7 million, or 16.5%, from the prior year. Of this increase
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65
R15.9 million was due to the opening of the Mondior Concorde Hotel and the reopening of the Mondazur Hotel.
The opening of the Mondior Concorde Hotel allowed us to attract and host larger convention groups, which, in
turn, generated higher food and beverage revenue. The balance of this increase was due to the Acquisitions.
Other revenue increased by R27.3 million, or 69.3%, to R66.7 million for the financial year ended
31 December 2006 from R39.4 million for the prior year.
Other income
Other income for the financial year ended 31 December 2006 was R2.1 million compared to R0.4 million
in the prior year.
Total operating costs
Total operating costs for the financial year ended 31 December 2006 were R1,081.0 million, an increase of
R245.8 million, or 29.4%, from R835.2 million for the financial year ended 31 December 2005. Total operating
costs as a percentage of total revenue amounted to 66.2% in 2006 compared to 67.5% in 2005. Approximately
48.9%, or R120.2 million, of the increase in total operating costs was due to our Acquisitions. Excluding the
Acquisitions, total operating costs increased by R125.6 million, or 15.0%, from R835.2 million to R960.8 million.
This increase was due primarily to increases in revenue, which increased the largest cost items by a corresponding
percentage, except with respect to employee costs. Excluding the Acquisitions, total operating costs as a
percentage of revenue decreased, however, to 66.6% in 2006 from 67.5% in 2005. This decrease was primarily
due to controlling employee costs.
Operating profit
Our operating profit for the financial year ended 31 December 2006, was R553.9 million, an increase of
R151.9 million, or 37.8%, from R402.0 million for the financial year ended 31 December 2005. These increases
were due primarily to the factors discussed above.
Financial income
Financial income consists primarily of interest earned on cash and cash equivalents, and gains realized in
connection with foreign exchange and interest rate hedging agreements. Financial income for the financial year
ended 31 December 2006 decreased to R8.6 million, from R45.3 million for the financial year ended 31 December
2005. This decrease was due primarily to lower cash balances at Emperors Palace during 2006 and a one-time
R36.4 million non-cash gain recognised in 2005 under a foreign currency option entered into in connection with
the Caesars buy-out to hedge the U.S. dollar denominated purchase price.
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66
Financial expenses
Financial expenses consist primarily of interest expense on borrowings under our credit facilities and
dividends paid on preference shares. Financial expenses for the financial year ended 31 December 2006 were
R130.2 million, an increase of R28.9 million, from R101.3 million for the financial year ended 31 December
2005. This increase was due primarily to increased indebtedness incurred to finance the Acquisitions made during
the period and other expansionary activities.
Profit before taxation
Profit before taxation for the financial year ended 31 December 2006 was R432.3 million, an increase of
R86.3 million, or 24.9%, from R346.0 million for the financial year ended 31 December 2005. This increase was
due primarily to the factors discussed above.
Taxation
Taxation for the financial year ended 31 December 2006 was R143.3 million, an increase of
R24.7 million, or 20.8%, from R118.6 million for the financial year ended 31 December 2005. The effective tax
rate for the financial year ended 31 December 2006 was 33.1%, compared to 34.3% in 2005. This decrease was
due to a reversal in 2006 of a provision in the prior year relating to the non-cash foreign currency gain reported in
connection with the Caesars buy-out foreign currency option.
Profit for the year
Profit for the year for the financial year ended 31 December 2006 was R289.0 million, an increase of
due primarily to the factors described above.
Financial year ended 31 December 2005 compared to financial year ended 31 December 2004
Revenue
Total revenue for the financial year ended 31 December 2005, was R1,236.8 million, an increase of
R320.0 million, or 34.9%, from R916.8 million for the financial year ended 31 December 2004. Approximately
68.3% or R218.5 million of this increase was due to the Acquisitions, primarily the Caesars buy-out. Excluding
the Acquisitions, revenue grew by 11.1% from R916.8 million to R1,018.3 million.
Gaming revenue accounted for 79.7%, or R985.7 million, of total revenue for the financial year ended 31
December 2005, an increase of R247.2 million, or 33.5%, from the prior year. Approximately 70.0%, or
R173.0 million, of this increase was due to the Acquisitions. Excluding the Acquisitions, gaming revenue grew by
R74.2 million, or 10.0%, from R738.5 million to R812.7 million. Excluding the Acquisitions and the Botswana
operations, gaming revenue grew by 12%. This increase was due primarily to higher average guest spend at our
properties, which we believe reflected higher levels of consumer disposable income.
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Gaming revenue at Emperors Palace (on a 100% basis) increased by 11.6%, from R978.7 million to
R1,092.2 million, and our proportionate share of the R1,092.2 million, which amounted to R906.1 million,
represented 91.9% of our gaming revenue for the financial year ended 31 December 2005. This increase was
primarily due to combined growth in table and slot machine revenue. The growth in tables and slot machine
revenue was due primarily to the commissioning of 140 new slot machines and six new gaming tables at
Emperors Palace in November 2004 and to focused efforts made to increase the profile of Emperors Palace in
Gauteng Province following its renaming from Caesars Gauteng.
Gaming revenue at Graceland (on a 100% basis) increased by 14.7% from R69.9 million to R80.2 million,
of which we proportionately consolidated R78.6 million, and the increase of which was ahead of nominal GDP
growth.
Rooms, food and beverage and other revenue and income accounted for 20.3%, or R251.1 million, of our
total revenue for our financial year ended 31 December 2005, an increase of R72.8 million, or 40.8%, from the
prior year. Approximately 62.5%, or R45.5 million, of this increase was due to the Acquisitions.
Rooms revenue accounted for 7.5%, or R92.6 million, of our total revenue for the financial year ended 31
December 2005, an increase of R30.4 million, or 48.9%, from the prior year. This increase was due primarily to
the Acquisitions, in particular the Syringa Acquisition. Excluding the Acquisitions, room revenue grew by
R12.6 million, or 20.3%, due primarily to the opening of the Metcourt Inn in Botswana in February 2005. This
increase was also due, to a lesser extent, to an increase in average room rates and higher occupancy rates, which
we believe resulted from increased domestic tourism.
Food and beverage revenue accounted for 9.6%, or R119.1 million, of our total revenue for the financial
year ended 31 December 2005, an increase of R31.0 million, or 35.2%, from the prior year. This increase was due
primarily to the Acquisitions. Excluding the Acquisitions, food and beverage revenue grew by R10.2 million, or
11.6%, primarily due to the opening of the Metcourt Inn in Botswana in February 2005. The opening of the
Metcourt Inn allowed us to attract and host larger convention groups, which in turn generated increased volume
sales of food and beverages.
Other revenue increased by R11.4 million or, 40.7%, to R39.4 million for the financial year ended
31 December 2005 from R28.0 million for the prior year.
Total operating costs
Total operating costs for the financial year ended 31 December 2005 were R835.2 million, an increase of
R197.6 million, or 31.0%, from R637.6 million for the financial year ended 31 December 2004. Total operating
costs as a percentage of total revenue amounted to 67.5% in 2005 compared to 69.4% in 2004. Approximately
79.0%, or R156.2 million, of the increase in total operating costs was due to the Acquisitions. Excluding the
Acquisitions, total operating costs increased by R41.4 million, or 6.5%, from R637.6 million to R679.0 million.
This increase was due primarily to increases in revenue, which increased our largest cost items by a corresponding
percentage. During this period, we changed the estimate of the useful lives of our freehold property, which
resulted in lower depreciation charges. Excluding the Acquisitions, total operating costs as a percentage of
revenue decreased, however, to 66.7% in 2005 from 69.5% in 2004. This decrease was due primarily to
controlling employee costs.
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Operating profit
Operating profit for the financial year ended 31 December 2005 was R402.0 million, an increase of
R120.9 million, or 43.0%, from R281.1 million for the financial year ended 31 December 2004. These increases
were due primarily to the factors described above.
Financial income
Financial income for the financial year ended 31 December 2005 was R45.3 million, an increase of
R29.7 million from R15.6 million for the financial year ended 31 December 2004. This increase was due
primarily to the inclusion of a one-time non-cash gain of R36.4 million recognised under a foreign currency option
entered into in connection with the Caesars buy-out to hedge the U.S. dollar denominated purchase price.
Excluding this one-time gain, our financial income decreased R6.7 million, or 42.9%, due primarily to the firsttime inclusion required under IFRS in the prior year of the cumulative fair value adjustment of all of our interest
swap agreements, as well as to lower cash balances at Emperors Palace during the financial year ended 31
December 2005.
Financial expenses
Financial expenses for the financial year ended 31 December 2005 were R101.3 million, an increase of
R48.9 million, from R52.4 million for the financial year ended 31 December 2004. This increase was due
primarily to increased indebtedness to finance the Acquisitions made during the period and other expansion
activities.
Profit before taxation
Profit before taxation for the financial year ended 31 December 2005 was R346.0 million, an increase of
R101.7 million, or 41.6%, from R244.3 million for the financial year ended 31 December 2004. This was due
primarily to the factors discussed above.
Taxation
Taxation for the financial year ended 31 December 2005 was R118.6 million, an increase of
due primarily to higher profits earned by the group and increased secondary taxation on companies ("STC")
charges resulting from preference dividend payments. Our effective taxation rate for 2005 was 34.3%, compared
to 28.5% in 2004. Our effective tax rate is increased when we pay dividends by STC. This tax equals 12.5% on
the amount of any ordinary and preference dividends paid. We incurred STC in 2005 on dividends declared in
respect of the preference shares we issued in 2005 to finance the Acquisitions.
Profit for the year
Profit for the year for the financial year ended 31 December 2005 was R227.4 million, an increase of
due primarily to the factors discussed above.
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Liquidity and capital resources
General
Historically, our liquidity requirements have arisen primarily from the need to fund our capital expenditure
and our Acquisitions. Our principal source of liquidity has been our cash flow from operating activities and
borrowings under our credit facilities. Following the offering of the notes and completion of the Transactions, we
expect our liquidity requirements will arise primarily to meet our debt service obligations in respect of the notes
and to fund capital expenditures and working capital requirements, if any. Our principal sources of liquidity are
expected to be cash flow from operations and amounts available under our new revolving credit facility.
Cash Flow
The following table presents our consolidated cash flow for the periods indicated.
Financial year ended
31 December
2004
2005
2006
(R in millions)
Cash flow from operating activities .........................................................................
Cash flow from investing activities..........................................................................
Cash flow from financing activities .........................................................................
223.9
267.4 400.6
(133.4) (940.3) (544.3)
(149.2)
614.7 274.9
Cash flow from operating activities
Cash flow from operating activities includes operating profit adjusted for non-cash items including
depreciation and amortisation, changes in net working capital, net finance expenses, taxes and dividends paid on
our preference shares. The majority of our business activities operate on a cash basis. As a result, we usually
operate with negative working capital and, accordingly, have minimal working capital funding requirements.
Cash flow from operating activities for the year ended 31 December 2006 was R400.6 million as
compared to R267.4 million for the year ended 31 December 2005 and was affected primarily by the following:
•
Operating profit of R553.9 million adjusted for R78.2 million of depreciation and amortisation and
R1.5 million of other non-cash expenses.
•
A decrease in net working capital of R31.6 million primarily as a result of the Tusk Acquisition. This
decrease was due primarily to an increase in accounts and other payables and provisions following an
increase in provisions in connection with the Tusk Acquisition and which was partially offset by an
increase in receivables and inventories of R12.1 million and R1.5 million, respectively. This increase
in receivables and inventories was due primarily to the opening of the new Mondior Concorde Hotel at
Emperors Palace.
•
Taxes and net finance expenses paid in the amount of R144.2 million and R120.4 million, respectively,
including R59.5 million of dividends paid on preference shares.
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70
•
R0.2 million of other non-cash expenses.
•
A decrease in net working capital of R9.2 million in line with normal business activities.
•
Taxes and net finance expenses paid in the amount of R112.2 million and R97.4 million, respectively,
including R39.5 million of dividends paid on preference shares.
•
R5.2 million of other non-cash income including R10.7 million relating to the reversal of an
impairment charge booked in a prior period.
•
A decrease in net working capital of R8.5 million in line with normal business activities.
•
Taxes and net finance expenses paid in the amount of R86.3 million and R37.3 million, respectively.
In 2004 we did not have any preference shares.
Cash flow from investing activities
Cash flow from investing activities primarily includes cash used for maintenance and expansion capital
expenditure, acquisitions, investments, change in investments and cash received from proceeds from disposals of
property, plant and equipment.
Cash outflow from investing activities for the year ended 31 December 2006 was R544.3 million. This
includes cash used for maintenance capital expenditure in the amount of R65.4 million and R83.7 million used for
expansion capital expenditure. In addition, we paid R395.7 million for the Tusk Acquisition.
was primarily affected by cash used for maintenance capital expenditure in the amount of R53.0 million and
R115.0 million used for expansion capital expenditure. Approximately 76.1% or R715.6 million of net cash
outflow from investing activities in this period was due to the Caesars buy-out in April 2005 and R58.3 million
was used for the Syringa Acquisition.
was primarily affected by cash used for maintenance capital expenditure in the amount of R26.9 million and
expansion capital expenditure of R115.8 million.
Cash flow from financing activities
Cash flow from financing activities primarily includes any form of long-term debt or equity financing
raised or repaid and dividends paid.
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Cash inflow from financing activities for the year ended 31 December 2006 was R274.9 million. This
included R375.0 million in cash received from the proceeds of the issuance of preference shares which were used
to fund the Tusk Acquisition and R24.5 million from net long-term borrowings raised under our credit facilities.
In addition, we paid R123.8 million of dividends to shareholders and minority shareholders.
Cash inflow from financing activities for the year ended 31 December 2005 was R614.7 million. This
included R589.0 million in cash received from the proceeds of the issuance of preference shares and
R242.0 million of long-term borrowings under our credit facilities to fund the Caesars buy-out. This inflow was
offset primarily by R117.8 million of cash used for the scheduled repayment of amounts outstanding under our
long-term credit facilities and R103.7 million of dividends paid to shareholders and minority shareholders.
Cash outflow from financing activities for the year ended 31 December 2004 was R149.2 million. This
included the repayment of R92.6 million of long-term borrowings and shareholder loans, R19.1 million used for
the purchase of foreign exchange options to hedge the U.S. dollar denominated purchase consideration for the
Caesars buy-out, as well as dividends paid to shareholders and minority shareholders of R41.4 million.
Capital expenditures
Our capital expenditures in the years ended 31 December 2006, 2005 and 2004 were R149.1 million,
R168.0 million and R142.7 million, respectively, representing approximately 9.1%, 13.6% and 15.6% of total
revenue for those periods. Cash used for capital expenditures consists primarily of (a) cash used for the
replacement of gaming equipment and hotel furniture, fittings and equipment and property refurbishment as well
as other assets used for the maintenance of our properties, plant and equipment net of proceeds received from the
sale of property, plant and equipment ("maintenance capital expenditure") and (b) cash used to expand (other than
by way of acquisitions) our business capacity to increase revenue and profitability ("expansion capital
expenditure"). Expansion capital expenditure includes the purchase of additional gaming equipment, expansion of
existing properties and the development of new properties.
Our maintenance capital expenditures in the years ended 31 December 2006, 2005 and 2004 were
R65.4 million, R53.0 million and R26.9 million, respectively, representing approximately 4.0%, 4.3% and 2.9%
of total revenue for those periods. Our expansion capital expenditures in the years ended 31 December 2006, 2005
and 2004 were R83.7 million, R115.0 million and R115.8 million, respectively, representing approximately 5.1%,
9.3% and 12.6% of total revenue for those periods.
Our maintenance capital expenditures for the years ended 31 December 2006, 2005 and 2004 reflected
ordinary course maintenance and replacement of gaming equipment, primarily slot machines, hotel furniture,
fittings and equipment. In addition, and as a result of the introduction of new legislation in Botswana that requires
separate non-smoking areas within properties open to the public, our maintenance capital expenditures for the year
ended 31 December 2006 included minor building works associated with the installation of separate non-smoking
casino and restaurant facilities within the existing casino and restaurant areas at our Grand Palm property in
Botswana.
Our expansion capital expenditures for the year ended 31 December 2006 amounted to R83.7 million and
consisted of R77.9 million spent on the construction of the Frontier Inn & Casino and R5.8 million of
proportionately consolidated costs spent on the completion of the Mondior Concorde Hotel at Emperors Palace,
both of which started in 2005.
consisted primarily of R53.3 million of proportionally consolidated costs related to the construction of the
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Mondior Concorde Hotel at Emperors Palace, which started in this year. In addition, expansion capital expenditure
included R22.7 million spent on the upgrade and refurbishment of the Mondazur Resort Estate Hotel at San
Lameer, R17.8 million of proportionally consolidated costs spent on gaming expansion at Emperors Palace and
R13.9 million spent on the construction of the Frontier Inn & Casino. The construction of the Frontier Inn &
Casino started in 2005.
consisted primarily of proportionately consolidated cost of R56.4 million spent on additional gaming capacity at
Emperors Palace, proportionately consolidated cost of R19.3 million spent on the acquisition of equipment for a
children's entertainment facility at Emperors Palace and R27.8 million spent on the construction of the Metcourt
Inn in Gaborone, Botswana, the construction of which started in 2004.
We plan to expand our hotel facilities at Emperors Palace. We also plan to add a hotel with at least
45 rooms at each of Tusk Umfolozi and Tusk Rio that we are required to build, in each case, as conditions to the
gaming licences to operate each of the casinos at these properties.
Available capital resources
Following the completion of the offering of the notes, our principal sources of funds will be provided by
cash flow from operations and amounts available under our new revolving credit facility. Immediately following
the closing of the offering of the notes, we expect that all of the R400 million (€ 43 million) available under our
new revolving credit facility for working capital and general corporate purposes will be undrawn and available for
future borrowings.
Although we believe that our expected cash flow from operations, together with available needs, will be
sufficient to meet our needs for the foreseeable future, we cannot assure you that our business will generate
sufficient cash flow from operations to meet these needs or that future debt or equity financing will be available to
us in an amount sufficient to enable us to fund our working capital or other liquidity needs, including making
payments under the notes or our other debt when they become due. If our working capital requirements exceed our
projections, or if our operating cash flow is lower than expected, we may be required to seek additional financing,
which may not be available on commercially reasonable terms, if at all. Our ability to arrange financing generally
and our cost of capital depends on numerous factors, including general economic conditions, the availability of
credit from banks, other financial institutions and in the capital markets, restrictions in instruments governing our
indebtedness, and our general financial performance. Our inability to obtain the funding necessary for our working
capital requirements could adversely affect our ability to service our debt obligations and adequately fund our
operations. See "Risk Factors—Risks relating to the notes—Our business may be adversely affected as a result of
our substantial indebtedness, which requires the use of a significant portion of our cash flow to service our debt
obligations and may limit access to additional capital. Our ability to generate sufficient cash in the future depends
on many factors, some of which are beyond our control."
Scheduled repayments of our current obligations (as adjusted)
Set out below is a summary of amounts due and committed under our contractual cash obligations at 31
December 2006, as adjusted for the Transactions and the Financing thereof, including the issuance of the notes
and the use of the proceeds thereof, shareholder loans to be made to us by our parent company and a new
revolving credit facility to be entered into on or about the date of the issuance of the notes as if the Transactions
had occurred:
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73
Less than
1 year
2–3
years
4–5
years
After
5 years
Total
Notes offered hereby(1) ................................................................
New revolving credit facility (available amount R400 million) (2) .
Long-term borrowings ................................................................
Current portion of long-term borrowings .....................................
Operating lease charges...............................................................
Deeply subordinated shareholder loan(3).......................................
—
—
—
15.6
10.3
—
—
—
201.0
—
19.4
—
— 6,699.4 6,699.4
—
—
—
—
— 201.0
—
—
15.6
19.4
70.5 119.6
— 1,973.3 1,973.3
Total...........................................................................................
25.9
220.4
19.4 8,743.2 9,008.9
___________
(1)
Represents the aggregate principal amount of the notes at maturity in rand terms based on an estimated forward exchange rate of €
1.00 = R12.8834. You should not view such translation as a representation that our euro denominated debt obligations under the notes actually
represent such rand amount, or that such rand amount could be converted into euro at the rate indicated to satisfy our euro denominated debt
payment obligations under the notes at maturity. The amount does not include interest on the notes, the payment of which is in euro and which
will be subject to foreign currency conversions. We entered into a four-year forward exchange contract for the rand equivalent of all or
substantially all of the principal amount of, and four years of interest under, the notes.
(2)
Does not include contractual obligations to pay certain fees relating to our new revolving credit facility. At the closing of the offering, we do
not expect to have any borrowings under our new revolving credit facility. See "Description of Certain Other Indebtedness—New revolving
credit facility."
(3)
The deeply subordinated shareholder loan is comprised of two tranches: the R1,086.3 million PIK preferred equity loan tranche and the
R887.0 million PIK notes tranche. Amounts do not include interest (18% per year plus a margin of up to 20 basis points on the PIK preferred
equity loan tranche during the first five year period after drawdown and 18% per year plus a margin of up to 20 basis points on the PIK notes
tranche payable, in each case, semi annually) that, if not paid in cash, is capitalised. The PIK preferred equity loan tranche matures in 2037.
The PIK notes tranche matures in 2015. Prior to maturity, we have no cash payment obligations under the deeply subordinated shareholder loan
tranches. See "Description of Certain Other Indebtedness—Deeply subordinated shareholder loan."
Pension plans
We provide defined contribution funds for the benefit of employees, the assets of which are held in
separate funds. These funds are funded by payments from our employees and us, taking account of
recommendations of independent actuaries. Our contributions to defined contribution funds are charged to our
income statement during in the year they are incurred.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
Contingent liabilities
The South African Revenue Service ("SARS") recently conducted audits in respect of certain of our
subsidiaries' income tax returns. SARS disputed the tax deductibility of certain expense items at Emperors Palace
relating to pre-opening expenses of R26 million, royalties of R73 million and the wear and tear write-off periods
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74
claimed in respect of certain asset categories, predominantly slot machines. Although we provided a
comprehensive presentation to SARS rejecting their position, we may not be successful in contesting SARS's
interpretation of the deductibility of these expenses and write-offs. We have not yet made any provisions for
reserves in connection with this dispute.
In addition to liabilities that may arise in connection with the above tax dispute, companies within our
group are party to various claims and legal actions in the ordinary course of our business. In the judgment of our
management, no losses, in excess of provisions made or covered by insurance programmes, which would be
material in relation to our financial position, are likely to arise in respect of these matters, although their
occurrence may have significant effect on periodic results. Please see "Risk Factors—Risks related to our
business—Legal proceedings or claims to which we are or may become a party may have a material adverse effect
on our operations, profitability and financial condition."
Certain provincial licensing authorities require casino operators to furnish acceptable guarantees as
security for the payment of gaming levies and any gambling debts. Each province has its own criteria in terms of
the amount required for such guarantees. In addition, from time to time, we enter into construction guarantees with
respect to properties undergoing development, and into guarantees with Eskom, the national electricity provider.
The table below sets forth information regarding these guarantees for the periods indicated:
Financial year ended 31
December
2004
2005
2006
(R in millions)
Emperors Palace .....................................................................................................
Grand Palm.............................................................................................................
Frontier Inn.............................................................................................................
Tusk Umfolozi........................................................................................................
Tusk Venda ............................................................................................................
Tusk Rio.................................................................................................................
Mthatha licence.......................................................................................................
24.1
0.4
5.0
—
—
—
—
34.6
0.4
5.0
—
—
—
—
37.4
0.4
47.8
2.7
0.5
0.3
210.0
Market Risk
Foreign currency risk
Our financial results are affected by currency transaction and translation effects resulting from fluctuations
in the exchange rates between the rand and other currencies, principally the Botswana pula U.S. dollar and euro.
Currency transaction effects occur due to the fact that in 2006 we earned 91% of our revenue in rand and incurred
approximately 11% of our total costs in pula. We do not hedge this exposure. From time to time, we incur costs in
euro or U.S. dollars that principally relate to purchases of imported gaming equipment. We enter into foreign
exchange contracts, from time to time, to cover foreign exchange payment obligations in respect of these
purchases. Currency translation effects occur due to the fact that in 2006 Grand Palm, Mondior Summit and
Metcourt Inn earned all of their revenue in pula and also prepared their financial statements in this currency. For
group consolidation purposes these financial statements are translated to rand, the group's reporting currency.
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In connection with the issuance of the notes, we entered into a hedging agreement covering the rand
equivalent of all or substantially all of the principal amount of, and four years of interest under, the notes. See
"Description of Certain Other Indebtedness—Hedging agreement."
Interest rate risk
We generally adopt a policy of managing our exposure to changes in floating interest rates on our
borrowings through interest rate swaps.
Critical accounting policies and use of estimates
The preparation of our financial statements requires management to make estimates and judgments that
affect the reported amount of assets, liabilities, and net profit. Management re-evaluates its estimates on an
ongoing basis. Management bases its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the value of such assets and liabilities that are not readily available from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
Residual value and useful life
We depreciate our assets over their estimated useful lives taking into account residual values, which,
following the adoption of International Accounting Standards (IAS) 16 Property, plant and equipment (revised),
are re-assessed on an annual basis. The actual lives and residual values of these assets can vary depending on a
variety of factors.
Technological innovation, product life cycles and maintenance programmes impact the useful lives and
residual values of assets. Residual value assessments consider issues such as future market conditions, the
remaining life of the asset and projected disposal values.
Income taxes
We recognise the net future tax benefit related to deferred income tax assets to the extent that it is probable
that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of
deferred income tax assets requires us to make significant estimates related to expectations of future taxable
income. Estimates of future taxable income are based on forecast cash flows from operations and the application
of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ
significantly from estimates, our ability to realise the net deferred tax assets recorded at the balance sheet date
could be impacted. Additionally, future changes in tax laws in the jurisdictions in which we operate could limit
our ability to obtain tax deductions in future periods.
Management applies its judgement to the fact patterns and advice it receives from advisors in assessing if
an obligation is probable, more likely than not, or remote. This judgement is used to determine if the obligation is
recognised as a liability or disclosed as a contingent liability.
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Impairment of intangible assets
We annually test goodwill and indefinite life assets for impairment. This involves using assumptions and
judgements regarding future events, such as revenue growth, weighted average costs of capital increase in
maintenance capital expenditure and rates relating to management fees, taxation and gaming levies, that
principally affect our future cash flows.
Share incentive scheme costs
The costs associated with certain of our share incentive schemes are determined using various assumptions
and financial estimates.
Recent accounting pronouncements
At the date of authorisation of the financial statements for the financial year ended 31 December 2006, the
following relevant accounting standards and interpretations were in issue but not yet effective.
IFRS 7—Financial Instruments: Disclosures including amendments to IAS 1, Presentation of Financial
Statements: Capital Disclosures
Effective for periods commencing on or after 1 January 2007. The disclosures provided in respect of
financial instruments in the financial statements of the period ending 31 December 2007, as well as comparative
information, will be required to be compliant with IFRS 7. The disclosure requirements of IFRS 7 require
additional disclosure compared to that required in terms of existing IFRS. The adoption of IFRS 7 will not have
any impact on the accounting policies adopted for financial instruments.
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INDUSTRY
Overview
We operate in the casino and hotel industries in South Africa and Botswana, with approximately 93% of
our pro forma revenue in 2006 derived from our South African operations. The casino industry is part of the larger
gaming industry, which, in South Africa, principally derives revenue from slot machines, gaming tables, bingo,
limited pay-out machines (located outside casinos with a maximum pay-out of R500), and horse racing and other
sports betting. In Botswana, the casino industry derives revenue from slot machines and gaming tables.
The South African gaming industry
The regulated gaming sector in South Africa consists of casino operators, bingo operators, limited payout
machine operators and betting establishments. These activities are subject to extensive regulation. The South
African casino industry represents a significant portion of the country's gaming industry. The following table sets
forth permitted gaming activities in South Africa (excluding the national lottery) and the relative market size
based on gross gaming revenue for the year ended 31 March 2006:
Type of gaming activity
Gross
gaming
revenue(
R in
millions)
Casinos ................................................................................................................................
Horse racing and other sports betting ....................................................................................
Bingo and limited payout machines ......................................................................................
10,129
1,197
184
Total gross gaming revenue..................................................................................................
11,510
The casino industry is the largest segment of the gaming industry in South Africa, generating over
R10 billion of casino revenue in the year ended 31 March 2006 and representing approximately 88% of total gross
gaming revenue. Casino revenue is primarily derived from the operation of slot machines and table games.
Legislation permits the issuance of 40 casino licences, with sub-limits for each province. Currently, 34 of
these casino licences have been issued by competitive tender, with the majority of the remaining six casino
licences in the process of being awarded. All the casino licences currently allocated to Gauteng Province, where
Emperors Palace is located, have been issued.
Prior to 1997, large-scale legal casino gaming in South Africa was limited to casinos in the former
"independent" homeland states within South Africa. These casinos were generally located in destination resorts
situated within a two-hour drive from major urban areas. During this period, there were also an estimated 2,000
illegal casinos.
Following the enactment of the National Gambling Act in 1996, the gaming industry became regulated
and many illegal casinos were closed. Casino licences were awarded to successful bidders with a clear policy
objective for the government to allow the industry to leverage direct fixed investments, contribute towards the
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78
process of broad-based black economic empowerment ("BEE"), create jobs and promote tourism. The first casino
licence in South Africa was awarded in April 1997.
The casino industry has developed significantly since 1997, with investments of over R15 billion made as
at 31 March 2006. Total gaming taxes and levies collected by the national and regional governments for the year
ended 31 March 2006 amounted to approximately R1 billion. Today, the gaming industry in South Africa is
highly regulated with the gaming regulations largely based upon those enacted in Nevada and New Jersey.
Many casino operations in South Africa are part of larger entertainment complexes featuring live shows,
dining venues, retail shops and convention facilities. In addition, many casino complexes include adjacent hotels
to offer casino guests and tourists overnight accommodation in close proximity to the casinos. Casino gaming is
now available in all major urban areas of South Africa.
Revenue generated by South African casinos tends to be stable because approximately 75% of casino
revenue is derived from slot machines, which provides more stable cash flow than table games. In addition, there
is limited credit play because casinos do not widely extend credit to their guests. Moreover, because guests in
South Africa's casinos mainly consist of locals and repeat visitors, financial performance is less exposed to the
fluctuations experienced in the tourist market, with casinos generally more dependent upon the patronage of
residents within a catchment area typically located within a radius of approximately 75km from each casino.
While there is some overlap in the catchment areas of some casinos in Gauteng Province given the location of
South Africa's casinos and the limited number of casino licences available, catchment areas outside of Gauteng
Province generally do not overlap. Most casino guests in South Africa travel by car to their casino of choice
because there is limited reliable public transport.
Gaming market size and growth
According to the National Gambling Board, South African gross gaming revenue derived from casinos for
the year ended 31 March 2006 was approximately R10 billion, compared to R6 billion for the year ended
31 March 2003, reflecting a compound annual growth rate of approximately 18%.
The rapid growth of the South African gaming industry has been driven primarily by strong
macroeconomic factors such as GDP growth, an increase in disposable income and an emerging black middle
class. Since 1995, GDP grew at a compound annual growth rate of approximately 4% and household disposable
income grew at a compound annual growth rate of approximately 10%, while the rate of inflation fell to an
average of approximately 6% per year. Economic growth and stability in South Africa are expected to continue in
the medium term due to sustained consumer confidence, expansion of the black middle class, increasing
employment and increased government expenditure ahead of the FIFA 2010 World Cup.
Gauteng Province is South Africa's largest casino market. Casinos in Gauteng Province have on average
accounted for approximately 42% of all casino revenue generated each year in South Africa since 2004. Gauteng
Province is home to Johannesburg, South Africa's business capital and most affluent metropolitan area, as well as
Pretoria, the country's administrative capital. In 2006, approximately 20% of the South African population lived in
Gauteng Province, and, in the same period, generated 34% of the country's GDP. The following table sets forth
information currently available concerning the seven casinos in Gauteng Province ordered by number of slot
machines operated:
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Casino
Year
opened
Carnival City] .........................................................................................................
Montecasino] ..........................................................................................................
Emperors Palace] ....................................................................................................
Gold Reef City] .......................................................................................................
Silverstar Casino] ....................................................................................................
Emerald Safari] .......................................................................................................
Morula Sun] ............................................................................................................
Total.......................................................................................................................
1998
2000
1998
2000
2008
2001
1987
Slot
machines
1,750
1,700
1,640
1,600
700
660
510
8,560
Gaming
tables
60
70
67
50
30
23
12
312
___________
(1)
Operated by publicly listed companies whose information is made publicly available.
(2)
Based upon the annual report of the National Gambling Board for the financial year ended 31 March 2006.
(3)
Anticipated opening date and number of gaming positions based upon media reports.
Outside Gauteng Province, there are 28 casinos, with an estimated total of 11,847 slot machines and 456
gaming tables.
The competitive environment
Casinos in Gauteng Province have on average accounted for approximately 42% of all casino revenue
generated each year in South Africa since 2004. The casino market in Gauteng Province is highly competitive,
with operators constantly vying for market share. However, because casinos in South Africa are visited primarily
by local guests who we believe tend not to travel more than 75km to reach their casino destinations, most casinos
in the province, such as Emperors Palace, have maintained a steady and relatively stable market share.
Competition in Gauteng Province is expected to further intensify in 2008 with the anticipated opening of
Silverstar, which will be located approximately 70km from Emperors Palace. We believe the opening of Silverstar
will have a greater impact on Montecasino and Gold Reef City given these casinos' relatively close proximity to
the new casino. Silverstar will be the seventh casino in Gauteng Province. Unless amended by legislation, no new
casino licences are expected to be awarded in Gauteng Province because the maximum number of casino licences
permitted in that province has been issued.
Competition among licensed casino operators in Gauteng Province is strong, resulting in high levels of
expenditure on marketing, entertainment and promotions to attract and retain customers. Casinos in provinces
outside Gauteng Province tend to have little to no competition from other licensed casinos because there is much
less of an overlap of the catchment areas of these casinos. Casinos also compete with other legalised forms of
gambling in South Africa, including bingo, limited payout machines, and horse and other sports betting. Illegal
casinos remain a source of competition in certain provinces, such as North West Province.
The six casino licences that remain to be issued outside Gauteng Province are all for relatively small
casino projects. These licences are allocated to the following locations: Burgersfort, in Limpopo Province,
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Queenstown and Mthatha, in Eastern Cape Province, in one unspecified location in each of Free State and
Mpumalanga Provinces and Kuruman, in Northern Cape Province. There are currently preferred bidders for each
of the licences in Queenstown, Mthatha and Kuruman.
The South African hotel industry
South Africa is one of the fastest growing business and holiday destinations in the world. The number of
international tourists visiting South Africa has more than doubled since 1994, from less than 3 million in that year
to a record of approximately 7 million in 2004. From 2005 to 2006, total overseas tourists visiting South Africa
has increased by approximately 6% and tourists visiting from the rest of Africa have increased by approximately
18%. To accommodate the growing tourist market, the hotel industry in South Africa had an inventory of 31,616
available rooms as at December 2006. The majority of the available rooms are concentrated in the major
metropolitan areas of South Africa. The following table sets forth information concerning the number of rooms in
the major metropolitan areas of South Africa for 2006.
Hotel Category
Total
number
of rooms
Johannesbu
rg
Five star................................................................................................
Four star ...............................................................................................
Three star..............................................................................................
Budget..................................................................................................
6,222
9,894
11,329
4,171
2,114
2,525
3,130
1,686
1,654
3,238
2,196
640
—
1,028
1,052
819
Total.....................................................................................................
31,616
9,455
7,728
2,889
Cape
Town
Durban
Hotel occupancies and rates remain high throughout major cities in South Africa. The following table sets
forth information concerning occupancy rates and average room rates for the Johannesburg metropolitan area,
excluding the area surrounding the Johannesburg international airport:
2006
2005
Occupan Average Occupan Average
cy rate room rate cy rate room rate
(%)
(rand)
(%)
(rand)
Hotel category
Five star....................................................................................................
Four star ...................................................................................................
Three star..................................................................................................
68
67
68
850
473
440
74
70
70
940
529
495
___________
Source: HotelBenchmark™ Survey by Deloitte & Touche LLP.
In addition, occupancy rates for hotels surrounding the Johannesburg international airport increased from
approximately 73% in 2005 to 74% in 2006, with average room rates increasing from R534 in 2005 to R606 in
2006.
Africa:
The following table sets forth information concerning occupancy rates and average room rates in South
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2005
2006
Occupan Average Occupan Average
cy rate room rate cy rate room rate
(%)
(rand)
(%)
(rand)
Hotel category
Five star....................................................................................................
Four star ...................................................................................................
Three star..................................................................................................
67
68
66
958
547
414
71
69
68
1,049
622
461
___________
Source: HotelBenchmark™ Survey by Deloitte & Touche LLP.
The attractiveness of South African hotels to international and domestic leisure and business travellers is
affected by the relative performance of average room rates as well as the fluctuation of the South African rand
relative to the relevant international currencies. After demand from the domestic market and other African
markets, the United Kingdom is South Africa's largest overseas inbound source market, with 388,205 visitors
travelling to South Africa during the 10-months ended 31 October 2006, followed by the United States and
Germany, with 217,605 and 203,415 visitors during the same period, respectively.
Convention facilities
The South African convention industry is currently estimated to have 1,600 facilities and a total of over
2 million conference room days available. Currently, the average number of seats per conference venue is 215 and
there are a total of 343,000 seats available, an increase of approximately 26% from 1999. The number of seats
available translates to 125 million available delegate days per year, an increase of 25% from 1999. Both the hotel
and convention industries are expected to grow leading up to the FIFA 2010 World Cup. In addition, in 2006,
South Africa's tourism board launched its "Business Unusual" campaign, aimed to attract additional conference
and convention business to South Africa.
The Botswana gaming industry
The Botswana gaming industry consists of private operators of casinos primarily located in Gaborone,
Botswana's capital. Casino revenue in Botswana is mainly derived from the operation of slot machines and
gaming tables. Although the gaming industry in Botswana is currently less regulated than in South Africa, new
gaming legislation is being considered the terms of which are expected to be similar to those of South Africa's
gaming legislation. As a result of the pending legislation, there is currently a moratorium on issuing more than the
10 currently issued casino licences.
Of the 10 licences that are currently issued, four are issued to casino operators in Gaborone and of those
four, only one has yet to be developed. Two of the four licences are held by the largest casinos in Gaborone,
namely Grand Palm and Gaborone Sun. Market share is evenly apportioned between these two casinos; however,
competition is strong because both casinos target the same guests. The third of the four licences in Gaborone is
held by a new and small casino at Gaborone Hotel, with 50 slot machines. To date, this new casino has not had a
material effect on the results of either Grand Palm or Gaborone Sun due to their differing target markets.
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The Botswana hotel industry
The hotel industry in Botswana has grown consistently over the last five years and there have been new
entrants into the market annually. Gaborone has approximately six hotels of three stars or above, three of which
are operated by Peermont. Since the opening of the Metcourt Inn, the hotel industry in Gaborone has experienced
some aggressive discounting by competitors, although we believe this has now stabilised.
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BUSINESS
Overview
largest casino resort operator in Gauteng Province, with a market share in this province of approximately 26%
five star luxury properties, various restaurants including popular recognised chains, as well as a variety of fine
dining options, a number of differently themed bars, amusement arcades and child care centres. Certain of our
larger casino resorts also feature convention facilities and theatres.
We generated revenue of R1,632.8 million (€176.6 million) and EBITDA of R632.1 million
(€68.4 million) in the year ended 31 December 2006, approximately 80% of which was generated by our casino
operations. During the same period we generated, on a pro forma basis after giving effect to the Transactions and
the Tusk Acquisition as if they had occurred on 1 January 2006, revenue of R2,064.5 million (€ 223.3 million) and
EBITDA of R815.0 million (€88.1 million). Approximately 82% of this pro forma revenue was generated by our
casino operations.
Our strengths
We believe that we benefit from the following competitive strengths:
Leading market position in South Africa's largest casino market. Emperors Palace is the second largest
generator of casino revenue in Gauteng Province, South Africa's largest casino market. Gauteng Province is home
to Johannesburg, South Africa's business capital and most affluent metropolitan area, as well as Pretoria, the
country's administrative capital. In 2006, approximately 20% of the South African population lived in Gauteng
Province, and, in the same period, generated 34% of the country's gross domestic product. In 2006, Emperors
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Palace had approximately a 26% share of the casino gaming market in Gauteng Province with only 21% of the
province's total gaming positions. Emperors Palace is strategically situated in the heart of this market, with its
75km catchment area including both the Johannesburg and Pretoria metropolitan areas. We estimate that we draw
at least 77% of our guests at Emperors Palace from this catchment area. Easily accessible by major motorways
and the national railway network, Emperors Palace also offers a five-minute complimentary shuttle service to and
from the Johannesburg international airport. It is also the only casino located near the planned route of the
Gautrain, a high-speed rail link, which, when completed, will connect the Johannesburg and Pretoria metropolitan
areas with the Johannesburg international airport.
Attractive South African market with high barriers to entry. Our South African operations generated
approximately 93% of our pro forma revenue in 2006. We believe South Africa is an attractive market for casino
operators due primarily to the country's relatively high rate of economic growth in recent years, the legislative
framework established to regulate its gaming industry and the barriers new entrants to the market would have to
overcome in order to compete successfully. We expect that South Africa will continue to experience relatively
high GDP growth along with corresponding increases in disposable income and consumer spending. Historically,
casino revenue has tended to increase along with increases in consumer spending. The South African casino
market is also attractive due to the current legislation governing the gaming industry in the country, which limits
the number of casino licences that may be granted to 40 for South Africa as a whole. All but six of these licences
Gauteng Province, the country's largest casino market and home to our flagship Emperors Palace casino resort. In
addition, we believe that, in order to compete effectively with us, any new entrant to the South African casino
market would require operations in Gauteng Province on a scale comparable to ours. Establishing such operations
would require substantial capital investment that could be difficult to recoup in a market that is already served by
existing casinos. More importantly, such operations would have to be licensed and, at present, no further casino
licences remain to be allocated in Gauteng Province. Casinos in South Africa also tend to draw their patrons from
their surrounding catchment areas, each of which has a radius of approximately 75km. Any given casino,
therefore, tends to compete only with casinos with catchment areas that overlap significantly with its own 75km
catchment area. Accordingly, we believe that Emperors Palace only effectively competes with the three casinos
out of the remaining six in Gauteng Province whose catchment areas overlap significantly with that of Emperors
Palace, and that our casino properties located outside of Gauteng Province effectively have no direct competition
due to the absence of other licensed casinos with catchment areas significantly overlapping those of our own
casinos in these areas.
Attractive diversified product offering. We believe that our casino resorts offer our guests an attractive
array of combined gaming and entertainment offerings. At the heart of these offerings are the wide variety of
gaming options available in each of our casino resorts and stand-alone casinos. These range from traditional
gaming tables hosted by experienced dealers to modern, themed video slot machines. All of our gaming options
are situated in what we believe are attractive, well-kept surroundings whose ambience is aimed at offering our
guests an enjoyable and comfortable gaming experience. Our hotels range from attractively priced three star
hotels, such as the Metcourt Inn and the Metcourt Lodge, to the five star D'Oreale Grande, the most exclusive of
our three hotels within Emperors Palace and a property that is aimed at satisfying the most discerning guests.
Some of our casino resorts also feature retail areas offering a range of restaurant options, bars, amusement arcades
and child care centres. Certain of these resorts also contain convention facilities and theatres, which regularly host
popular music concerts, comedy acts and other celebrity entertainers. For example, Emperors Palace hosted Laila
Ali's recent super middleweight boxing world title fight and a charity event hosted by Pelé. Emperors Palace will
also continue to host the meetings of the FIFA 2010 World Cup organising committee. All of our product
offerings and events are supported by a range of marketing and promotional events.
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Strong cash flow. In 2006, Emperors Palace generated a 39% EBITDA margin, the highest of any casino
operating in Gauteng Province for which financial statements are publicly available. Our cash conversion ratio,
which we define as free cash flow as a percentage of EBITDA, has been over 90% in the last five years. We
define free cash flow as EBITDA minus changes in working capital and maintenance capital expenditures net of
proceeds received from the sale of property, plant and equipment.
Black economic empowerment credentials. Following the completion of the Transactions, broad-based
BEE investment groups and BEE individuals will together effectively direct the voting of approximately 80% of
our ordinary shares, the highest level of BEE control of any casino operator in South Africa. BEE status is one of
the factors that is taken into consideration by regulators in awarding and amending licences. We believe that this
market leading BEE status will position us well to:
•
increase the number of licensed casino gaming positions at our existing properties;
•
maintain good relationships with our gaming regulators;
•
compete successfully for new gaming licences; and
•
obtain extensions, renewals and amendments to our existing gaming licences and permits.
Experienced and incentivised management team. Our senior management team consists of experienced
professionals with strong backgrounds in the casino and hotel industries in South Africa. Our nine senior
executive officers together have over 109 years of experience in the casino and hotel industries. In addition, upon
completion of the Transactions, members of our senior management team will own approximately 17.5% of our
share capital. We believe, therefore, that our management team will be well incentivised to continue to
successfully grow and develop our business in the future.
Our strategy
The key elements of our strategy are as follows:
Continue increasing existing guest spend and attracting new guests. We intend to continue to build
upon our successful track record to grow revenue by increasing the amount our existing guests spend. We will
seek to do so by refining and increasing our product offerings and continuing to introduce the latest gaming
products and systems. We were among the first casino operators in South Africa to introduce lower denomination
slot machines and mystery jackpots. In addition, Emperors Palace casino resort is the only casino in Gauteng
Province that offers a choice of smartcard, token or cash play slot machines. We also intend to continue attracting
loyal guests through direct marketing campaigns and also new guests by expanding our other successful
promotional activities. We recently ran an innovative promotional campaign that involved the giving away of a
combination of cash, a car and a new house to registered guests, and intend to continue to develop similarly
successful campaigns in the future. We will also continue to target new guests through our entertainment offerings
and by further promotion of our complementary facilities, and to selectively target premium players from Asia by
offering them attractive tailor-made packages.
Continue to generate strong EBITDA margin and cash flow. Over the last three years, we have
consistently generated EBITDA margins exceeding 37%, and in 2006 generated an EBITDA margin of
approximately 39%. We have been able to generate these strong margins by carefully managing our personnel
costs, aligning discretionary expenditures, such as those related to complimentary food and beverages offered to
guests, with gaming volume, by taking advantage of purchasing efficiencies and economies of scale. We intend to
continue to build upon this successful track record by further centralisation of certain administrative and other
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functions, such as payroll, by taking further advantage of purchasing efficiencies and economies of scale and by
expanding the facilities at our existing properties.
Selectively expand our operations. Due to the nature of the current South African gambling legislation,
much of our growth is expected to come from expanding our current operations. We intend to do so primarily by
leveraging existing facilities and management team infrastructure and by capitalising on the unused land on our
properties. Among other things we will seek to:
•
add new casino gaming positions;
•
build on our available space in our existing properties to accommodate expected increased demand for
casino gaming and hotels generated by expected increases in consumer spending; and
•
add new services to our existing properties.
In addition, we also believe that our position as a leading casino operator in South Africa provides us with
a strong platform to expand our business through strategic investments. We intend to carefully evaluate, select and
pursue opportunities to make such investments as they arise.
Recent Developments
During the month of January 2007, we generated revenue, on a pro forma basis, of R175.2 million
(€18.9 million), an increase of R26.8 million, or 18.1%, from R148.4 million (€16.0 million) for January 2006.
During the month of February 2007, we generated revenue, on a pro forma basis, of R180.9 million
(€19.6 million), an increase of R28.7 million, or 18.9%, from R152.2 million (€16.5 million) for February 2006.
For January and February 2007, we generated EBITDA margins in line with our historical three year
average of 38%.
On 9 March 2007, the casino licence at Emperors Palace was amended by the Gauteng Gambling Board to
permit us to operate an additional 12 traditional poker gaming tables. We intend to commence operating eight of
these tables by 30 September 2007.
Our operations
We operate an attractive portfolio of 12 casino and hotel properties. Our properties include six casino
resorts with nine integrated hotels, two stand-alone casinos and four stand-alone hotels in South Africa and
Botswana. As of 31 December 2006, we operated a total of 3,105 slot machines, 143 gaming tables and 1,312
hotel rooms. In 2006, our casinos generated approximately 82% of our pro forma revenue. Our flagship property
is Emperors Palace, which is strategically located in the Johannesburg metropolitan area. In 2006, Emperors
Palace generated 71% of our pro forma revenue and 70% of our pro forma EBITDA. Nine of our properties are
located in South Africa and three in neighbouring Botswana. In 2006, our South African properties generated
approximately 93% of our pro forma revenue.
The following table sets forth certain information concerning each of our properties:
Property
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Location
Property
type
87
Hotel
category
Slot
machines
Gaming
tables
Rooms
Emperors Palace Hotel,
Casino and
Convention Resort
Kempton Park
(Johannesburg
metropolitan area),
Gauteng Province,
South Africa
Graceland Hotel, Casino Secunda, Mpumalanga
and Country Club
Province, South Africa
Tusk Mmabatho Casino Mafikeng, North West
Resort
Grand Palm Hotel,
Gaborone, Botswana
Casino and
Convention Resort
Tusk Venda Casino
Thohoyandou, Limpopo
Hotel
Frontier Inn and Casino Bethlehem, Free State
Tusk Umfolozi Casino Empangeni,
KwaZulu-Natal
Tusk Rio Casino
Klerksdorp, North West
Mondior Summit Hotel Gaborone, Botswana
Metcourt Lodge
Francistown, Botswana
Mondazur Resort Estate San Lameer,
Hotel
KwaZulu-Natal
Tusk Taung Hotel
Taung, North West
Total
Casino resort
Five and
three star
1,640
67
426
Casino resort
Four star
378
16
98
Casino resort
Four star
155
8
150
Casino resort
Four and
three star
150
13
337
Casino resort
Three star
129
6
82
Casino resort
Three star
120
12
20
Stand-alone
casino
—
278
10
—
Stand-alone
casino
Stand-alone
hotel
Stand-alone
hotel
Stand-alone
hotel
—
255
11
—
Three star
—
—
67
Three star
—
—
53
Four star
—
—
40
Three star
—
—
39
13
3,105
143
1,312
Stand-alone
hotel
12
Our casino resorts
Emperors Palace Hotel, Casino and Convention Resort, Kempton Park (Johannesburg metropolitan
area), Gauteng Province, South Africa. Emperors Palace is our flagship property. We established Emperors
Palace in 1998 as a joint venture with Caesars World Inc. of Las Vegas and purchased, together with minority
investors, Caesars' 25% interest in March 2005. It features a casino, three hotels, a variety of restaurants and
cocktail bars, entertainment and retail venues, convention facilities, child care centres and a health and beauty spa.
Emperors Palace casino offers 1,640 slot machines and 67 gaming tables arranged in a variety of distinct
smoking and non-smoking gaming areas. The casino is open 24 hours a day and features slot machines with bets
ranging from as little as R.01 up to R500 on traditional reel slot machines, the latest themed multi-line video slot
machines and poker and video roulette machines. The gaming floor also features traditional table games with
generous spacing between gaming positions providing our guests with a private and comfortable gaming
experience. The casino also offers premium guests an exclusive salon privé featuring traditional table games and
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private gaming suites. Slot machines in the various gaming areas of the casino are electronically linked to give
guests the opportunity to win jackpot payouts through a mystery jackpot system. Mystery jackpots are randomly
paid to machines in use by guests and do not require a winning combination to be won.
Emperors Palace offers its guests accommodation in the three star Mondior Concorde hotel, the three star
Metcourt Laurel hotel and the five star luxury D'Oreale Grande hotel. The Mondior Concorde and the Metcourt
Laurel have 150 and 80 rooms, respectively, ranging from attractively priced standard rooms to a presidential suite
at the Metcourt Laurel. The D'Oreale Grande hotel has 196 rooms, including 14 suites, each featuring 24-hour
room service and access to the hotel's fine restaurants, swimming pool and health and beauty spa. Emperors
Palace offers a variety of restaurant options from popular fast food chains to exclusive restaurants offering fine
dining and several cocktail bars.
The convention facilities at Emperors Palace feature the following: the 2,700m2 Centre Court venue
suitable for banquets of up to 1,500 guests, sporting and musical events, exhibitions, seminars and conferences;
the 1,656m2 North Wing, a sub-divisible assembly room with a capacity ranging from 30 up to 2,000 guests ideal
for large conferences, banquets and product launches; and the South Wing, which consists of three venues each
with a capacity of up to 340 guests, and four 80m2 meeting rooms each with a capacity of up to 60 guests and
suitable for use as executive boardrooms or for breakaway meetings. The casino resort also includes The Theatre
of Marcellus, a multipurpose state-of-the-art theatre that can accommodate over 900 guests. When not being used
as a convention venue the theatre plays host to world-class dance shows, musicals and plays. Emperors Palace
also offers multipurpose entertainment venues, including South Africa's largest indoor family entertainment centre
featuring an indoor roller coaster, bumper car track and over 200 video arcade games.
Emperors Palace regularly hosts popular music concerts, international title boxing matches, comedy acts
and other celebrity entertainers. For example, Emperors Palace hosted Laila Ali's recent super middleweight
boxing world title fight and a charity event hosted by Pelé. Emperors Palace will continue to host the meetings of
the FIFA 2010 World Cup organising committee.
Emperors Palace is strategically situated in the heart of this market, with its 75km catchment area
including both the Johannesburg and Pretoria metropolitan areas. Easily accessible by major motorways and the
national railway network, Emperors Palace also offers a five-minute complimentary shuttle service to and from
the Johannesburg international airport. It is also the only casino located near the planned route of the Gautrain, a
high-speed rail link, which, when completed, will connect the Johannesburg and Pretoria metropolitan areas with
the Johannesburg international airport.
In 2006, Emperors Palace derived approximately 86% of its revenue from gaming, 5% from rooms and
9% from convention, catering and other activities.
Graceland Hotel, Casino and Country Club, Secunda, Mpumalanga Province, South Africa. Graceland
features a casino, one four star hotel, two restaurants, two cocktail bars, entertainment venues and convention
facilities, sports and recreational facilities and a child care centre.
Graceland casino offers 378 slot machines and 16 gaming tables arranged in a distinct smoking and nonsmoking gaming areas. The casino is open 24 hours a day and features traditional reel slot machines and the latest
themed multi-line video slot machines, poker and video roulette machines. The gaming floor also offers guests
traditional table games and an exclusive private gaming area for premium guests. Slot machines in some of the
gaming areas of the casino are electronically linked to offer higher jackpots than would be possible on a
stand-alone basis.
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Graceland offers guests accommodation in a four star hotel with a total of 98 rooms, ranging from standard
rooms to a White House themed Presidential Suite with elegant traditional and sophisticated furnishings and
interior features. Graceland offers dining options in two restaurants and a self-service snack bar.
The convention facilities at Graceland feature the following: a sub-divisible 333m2 convention hall
suitable for banquets, weddings, conferences and seminars, with a maximum capacity of 400 guests; a 1,200m2
arena ideal for exhibitions, music or sporting events, capable of hosting up to 1,200 guests; and six additional
convention and meeting rooms, each seating up to 350 guests and suitable for use as executive boardrooms or for
breakaway meetings. The casino resort also includes a 120-seat cinema which can be used as a presentation venue
for lectures, seminars and presentations. Graceland also offers an 18-hole championship golf course designed by
Gary Player, a driving range and a pitch and putt golf course, as well as a heated swimming pool, two tennis
courts and child care facilities.
Graceland attracts guests from within its 75km catchment area and is also a destination resort for guests
from Johannesburg and Pretoria, particularly during weekends and holiday periods. It is accessible by major
motorways.
In 2006, Graceland derived approximately 73% of its revenue from gaming, 8% from rooms and 19%
from convention, catering and other activities.
Tusk Mmabatho Casino Resort, Mafikeng, North West Province, South Africa. Tusk Mmabatho
features a casino, one four star hotel, two restaurants, five cocktail bars, conference and banqueting facilities as
well as sporting and recreational facilities, a child care centre and a health and beauty clinic.
Tusk Mmabatho casino contains 155 slot machines and eight gaming tables arranged in distinct smoking
and non-smoking gaming areas. The casino is open 24 hours a day on weekends and features traditional reel slot
machines and the latest themed multi-line video slot machines, poker and video roulette machines. The gaming
floor also offers guests traditional table games. Slot machines in the various gaming areas of the casino are
electronically linked to give guests the opportunity to win jackpot payouts through a mystery jackpot system.
Tusk Mmabatho offers guest accommodation in its four star hotel. Tusk Mmabatho casino resort hotel has
150 rooms ranging from simple twin rooms to a presidential suite. The casino resort also includes two restaurants
and five bars. In addition, Tusk Mmabatho casino resort offers guests state-of-the-art meeting facilities.
The sporting and recreational facilities at Tusk Mmabatho casino resort include two tennis courts, two
swimming pools, a volleyball court, a mini golf course, an 18-hole championship golf course, a health and beauty
spa, paint ball facilities, a children's amusement area, and a curio and gift shop.
For the period from 1 September 2006, the date of the Tusk Acquisition, to 31 December 2006, Tusk
Mmabatho derived approximately 79% of its revenue from gaming, 17% from rooms and 4% from convention,
catering and other activities.
Grand Palm Hotel, Casino and Convention Resort, Gaborone, Botswana. Grand Palm features a casino,
two hotels, three restaurants and four cocktail bars, entertainment and convention centre facilities, sports and
recreational facilities and a child care centre.
Grand Palm Casino contains 150 slot machines and 13 gaming tables conveniently arranged in a variety of
distinct smoking and non-smoking gaming areas. The casino is open 24 hours a day and features traditional reel
slot machines and the latest themed multi-line video slot machines. The casino also offers guests traditional table
games.
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Grand Palm offers guests accommodation in the three star Metcourt Inn hotel or at the four star Walmont
Ambassador Hotel. Metcourt Inn hotel has 149 rooms ranging from attractively priced executive twin rooms to
executive king rooms. Walmont Ambassador Hotel has 188 rooms ranging from twin rooms to a presidential
suite, each featuring 24 hour room service. This hotel also features an "executive floor" aimed at the international
business traveller. Walmont Ambassador offers dining options in three restaurants.
The convention facilities at Grand Palm feature the following: two meeting facilities with a capacity of up
to 250 and 100 guests and a cinema with a capacity of up to 100 guests, which may be used also for seminars and
lectures. We also operate the Gaborone International Convention Centre, which is adjacent to Grand Palm and
features the following facilities: the 1,550 m2 Tsodilo Suite with a maximum capacity of up to 1,807 people; the
150m2 Serondela Rooms, which consists of four individual rooms that may be used separately or together, each
with a capacity of up to 30 people; the exclusive San-Ta Wani suite, which contains an exclusively decorated
lounge area with a boardroom table that seats 20 guests, fireplaces, a service area for bar and catering services and
a balcony overlooking the casino resort. The back doors of the Tsodilo Suite have been specially designed to
permit the Tsodilo Suite to host car launches. The convention facilities benefit from a business centre, and offer
computer workstations with access to the internet and e-mail and a meeting facility. In addition, the parking area
adjacent to the convention facilities is capable of hosting a large marquee suitable for a variety of functions.
In 2005, the Gaborone International Convention Centre hosted the Southern African Development
Community heads of state, and in 2004 President George W. Bush.
In 2006, Grand Palm derived approximately 44% of its revenue from gaming, 20% from rooms and 36%
from convention, catering and other activities.
Tusk Venda Casino Hotel, Thohoyandou, Limpopo Province, South Africa. Tusk Venda casino resort
features a casino, a hotel, two bars, restaurants, and sporting and recreational facilities for gaming and non-gaming
guests. The casino contains 129 slot machines and six gaming tables featuring traditional table games. The casino
features both traditional reel slot machines and the latest multi-line video slot machines and traditional table
games.
Tusk Venda offers guests accommodation in a three star hotel with 82 rooms ranging from twin rooms to
suites. The sporting and recreational facilities at Tusk Venda include two tennis courts, a swimming pool, a mini
golf course, a gym and sauna and a children's amusement area and care centre. Tusk Venda casino resort also
offers four conference rooms and banqueting facilities.
For the period from 1 September 2006, the date of the Tusk Acquisition, to 31 December 2006, Tusk
Venda derived approximately 82% of its revenue from gaming, 13% from rooms and 5% from other activities.
Frontier Inn and Casino, Bethlehem, Free State Province, South Africa. Frontier Inn casino resort,
which opened in November 2006, is our newest property. It features a casino, a hotel, bar, a restaurant, a
convenience shop, and a children's amusement and care centre. The casino contains 120 slot machines and 12
gaming tables. The casino features both traditional reel slot machines and the latest multi-line video slot machines
and traditional table games. Frontier Inn is a three star hotel with 20 rooms.
In 2006, Frontier Inn derived approximately 92% of its revenue from gaming, 3% from rooms and 5%
from other activities.
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Our stand-alone casinos
Tusk Umfolozi Casino, Empangeni, KwaZulu-Natal Province, South Africa. Tusk Umfolozi is a
stand-alone casino featuring a restaurant and bar and a children's amusement and care centre. The casino contains
278 slot machines and 10 gaming tables. The casino features both traditional reel slot machines and the latest
multi-line video slot machines and traditional table games. Tusk Umfolozi casino also offers an entertainment and
conference facility that holds up to 200 guests. As a condition to our licence to operate Tusk Umfolozi, we are
required to build a hotel with at least 45 rooms, the construction of which we anticipate commencing in the next
6 months.
In 2006, Tusk Umfolozi derived approximately 99% of its revenue from gaming and 1% from other
activities.
Tusk Rio Casino, Klerksdorp, North West Province, South Africa. Tusk Rio is a stand-alone casino
featuring a restaurant, bars and a children's entertainment and care area. Tusk Rio casino contains 255 slot
machines and 11 gaming tables. The casino is open 24 hours per day and features both traditional reel slot
machines and the latest multi-line video slot machines and traditional table games. Tusk Rio casino offers several
entertainment facilities for children, including a Barnyard Theatre and a Fantasia Game Arcade. Tusk Rio also
offers three venues for conferencing and banqueting. As a condition to our licence to operate Tusk Rio, we are
required to build a hotel on these premises with at least 45 rooms, the construction of which we anticipate
commencing in the next 12 months.
For the period from 1 September 2006, the date of the Tusk Acquisition, to 31 December 2006, Tusk Rio
derived approximately 98% of its revenue from gaming and 2% from other activities.
Our stand-alone hotels
Mondior Summit Hotel, Gaborone, Botswana. Mondior Summit is a stand-alone three star hotel with 67
rooms ranging from studios to two bedroom suites. All suites are en-suite and feature air-conditioning and a fully
equipped kitchenette. Mondior Summit hotel includes a restaurant and bar and offers several facilities and services
including a swimming pool and child care services. Mondior Summit hotel also offers convention facilities which
can accommodate up to 100 guests. In 2006, Mondior Summit derived approximately 56% of its revenue from
rooms and 44% from convention, catering and other activities.
Metcourt Lodge, Francistown, Botswana. Metcourt Lodge is a stand-alone three star hotel with
53 rooms. All rooms are located around an enclosed, landscaped atrium with outdoor seating and a water feature.
Metcourt Lodge hotel includes a restaurant and bar, a confectionery shop and a conference room for up to 60
guests. In 2006, Metcourt Lodge derived approximately 47% of its revenue from rooms and 53% from
convention, catering and other activities.
Mondazur Resort Estate Hotel, San Lameer, KwaZulu-Natal Province, South Africa. Mondazur is a
stand-alone four star hotel with 40 rooms located on the secure beach and golf course reserve estate at San
Lameer. The hotel includes two conference rooms for up to 140 people. Guests have access to the San Lameer
estate's 18-hole championship golf course, blue flag beach (an exclusive international eco-label awarded by an
independent non-profit organisation that select beaches meeting strict ecological standards), two squash courts,
four flood-lit tennis courts, two swimming pools, children's play park, video arcade, bowling greens, indoor
cricket, lagoon boat rides, nature trails, bar, restaurant and supermarket. In addition, we manage 20 four star
private villas of two to four bedrooms that we rent to guests on behalf of the villa's owners. Mondazur is a 90
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minutes drive from the Durban international airport. In 2006, Mondazur derived approximately 36% of its revenue
from rooms and 64% from convention, catering and other activities.
Tusk Taung Hotel, Taung, North West Province, South Africa. Tusk Taung is a stand-alone three star
hotel with 39 rooms ranging from family twin rooms to a presidential suite. Tusk Taung hotel also includes a
restaurant, sporting and recreational facilities, including two tennis courts and an 18-hole mini golf course, and a
conference room, which can accommodate up to 100 guests. For the period from 1 September 2006, the date of
the Tusk Acquisition, to 31 December 2006, Tusk Taung derived approximately 35% of its revenue from rooms
and 65% from convention, catering and other activities.
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Our development projects
We plan to expand our hotel facilities at Emperors Palace. We also plan to add a hotel with at least
45 rooms at each of Tusk Umfolozi and Tusk Rio that we are required to build, in each case, as conditions to the
gaming licences to operate each of the casinos at these properties.
We have submitted applications for two casino licences and related property development projects, which
have not yet been awarded. We submitted an application to operate a casino resort in Mthatha, in Eastern Cape
Province. As part of our application for the licence, we undertook to build a casino, hotel, conference facility, a
restaurant, a bar, a children's entertainment facility and a fast food area, at a total project cost of R215 million. We
have been selected as the preferred bidder for the Mthatha licence by the Eastern Cape Province gaming authority.
However, our selection as preferred bidder is being challenged in the High Court of South Africa by the
unsuccessful bidder. Resolution of this challenge may take a significant amount of time and may not be in our
favour. We also submitted an application to operate a casino resort in Burgersfort, in Limpopo Province. As part
of our application for the licence, we undertook to build a casino, hotel, conference facility, a restaurant, a
children's entertainment facility and a fast food area, at a total project cost of R150 million. The provincial gaming
authority is yet to select any preferred bidder for Burgersfort. See "Risk Factors—Risks related to our business—
We are currently in the development stage of several projects, each of which is subject to a variety of
contingencies and risks that may ultimately prevent us from realising such plans and/or have a material adverse
effect on our profitability and cash flow."
Our gaming equipment
We operate a total of 3,105 slot machines and 143 gaming tables. Our slot machines range from traditional
reel slot machines to themed multi-line video slot machines, and also include poker and video roulette machines.
Our gaming equipment also includes tables for blackjack, baccarat, punto banco, American roulette and poker.
Video slot machines offer an advanced technology themed gaming experience and provide our guests with
a wide variety of gaming options. Approximately 1,688, or 54%, of our slot machines are state-of-the-art multiline video slot machines. Our video slot machines are highly popular and sought after by our guests, in particular
by our more sophisticated customers at Emperors Palace.
The cost of the latest technology video slot machines ranges between $11,000 and $20,000. Our decision
to replace our slot machines is based upon factors such as customer demand, competition and general wear and
tear. At Emperors Palace in particular, we regularly replace our slot machines as a result of the competitive nature
of the Gauteng Province casino market and in response to guest demand for the latest and most popular machines
on our gaming floors. We maintain our slot machines in-house to ensure optimal functionality to meet our guests'
expectations.
Each gaming table is dedicated to one particular game, such as blackjack, American roulette, poker,
baccarat or punto banco. The average life of gaming tables is much longer than those of slot machines. Our
decision to replace our gaming tables is principally driven by general wear and tear, not technological
advancements.
We procure our slot machines, casino management systems and gaming tables from several international
vendors, including International Game Technology, WMS Industries Incorporated, Atronic International GmbH,
Aristocrat Leisure Limited, Aruze Corporation, Austrian Gaming Industries GmbH, GameSmart (Proprietary)
Limited and TCS John Huxley UK Limited.
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Marketing and sales
We consider our marketing and sales efforts to be a key factor in retaining existing and attracting new
guests. We market our properties through advertising, direct marketing and promotional campaigns. We advertise
our properties, gaming offers, entertainment and promotional campaigns in a variety of media, including regional
radio, newspapers, magazine, other print advertisements and billboards. In addition, to promote Emperors Palace,
we also use television advertising. Our marketing efforts are focused primarily on targeting guests from South
Africa, and in particular those in Gauteng Province. Unlike other casinos, such as those in Macao or Las Vegas
that draw domestic and international guests, we draw our guests from a catchment area typically located within a
radius of approximately 75km from each of our casinos. We estimate that we draw at least 77% of our guests from
our catchment area. However, in recent years, South Africa has become an international tourist destination and as
a result, in addition to our intensive regional marketing, we now also selectively market our properties
internationally. In 2006, we spent approximately 6% of our total revenue on marketing and promotional activities.
Generally, 80% of our marketing activities are focused on our casinos and the remainder on our hotels. We
estimate that approximately 80% of our marketing is focused on Gauteng Province to promote Emperors Palace.
We actively engage in direct marketing, which is targeted to reach our loyal guests. These direct marketing
efforts involve our offering complimentary food and beverage to loyal guests, issuing invitations by conducting
direct mail and e-mail campaigns, as well as placing personal phone calls and making personal visits to selected
guests. We also issue special invitations to various entertainment and sporting events held at Emperors Palace or
other properties, and to various other events we organise, such as golf outings.
We operate a casino guest loyalty programme called "the Winners Circle." The Winners Circle encourages
loyalty and frequent play by offering a range of benefits across its different loyalty tiers and bonus points for
average bet and amount of time spent gaming. Enrolment in the programme is free and open to all of our guests.
Loyalty status tiers provide different levels of benefits and are determined based on a guest's gaming activity.
Winners Circle benefits include free entrance to the casino, VIP parking, cash-back bonus points for slot machine
play, hotel discounts, newsletters and special events notification and complementary tickets and invitations to
concerts and entertainment events. Our Winners Circle members contribute 54% of our casino revenue at
Emperors Palace.
In addition, a large part of our marketing at Emperors Palace promotes a wide range of entertainment
events that we host, including popular music concerts, international title boxing matches, comedy acts, well
known local celebrities and cultural events. The advertising, promotions and other public relations efforts for such
entertainment events increase the visibility at Emperors Palace as well as its number of guests.
We conduct a variety of promotional campaigns from prize award competitions held over a period of a
several weeks that culminate in one large prize, to frequent, small scale prize giveaways. For example, our most
recent large scale prize competition was dubbed "Get the Life." The competition culminated in an innovative
combination prize drawing of R1 million, a car and a new house. The competition was heavily advertised on one
of the most popular radio stations in Gauteng Province.
We capitalise on South Africa's growing tourism industry by selectively marketing our properties
internationally. Our international marketing efforts are focused on print media advertising in airline and tour
operator magazines, including advertisements for Emperors Palace in Sawubona, the inflight magazine of South
African Airways. To further promote our properties internationally, we recently introduced the Imperium Club,
which is targeted at premium players and casino tour operators from Asia. We have virtual offices in various
major cities in Asia, such as Bangkok, Singapore and Kuala Lumpur, through which, we selectively target
premium players in Asia by offering them attractive tailor-made packages. For example, once we have identified a
premium player, we invite them to Emperors Palace, arrange for a visit, pay the player's airfare and provide a
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rebate on all losses. We also provide for an allowance covering accommodation, food and beverages. Imperium
Club players do not play on credit; they arrange for an amount of cash to be transferred to our account. This cash
is used to fund the players' gaming activities and all other costs incurred.
Our marketing department currently consists of 26 employees, 20 of whom are based at Emperors Palace,
five of whom are based in our corporate headquarters and one, based in Australia, who is responsible for all of our
virtual offices in Asia.
Our sales department consists of domestic and international sales teams. Our sales department's efforts are
primarily focused on increasing occupancy at our hotels and utilisation of convention facilities. Our domestic sales
team, which currently consists of 18 employees evenly split between Emperors Palace and corporate headquarters,
targets its sales efforts to group and corporate travel organisers, airlines, travel agents, and professional conference
and convention organisers. In addition, our domestic sales team also operates a centralised voice and internet
reservation service. We also utilise independent sales representatives located in Western and Eastern Cape,
KwaZulu-Natal, and Mpumalanga Provinces for regional sales. Our international sales team, which currently
consists of three employees located at our corporate headquarters, targets its sales efforts primarily to wholesale
tour operators and professional conference and convention organisers. Both our domestic and international sales
teams attend travel fairs worldwide to promote our properties.
Casino licences
The South African casino industry is highly regulated both on a national and provincial level. See
"Regulation," for a more complete description of the gaming regulatory requirements affecting the South African
casino industry.
Legislation permits the issuance of 40 casino licences, with sub-limits for each province. Currently, 34 of
these casino licences have been issued by competitive tender, with four of the remaining six casino licences in the
process of being awarded, including two for which we have applied. All the casino licences currently allocated to
Gauteng Province, where Emperors Palace is located, have been awarded. We hold seven casino licences in South
Africa, making us the holder of the second largest number of casino licences in South Africa. We hold one casino
licence in Botswana. In addition, we submitted an application for a casino licence in Mthatha, in Eastern Cape
Province, for which we have been selected as the preferred bidder by the provincial gaming board and for a casino
licence in Burgersfort, in Limpopo Province, for which no preferred bidder has yet to be selected by the provincial
gaming board. We believe we are in a strong position to be selected as the preferred bidder for the Burgersfort
licence based upon our expertise, track record, quality of our bid and our commitment to black economic
empowerment. Our selection as preferred bidder for the Mthatha licence is being challenged in the High Court of
South Africa by the unsuccessful bidder. Resolution of this challenge may take a significant amount of time and
may not be in our favour. See "Risk Factors—Risks relating to our business—We are currently in the
development stage of several projects, each of which is subject to a variety of contingencies and risks that may
ultimately prevent us from realising such plans and/or have a material adverse effect on our profitability and cash
flow."
All of our South African casino licences are valid indefinitely, other than (i) the casino licence we have
applied for in the Eastern Cape Province, which if issued to us, will be valid for 10 years and (ii) the casino licence
for Tusk Umflozi, which will become perpetual once we will have fulfilled our bid obligations by building the
hotel with at least 45 rooms that is required as a condition to the gaming licence to operate the casino at this
property. Our casino licence in Botswana is valid until 2011 and is renewable for five year periods thereafter. We
intend to renew all our non-indefinite casino licences prior to their expiry.
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Competition
Casinos in South Africa are visited primarily by local guests who we believe tend not to travel more than
75km to reach their casino destinations. Because South Africa does not yet have a highly developed public
transport system, most guests drive to casinos. Emperors Palace is easily accessible by major motorways, national
rail service and by a five minute complimentary shuttle service to and from the Johannesburg international airport.
It is also the only casino located near the planned route of the Gautrain, a high-speed rail link, which, when
completed, will connect the Johannesburg and Pretoria metropolitan areas with the Johannesburg international
airport.
In Gauteng Province, Emperors Palace's principal competitor is Montecasino, with 1,700 slot machines
and 70 gaming tables and located approximately 42km from Emperors Palace. Our secondary competitor is
Carnival City, with 1,750 slot machines and 60 gaming tables, located approximately 21km from Emperors
Palace. We also compete with Gold Reef City, with 1,600 slot machines and 50 gaming tables, located
approximately 35km from Emperors Palace. To a limited extent, because they are outside our immediate
catchment area, we also compete with Emerald Casino Resort, with 660 slot machines and 23 gaming tables, and
Morula Sun, with 507 slot machines and 12 gaming tables, each located approximately 80km from Emperors
Palace.
Competition in Gauteng Province is expected to further intensify in 2008 with the anticipated opening of
Silverstar, which will be located approximately 70km from Emperors Palace and has a licence to operate 700 slot
machines and 30 gaming tables. We believe the opening of Silverstar will have a greater impact on Montecasino
and Gold Reef City given these casinos' relatively close proximity to the new casino. Silverstar will be the seventh
casino in Gauteng Province.
Casino competition in provinces outside Gauteng Province is more limited and depends upon the
patronage of residents within the catchment area. Each of our casinos located outside Gauteng Province is located
at least 75km away from another casino, meaning we effectively have no direct competition due to the absence of
other licensed casinos with catchment areas significantly overlapping those of our own casinos in these areas.
In Botswana, Grand Palm directly competes with Gaborone Sun casino resort both of which are located in
the Gaborone metropolitan area.
Intellectual property
Our principal intellectual property consists of the "Peermont," "Emperors," "Mont Regio," "Mondior,"
"Metcourt," "Walmont," "Frontier," "Graceland," "Grand Palm," "Mondazur," and "D'Oreale" trademarks, all of
which have been registered, or are in the process of being registered, in South Africa, Botswana and in selected
countries internationally. Our trademarks represent the brand names under which we market our properties and
services. In South Africa, trademark registrations are of perpetual duration so long as they are periodically
renewed. It is our intent to maintain our principal trademark registrations in the jurisdictions in which we operate.
Property
We own the majority of our properties, and, for historical reasons, we lease certain of our properties in
South Africa and Botswana. The following table sets forth certain information relating to each of our properties.
Building
size (m2)
Property
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Land size Owned/lease
(ha)
d
Emperors Palace ..................................................................................................
Graceland Hotel...................................................................................................
Tusk Mmabatho...................................................................................................
Grand Palm..........................................................................................................
Tusk Venda .........................................................................................................
Frontier Inn..........................................................................................................
Tusk Umfolozi.....................................................................................................
Tusk Rio..............................................................................................................
Mondior Summit..................................................................................................
Metcourt Lodge ...................................................................................................
Mondazur ............................................................................................................
Tusk Taung..........................................................................................................
Head office, Gauteng Province, South Africa........................................................
158,23
5
13,966
21,298
24,848
4,671
4,022
2,914
1,828
2,500
1,000
3,992
7,612
1,968
13.9
Owned
132.5
12.6
21.1
18.7
10.5
16.1
5.0
0.3
0.1
0.7
166.9
—
Owned
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Leased
We operate Grand Palm, including the Gaborone International Convention Centre, and Mondior Summit
pursuant to long-term lease agreements, the earliest of which expires in 2029. We have recently learned that the
lease agreements related to the Tusk Mmbatho and Tusk Taung properties (which we acquired as part of the Tusk
Acquisition) were improperly ceded to the prior owner and the consent of the relevant government agency will be
required for the lease to be properly transferred to us. See "Risk Factors—Risks related to our business—We may
experience difficulties in the integration of our Tusk properties or of any operations we may acquire."
Black economic empowerment
Broad-based BEE investment groups and BEE individuals, together, will effectively direct the voting of
approximately 80% of our ordinary shares, which, following the completion of the Transactions, will give us the
highest level of BEE control of any casino operator in South Africa.
As a BEE controlled company, we will be continuing to take an active role in the transformation of South
Africa. Our BEE programmes described below focus on employment equity, executive development, training and
advancement, and sub-contracting to and procurement from BEE entities.
Employment equity
We view employment equity as an integral part of our transformation process and realise the obligation
and potential to empower historically disadvantaged individuals through the alignment of our demographics. To
date, all targets that have been set for employment equity have been achieved. Currently, the total number of black
employees in executive management is 20% and the total number of females is 5%. Our graduate management
trainee programme affords further impetus to achieving improved results in our equity targets.
Development and training
We have designed comprehensive development and training programmes for all employees across the
group. Our vision is to recruit, train, develop and provide opportunities for promotion into senior positions in the
group, to those individuals who have been previously disadvantaged. Our objectives in this regard are to:
•
fulfill our bid commitments regarding equal opportunities and BEE;
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•
act in accordance with our group's employment equity strategy; and
•
develop a pool of black staff that is capable of being promoted into senior executive positions in the
group.
To meet these objectives, various training programmes have been developed, including the following two
programmes:
•
executive training programme: candidates who are selected for this programme will, if and where
possible, be placed in senior executive positions within the group. These candidates are earmarked for
specific positions and will be mentored by the individuals currently filling those positions; and
•
management trainee programme: this programme involves mainly graduates who will be recruited at a
junior level, rotated through the group and take up management positions.
Preferential procurement programme
We subscribe to the practice, where possible, of purchasing only from suppliers who subscribe to the
values of BEE equity ownership. In 2005, we undertook an evaluation of our empowerment purchasing status. As
a result, we placed suppliers that either subscribe to the concept of BEE, or who are considered to be a BEE
supplier, high on our list of preferred suppliers. We continue to monitor all procurement activity to ensure that it
maximises discretionary expenditure with BEE suppliers.
Corporate social investment
Our corporate social investment focuses on the youth, education, community development trusts,
employee assistance programmes, infrastructure investment and a responsible gaming programme.
Responsible gaming programme. We promote responsible gaming at all our casino resorts, encouraging
gaming as a form of fun and entertainment and discouraging reckless and irresponsible spending. We are a
member of the National Responsible Gambling Programme in South Africa. This countrywide programme, with
its toll free help line, is available to all players whose gambling has become unmanageable. A unique
Government/Industry partnership, the programme is funded via the National Responsible Gambling Trust on a
voluntary basis by the industry.
Community development trusts. We have made a commitment to contribute to the social and educational
well-being of the surrounding community by providing financial, skills and leadership support to East Rand
Children's Trust, East Rand Youth Trust and Southern Highveld Community Development Trust.
East Rand Children's Trust. The focus of the East Rand Children's Trust, or the Children's Trust, is to
provide child care in chosen areas where facilities are required. The goal is to support centres such as the
Vosloorus After-School Care Centre and nursery schools and crèches in the Ekurhuleni Metropolitan area. The
hope is that by providing such assistance, children will be less vulnerable to abuse and neglect and that in the long
term these benefits will be realised by the community as a whole. Other areas of support include the provision of
playground equipment, media centres, additional tutoring in key area of mathematics, science and English, as well
as significant investment in career counselling for high school learners. To date, we have contributed
approximately R5 million to the Children's Trust. In addition, the Children's Trust received approximately
R6 million, to date, as its share of dividends from its shareholding in us.
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East Rand Youth Trust. We assist the youth of the Ekurhuleni area by offering full bursaries to worthy
candidates from disadvantaged backgrounds. The aim of the East Rand Youth Trust, or the Youth Trust, is to
provide these students with the opportunity to study further. To date, we have contributed approximately
R5 million to the Youth Trust, which has provided full bursaries to 80 students in various fields of study at a
variety of tertiary institutions. These bursaries cover the costs of tuition, accommodation, books, travel and
personal expenses, ensuring that students can devote their full attention to their studies. In addition, the Youth
Trust received approximately R6 million, to date, as its share of dividends from its shareholding in us.
Southern Highveld Community Development Trust. We assist the youth of the Southern Highveld,
Mpumalanga area by offering full bursaries to worthy candidates from disadvantaged backgrounds. The aim of the
Southern Highveld Community Development Trust, or the Development Trust, is also to provide these students
with the opportunity to study further. These bursaries cover the costs of tuition, accommodation, books and pocket
money. To date, we have contributed approximately R1 million to the Development Trust. During 2005, the trust
provided full bursaries to four students in various fields of study at a variety of tertiary institutions.
Public infrastructure development and community development projects
To date, we have earmarked approximately R20 million for public infrastructure development in the
Ekurhuleni area. In addition, to date, we have also earmarked approximately R10 million for community
development projects.
Employees
We directly employ approximately 3,300 employees in our operations in South Africa and Botswana. Of
these, approximately 46% are employed in connection with our casino activities.
To enhance our guest service and give the employees' an opportunity to enhance their compensation, we
recently created the successful Top Dealer Programme, which incentivises our dealers by allowing them to keep
the tips they receive from our guests. To qualify to participate in the Top Dealer Programme, a dealer must, for a
period of six months, be timely, present on scheduled days, and not be subjected to a disciplinary hearing or
counselling. Once a dealer qualifies, he receives his own tip box and is entitled to keep the tips earned.
Participation in the Top Dealer Programme continues for so long as a dealer maintains the qualification criteria.
Tips for dealers not in the Top Dealer Programme are pooled and divided equally amongst those dealers not in the
Top Dealer Programme. The Top Dealer Programme has had a positive impact by increasing the total tip pool by
110% on a monthly basis. Absenteeism and disciplinary issues have also dropped dramatically. The Top Dealer
Program began with 13 dealers approximately 11 months ago and participation has grown to 90 dealers.
Similarly to all other casinos in South Africa, most of our employees belong to trade unions. A number of
South African trade unions, including those of our employees, have close links to various political parties and
have had a significant influence in South Africa as vehicles for social and political reform and in collective
bargaining processes. As such, employees are to be consulted, or negotiated with, in a variety of issues insofar as
these affect employee rights, such as terminations, remuneration, workplace restructuring, partial or total facility
closures, mergers and transfer of ownership, among others. In August 2005, the Food and Allied Workers Union
("FAWU") embarked upon strike action at Emperors Palace, following a period of wage negotiations. This strike
lasted approximately one week, resulting in FAWU agreeing to a two year wage agreement. This agreement will
be expiring in July 2007. We intend to begin renegotiating this agreement by May 2007.
We believe that, overall, our current relations with our employees are good.
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Employee assistance programmes
HIV/AIDS wellness programme. We recognise the impact of HIV/AIDS on the South African economy
and on our group in particular and we are actively involved in managing the disease through a number of
initiatives. After evaluation of a number of options and extensive consultation with medical practitioners, as well
as specialists in the treatment of HIV, we have developed comprehensive Voluntary Counselling, Testing and
Wellness Programmes. The programmes are run internally, which means that employees at Emperors Palace have
free access to limited treatment, counselling, information and testing without having to leave its premises. An
additional benefit of managing the programmes internally is that it encourages employees to make use of the
service because we can ensure confidentiality. The aim of the programmes is to accurately predict, manage and
mitigate the effects of HIV/AIDS in the workplace. Through awareness programmes and education, we hope to
minimise the effects of the disease on our staff. We believe this can be achieved by reducing infection rates and by
enhancing the quality of life of those who are already infected with the disease, thereby extending their working
life and minimising absenteeism. The programme covers a variety of services including voluntary counselling and
testing, regular counselling sessions with a counsellor and psychologist, pathology tests, nutritional and lifestyle
changes, treatments and the supply of vitamins and nutritional supplements.
Voluntary Counselling and Testing. Voluntary Counselling and Testing ("VCT") for HIV/AIDS is offered
to all Emperors Palace employees. VCT drives are run every alternate month to encourage employees to
participate. Confidentiality is of the utmost importance to us and employees deal directly with a medical
professional during the testing process. No employee is obliged to disclose their status and no information on test
results is provided to us by the medical professional. By the end of 2005, the group had tested in excess of 30% of
our work force. VCT drives take place at all our other properties once a year.
Employee Assistance Centre. Our Employee Assistance Centre at Emperors Palace was opened in the
middle of 2005. This centre houses a variety of services offered to our employees. These services include but are
not limited to: primary health care, employee assistance programme, HIV wellness programme and occupational
health care. Employees can visit this facility for anything from receiving counselling, having an HIV test, seeing
the doctor, family planning or even to treat injuries. In 2005, this facility has received 13,343 employee and
contract staff visits to the facility in 2005. This included a total of 1,549 medical visits. We believe that this
facility will continue to grow and we intend to add to these services in the future. All employees from any of our
properties may use the centre. During 2006, over 15,000 Wellness Programme related visits were made to the
Employee Assistance Centre by our employees.
Legal proceedings
SARS recently conducted audits in respect of certain of our subsidiaries' income tax returns. SARS
disputed the tax deductibility of certain expense items at Emperors Palace relating to pre-opening expenses of
R26 million, royalties of R73 million and the wear and tear write-off periods claimed in respect of certain assets
categories, predominantly slot machines. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Contingent Liabilities."
We are party to various claims and legal actions in the ordinary course of our business. We believe that
such claims and actions, either individually or in the aggregate, will not have a material adverse effect on our
business, financial condition or results of operation.
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REGULATION
South Africa
In South Africa, the national government, on the one hand, and the nine provincial governments, on the
other, have concurrent jurisdiction over gaming. Consequently, the gaming industry is regulated by both the
National Gambling Act, No. 7 of 2004 (the "National Gambling Act") and the nine Provincial Gambling Acts.
The National Gambling Board is the national regulatory body, the main functions of which are to set national
norms and standards, and the nine provincial licensing authorities are the regional regulatory bodies for each
province, which perform the day-to-day regulation of the gaming industry.
Legislation
The National Gambling Act restricts the number of casino licences to 40 for all of South Africa. Currently,
34 licences have been issued. The table below illustrates, by region, the allocation and the currently remaining
authorised licences:
Total
Remainin
number
g
of
unissued
authorise licences
d
casino
licences
Province
Eastern Cape..........................................................................................................................
Free State...............................................................................................................................
Gauteng.................................................................................................................................
KwaZulu-Natal......................................................................................................................
Limpopo................................................................................................................................
Mpumalanga..........................................................................................................................
Northern Cape .......................................................................................................................
North West ............................................................................................................................
Western Cape ........................................................................................................................
5
4
7
5
3
4
3
4
5
2
1
0
0
1
1
1
0
0
Total......................................................................................................................................
40
6
The national and provincial gambling legislation contains various restrictions and regulations, including:
•
restricting and/or regulating the extension of credit to any person for the purposes of gambling;
•
regulating the placement and movement of gambling machines;
•
requiring the approval of the provincial licensing authority for any person who acquires a gambling
business or holds a financial interest of 5% or more or a controlling interest in such business;
•
imposing minimum theoretical pay-back percentages for slot machines;
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•
setting requirements for gaming premises, including matters such as the surveillance system,
responsible gambling notices and the placing of automatic teller machines;
•
requiring the approval of the relevant provincial licensing authority for the internal control procedures
of licensees;
•
requiring that, when considering an application for a licence or for a transfer of the licence, a
provincial licensing authority must consider and may impose conditions inter alia on the applicant's
BEE commitments, responsible gambling issues and the potential socio-economic impact of the
proposed licence;
•
authorising the provincial licensing authority to impose fines on licensees;
•
requiring employees and directors to be licensed to perform work within the gaming industry; and
•
requiring each licensee to link any gaming machine or other machine or apparatus used on the licensed
premises to an approved electronic monitoring system, which is in turn linked to the relevant
provincial licensing authority's office.
National Gambling Board
The National Gambling Board was established in 1998 to regulate the gambling industry in South Africa.
The National Gambling Board is responsible for:
•
evaluating the issuance of national licences by provincial licensing authorities;
•
evaluating the compliance monitoring of licensees by provincial licensing authorities;
•
conducting oversight evaluations of the performance of provincial licensing authorities in the manner
envisaged in the National Gambling Act, so as to ensure that the national norms and standards
established under the Act are applied uniformly and consistently;
•
assisting provincial licensing authorities to ensure that unlicensed gambling activities are detected as
contemplated in the Act;
•
establishing and maintaining:
•
the national register of excluded persons;
•
the national central electronic monitoring system;
•
the national register of gambling machines and devices;
•
a central registry of information; and
•
the national registry of probity;
•
monitoring socio-economic patterns of the gambling activity;
•
advising the National Gambling Policy Council on matters of national policy relating to casinos,
racing, gambling and wagering;
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•
recommending to the Council changes to bring about uniformity in the laws of the various provinces in
relation to casinos, racing, gambling and wagering;
•
advising the Council in respect of any matter referred to it by the Council;
•
monitoring market share and market conduct in the gambling industry; and
•
providing a broad-based public education programme about risks and socio-economic impact of
gambling.
The provincial licensing authorities
While the National Gambling Board sets norms and standards for the gaming industry, it has limited
power to make any decisions affecting casino licensees. Thus, casino licensees are effectively regulated by each
provincial licensing authority. In addition to granting licences to casino resort operators, provincial licensing
authorities serve a number of other functions, including:
•
issuing casino and other gaming licences;
•
setting the tax rate imposed on gross casino revenue in its province;
•
setting the number of slot machines, gaming tables and other casino gaming positions that a casino is
permitted to have;
•
conducting probity investigations of all applicants;
•
registering any person engaged in a casino occupation;
•
policing compliance by its licensees with the relevant gaming legislation; and
•
inspecting each casino in person on a regular basis.
The following table illustrates the provincial tax rates on gaming (excluding bingo):
Province
Tax rates
(% of gross gaming revenue unless otherwise specified)
Gauteng...................................... 9%
Eastern Cape............................... • R120,000 plus 5% of amount by which revenue exceeds R4 million, but is
less than R8 million; or
• R320,000 plus 10% of amount by which revenue exceeds R8 million
Free State.................................... 7%
KwaZulu-Natal........................... • 9% for revenue less than R30 million; and
• 12% for revenue greater than R30 million
Mpumalanga............................... 5.7%
Limpopo..................................... 6%
Northern Cape ............................ 8% on gross winnings
North West ................................. 5% for revenue greater than R4 million;
• 7% for revenue greater than R8 million; and
• 9% for revenue greater than R12 million
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Western Cape ............................. • R852,000 plus 8.5% of amount by which revenue exceeds R14.2 million,
but is less than R28.4 million;
• R2.059 million plus 11% of amount by which revenue exceeds
R28.4 million, but is less than R42.6 million;
R42.6 million, but is less than R56.8 million;
R56.8 million, but is less than R71 million; or
• R7.597 million plus 17% of amount by which revenue exceeds R71 million
Other than in the Eastern Cape Province, where licences are valid for 10 years, a casino licence granted by
a provincial licensing authority is perpetual, but is geographically limited to one particular site. A licence granted
by a provincial licensing authority authorises the licensee to offer the specified games on specified premises for
play in a specified area of the premises. Games that are typically offered in a casino include American roulette,
blackjack, craps, punto banco, poker, slot machines, bingo and keno. The provincial licensing authority also
authorises the number of casino gaming positions, such as gaming machines, gaming tables (one gaming table is
deemed to be six gaming positions) and numbers of seats for bingo, that are permitted in each casino. All games
are to be conducted by making use of such gaming equipment and such ancillary devices as each provincial
licensing authority may from time to time approve. All gaming equipment has to be certified by an independent
testing laboratory in terms of the standards set by the South African Bureau for Standards prior to approval by the
provincial licensing authority.
Licensed casino resort operators cannot increase the number of licensed casino gaming positions without
approval from the relevant gambling boards. The Gauteng Gambling Board has historically been very reluctant to
permit an increase in the number of licensed casino gaming positions in the province. For example, Emperors
Palace's previous applications to increase the number of its licensed casino gaming positions only met with
success after it agreed to purchase the rights to unused casino gaming positions (140 slot machines and 17 gaming
tables) from Emerald Safari Casino, which agreed to reduce its number of licensed positions accordingly, to
maintain the total number of licensed casino gaming positions within the province. In addition, Emperors Palace
was required to make a R50 million contribution into a trust account for community upliftment programmes to
secure the rights to these additional casino gaming positions.
Provincial licensing authorities conduct probity investigations on any person who, directly or indirectly,
procures a controlling interest or a financial interest of five percent or more, or any lesser percentage as may be
prescribed, in the business to which a licence relates. The gambling legislation also prohibits a person from
holding a licence or any financial interest in a licence if such person is, inter alia, an unrehabilitated insolvent, a
political office bearer, a public servant, not a fit and proper person or has been convicted of certain offences.
levels.
Currently, there are no restrictions on casino resort operators with respect to operating hours or wager
Convictions for violations of the gambling legislation can result in fines of up to R10 million,
imprisonment for a period not exceeding 10 years, or both. In addition, a maximum administrative penalty of 10%
of annual gross gaming revenue may be imposed by a provincial licensing authority for any breach of the gaming
legislation or a licence condition by a licensee.
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Licensing process
The gaming legislation prescribes a transparent and public process for applications for gaming licences,
transfer of licenses and the approval for the acquisition of an interest in a licensee. Notice of these applications
must be advertised in the relevant provincial gazette and local newspapers and the applications are subject to
public scrutiny and possible objections from third parties. Public hearings are often held by the provincial
licensing authorities prior to final decisions on such applications. In addition, all casino licences are, and have
been, awarded after a competitive bidding processes.
Anti-smoking legislation
Smoking in public places is strictly regulated in South Africa. Smoking may only be permitted in 25% of
the floor area of a casino and then only in areas that are separated from the non-smoking areas by a solid barrier
and with a ventilation system that prevents the smoke from re-entering the non-smoking portion of the casino.
Money laundering legislation
Casinos are subject to South Africa's money laundering legislation. This legislation provides, among other
things, for the following:
•
the establishment of a financial intelligence centre or FIC to which certain reports are to be made;
•
casinos are required to record certain information from any customer with which it concludes a
transaction in excess of R25,000, accepts a cash wager of more than R5,000 or arranges a cheque
cashing facility;
•
all suspicious or unusual transactions are to be reported to the FIC;
•
all transactions above a prescribed value are to be reported to the FIC; and
•
each casino is required to formulate and implement internal rules and provide their employees with
training on compliance with the legislation.
Failure to comply with the money laundering legislation could result in a maximum fine of R10 million or
imprisonment of 15 years.
Botswana
The regulatory system in Botswana is somewhat different and less stringent than in South Africa. In
Botswana, casino gaming is regulated by the Botswana Casino Control Board under the Botswana Casino Act.
There are no provincial regulatory authorities. The Botswana Government is in the process of reviewing the
current gaming legislation and we expect that a new Botswana Gambling Act will be enacted that will be very
similar to the South African gaming legislation.
In terms of the existing Botswana gaming legislation, casino licences are valid for an initial 10 years, and
are renewable for sequential periods of five years thereafter. The casino licence for the Grand Palm was renewed
with effect in 2006 and it is valid until 2011, at which point it can be further renewed. Circumstances under which
the Botswana Casino Control Board can revoke the casino licence or refuse to renew the casino licence include a
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licensee or its Managing Director, officer or manager being convicted of certain offences or the licensee ceasing to
occupy the licensed premises or to carry on the business of the casino, failing without reasonable excuse to
comply with a term or condition of the licence or a provision of the Botswana Casino Act or breaching any
agreement with the Government of Botswana relating to the casino. A licensee is entitled to appeal against the
revocation of or refusal to renew its licence.
Until recently, casino resort operators were able to apply for a casino licence anywhere in Botswana so
long as a substantial hotel was built concurrently with the construction of a casino. A moratorium has, however,
been placed on the consideration of any new casino licence application until the new gaming legislation is
finalised.
Other salient terms of the Botswana gaming legislation are as follows:
•
gaming is restricted to persons over the age of 18 years;
•
credit may not be extended for purposes of gaming;
•
gaming levies are payable at a rate of 10% of gross gaming revenue; and
•
violations of the Botswana Casino Act could result in a fine of up to pula 100 (approximately R120) or
imprisonment of up to two years.
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MANAGEMENT
Set forth below is a description of the issuer's directors and executive officers following the completion of
the Transactions.
Board of directors
Name
Age
Paul Nkuna.........................................
Clifford Elk(1) .....................................
Anthony Puttergill...............................
Grant Robinson(1) ................................
Thabo Mokoena(1) ...............................
Monde Tabata(1) ..................................
Tshidi Madima....................................
David Field.........................................
55
45
38
45
43
46
43
44
Position
Non-executive Director
Group Chief Executive Officer, Executive Director
Group Chief Financial Officer, Executive Director
Regional Chief Operating Officer, Executive Director
___________
(1)
To be appointed immediately following the completion of the Transactions.
Paul Nkuna. Mr. Nkuna was appointed to our board of directors in February 2007. Since 2003, he has
been the Chief Executive Officer of MIC. From 2000 to 2003, Mr. Nkuna was Deputy Chief Executive Officer of
MIC. From 1997 to 2000, he was Executive Chairman of MIC. Since 2000, he has been the chairman of Primedia
Limited and the chairman of its remuneration committee. Mr. Nkuna holds a Management Advanced Programme
certificate from Wits Business School and an Effective Directorship certificate from Kagiso Leadership School
and Gordon Institute of Business.
Clifford Elk. Mr. Elk will be appointed to our board of directors immediately following the completion
of the Transactions. In 2005, he founded and has since been the chief executive officer of Emdon Elk, a strategic
consultancy business assisting companies design and develop and execute black empowerment strategies. From
2003 to 2005, Mr. Elk was an executive at SA Teemane Holdings (Proprietary) Limited. From 1995 to 2003, he
was the chief executive officer of MIC. Since 2003, he has been a non-executive director of MIC. Mr. Elk holds a
Bachelor of Architecture from the University of the Witwatersrand.
Anthony Puttergill. Mr. Puttergill was appointed to our board of directors and as Group Chief Executive
Officer in November 2006. In 1999, he joined Peermont as Commercial Director. In 2000, Mr. Puttergill was
appointed to Peermont's board of directors. In 2002, he was appointed deputy managing director. Mr. Puttergill
holds a Bachelor of Commerce and a Bachelor of Accounting from University of the Witwatersrand. He is a
Chartered Accountant (SA).
Grant Robinson. Mr. Robinson will be appointed to our board of directors and as Group Chief Financial
Officer immediately following the completion of the Transactions. Since 2006, he has been Peermont's Group
Financial Director. From 2004 to 2006, Mr. Robinson was the General Manager Finance of Peermont Group.
From 1997 to 2004, Mr. Robinson was a director and partner of KPMG Inc. and KPMG Services (Proprietary)
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Limited. He holds a Bachelor of Commerce and a Bachelor of Accounting from University of the Witwatersrand.
Mr. Robinson is a Chartered Accountant (SA).
Thabo Mokoena. Mr. Mokoena will be appointed to our board of directors and as Regional Chief
Operating Officer immediately following the completion of the Transactions. Since 2006, he has been Peermont's
Regional Operational Officer responsible for the Tusk entities. From 1997 to 2006, Mr. Mokoena was the
Executive Director of Tusk Resorts and Tusk Casino and Hotel Management. He holds a Bachelor of Commerce
from the University of the Witswatersrand.
Monde Tabata. Mr. Tabata will be appointed to our board of directors immediately following the
completion of the Transactions. Since 2004, he has served as Managing Director of Megapro Marketing
(Proprietary) Limited. From 2002 to 2004, Mr. Tabata was Deputy Chief Executive of Megapro Marketing
(Proprietary) Limited. He holds a Bachelor of Arts from Rhodes University.
Tshidi Madima. Ms. Madima was appointed to our board of directors in February 2007. Since 2006, she
has been an Executive Director of MIC. From 2004 to 2006, Ms. Madina was an Investment Manager at MIC.
From 2000 to 2004, she was an Investment Analyst at MIC. Since 2002, Ms. Madima has been a non-executive
director for Primedia Limited and a member of its audit committee. She holds a Bachelor of Arts with Honours in
Accounting and Financial Management and a Masters of Arts in Accounting and Financial Economics from the
University of Essex.
David Field. Mr. Field was appointed to our board of directors in November 2006. In April 2007, he
founded, and has since been the chief executive officer of, Capitau Holdings Limited. From 2004 to 2006,
Mr. Field was an executive director of Brait South Africa Limited. From 2001 to 2004, he was the head of
Specialised Debt Finance at Brait South Africa Limited. He holds a Bachelor of Commerce from the University of
South Africa and Masters in Business Administration from Warwick University and he is a Certified Associate of
the Institute of Bankers.
Executive officers
Name
Age
Anthony Puttergill(1)............................
Grant Robinson(1) ................................
Robert Yearham..................................
Leon Kok ...........................................
Johannes Forrer...................................
Mark Jakins ........................................
Thabo Mokoena(1) ...............................
David Petzer .......................................
38
45
47
35
56
44
43
46
Position
Group Chief Executive Officer, Executive Director
Group Chief Financial Officer, Executive Director
Group Chief Gaming Executive
Group Chief Operations Support Executive
Group Chief Development Executive
Group Chief Marketing Executive
Regional Chief Operating Officer, Executive Director
Chief Group Legal Services Executive, Company Secretary
___________
(1)
See biographical information presented under "—Directors."
Robert Yearham. Mr. Yearham will be appointed our Group Chief Gaming Executive immediately
following the completion of the Transactions. Since 1997, he has been Peermont's Group Gaming Director and
Chief Operating Officer of Emperors Palace.
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Leon Kok. Mr. Kok will be appointed our Group Chief Operations Support Executive immediately
following the completion of the Transactions. Since 2006, he has been Peermont's Group Finance Executive.
From 2003 to 2006, Mr. Kok was the Chief Finance Officer for Emperors Palace. From 2002 to 2003, he was
Peermont's Group Financial Manager and a Corporate Development Manager. Mr. Kok holds a Bachelor of
Commerce with Honours from the University of Johannesburg. He is a Chartered Accountant (SA).
Johannes Forrer. Mr. Forrer will be appointed our Group Chief Development Executive immediately
following the completion of the Transactions. Since 1994, he has been Peermont's Group Chief Development
Executive. Mr. Forrer holds a Bachelor of Engineering with Honours from Stellenbosch University and a Masters
in Business Administration from the University of the Witswatersrand. He is a registered professional engineer.
Mark Jakins. Mr. Jakins will be appointed our Group Chief Marketing Executive immediately following
the Transactions. From 2001 to 2006, he was Chief Executive—Commercial Enterprises at the South African
Broadcasting Company. Mr. Jakins holds a Bachelor of Social Science from the University of Natal.
David Petzer. Mr. Petzer will be appointed our Chief Group Legal Services Executive and Company
Secretary immediately following the completion of the Transactions. Since 1999, he has been Peermont's Chief
Group Legal Services Executive and Company Secretary. Mr. Petzer holds an LL.B from Potchefstroom
University.
Compensation
Our executive officers as a group received aggregate compensation of R16.9 million for the financial year
ended 31 December 2006, which included base salaries and other benefits. In connection with the Transactions,
Peermont's share incentive scheme will be cash settled. In connection with the Transactions, our executive
officers, as a group, will receive an aggregate of approximately R16 million in payment for their interests in
Peermont's former share incentive schemes.
Management services and restraint agreements
Our executive officers have entered into management services and restraint agreements with the issuer
outlining the terms of their employment with the issuer following the completion of the Transactions (each a
"services agreement"). Under the terms of the services agreements, our executive officers are employed by the
issuer for a fixed term of five years (the "fixed term") and thereafter for an indefinite period of time. The issuer
may terminate the management services agreement promptly for cause. Our executive officers may terminate the
services agreements after the fixed term with written notice of 60 days.
Under the terms of the services agreements, our executive officers have agreed not to compete with the
issuer in the "prescribed area" during the "restraint period." For purposes of the restraint agreements, "prescribed
area" means South Africa and any other country in which the issuer conducts activities as at the termination date
of the services agreement. For purposes of the services agreements, "restraint period" means a period that consists
of (i) the term of employment of an executive officer, plus (ii) (a) 24 months after the date of termination of
employment if the employment is terminated within the fixed term, or (ii) (b) 12 months after the date of
termination of employment if the employment is terminated after the fixed term. However, the restraint period will
not apply if (y) the executive officer and the issuer agree in writing or, if referred to arbitration, the arbitrator
finds, that the executive officer was constructively dismissed or the dismissal was unlawful for any reason other
than as a result of procedural irregularities in the termination process, which did not materially prejudice the
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executive officer; or (z) the employment of the executive officer is terminated by the issuer for operational
requirements.
Board practices
Members of our board of directors are nominated and appointed by the board of directors of Holdco 1. Our
board of directors currently has four members, consisting of one executive director and three non-executive
directors. The board of directors of Holdco 1 currently consists of Mr. Anthony Puttergill and Mr. David Field.
We expect that the size of our board of directors will be increased following the completion of the Transactions by
the appointment of two executive directors and at least four non-executive directors.
The shareholders of Holdco 1 have entered into a shareholders' agreement that governs the relationship
among them and provides for the corporate governance of Holdco 1. See "Related Party Transactions — Holdco 1
Shareholders' Agreement." The board of directors of Holdco 1 controls the appointment of directors to our board
of directors.
Our board of directors is responsible for determining and approving our business strategies and policies.
Our directors are also responsible for approving our financial statements, objectives and targets.
Committees
Audit and Risk Committees
Upon completion of the Transactions, we intend to appoint Audit and Risk Committees. Our Audit and
Risk Committees will be subcommittees of our board of directors, chaired by an independent non-executive
director and each consisting of four non-executive directors. Our Audit and Risk Committees will assist our board
of directors in discharging its responsibility under the Companies Act and at common law, with regard to the
financial affairs of the group. Our Audit and Risk Committees will review the effectiveness of the internal
financial controls of the group with reference to reports of both the internal and external auditors and will be
further responsible for ensuring that adequate ongoing procedures and processes exist to identify, evaluate,
manage and monitor key business risks. Our Audit and Risk Committees will meet at least three times per year in
order to evaluate, amongst others, accounting practices, internal control systems, auditing and financial reporting
and risk management. Our Audit Committee will also meet independently with our auditors (external and internal)
and with executive management at least once per year.
Remuneration Committee
Upon completion of the Transactions, we will appoint a Remuneration Committee. Our Remuneration
Committee will be a subcommittee of our board of directors. The committee will meet as and when required. Our
Remuneration Committee's mandate will cover employee benefits, appointments and succession planning. The
committee will approve and make recommendations on the appointment of our senior executives and also identify
candidates and make recommendations for the appointment of non-executive directors. It will also be responsible
for ensuring that appropriate succession plans exist for senior management.
In respect of remuneration, the primary objectives of our Remuneration Committee will be to:
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•
make recommendations to the board on remuneration policies, salaries, fringe benefits, share options
and incentives to ensure that employees are competitively rewarded;
•
implement the remuneration policy as approved by our board of directors; and
•
monitor and strengthen the objectivity and credibility of the remuneration system for our directors and
the senior executives.
A substantial portion of remuneration of all managerial staff, especially senior management, will be linked
to the performance of their respective business units and of the group as a whole.
Internal control systems
To meet our responsibility to provide reliable financial information, we will maintain financial and
operational systems of internal control. These controls will be designed to provide reasonable assurance that
transactions are concluded in accordance with management's authority, that the assets are adequately protected
against material losses, unauthorised acquisition, use or disposal, and that transactions are properly authorised and
recorded.
The system will include a documented organisational structure and division of responsibility, established
policies and procedures, including a code of ethics, which will be communicated throughout the group, and the
careful selection, training and development of people.
We will monitor the operation of the internal control systems in order to determine if there are
deficiencies. Corrective actions will be taken to address control deficiencies as they are identified. The board of
directors, operating through the audit committee, will oversee the financial reporting process and internal control
systems.
There will be inherent limitations in the effectiveness of any system of internal control, including the
possibility of human error and the circumvention or overriding of controls. Accordingly, an effective internal
control system can provide only reasonable assurance with respect to financial statement preparation and the
safeguarding of assets. Furthermore, the effectiveness of an internal control system can change with
circumstances.
Directors of the guarantors
Currently, the composition of the board of directors of the issuer and Holdco 2 are identical. Currently, the
directors of Peermont are: Mr. Alan van Biljon, Ms. Shirley Arnold, Mr. Dods Brand, Mr. Rashad Cassim,
Mr. Kutoane Kutoane, Mr. Anthony Puttergill, Mr. Grant Robinson and Mr. Steve Müller. Upon completion of
the Transactions, the members of the board of directors of Peermont will be Mr. Anthony Puttergill and Mr. Grant
Robinson. The directors of the guarantors other than Holdco 2 are: Mr. Anthony Puttergill and Ms. Tshidi
Madima. The directors of the security spv are: Mr. Anthony Puttergill and Mr. David Field. The business address
of directors of the issuer, the guarantors and the security spv is Bridgeport House, Hampton Park, 20 Georgian
Crescent East, Bryanston, Johannesburg, South Africa.
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OUR PRINCIPAL SHAREHOLDERS
Holdco 2 owns 100% of the issuer's share capital, and Holdco 1 owns 100% of Holdco 2's share capital.
We expect that upon the completion of the Transactions, the following shareholders will beneficially own more
than 5% interest of Holdco 1's voting ordinary share capital:
Amount]
Name
BEE Holdco]........................................................................................................................................
Management] .......................................................................................................................................
Certain individuals ...............................................................................................................................
75.0%
17.5%
7.5%
___________
(1)
Represents percentage ownership of ordinary voting share capital of Holdco 1. Holdco 1 will also issue class B ordinary shares to the investors
described below in footnote (2) in connection with the PIK preferred equity loan agreement. The class B ordinary shares will represent
approximately 31% of the economic rights in the share capital of Holdo 1 and carry nominal voting rights. See "Description of Certain Other
Indebtedness—Deeply subordinated shareholder loan—PIK preferred equity loan tranche."
(2)
MIC Leisure (as defined below) and broad-based BEE investment groups and individuals have an aggregate beneficial ownership interest of
66.7% in BEE Holdco. Entities affiliated with Avenue Europe Investments L.P., Goldentree Ltd, Noonday Asset Management, Cheyne Special
Situations Fund LP and Citigroup Financial Products Inc. have an aggregate beneficial ownership interest of 33.3% in BEE Holdco.
(3)
None of the members of management individually holds more than 3.25% of the share capital of Holdco 1.
BEE Partner—MIC Leisure (Proprietary) Limited
Following the completion of the Transactions, broad-based BEE investment groups and BEE individuals
will together effectively direct the voting of approximately 80% of Holdco 1's ordinary shares, the highest level of
BEE control of any casino operator in South Africa. BEE status is one of the factors that is taken into
consideration by regulators in awarding and amending licences.
MIC Leisure (Proprietary) Limited ("MIC Leisure"), a wholly owned subsidiary of the Mineworkers
Investment Company ("MIC"), will, through its beneficial ownership of 41.4% of BEE Holdco's voting ordinary
share capital and the majority vote in meetings of the board of directors of BEE Holdco, effectively control the
votes of approximately 75% of Holdco 1's voting ordinary share capital. MIC was formed in 1995 by the
Mineworkers Investment Trust ("MIT"). MIC currently manages over R2 billion in assets, consisting of
investments in companies such as Primedia, Tracker, BP South Africa, Izazi Solutions, Nail Limited, Metrofile,
Masaha Petroleum Solutions, MSA, Mathomo, Eastvaal Motor Group, FirstRand and Lekana Employee
Solutions.
MIC has been a shareholder of Peermont since the first casino licence bid was submitted with respect to
the Graceland licence in 1996. MIC has controlled 50% of the votes in the joint venture that currently owns
Emperors Palace since 2004.
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Description of share capital of Holdco 1
Holdco 1 is a holding company recently formed to facilitate the Transactions. Following the completion of
the Transactions, Holdco 1 will have three classes of shares outstanding: 100,000 class A ordinary shares, 100,000
class B ordinary shares and 100,000 unsecured, cumulative redeemable preference shares (the "Preference
Shares"). For a description of Holdco 1's share capital and the Holdco 1 shareholders' agreement, see "Related
Party Transactions—Holdco 1 Shareholders' Agreement," "—Description of share capital of Holdco 1."
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RELATED PARTY TRANSACTIONS
The following section summarises any conflict of interest between the issuer and any related
party to the Transactions and any conflict of interest between the issuer and its directors or executive
management.
Holdco 1 shareholders agreement
On 17 November 2006, Maxshell 114 Investments (Proprietary) Limited ("BEE Holdco"), Vusumuzi
Isaiah Zwane ("Zwane"), Monde Temba Tabata ("Tabata"), Anthony Edward Puttergill ("Puttergill"), The Riviera
Trust ("Puttergill Trust"), DB Consulting International CC ("DBC"), Danisa Eileen Baloyi ("Baloyi"), The
Clifford Elk Family Trust ("Elk Trust"), Clifford Owen Elk ("Elk") and Holdco 1 entered into the Holdco 1
Shareholders' Agreement (the "Shareholders' Agreement") that governs the relationship among Holdco 1
shareholders.
Meetings of board of directors
Composition. The board of directors of Holdco 1 shall have a maximum of 10 members. The board of
directors of Holdco 1 currently consists of one executive director and one non-executive director.
BEE Holdco may appoint one director for each full 12% of all the issued class A ordinary shares held by
BEE Holdco, up to a maximum of five directors. Zwane, Tabata, DBC, Elk Trust and, if applicable, Archibald
Mabelindile Luhlabo, together as a group, are entitled to appoint one director for so long at they collectively hold
at least 5% of the issued class A ordinary shares of Holdco 1. If members of the issuer's senior management, who,
together, after the completion of the Transactions, will beneficially own 17.5% of Holdco 1's voting ordinary
share capital (the "Management Shareholders"), collectively hold at least 15% of the issued class A ordinary
shares, they, together as a group, will be entitled to appoint three directors so long as an appointee is the chief
executive officer of the issuer. If Management Shareholders hold less than 15%, but more than 10%, of the issued
class A ordinary shares they will be entitled to appoint two directors so long as one appointee is the chief
executive officer of the issuer. If Management Shareholders hold less than 10% of the issued class A ordinary
shares they will be entitled to appoint the chief executive officer of the issuer as director. All other directors
appointed to the Holdco 1 board of directors shall be independent directors.
Quorum. A quorum for meetings of directors shall be the presence of a minimum of four directors,
provided that, the following directors are in attendance: one director who is the appointee of MIC Leisure to the
board of directors of BEE Holdco; one director who is the appointee of certain financial institutions (which
beneficially own 33.3% of BEE Holdco's voting ordinary share capital), acting together, to the board of directors
of the BEE Holdco; and one Management Shareholder.
Frequency of meetings. Board meetings must be held at least once every quarter.
Resolutions and voting. Resolutions of directors must be approved by a majority of votes. Each director is
entitled to one vote.
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Meetings of class A ordinary shareholders
Quorum. A quorum for meetings of class A ordinary shareholders shall be the presence of the class A
ordinary shareholders holding more than 50% of all the issued class A ordinary shares either in person or by
proxy, provided that BEE Holdco is represented at such meetings of class A ordinary shareholders.
Resolutions and voting. Resolutions of class A ordinary shareholders must be approved by a simple
majority, other than certain actions that require the approval in writing by class A ordinary shareholders holding
more than 80% of all the class A ordinary shares, which include the following:
•
making of any material loan;
•
incurring any liability which is outside the ordinary course of business;
•
entering into any contract outside the ordinary course of business;
•
increasing, alterating or reducing the issued and/or authorised share capital of Holdco 1;
•
issuing any shares in Holdco 1 to any share incentive scheme;
•
listing any shares in Holdco 1 or options with respect thereto on any recognised stock exchange;
•
undertaking any material new business; and
•
borrowing, entering into or amending of any financial lease or suspensive sale agreement or other
indebtedness or any series of the above, being in excess of R100 million.
Chairman of meetings. So long as MIC, through its ownership interest in, and representation on the board
of directors of, BEE Holdco, is entitled to appoint two directors to the board of directors of BEE Holdco, the
chairman of any meetings of class A ordinary shareholders must be appointed by BEE Holdco.
Corporate opportunities. All opportunities and ventures in any country in which Holdco 1, its subsidiaries
or any entity in which Holdco 1 has at least a 20% share in its profits (the "Holdco 1 group") falling within the
ambit of the business of the Holdco 1 group and any international opportunity, which is introduced to or becomes
available to any of the A ordinary shareholders must be offered to and carried on through Holdco 1 (including any
of Holdco 1's subsidiaries), which will consequently be the vehicle for such opportunity or venture unless a
disinterested quorum of the directors rejects the opportunity or venture.
Transfers of shares
General. Unless agreed to in writing by all class A ordinary shareholders, class A ordinary shares may
only be disposed of, so long as the same proportion of claims from time to time of the A ordinary shareholders
against Holdco 1 on loan account (the "class A claims") are also disposed. Upon the completion of the
Transactions, there will be no class A shareholder loans.
No class A ordinary shares or class A claims may be transferred to any person other than an existing class
A ordinary shareholder or a person who agrees, in advance and in writing, to be bound by all the provisions of the
Shareholders' Agreement and any other applicable agreements, including a preemptive rights agreement entered
into between the A ordinary shareholders, other than BEE Holdco, and certain broad-based BEE investors, dealing
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with, among other things, preemption and deemed offers of sale in respect of the class A ordinary shares in
BEE Holdco held by such broad-based BEE investors.
Save as may be agreed to by class A ordinary shareholders holding more than 80% of the issued class A
ordinary shares, no class A ordinary shares or class A claims may be transferred to any person who is, directly or
indirectly, interested in or engaged in or concerned with any relevant activity in any country in which Holdco 1 or
its subsidiaries conducts business from time to time (the "prescribed area"). Relevant activities are those activities
that are the same as, substantially similar to, or competitive with the design, development, ownership,
management and/or operation of gambling facilities, hotels which have gambling facilities and/or convention
facilities which have gambling facilities and the management and/or operation of any gambling activity,
excluding:
•
the operation or other involvement in gambling on horse racing and/or national lotteries; and
•
the holding of not more than 5% of the issued share capital in any company which is listed on any
recognised stock exchange.
Transfer of class A ordinary shares other than class A ordinary shares held by Management Shareholders.
If a class A ordinary shareholder other than a Management Shareholder, wishes to transfer its class A ordinary
shares and class A claims to a bona fide third party, the other class A ordinary shareholders shall have a
preemptive right to purchase those class A shares and class A claims.
Transfer of class A ordinary shares held by Management Shareholders. If a Management Shareholder
wishes to transfer its class A ordinary shares and class A claims to a bona fide third party, the other Management
Shareholders have a preemptive right to purchase those class A shares and class A claims. In the event that the
offer to sell such class A shares and class A claims is not fully accepted by the other Management Shareholders,
then the other class A ordinary shareholders will have a preemptive right to purchase those unsold class A shares
and class A claims.
Come-along rights. If class A ordinary shareholders holding more than 80% of the issued class A ordinary
shares receive and accept an offer from a bona fide third party to acquire 100% of all of the issued class A
ordinary shares and class A claims, the remaining class A ordinary shareholders, if called upon by the initial
sellers to do so, are obligated to sell their class A shares and class A claims to such third party purchaser at the
same price on a pro rata basis and on the same terms and conditions as have been offered to the initial sellers.
Tag-along rights. If class A ordinary shareholders holding more than 35% of the issued class A ordinary
shares receive and intend to accept an offer from a bona fide third party to acquire all or a portion of their class A
ordinary shares and class A claims, the remaining class A ordinary shareholders will be entitled to request the
selling shareholders to procure that the third party purchaser also purchases a pro rata portion of the class A
ordinary shares and class A claims owned by them, at the same prices and on the same terms and conditions as are
obtained by the selling shareholders.
If BEE Holdco is not one of the selling shareholders and provided that BEE Holdco does not exercise its
tag-along right, then each shareholder of BEE Holdco will be entitled to require the selling shareholder to procure
that the third party purchaser also purchases a pro rata portion of its ordinary shares in BEE Holdco at a price
based on a formula and otherwise on the same terms and conditions as are obtained by the initial sellers of the
class A ordinary shares.
Deemed offers of sale by class A ordinary shareholders other than class A ordinary shares held by
Management Shareholders. A class A ordinary shareholder, other than Management Shareholders holding class
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A ordinary shares, is deemed to have offered to sell its class A ordinary shares and class A claims to the other
class A ordinary shareholders upon (i) certain bankruptcy or insolvency involving such shareholder, (ii) an order
by any relevant gambling board lawfully directing a shareholder to dispose of its class A ordinary shares, (iii) the
exercise of a security interest over such class A ordinary shares pledged to a third party, or (iv) such class A
ordinary shareholder becoming directly or indirectly interested or engaged in or concerned with any relevant
activity in the prescribed area.
Deemed offers of sale of class A ordinary shares held by Management Shareholders. A Management
Shareholder holding of class A ordinary shares will be deemed to have offered to sell its class A ordinary shares
and class A claims to the chief executive officer of the issuer (or the financial director of the issuer if the chief
executive officer or any entity affiliated with him is the deemed offeror), acting as stipulator for the benefit of a
trust to be formed, the beneficiaries of which will be the senior management of Holdco 1 and the trustees of which
will be the members of the remuneration committee of the issuer, upon (i) the Management Shareholder being
convicted of or admitting in writing to crime involving an element of dishonesty, (ii) a Management Shareholder
being sequestrated, whether voluntarily or compulsorily and whether provisionally or finally, (iii) a Management
Shareholder becoming directly or indirectly interested or engaged in or concerned with any relevant activity in the
prescribed area, (iv) a family entity of a Management Shareholder that holds class A ordinary shares, ceases to be
a family entity of such Management Shareholder, or (v) the employment of such Management Shareholder being
terminated prior to the last day of the five year fixed of his employment agreement with the issuer. In such an
event, if the employment of such Management Shareholder is terminated prior to the third anniversary, on or after
the third anniversary but prior to the fourth anniversary, on or after the fourth anniversary but prior to the fifth
anniversary, in each case, of his employment agreement with the issuer, a 100%, 75% and 50%, respectively, of
such Management Shareholder's class A ordinary shares will be deemed to be offered for sale.
If and to the extent that a deemed offer of sale by a Management Shareholder is not fully accepted by the
management trust described in the prior paragraph, the unsold portion of the class A ordinary shares will be
deemed to be offered for sale to the other class A ordinary shareholders.
Duration
The duration of the Shareholders' Agreement is indefinite. The Shareholders' Agreement will terminate
only in the event that there is only one class A ordinary shareholder or all parties agree to terminate the agreement
in writing.
Description of the share capital of Holdco 1
The issuer is a wholly owned subsidiary of Holdco 2. Holdco 2 is a wholly owned subsidiary of Holdco 1.
Following the completion of the Transactions, Holdco 1 will have three classes of shares outstanding: class A
ordinary shares, class B ordinary shares and non-cumulative, non-redeemable and non-participating preference
shares (the "preference shares").
Class A and class B ordinary shares
Holdco 1's class A ordinary share capital consists of R100,000 divided into 100,000 shares with a par
value of R1 per share. The class B ordinary share capital of Holdco 1 consists of R100 divided into 100,000 shares
with a par value of R0.001 per share. Each class A ordinary share has identical rights in terms of capital
participation and dividends to the class B ordinary shares. Class A ordinary shares are entitled to 100 votes per
share. Class B shares are entitled to one vote per share. After eight years from the first issue of class B shares, the
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combined voting and economic rights in the share capital of Holdco 1 attaching to such class B shares will
increase at a rate governed by the PIK preferred equity loan agreement each year until the earlier of: (i) the date
upon which the PIK preferred equity loan agreement is repaid in full; and (ii) the lenders under the PIK preferred
equity loan agreement have received 100% of the combined voting and economic rights in the share capital of
Holdco 1. See "Description of Certain Other Indebtedness—Deeply subordinated shareholder loan—PIK
preferred equity loan tranche."
Preference shares
Holdco 1's preference share capital consists of R1,000 divided into 100,000 preference shares with a par
value of R0.01 per share. The preference shareholders have the right to receive a preference dividend on each
preference share held by such shareholder, in priority to the holders of any other class shares, except the class B
ordinary shares. The rights attaching to the preference shares are subordinated to the rights of the class B ordinary
shares. The preference shares are not entitled to vote at any meeting of Holdco 1's shareholders meetings unless:
•
Holdco 1 fails to redeem the preference shares following a demand by holders of more than 50% of all
preference shares at any time after the third anniversary of the later of: (i) all claims of class B ordinary
shareholders and the PIK preferred equity loan having been finally and irrevocably discharged in full
and all the class B ordinary shares having been repurchased, (ii) three years and six months from the
dated of issue of the preference shares or (iii) 1 January 2011. The circumstances set out in (i) through
(iii) above are referred to as the "designated date;"
•
After the designated date, Holdco 1 breaches any material term of its articles of association, which
breach, although remediable, is not remedied within 10 days of receipt of written notice from holders
of at least 51% of all preference shares;
•
After the designated date, any insolvency event occurs and such insolvency event is not remedied
within one business day of receipt of written notice from holders of at least 51% of all preference
shares;
•
Holdco 1 fails to pay the redemption consideration to holders of preference shares upon the occurrence
of a redemption event; or
•
a resolution is proposed: (i) which affects the rights attached to the preference shares, (ii) for the
winding-up of Holdco 1, or (iii) for the declaration or payment of dividend or any other payment to the
class A ordinary shares or for the repurchase by Holdco 1 or any of its subsidiaries of any of the
class A ordinary shares.
Upon any total or partial liquidation, dissolution, winding up, bankruptcy, reorganisation, insolvency,
receivership or similar proceeding in respect of Holdco 1, lenders under the PIK preferred equity loan agreement
and holders of class B ordinary shares will be entitled to receive payment in full of their class B ordinary shares
before any holder of preference shares. No payments may be made on the preference shares, and the preference
shares may not be redeemed before the PIK preferred equity loan is finally and irrevocably discharged in full and
all of the issued and outstanding class B shares are repurchased by Holdco 1.
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Share for share transaction agreements
Marang share transaction agreement
To effect the Emperors Palace Reorganisation, on 15 January 2007, the issuer entered into a share for
share transaction agreement with each of MIC Leisure, East Rand Children's Trust, the East Rand Youth Trust, the
East Rand Community Participation Trust, East Rand Chambers of Commerce Trust, Vusumuzi Isaiah Zwane,
Monde Tabata, and DB Consulting International CC (the "Marang Shareholders"). Under the terms of this
agreement, we have agreed to acquire from the Marang Shareholders 100% of the issued and outstanding ordinary
shares of Marang (East Rand) Gaming Investments (Proprietary) Limited ("Marang") in a series of share for share
exchange transactions as a result of which the Marang Shareholders will effectively exchange their Marang
ordinary shares for cash, ordinary shares and preference shares of Holdco 1 and BEE Holdco in an aggregate
value of R790 million. Marang owns 17.04% of PGER Holdings (Proprietary) Limited ("PGERH"), the joint
venture that currently owns Emperors Palace. As a result of this transaction, Marang and PGERH will become our
wholly owned subsidiaries, and the Marang Shareholders will beneficially own approximately 55% of Holdco 1's
voting ordinary share capital directly and through BEE Holdco. Immediately following the completion of the
Transactions, Monde Tabata will be appointed a non-executive director of our board of directors. Mr. Tabata will
beneficially own 1.8% of Holdco 1's voting ordinary share capital. MIC Leisure will, following the completion of
the Transactions, through its beneficial ownership of 41.4% of BEE Holdco's voting ordinary share capital and the
majority vote in meetings of the board of directors of BEE Holdco, effectively control the votes of 75% of Holdco
1's voting ordinary share capital. The Marang Shareholders will control approximately a further 5% of Holdco 1's
voting ordinary share capital.
Tusk minorities buy-out agreements
To effect the Tusk minorities buy-out, on 17 November 2006, the issuer entered into a sale of shares and
claims agreement with MIC Leisure to acquire from MIC Leisure its ordinary shares in Tusk Holdings,
constituting 16.8% of the share capital of Tusk Holdings, and all claims on shareholder loan amounts advanced by
MIC Leisure to Tusk Holdings for a total cash purchase price of R128 million.
On 22 March 2007, MIC Leisure entered into a sale of shares and claims agreement with Vusumusi Isaiah
Zwane, Monde Tabata, and Danisa Eileen Baloyi through Richtrau No. 144 (Proprietary) Limited ("Richtrau") to
sell to Richtrau its remaining 4.2% ownership in Tusk Holdings and the proportional amount of claims on
shareholder loan amounts advanced by MIC Leisure to Tusk Holdings (the "promoter transfer interests"), for a
total cash consideration of R25.5 million. Additional consideration of approximately R9,000 per day is payable for
each day from and including 17 March 2007, until the purchase price is paid in full. On 22 March 2007, the issuer
entered into a sale of shares and claims agreement with Richtrau to purchase from Richtrau its newly acquired
promoter transfer interests for a total cash consideration of R32 million. Immediately following the completion of
the Transactions, Monde Tabata will be appointed a non-executive director of our board of directors. Mr. Tabata
will beneficially own 1.8% of Holdco 1's voting ordinary share capital.
Services agreements
MIC services agreement
On 17 November 2006, the issuer entered into a services agreement with MIC, under which MIC agreed to
provide the issuer with certain administrative and corporate governance related services. MIC is the parent
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company of MIC Leisure and has been a shareholder of Peermont since the first casino licence bid was submitted
with respect to the Graceland licence in 1996. MIC has beneficially held 50% of the voting ordinary share capital
of Marang since 2004. See "Our Principal Shareholders."
Under the terms of the MIC services agreement, we agreed to pay MIC an annual management fee of
R3 million for MIC's services plus all reasonable expenses and disbursements incurred by MIC in connection with
the performance of its services under the agreement. The service fee will be adjusted annually based on the
consumer price index in South Africa over the immediately preceding 12 months.
The term of the service agreement is for an indefinite period of time. The service agreement will
automatically terminate if MIC is no longer entitled to appoint at least two directors to the board of directors of
BEE Holdco. The MIC services agreement may also be terminated for cause by either party.
Graceland services agreement
On 8 March 2007, the issuer and Peermont Global (Southern Highveld) (Proprietary) Limited ("PGSH")
entered into a services agreement with Marang (Southern Highveld) Gaming Investments (Proprietary) Limited
("Marang Southern Highveld"), pursuant to which Marang Southern Highveld agreed to provide the issuer and
PGSH with certain management services relating to Graceland. Marang Southern Highveld is the 50% joint
venture partner of PGSH, the entity that owns and operates Graceland. MIC Leisure beneficially owns 23.8% of
Marang Southern Highveld. Monde Tabata beneficially owns 0.5% of Marang Southern Highveld. Immediately
following the completion of the Transactions, Mr. Tabata will be appointed a non-executive director of our board
of directors. Mr. Tabata will beneficially own 1.8% of Holdco 1's voting ordinary share capital.
Under the terms of the Graceland services agreement, Marang Southern Highveld will receive an annual
base fee of 0.5% of Graceland's gross revenue and an incentive fee of 0.85% of management controllable profit
after deduction of any depreciation in respect of capital expenditure at Graceland. Either party may terminate the
agreement for cause or upon any of the following events: Marang Southern Highveld ceases to hold at least 50%
of the issued ordinary shares or PGSH; Marang Southern Highveld ceases to qualify as a black owned entity; the
disposal, alienation, encumbrance, dilution or transfer by any Marang Southern Highveld shareholder of 10% or
more of the issued ordinary shares of Marang Southern Highveld, without the prior written approval of PGSH;
and a change in the shareholder of any entity who holds a direct or indirect interest of 10% or more in Marang
Southern Highveld.
Frontier Inn services agreements
On 16 September 2005, the issuer and Peermont Global (Eastern Free State) (Proprietary) Limited
("PGEFS"), entered into services agreements with each of Intselele Investments (Proprietary) Limited,
L.M. Kgwatela, Majorshelf 174 (Proprietary) Limited, Dr. Aby Mohlala Incorporated and Sello Andrew
Molemela (each a "BEE Contractor"). The BEE Contractors hold an aggregate of 30% of PGEFS's shares. Under
the terms of the agreements, each BEE Contractor agreed to provide the issuer and PGEFS with certain
management services relating to Frontier Inn. Each BEE Contractor is a BEE investor in PGEFS.
Under the terms of the Frontier Inn services agreements, the issuer and PGEFS agreed to pay each BEE
Contractor an annual base management fee that amounts to 0.065% of Frontier Inn's gross revenue. The services
agreements terminate if a BEE Contractor disposes of its ordinary shares in PGEFS, if the BEE Contractor no
longer qualifies as a BEE entity, or upon a breach by either the BEE Contractor or PGEFS of the terms of the
services agreements.
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Mthatha services agreement
The issuer and Peermont Global (Mthatha) (Proprietary) Limited ("PGM") entered into a development
services agreement with Royal Albatross Properties 251 (Proprietary) Limited ("Royal Albatross"), pursuant to
which Royal Albatross agreed to provide the issuer and PGM certain project management services. Royal
Albatross is a BEE partner of PGM, the entity that has been selected as the preferred bidder for the Mthatha casino
licence, and holds 30% of PGM's shares.
Under the terms of the services agreement, the issuer and PGM agreed to pay Royal Albatross total fees
equal to 1.5% of the budgeted capital expenditure for the Mthatha casino project, plus disbursements and expenses
incurred by Royal Albatross in the fulfilment of its obligations under the agreement. The services agreement may
be terminated by either party in the event of a material breach or if a party fails to make a payment on any amount
due.
Management voting pool agreement
Members of the issuer's senior management, who, together, after the completion of the Transactions, will
beneficially own 17.5% of Holdco 1's voting ordinary share capital (the "pool members"), entered into a voting
pool agreement under which the pool members agree to collectively vote as a single class in any action requiring
the approval of Holdco 1's class A ordinary shareholders. Pursuant to the voting pool agreement, any action voted
on by pool members, at a general shareholders meeting of Holdco 1 must be agreed to by a majority of pool
members at a duly convened meeting or in writing by pool members holding in aggregate more than 60% of all
ordinary shares held by all pool members voting and agreed to in writing or voted in favour of by the issuer's chief
executive officer. Each pool member has one vote for each share held by such pool member. The voting pool
agreement was entered into for an indefinite period of time, and may not be terminated, so long as there are more
than two pool members bound by the pool agreement. No pool member may transfer or cause the transfer of any
Holdco 1 class A ordinary share to a family entity, unless such family entity becomes a party to the voting pool
agreement. Upon acquiring class A ordinary shares, future management employees will be required to become
pool members by acceding to the voting pool agreement.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
New revolving credit facility
On or about the date of the issuance of the notes, we will enter into a working capital and a short-term
banking facility with First National Bank, a division of FirstRand Bank Limited ("FNB") (the "new revolving
credit facility"). The material terms of the new revolving credit facility are expected to be as set forth below.
Borrower and security
The new revolving credit facility will be available to the issuer upon the satisfaction of certain customary
conditions, which we expect to occur on or about the completion of the Transactions. Amounts outstanding under
our new revolving credit facility will be guaranteed by the security spv and secured by first-priority security
claims over substantially all of our assets up to the facility amount. See "Description of the Notes—Security."
Facility amount
Our new revolving credit facility provides for overdraft, term loans, letters of credit, performance
guarantees and forward exchange contracts for an aggregate amount of R400 million (€43 million).
Availability
Our new revolving credit facility will be available for drawing until April 2010. Drawings under our new
revolving credit facility will be permitted upon satisfaction of certain customary conditions.
Payments
We will be entitled to make payments on amounts outstanding under our new revolving credit facility
from our "free cash flow." Free cash flow is defined as EBITDA plus decreases in net working capital less the
aggregate of increases in working capital and capital expenditure incurred. Any amounts that we repay will be
available to be redrawn.
Interest rate and fees
The interest rate under our new revolving credit facility will be equal to FNB's prime rate (currently
12.5%) minus 1%. Default interest accrues on a daily basis from the due date of any amount not paid under our
new revolving credit facility until the date of actual payment at FNB's prime rate plus 1%. We will also pay a
commitment fee of 0.25% per year on the unutilised amount of our new revolving credit facility. In addition, we
will pay a raising fee of 0.25% of the facility amount on the date of the first drawing.
Undertakings
Our new revolving credit facility contains certain customary negative and positive undertakings.
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Events of Default
Our new revolving credit facility provides for certain events of default, the occurrence of which would
allow FNB to terminate our new revolving credit facility and demand the immediate repayment of all amounts
outstanding under our new revolving credit facility. The following constitute events of default under our new
revolving credit facility:
•
the failure to pay principal, interest or any other amount payable under our new revolving credit
facility when due;
•
the aggregate amount outstanding under our new revolving credit facility exceeding the facility
amount;
•
the representations or warranties being materially incorrect when made or deemed made;
•
the failure to comply with any material obligations under our new revolving credit facility;
•
the restructuring of any of our debt without the prior written consent of FNB;
•
the liquidation, voluntary or involuntary bankruptcy or insolvency proceedings involving us;
•
the attachment of our assets or any unsatisfied judgement or order, including failure to pay a final
judgement or court order;
•
a material adverse effect on (i) our ability to perform our payment obligations under our new revolving
credit facility, (ii) our business, assets or financial condition or (iii) the validity, legality or
enforceability of the material terms of our new revolving credit facility agreement;
•
cross default and acceleration of debt in respect of the notes and other obligations incumbent upon us;
and
•
the Management Shareholders ceasing to beneficially own an aggregate of at least 10% of our share
capital.
Hedging agreement
In connection with the issuance of the notes, we entered into a four-year forward exchange contract with
FirstRand Bank Limited, acting through its Rand Merchant Bank division (the "hedging lender") for the rand
equivalent of all or substantially all of the principal amount of, and four years of interest under, the notes. The
hedging lender will share rateably in the security interest in the collateral granted to the holders of the notes. Any
such forward exchange contract and/or cross currency swap may or may not be credit linked to us. Under any
credit linked hedge, on the occurrence of a credit event, the hedge would terminate and no mark-to-market
payment would be due from either party. See "Risk Factors—Risks related to the Republic of South Africa—
Fluctuations in the value of the rand may have a significant effect on our ability to service our foreign currency
denominated debt, including the notes."
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Deeply subordinated shareholder loan
In connection with the Corporate Reorganisation, the issuer will have received R1,973.3 million
(€213.4 million) from Holdco 2 in the form of a deeply subordinated shareholder loan (the "deeply subordinated
shareholder loan"). The deeply subordinated shareholder loan will be comprised of two tranches (i) the
R1,086.3 million (€ 117.9 million) PIK preferred equity loan tranche representing (a) gross proceeds that will be
received by Holdco 1 under the PIK preferred equity loan agreement and (b) proceeds from the issuance of class B
ordinary shares of Holdco 1 to the investors under the PIK preferred equity loan agreement, such amounts in (a)
and (b) having been received by Holdco 2 in the form of a deeply subordinated shareholder loan from Holdco 1,
and (ii) the R887.0 million (€95.9 million) PIK notes tranche representing gross proceeds from the issuance by
Holdco 2 of PIK notes. We will use amounts advanced under the deeply subordinated shareholder loan to pay for
the Corporate Reorganisation. The terms of the PIK preferred equity loan tranche will be substantially the same as
the terms of the PIK preferred equity loan agreement. The terms of the PIK notes tranche will be substantially the
same as the terms of the PIK notes.
PIK preferred equity loan tranche
Amounts outstanding under the PIK preferred equity loan tranche will accrue interest at a rate of 18% per
year plus a margin of up to 20 basis points. If the loan has not been repaid in full within five years of the first
advance, it will bear additional interest of 200 basis points per year. After six years, the rate shall be increased by a
further 150 basis points per year and, after seven years, by another 150 basis points per year. The interest payable
will, in addition, be increased by an amount equivalent to amounts which may become due under the PIK
preferred equity loan agreement, including the administrative agent's fees, arranger's fees and disbursements and
claims under the "increased costs" and "additional tax" provisions. Interest on the loan is payable semi-annually. If
not paid in cash, interest is capitalised on each interest payment date. The PIK preferred equity loan tranche may
be prepaid, at any time on or after the later of (i) the date that is three years and six months following the date
upon which the first advance is made, and (ii) 1 January 2011.
The PIK preferred equity loan tranche will mature on the 30th anniversary of the first advance having been
made, provided that (i) no amounts are outstanding under the notes or (ii) the terms governing the notes allow
such repayment. If either of aforesaid do not apply, the Holdco 2 deeply subordinated shareholder loan will
mature on the earlier of (a) the date on which both (i) and (ii) do apply, and (b) 31 December 2106. The issuer's
obligations under the PIK preferred equity loan tranche will be contractually subordinated in right of payment to
its obligations under the notes. Prior to maturity, the issuer has no cash payment obligations under the PIK
preferred equity loan tranche.
Lenders under the PIK preferred equity loan agreement will hold class B ordinary shares issued by
Holdco 1 representing approximately 31% of the economic interest in Holdco 1 and nominal voting rights. If the
loan is not repaid within eight years voting rights attached to the class B ordinary shares will increase in
increments of 10% per year. If the loan is not repaid within 11 years the economic interest represented by the
class B ordinary shares will increase, so that by the 17th anniversary, the holders of the class B ordinary shares
will own 100% of the voting and economic interest in Holdco 1. The PIK preferred equity loan agreement
provides that upon repayment of the PIK preferred equity loan, in whole or in part, Holdco 1 will also be required
to repurchase a corresponding portion of the B ordinary shares.
The PIK preferred equity loan tranche contains covenants substantially similar to those contained in the
notes offered hereby.
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PIK notes tranche
Amounts outstanding under the PIK notes tranche will accrue interest at a rate of 18% per year plus a
margin of up to 20 basis points. The interest payable under the PIK notes tranche will increase if additional
amounts become payable on, or in relation to, the PIK notes. Interest on the loan is payable semi-annually. If not
paid in cash, interest is capitalised on each interest payment date. The PIK notes tranche will mature on the
8th anniversary of the issue by Holdco 2 of the PIK notes, provided that (i) no amounts are outstanding under the
notes or (ii) the terms of the notes allow such repayment. If either of aforesaid do not apply, the PIK notes tranche
will mature on the earlier of (a) the date on which both (i) and (ii) do apply, and (b) the 30th anniversary of the
issue of the senior PIK notes.
The issuer's obligations under the PIK notes tranche will be contractually subordinated in right of payment
to its obligations under the notes. Prior to maturity, the issuer has no cash payment obligations under the PIK notes
tranche.
hereby.
The PIK notes tranche contains covenants substantially similar to those contained in the notes offered
Temporary bridge
In connection with the Transactions, the issuer will enter into a temporary bridge loan facility for an
aggregate rand amount of approximately R4,996 million (€540 million). The issuer will draw the full amount
available under this temporary bridge loan (the "temporary bridge advance") immediately prior to the operative
date of the scheme and use such amount to finance the scheme, the Emperors Palace Reorganisation and the Tusk
minorities buy-out. The issuer will repay the full amount drawn under the temporary bridge advance immediately
after the completion of the Corporate Reorganisation, which is expected to occur immediately after the operative
date of the scheme, from dividends to be declared and paid by Peermont and certain of its subsidiaries from
proceeds received in the Corporate Reorganisation. The temporary bridge advance will mature within three
business days after drawdown, accrue interest at an interest rate linked to the prime rate of the lending bank and
have covenants customary in bridge loan agreements. The issuer's obligations under the temporary bridge advance
will be secured by a pledge over the shares of Peermont acquired in the scheme and the shares of the issuer.
Botswana indebtedness
On 28 January 2005, Peermont Global (Botswana) (Proprietary) Limited ("PGB"), issued notes with an
aggregate principal amount of Botswana pula 25 million under a Botswana pula 50 million note programme. The
notes bear interest at a fixed rate of 12.25% per year, payable semi-annually. The notes will mature on 1 March
2010. The notes are unsecured and rank pari passu with all other unsecured obligations of PGB. PGB is required
to maintain certain financial ratios at all times. The notes contain customary covenants.
On 11 March 2004, PGB entered into a loan agreement for Botswana pula 25 million, with First National
Bank of Botswana Limited ("FNB Botswana"). The loan bears interest at an annual rate of FNB Botswana's prime
rate less 2.7%. Interest is payable monthly in arrears. As of 21 April 2007, we will commence repaying principal
on this loan monthly in arrears. The loan is secured by a mortgage on PGB's real estate and cession of fire
insurance policy. The loan agreement may terminate and all amounts under the loan will become due upon the
occurrence of certain events of default. There are no penalties for early settlement of the capital balance provided
that such prepayment or early settlement is not made before 15 April 2007. The loan matures on 21 March 2015.
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On 1 March 2005, PGB entered into a loan agreement for 25 million Botswana pula, with FNB Botswana.
The loan bears interest at an annual rate of FNB Botswana's prime rate less 2.7%. Interest and capital are payable
monthly in arrears. The loan is secured by a mortgage on PGB's real estate and cession of fire insurance policy.
The loan agreement may terminate and all amounts under the loan will become due upon the occurrence of certain
events of default. There are no penalties for any early settlement of the capital balance. The loan matures on
5 May 2015.
Financings relating to Frontier Inn
On 9 December 2005, Peermont Global (Eastern Free State) (Proprietary) Limited ("PGEFS"), entered
into a R38.7 million senior debt facility with ABSA Bank Limited ("ABSA") to finance the construction of
Frontier Inn. The loan bears interest at a rate equal to the aggregate of three month JIBAR and a margin of 2.5%.
Interest and capital are payable monthly in arrears with the first repayment date occurring on 21 February 2007.
Early settlement or prepayment is permitted at any time, subject to breakage costs. The loan matures on 30
June 2015. The loan is secured by a mortgage on PGEFS's real estate, a bond over PGEFS's moveable assets and
cession of fire insurance policy. In addition, PGEFS Holdings (Proprietary) Limited ("PGEFSH") subordinated
any present and future claims that it might have against PGEFS to ABSA.
On 15 December 2005, PGEFSH entered into a R44.3 million facility agreement with ABSA to finance
the construction of Frontier Inn. The loan bears interest at a rate equal to the aggregate of three months JIBAR and
a margin of 1.5%. Interest and capital are payable monthly in arrears with the first repayment date occurring on
22 October 2007. Early settlement or prepayment is permitted at any time, subject to breakage costs. The loan
matures on 30 June 2015. The loan is secured by a pledge by Peermont of all its shares in PGEFSH, a guarantee
by Peermont, certain other limited recourse bank and individual shareholder guarantees and a pledge by the
guaranteeing shareholders of all their shares in PGEFSH. Following the completion of the Transactions, the issuer
will assume the obligations under the Peermont guarantee. The Peermont guarantee will terminate upon the earlier
of the full discharge of PGEFSH' obligations under the agreement or the full discharge of Peermont's obligations
under the guarantee.
Both loan agreements may be terminated by the lender upon the occurrence of certain events of default.
PGEFS is required to maintain certain financial ratios at all times under each loan agreement.
Tusk retention creditors
In connection with the Tusk Acquisition, Tusk Holdings retained R35 million (€3.4 million) of the Tusk
Acquisition purchase price as security for the due and punctual performance by the sellers of all their obligations
in respect of any claim under the Tusk Acquisition agreement. Tusk Holdings will retain this amount for a period
of three years from the date on which the 2005 income tax returns of the Tusk Group are duly filed with SARS.
The retention amount, plus an amount that equals 7% nominal annual rate compounded monthly of the retention
amount over this period, must be repaid upon the expiry of the three year period.
Tusk promissory notes
Tusk Resorts (Proprietary) Limited ("Tusk Resorts") currently leases the Tusk Taung and Tusk Mmabatho
staff complex properties. The lease agreements end in October 2010 and November 2011, respectively. On 31
July 2003, Tusk Resorts entered into an agreement with Kingsfield Finance (Proprietary) Limited ("Kingsfield")
and Sun International (South Africa) Limited ("Sun International") to issue promissory notes to Sun International
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in the aggregate amount of R26.4 million (€2.9 million) to discharge the rental payments on the properties. The
promissory notes are currently held by Gensec Properties (Proprietary) Limited.
The agreement also provides that at the end of the respective lease periods, Tusk Resorts has an option to
acquire (for a nominal amount) an effective 50% interest in the shares of the companies that own the Tusk
Mmabatho property and the Tusk Taung leasehold rights. In addition, the agreement provides an irrevocable put
option under which Tusk Resorts is required to purchase all or any of the outstanding promissory notes held by
Sun International upon the occurrence of certain put option events for a price of the aggregate of (i) the face value
of each unpaid promissory note plus interest at the publicly quoted basic rate of interest published by the selling
holder of the promissory notes or by FirstRand Bank plus 2%; (ii) the total amount of each undischarged
promissory note discounted at face value at the reinvestment rate in South Africa; and (iii) the interest on the face
value of each unpaid promissory note and on the present value of each undischarged promissory note, calculated
at the publicly quoted basic rate of interest published by the selling holder or by FirstRand Bank plus 2%.
Iskhus finance leases
On 29 October 2006, Peermont Global (East Rand) (Proprietary) Limited ("PGER") entered into
R3.5 million (€379,000) finance leases with Iskhus Power (Proprietary) Limited ("Iskhus Power") for the rental of
certain equipment used to reduce energy consumption at Emperors Palace. The finance leases currently bear
interest at 10.5% per year. Interest is based upon FirstRand Bank's published prime rate. Payments under the
leases are made monthly in arrears. The leases terminate on 29 October 2012, unless terminated earlier by either
party as a result of any material breach. Under the terms of the agreement, Iskhus Power will sell the equipment to
PGER for a nominal amount at the end of the term. In addition, the leases provide for a quarterly incentive
payment of an amount equivalent to 30% of additional energy savings achieved over the period as determined by
a savings formula. This incentive fee terminates on 29 October 2009.
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DESCRIPTION OF THE NOTES
In this "Description of the Notes," the word "Issuer" refers only to Peermont Global (Proprietary) Limited
and not to any of its Subsidiaries. In addition, the words "Parent Guarantor" refers to Peermont Global Holdings II
(Proprietary) Limited and the word "Guarantors" refers to Peermont Global (North West) (Proprietary) Limited,
Peermont Global (KZN) (Proprietary) Limited, Peermont Global (Limpopo) (Proprietary) Limited, Peermont
Global Management (NW&L) (Proprietary) Limited, and Peermont Global Management (KZN) (Proprietary)
Limited, the Issuer's subsidiaries, who will Guarantee the Notes on the Issue Date, and to any future person that
Guarantees the Notes. The definitions of certain other terms used in this description are set forth throughout the
text or under the sub-heading "—Certain Definitions."
The Issuer will issue and the Parent Guarantor and the Guarantors (the "Parent Guarantee" and the
"Guarantees", respectively) will guarantee the notes offered hereby (the "Notes") under an indenture (the
"Indenture") among the Issuer, the Parent Guarantor, the Guarantors, the Security SPV, BNY Corporate Trustee
Services Limited as Trustee, The Bank of New York, as Principal Paying Agent and registrar and BNY Fund
Services (Ireland) Limited as Irish Paying Agent. The Notes will also be guaranteed on a limited recourse basis
under South African law by the Security SPV in connection with the security structure being established to
support the obligations of the Issuer under the Notes, the Parent Guarantor under the Parent Guarantee, and the
Guarantors under the Guarantees. The Indenture is not required to be nor will it be qualified under the U.S. Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The word "Notes," unless the context requires otherwise, also
refers to "book-entry interests" in the Notes, as defined herein.
The obligations of the Issuer under the Indenture and the Notes, of the Parent Guarantor under the
Indenture and its Parent Guarantee, and of the Guarantors under the Indenture and their Guarantees will be
secured as described below under the caption "—Security."
The registered holder of a Note will be treated as its owner for all purposes. Only registered holders will
have rights under the Indenture, including, without limitation, with respect to enforcement and the pursuit of other
remedies. The Notes will not be registered under the U.S. Securities Act of 1933, as amended (the "U.S. Securities
Act"), and will therefore be subject to certain transfer restrictions.
The following description is a summary of the material terms of the Indenture and the Security
Documents. It does not, however, restate the Indenture or the Security Documents in their entirety and where
reference is made to particular provisions of the Indenture or the Security Documents, such provisions, including
the definitions of certain terms, are qualified in their entirety by reference to all of the provisions of the Notes, the
Parent Guarantee, the Guarantees, the Indenture and the Security Documents. You should read the Indenture and
the Security Documents because they contain additional information and because they and not this description
define your rights as a holder of the Notes, the Parent Guarantee and the Guarantees. Copies of the form of the
Indenture and of the Security Documents may be obtained by requesting them from the Issuer at the address
indicated under "Where You Can Find More Information" or, if and so long as the Notes are admitted to the
Official List and traded on the Alternative Securities Market of the Irish Stock Exchange and the rules of the Irish
Stock Exchange so require, from the office of the Irish Paying Agent at Guild House, Guild Street, Dublin,
Ireland.
The Issuer has made an application to the Irish Stock Exchange for the Notes to be admitted to the Official
List and traded on its Alternative Securities Market. The Issuer can provide no assurance that the Notes will be
admitted to trade on the Alternative Securities Market of the Irish Stock Exchange. If and so long as the Notes are
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admitted to the Official List and traded on the Alternative Securities Market of the Irish Stock Exchange, the
Issuer will maintain a paying or transfer agent in Ireland. See "—Payments on the Notes; Paying Agent."
The Notes
The Notes will:
(a)
be the Issuer's general obligations;
(b)
mature on 30 April 2014;
(c)
be senior in right of payment to all of the Issuer's existing and future indebtedness that is
subordinated in right of payment to the Notes;
(d)
be equal in right of payment to all of the Issuer's existing and future indebtedness that is not
subordinated in right of payment to the Notes; and
(e)
be structurally subordinated to all existing and future indebtedness of the Issuer's Subsidiaries that
do not Guarantee the Notes.
The Notes will be structurally subordinated to all debt and liabilities of the Issuer's Subsidiaries that have
not Guaranteed the Notes. In the event of a bankruptcy, liquidation or reorganisation of any of these Subsidiaries,
the holders of the debt and the trade creditors of these Subsidiaries will be paid before these Subsidiaries will be
able to distribute any of their assets to the Issuer or the Guarantors.
The Guarantees
General
Under the Indenture, the Parent Guarantor and the Guarantors will fully and unconditionally and jointly
and severally agree to Guarantee the Issuer's obligations under the Indenture and the due and punctual payment of
all amounts payable under the Notes, including principal, premium, if any, and interest payable under the Notes.
No direct or indirect Subsidiary of the Issuer other than the Guarantors will provide Guarantees on the Issue Date.
Subject to certain exceptions, the Indenture will require Restricted Subsidiaries that guarantee Senior Debt of the
Issuer or a Guarantor to concurrently provide a Guarantee on substantially the same terms as the Guarantees
provided by the Guarantors on the Issue Date. See "Certain Covenants—Limitation on Guarantees of Debt by
Restricted Subsidiaries." The obligations of the Issuer under the Notes, of the Parent Guarantor under the Parent
Guarantee and of the Guarantors under the Guarantees will also be guaranteed by the Security SPV in connection
with the security being granted by the Issuer, the Parent Guarantor and the Guarantors. See "—Security."
The Parent Guarantee
The Parent Guarantor's Parent Guarantee will be:
(a)
the general obligation of the Parent Guarantor;
(b)
senior in right of payment to all of the existing and future indebtedness that is subordinated in right
of payment to the Parent Guarantee; and
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(c)
equal in right of payment to all of the Parent Guarantor's existing and future indebtedness that is
not subordinated in right of payment to the Parent Guarantee.
The Parent Guarantor is a holding company with no assets other than its interests in the capital stock of the
Issuer and is giving the Parent Guarantee solely to facilitate the pledging of its interests in the capital stock of the
Issuer. The Parent Guarantor will not therefore be bound by any provisions of the Indenture other than those
described under "—Certain Covenants—Impairment of Security Interests."
The Guarantees
Each Guarantor's Guarantee will be:
(a)
the general obligation of such Guarantor;
(b)
senior in right of payment to all of the existing and future indebtedness that is subordinated in right
of payment to its Guarantee;
(c)
equal in right of payment to all of such Guarantor's existing and future indebtedness that is not
subordinated in right of payment to its Guarantee; and
(d)
structurally subordinated to all existing and future indebtedness of such Guarantor's subsidiaries
that do not Guarantee the Notes.
The Guarantors have each been established for the purpose of purchasing certain assets of Peermont
Global Limited and its Subsidiaries on the date of the Corporate Reorganization in connection with the
Transactions. Prior to such time, the Guarantors will have no assets.
On or following the date of the Corporate Reorganization the Issuer will cause any Restricted Subsidiary
that is or becomes a Material Subsidiary (except for any Restricted Subsidiary that was a Material Subsidiary at
the date of the Indenture but was not an initial Guarantor, any Restricted Subsidiary that is already a Guarantor, or
any Restricted Subsidiary as to which the Issuer and its Restricted Subsidiaries do not own, directly or indirectly,
greater than 90% of the Capital Stock) to execute and deliver an accession agreement providing for the Guarantee
of the Notes by such Restricted Subsidiary on the same terms as the Guarantees granted by the other Guarantors
under the Indenture; provided, however, that no such Restricted Subsidiary will be required to comply with the
foregoing if (i) as of the date of the most recent Consolidated balance sheet of the Issuer at least 85% of the
Issuer's Consolidated net assets were owned by the Issuer and the Guarantors combined and (ii) for the four full
Accounting Quarters for which financial statements are available at least 85% of the Issuer's Consolidated
Adjusted Net Income was generated by the Issuer and the Guarantors combined.
The obligations of the Parent Guarantor under its Parent Guarantee and of each Guarantor under its
Guarantee, will in each case be limited to an amount not to exceed the maximum amount that it can guarantee by
law or without resulting in its obligations under its Parent Guarantee or Guarantee, as the case may be, being
voidable or unenforceable under applicable laws relating to fraudulent transfer, or under similar laws affecting the
rights of creditors generally. Each Guarantor that makes a payment or distribution under its Guarantee will be
entitled to contribution from any other Guarantor.
Although the Indenture will contain limitations on the amount of additional Debt that the Issuer, the
Guarantors and the Restricted Subsidiaries may incur, the amount of such additional Debt could be substantial.
Based on the Issuer's consolidated balance sheet as of 31 December 2006, as adjusted for the offering of the Notes
and the application of the proceeds thereof as described under "Use of Proceeds," on a combined basis, the Issuer
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and its Subsidiaries had total consolidated indebtedness (excluding the Subordinated Shareholder Loan) of
R5,211.2 million (€542.6 million) of which R151.7 million (€15.8 million) was structurally senior to the Notes
and the Guarantees and R5,195.4 million (€540.9 million) was Pari Passu Debt.
Release of a Guarantor's Guarantee
The Guarantee of a Guarantor will be released:
(a)
in connection with any sale or disposition of all of the Capital Stock of such Guarantor (or any
holding company of such Guarantor other than the Issuer or a parent company of the Issuer) if such
sale or other disposition does not violate the covenant set forth under the heading "—Certain
Covenants—Limitation on Sale of Certain Assets;"
(b)
in connection with any sale or disposition of all or substantially all of the assets of such Guarantor
(including by way of merger, consolidation or scheme of arrangement) if the sale or disposition
does not violate the covenant set forth under the heading "—Certain Covenants—Limitation on
Sale of Certain Assets;"
(c)
upon the release of the guarantee, security or Debt that gave rise to the obligation to Guarantee the
Notes, so long as no other Debt of the Issuer or a Restricted Subsidiary is at that time guaranteed or
secured by such Guarantor in a manner that would require the granting of a Guarantee;
(d)
if the Issuer designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted
Subsidiary in accordance with the applicable provisions of the Indenture; or
(e)
upon Legal Defeasance or satisfaction and discharge of the Notes under the Indenture as provided
below under the captions "—Legal Defeasance or Covenant Defeasance of Indenture" and "—
Satisfaction and Discharge."
No Guarantor will be permitted to sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person,
other than the Issuer or a Guarantor, unless:
(a)
immediately after giving effect to that transaction, no Default or Event of Default exists, and
(b)
either:
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(i)
the Person acquiring the property in any such sale or disposition or the Person formed by or
surviving any such consolidation or merger assumes all the obligations of that Guarantor
under the Indenture and its Guarantee pursuant to a supplemental indenture and, if
applicable, appropriate security documents in form and substance satisfactory to the trustee,
or
(ii)
such transaction is undertaken in compliance with the covenant described under "—Certain
Covenants—Limitation on Sale of Certain Assets" and the Net Cash Proceeds of such sale
or other disposition are applied in accordance with the applicable provisions of the
Indenture.
132
Restricted and Unrestricted Subsidiaries
As of the date of the Indenture, all of the Issuer's Subsidiaries will be "Restricted Subsidiaries." Under the
circumstances described below under "—Certain Covenants—Designation of Unrestricted and Restricted
Subsidiaries," the Issuer will be permitted to designate certain of its Subsidiaries as "Unrestricted Subsidiaries."
Any Unrestricted Subsidiaries of the Issuer will not be subject to many of the restrictive covenants in the
Indenture and will not guarantee the Notes.
Security
The security
The obligations of the Issuer under the Notes, of the Parent Guarantor under the Parent Guarantee and of
the Guarantors under the Guarantees will be supported on an equal and ratable basis with the obligations of the
Issuer under the Hedging Agreements by second ranking security interests (collectively, the "Notes Security") in
collateral (the "Collateral") that will consist of (a) pledges (the "Share Pledges") of all of the Capital Stock of the
Issuer and the Guarantors and (b) substantially all of the assets of the Issuer and the Guarantors, other than
(i) certain non-material assets; (ii) assets over which a security interest cannot be granted under South African law;
and (iii) assets over which a security interest cannot be granted under the terms of leases or other agreements to
which such assets are subject including certain assets financed by way of capitalized leases, mortgage financings
and purchase money financings.
The Issuer's obligations under the Revolving Credit Facility will be supported by first ranking security
interests (the "Revolver Security" and, together with the Notes Security, the "Security Interests") in the Collateral.
The amount of indebtedness under the Revolving Credit Facility and any other Credit Facility that may be secured
by the Collateral will be limited under the Indenture to an amount equal to the greater of (a) €50.0 million and
(b) 15% of the Total Tangible Assets of the Issuer and the Restricted Subsidiaries. The Collateral may also be
subject to Permitted Collateral Liens securing certain other obligations of the Issuer or a Restricted Subsidiary. To
the extent third parties hold Permitted Collateral Liens with respect to the Collateral such third parties may have
rights and remedies with respect to the property subject to such Liens that, if exercised, could adversely affect the
value of the Collateral. See "—Certain Covenants—Impairment of Security Interest" and "—Certain
Definitions—Permitted Collateral Liens." For a description of the Revolving Credit Facility, see "Description of
Certain Other Indebtedness".
Neither the Notes Security nor the Revolver Security will be granted directly to the holders of the Notes,
the trustee for the holders of the Notes, the Hedging Lenders or the lenders under the Revolving Credit Facility,
but to the Security SPV. These arrangements are described below. See also "Risk Factors—Risks relating to the
notes—The collateral will not be granted directly to the holders of the notes." In addition, you should note that the
ability of the holders of the Notes to realise upon the Collateral will be subject to certain bankruptcy law
limitations in the event of a bankruptcy or insolvency. See "Risk Factors—Risks relating to the notes—The
insolvency laws of the Republic of South Africa may not be as favourable to you as the bankruptcy laws of the
jurisdiction with which you are familiar."
On a pro forma consolidated basis, after giving effect to the offering, the total book value of the Collateral
subject to the Notes Security would, as of 31 December 2006 have been R3,664.7 million (€396.4 million) and
represented 89.5% of the total consolidated assets of the Issuer.
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The Security SPV and the SPV Guarantees
As mentioned above, the Notes Security and the Revolver Security will be granted to the Security SPV.
The Security SPV will be a special purpose vehicle incorporated under South African law with no assets whose
business will be limited under its articles of incorporation to holding the Collateral, the Notes Security and the
Revolver Security. This structure (the "SPV Security Structure") is commonly used to facilitate the holding and
sharing of security located in South Africa in financing transactions with multiple lenders.
Under the SPV Security Structure, the Security SPV will issue a second-ranking limited recourse South
African law guarantee (the "SPV Notes Guarantee") to the trustee on behalf of the holders of the Notes and a
second-ranking limited recourse South African law guarantee (the "SPV Hedging Guarantee" and, together with
the Notes Guarantee, the "SPV Security Guarantees") in favour of the Hedging Lenders. The SPV Notes
Guarantee will guarantee the obligations of the Issuer under the Notes, the obligations of the Parent Guarantor
under the Parent Guarantee and the obligations of the Guarantors under the Guarantees. The SPV Hedging
Guarantee will guarantee the obligations of the Issuer under the Hedging Agreements. Neither the trustee for the
holders of the Notes nor the Hedging Lenders will be entitled to take any enforcement action with respect to the
Collateral other than through the SPV Security Guarantees.
Pursuant to the SPV Security Guarantees, any distribution to the holders of each of the SPV Security
Guarantees will be allocated pari passu and pro rata to such holders in accordance with the obligations created by
the SPV Security Guarantees and under the Hedging Agreements, the Indenture, the Notes, the Parent Guarantee
and the Guarantees.
To support the obligations of the Security SPV under the SPV Security Guarantees, the Issuer, the Parent
Guarantor and the Guarantors will indemnify the Security SPV in respect of its obligations under the SPV
Security Guarantees pursuant to a counter-indemnity agreement in favour of the Security SPV (the "Counter
Indemnity Agreement"). The Issuer's, the Parent Guarantor's and the Guarantors' obligations under the Counter
Indemnity Agreement with respect to the SPV Guarantees will be secured by the Collateral.
The Security SPV will issue a first-ranking limited recourse South African law guarantee (the "SPV
Revolver Guarantee" and, along with the SPV Security Guarantees, the "SPV Guarantees") to the lenders under
the New Revolving Credit Facility. The SPV Revolver Guarantee will guarantee the obligations of the Issuer
under the New Revolving Credit Facility. To support the obligations of the Security SPV under the SPV Revolver
Guarantee, the Issuer will pursuant to the Counter Indemnity Agreement also indemnify the Security SPV in
respect of its obligations under the SPV Revolver Guarantee. The Issuer's obligations under the Counter
Indemnity Agreement with respect to the SPV Revolver Guarantee will also be secured by the Collateral.
The Security SPV's recourse to the Issuer, the Parent Guarantor and the Guarantors under the Counter
Indemnity Agreement will be limited to the Collateral.
The SPV Notes Guarantee, the SPV Hedging Guarantee, the SPV Revolver Guarantee and the Counter
Indemnity Agreement will each be governed by South African law.
Because the Security SPV's obligations under the SPV Revolver Guarantee rank prior to its obligations
under the SPV Security Guarantees, the lenders under the New Revolving Credit Facility will receive any amounts
realized from the sale of the Collateral prior to the trustee on behalf of the holders of the Notes or the lenders
under the Hedging Agreements.
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Security Documents
To grant the security interests in the Collateral, the Issuer, the Parent Guarantor and the Guarantors will
enter into the following documents (the "Security Documents") collectively:
(a)
Covering Mortgage Bonds will hypothecate certain specified immovable property of the Issuer and
Peermont Global (Limpopo) (Pty) Ltd, Peermont Global (North West) (Pty) (Ltd) and Peermont
Global (KZN) (Pty) Ltd in favour of the Security SPV;
(b)
a Special Notarial Bond will hypothecate specified movable assets of the Issuer and Peermont
Global (Limpopo) (Pty) Ltd, Peermont Global (North West) (Pty) (Ltd) and Peermont Global
(KZN) (Pty) Ltd in favour of the Security SPV;
(c)
a Pledge and Cession in Security will pledge all of the ordinary shares of the Issuer;
(d)
a Pledge and Cession in Security will pledge to the Security SPV certain intangibles of the Issuer
and the Guarantors, including authorisations and licenses; leases; agreements; trade receivables;
insurance proceeds; investments, trademarks and contractual claims, to the extent such assets are
assignable, (many of our leases and other agreements, may prohibit assignment entirely or require
the consent of the counterparty in order to grant a security interest);
(e)
General Notarial Bonds will hypothecate all other moveable assets of the Issuer and the Guarantors
in favour of the Security SPV. The General Notarial Bond will merely confer a preferred right,
such right ranking in priority only to the rights of unsecured creditors, to the Security SPV in
respect of the assets of the Issuer and the Guarantors that have not otherwise been secured, once
perfected;
(f)
Deeds of Hypothecation under which certain registered South African trademarks of the Issuer and
Peermont Global Management (NW&L) (Pty) Ltd are ceded in security to the Security SPV; and
(g)
a Pledge and Cession in Security by the Issuer of all the ordinary shares of the Guarantors in favour
of the Security SPV, and after the Reorganisations, all of the ordinary shares of the Restricted
Subsidiaries (which will own assets after the Reorganisations) owned directly or indirectly by the
Issuer in favour of the Security SPV (other than Peermont Global (Botswana) (Pty) Ltd., PGEFS
Holdings (Pty) Ltd. and Peermont Global (Eastern Free State) (Pty) Ltd.
The Security Documents relating to the Collateral will be governed by South African law, and the creation,
perfection, validity and enforceability of the security interests that are the subject of such Security Documents will
be governed by South African law. The security interests relating to certain assets that will be hypothecated or
pledged, as the case may be, pursuant to certain of the Security Documents will be required to be registered in
accordance with customary procedures under South African law following the closing of the offering of the notes
in order to be perfected. The shareholders of Peermont Global (Southern Highveld) (Pty) Ltd., a company whose
shares will be pledged under (g) above, have options and/or preemption rights in respect of the shares of such
company; therefore, any realisation of the security constituted by such shares would be subject to the terms of
such options and/or rights. The Indenture will provide that such registration must be completed no later than six
months following the closing date of the offering. For a description of certain of the risks relating to the
enforceability of the security interests granted under the Security Documents, see "Risk Factors—Risks relating to
the notes—The collateral will not be granted directly to the holders of the Notes" and "Risk Factors—Risks
relating to the notes—Fraudulent conveyance statutes under South African Law may limit your rights as a holder
of the notes to enforce the security provided by us, the Parent Guarantor, the Guarantors and our Subsidiaries."
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Release of security
All of the Notes Security on the Collateral will be released upon the payment in full of all amounts
outstanding under the Notes, the Parent Guarantee, the Guarantees and the Hedging Agreement. Prior to such
time, the Notes Security may not be released, other than (i) in connection with an enforcement action, as described
above, or (ii) with the exception of the Share Pledges, upon and to the extent of an asset sale made in compliance
with the provisions of the Indenture described in "—Certain Covenants—Limitation on Sale of Certain Assets."
Notwithstanding anything herein to the contrary, in the event that a Credit Facility is refinanced, the
trustee is hereby authorised and directed by the lenders under the replacement Credit Facility to (i) enter into
documentation reasonably acceptable to the lenders under the replacement Credit Facility and the trustee as may
be required to provide that the replacement Credit Facility is secured by the SPV Revolver Security on the same
priority and basis as the refinanced Credit Facility and (ii) direct the Security SPV to arrange the release of the
Notes Security and its replacement on the same basis if necessary to allow the lenders under the replacement
Credit Facility to benefit from a first priority security interest in the Collateral.
Enforcement of security
An enforcement rights agreement will also provide for the relative rights of the trustee on behalf of the
holders of the Notes and of the Hedging Lenders, on the one hand, and of the lenders under the New Revolving
Credit Facility, on the other hand with respect to the circumstances under which the SPV Security Guarantees and
the SPV Revolver Guarantee may be enforced. These rights will only allow for the enforcement of the SPV
Security Guarantees and the SPV Revolver Guarantee if, in the case of each such SPV Guarantee, such
enforcement is approved by the holders of more than 50% of the total aggregate principal amount of indebtedness
outstanding at such time under the Notes, the Hedging Agreements and the New Revolving Credit Facility,
collectively. Accordingly, none of the lenders under the New Revolving Credit Facility, the trustee on behalf of
the holders of the Notes or the Hedging Lenders will be able to unilaterally enforce its SPV Guarantee and the
related security interests over the Collateral, except that, each of the trustee on behalf of the holders of the Notes,
the Hedging Lenders and the lenders under the New Revolving Credit Facility will be able to enforce their
respective SPV Guarantee without the consent of the other (i) upon the appointment of a liquidator (whether final
or provisional) charged with liquidating the assets of the Issuer, or (ii) upon an Event of Default described in
paragraph (1)(k) of "—Events of Default."
Release of the Guarantee and related security interests
The Notes Security granted in respect of the Collateral to the Security SPV by a Subsidiary of the Issuer
that is a Guarantor and by such Guarantors' Subsidiaries will be unconditionally released in the event that all of the
Capital Stock of such Guarantor, or all or substantially all of the assets, of such Guarantor are sold pursuant to an
enforcement action (whether in connection with an enforcement process or by agreement with the relevant
Guarantor at a time when the Notes Security was capable of being enforced) over the Capital Stock, or all or
substantially all of the assets, of such Guarantor, immediately upon such sale provided that:
•
such Guarantor is simultaneously, irrevocably and unconditionally released (and such obligations are
not assumed by the buyer or an affiliate of the buyer) from all claims with respect to its obligations
under, or in respect of, all Debt under the Notes;
•
the sale has been made in compliance with all applicable laws; and
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•
the amount received from such sale is applied first to amounts owed in respect of the obligations that
are secured by the SPV Revolver Guarantee and is then applied to obligations that are secured by the
SPV Security Guarantees and by any other security interests ranking equal to the SPV Security
Guarantees.
As described above, the Notes Security over certain assets of the Issuer will also be released upon a sale of
such assets that is made in compliance with the provisions of the Indenture described in "—Certain Covenants—
Limitation on Sale of Certain Assets."
Other
The SPV Security Guarantees will provide, so long as any obligations secured by the Notes Security are
outstanding, that the trustee and the holders of the Notes will be able to change, waive, modify or vary the
Security Documents without the consent of the holders of any other security interests that are secured by the
Collateral and rank pari passu with or junior to the Notes Security; provided that any such changes, waivers,
modifications or variances made apply equally to all of the holders of the Notes Security and the holders of any
such other security interests ranking pari passu with or junior to the Notes Security; and provided further that no
such change, waiver, modification or variance affecting the provisions governing the circumstances under which
the Notes Security may be released may be made unless it is approved by the holders of more than 50% of the
total aggregate principal amount of indebtedness outstanding at such time under the Notes and the Hedging
Agreement.
Prior to an early termination of the Hedging Agreements, the amount of indebtedness owing thereunder
will be determined to the marked-to-market of the relevant hedging transactions. Upon and following an early
termination of the Hedging Agreements, such amount will be the amount of the termination payment owing under
the Hedging Agreements.
Subject to the terms of the Security Documents, and subject to certain exceptions required to ensure the
security interests under the Documents are perfected (such perfection being of the Revolver Security in priority to
any other security interests that are secured by the Collateral and rank junior to the Revolver Security), the Issuer,
the Parent Guarantor and the Guarantors will have the right to remain in possession and retain exclusive control of
the Collateral, to collect, invest and dispose of any income therefrom, and to vote pledged shares.
No appraisals of any of the Collateral have been prepared by or on behalf of the Issuer, the Parent
Guarantor or the Guarantors in connection with the issuance of the Notes, the Parent Guarantee and the
Guarantees. There can be no assurance that the proceeds from the sale of the Collateral would be sufficient to
satisfy the obligations owed to the holders of the Notes. By its nature, some or all of the Collateral will be illiquid
and may have no readily ascertainable market value. Accordingly, there can be no assurance that the Collateral
will be able to be sold in a short period of time, if at all. See "Risk Factors—Risks relating to the notes—The
insolvency laws of the Republic of South Africa may not be as favourable to you as the bankruptcy laws of the
jurisdiction with which you are familiar."
Disbursement of Funds; Escrow Account
The date of the closing of the offering of the Notes (the "Notes Closing Date") is expected to be on or
about 23 April 2007, or T+3.
On the Notes Closing Date €520.0 million (R4,994.6 million) of the gross proceeds from the sale of the
notes (the "Escrow Funds") will be deposited into an escrow account (the "Escrow Account"). The Escrow
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Account will be governed by an escrow agreement (the "Escrow Agreement") dated the day of the Indenture
among the Issuer, The Bank of New York, as escrow agent (the "Escrow Agent") and the trustee on behalf of the
holders of the Notes.
The Escrow Agreement will provide that the Escrow Funds will only be released:
(a)
upon the delivery of both (i) a certificate from the lenders under the Temporary Senior Bridge
Facility to be used by the Issuer to acquire all of the capital stock of Peermont Global Limited in
connection with the Transactions (the "Share Purchase") addressed to the Escrow Agent and the
trustee in accordance with the terms of the Escrow Agreement stating that funds have been
advanced under the Temporary Senior Bridge Facility to effect the Share Purchase and
(ii) Officer's Certificates (the "Offer Conditions Certificates") from each of Peermont Global
Limited and the Issuer addressed to the Escrow Agent and the trustee in accordance with the terms
of the Escrow Agreement stating that the Share Purchase has been effected and that following the
application of the Escrow Funds to effect the Corporate Reorganisation the Issuer will own
substantially all of the assets and business of Peermont Global Limited; or
(b)
to effect a Special Mandatory Redemption (as defined below) in accordance with the provisions of
the Indenture described below under "—Special Mandatory Redemption" following the delivery of
an Officer's Certificate from the Issuer (the "Special Mandatory Redemption Certificate") to the
Escrow Agent and the trustee in accordance with the terms of the Escrow Agreement stating that
(i) the Share Purchase did not take place and (ii) the Escrow Funds should be applied to effect a
Special Mandatory Redemption.
The Escrow Agreement will also provide (a) that the Escrow Funds shall be applied first, to pay the
expenses in respect of the proceeds from the Notes and second, for release to the Issuer to immediately complete
the Corporate Reorganisation as described in "The Transactions" and "Use of Proceeds;" and (b) that any interest
or other amounts earned thereon will be paid to or at the direction of the Issuer.
If the Offer Conditions Certificates have not been delivered to the trustee in accordance with the Escrow
Agreement on or prior to the fifth Business Day following the Notes Closing Date, the Indenture will provide that
the Issuer will be required to deliver a Special Mandatory Redemption Certificate directing that the Escrow Funds
be applied for the purposes of a Special Mandatory Redemption. See "—Special Mandatory Redemption."
Principal, Maturity and Interest
The Notes will mature on 30 April 2014 unless redeemed prior thereto as described herein. The Issuer will
issue the Notes in the aggregate principal amount of €520 million. Subject to the covenant described under "—
Certain Covenants—Limitation on Debt," the Issuer will be permitted to issue additional Notes under the
Indenture ("Additional Notes") from time to time. The Notes and any Additional Notes that are issued will be
treated as a single class for all purposes of the Indenture, including those with respect to waivers, amendments,
redemptions and offers to purchase. Unless the context otherwise requires, references to the "Notes" for all
purposes of the Indenture and in this "Description of the Notes" include references to any Additional Notes that
are issued.
Each Note will bear interest at the rate per annum shown on the cover page of this offering memorandum
semi-annually from the date of the Indenture or from the most recent interest payment date to which interest has
been paid or provided for, whichever is later. Interest will be payable on each Note on 30 April and 30 October of
each year, commencing on 30 October 2007. Interest will be payable to holders of record on each Note in respect
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of the principal amount thereof outstanding as of the immediately preceding 15 April or 15 October, as the case
may be. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months and will be
paid on overdue principal and other overdue amounts at the same rate.
Form of Notes
The Notes will be issued on the date of the Indenture only in fully registered form without coupons and
only in denominations of €50,000 and integral multiples of €1,000 above €50,000.
The Notes will be initially in the form of one or more global notes (the "Global Notes"). The Global Notes
will be deposited with, and registered in the name of, a common depositary for Euroclear and Clearstream
Banking or a nominee of such common depositary. Ownership of interests in the Global Notes, referred to in this
description as "book-entry interests," will be limited to persons that have accounts with Euroclear or Clearstream
Banking or their respective participants. The terms of the Indenture will provide for the issuance of definitive
registered Notes in certain circumstances. See "Book-Entry; Delivery and Form."
Transfer
The Notes will be subject to certain restrictions on transfer and certification requirements, as described
under "Notice to Investors."
All transfers of book-entry interests between participants in Euroclear or Clearstream Banking will be
effected by Euroclear or Clearstream Banking pursuant to customary procedures and subject to applicable rules
and procedures established by Euroclear or Clearstream Banking and their respective participants. See "BookEntry; Delivery and Form." In addition, the Indenture will provide for the transfer of the Notes by the Irish
Transfer Agent so long as the Notes are admitted to the Official List and traded on the Alternative Securities
Market of the Irish Stock Exchange and the rules of the Irish Stock Exchange so require.
Payments on the Notes; Paying Agent
The Issuer will make all payments, including principal of, premium, if any, and interest on the Notes, at its
office or through an agent in London, England that it will maintain for these purposes. Initially, that agent will be
the corporate trust office of the trustee. In addition, so long as the Notes are admitted to the Official List and
traded on the Alternative Securities Market on the Irish Stock Exchange, the Issuer may also make such payments
at the offices of the paying agent in Ireland. BNY Fund Services (Ireland) Limited will act as Irish Paying Agent.
The Issuer may change the paying agent without prior notice to the holders of the Notes. In addition, the Issuer or
any of its Subsidiaries may act as paying agent in connection with the Notes other than for the purposes of
effecting a redemption described under "—Optional Redemption" or an offer to purchase the Notes described
under either of "—Purchase of Notes upon a Change of Control" and "—Certain Covenants—Limitation on Sale
of Certain Assets." The Issuer will make all payments in same-day funds. Payments on the Global Notes will be
made to the common depositary as the registered holder of the Global Notes.
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The Issuer undertakes that it will maintain a paying agent in an EU Member State that is not obliged to
withhold or deduct tax pursuant to the European Council Directive 2003/48/EC or any other Directive
implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 or any law
implementing or complying with, or introduced in order to conform to, such Directive.
No service charge will be made for any registration of transfer, exchange or redemption of the Notes, but
the Issuer may require payment of a sum sufficient to cover any transfer tax or similar governmental charge
payable in connection with any such registration of transfer or exchange.
Additional Amounts
All payments that the Issuer or a Surviving Entity makes under or with respect to the Notes, that a Parent
Guarantor makes under or with respect to its Parent Guarantee or that a Guarantor makes under or with respect to
its Guarantee will be made free and clear of, and without withholding or deduction for or on account of, any
present or future tax, duty, levy, impost, assessment or other governmental charges (including, without limitation,
penalties, interest and other similar liabilities related thereto) of whatever nature (collectively, "Taxes") imposed
or levied on such payments by or on behalf of any jurisdiction in which the Issuer, the Parent Guarantor, any
Guarantor or any Surviving Entity is incorporated, organized, engaged in business or otherwise resident for tax
purposes or from or through which any of the foregoing makes any payment on the Notes or by or within any
political subdivision or governmental authority of or in any of the foregoing having the power to tax (each, a
"Relevant Taxing Jurisdiction"), unless the withholding or deduction is then required by law. If the Issuer, the
Parent Guarantor, a Guarantor or a Surviving Entity is required to withhold or deduct any amount for, or on
account of, Taxes imposed or levied on behalf of a Relevant Taxing Jurisdiction from any payment made under or
with respect to the Notes, the Issuer, the Parent Guarantor, such Guarantor or such Surviving Entity, as the case
may be, will pay additional amounts ("Additional Amounts") as may be necessary to ensure that the net amount
received by each holder or beneficial owner of the Notes (including Additional Amounts) after such withholding
or deduction will be not less than the amount the holder or beneficial owner would have received if such Taxes
had not been required to be withheld or deducted.
Neither the Issuer, the Parent Guarantor nor any Guarantor or a Surviving Entity will, however, pay
Additional Amounts to a holder or beneficial owner of Notes in respect or on account of:
(a)
any Taxes that are imposed or levied by a Relevant Taxing Jurisdiction by reason of the holder's or
beneficial owner's present or former connection with such Relevant Taxing Jurisdiction (other than
the mere receipt or holding of Notes or by reason of the receipt of payments thereunder or the
exercise or enforcement of rights under any Notes, the Indenture, the Parent Guarantee, or any
Guarantee);
(b)
any Taxes that are imposed or withheld by reason of the failure of the holder or beneficial owner of
Notes, following the Issuer's written request addressed to the holder or beneficial owner or
otherwise provided to the holder or beneficial owner (and made at a time that would enable the
holder or beneficial owner acting reasonably to comply with that request), to provide certification,
identification, information, documents or other evidence concerning the nationality, residence or
identity of the holder or beneficial owner or to make any valid or timely declaration or similar
claim or satisfy any other reporting requirements relating to such matters, whether required or
imposed by statute, treaty, regulation or administrative practice of a Relevant Taxing Jurisdiction,
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as a precondition to exemption from, or reduction in the rate of withholding or deduction of, Taxes
imposed by the Relevant Taxing Jurisdiction;
(c)
any estate, inheritance, gift, sales, excise, transfer, personal property or similar Taxes;
(d)
any Taxes that are payable otherwise than by withholding or deduction from payments made under
or with respect to the Notes;
(e)
any Taxes that are imposed or levied by reason of the presentation (where presentation is required
in order to receive payment) of such Notes for payment on a date more than 30 days after the date
on which such payment became due and payable or the date on which payment thereof is duly
provided for, whichever is later, except to the extent that the beneficial owner or holder thereof
would have been entitled to Additional Amounts had the Notes been presented for payment on any
date during such 30 day period;
(f)
any withholding or deduction in respect of any Taxes where such withholding or deduction is
imposed on a payment to an individual and is required to be made pursuant to European Council
Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN
Council meeting of 26-27 November 2000 on the taxation of savings income or any law
implementing or complying with, or introduced in order to conform to, such Directive; or
(g)
any Taxes that are imposed on or with respect to a Note presented for payment on behalf of a
holder or beneficial owner who would have been able to avoid such withholding or deduction by
presenting the relevant Note to another paying agent in a Member State of the European Union.
The Issuer, the Parent Guarantor, such Guarantor or such Surviving Entity will (i) make such withholding
or deduction required by applicable law and (ii) remit the full amount withheld or deducted to the relevant taxing
authority in accordance with applicable law.
At least 30 calendar days prior to each date on which any payment under or with respect to the Notes is
due and payable, if the Issuer, the Parent Guarantor, a Guarantor or a Surviving Entity will be obligated to pay
Additional Amounts with respect to such payment (unless such obligation to pay Additional Amounts arises after
the 30th day prior to the date on which payment under or with respect to the Notes is due and payable, in which
case it will be promptly thereafter), the Issuer will deliver to the trustee an Officer's Certificate stating that such
Additional Amounts will be payable and the amounts so payable and will set forth such other information
necessary to enable the trustee or paying agent, as the case may be, to pay such Additional Amounts to holders
and beneficial owners on the relevant payment date. The trustee shall, without more, be entitled to rely absolutely
on each such Officer's Certificate as conclusive proof that such payments are necessary. The Issuer will promptly
publish a notice in accordance with the provisions set forth in "—Notices" stating that such Additional Amounts
will be payable and describing the obligation to pay such amounts.
Upon request, the Issuer, the Parent Guarantor, a Guarantor or a Surviving Entity will furnish to the trustee
or a holder within a reasonable time certified copies of tax receipts evidencing the payment by the Issuer, the
Parent Guarantor, such Guarantor or such Surviving Entity of any Taxes imposed or levied by a Relevant Taxing
Jurisdiction in accordance with the procedures described in "—Notices" hereafter, in such form as provided in the
normal course by the taxing authority imposing such Taxes and as is reasonably available to the Issuer, the Parent
Guarantor, such Guarantor or such Surviving Entity. If, notwithstanding the efforts of the Issuer, the Parent
Guarantor, such Guarantor or such Surviving Entity to obtain such receipts, the same are not obtainable, the
Issuer, the Parent Guarantor, such Guarantor or such Surviving Entity will provide the trustee or such holder with
other evidence reasonably satisfactory to the trustee or holder of such payments by the Issuer, the Parent
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Guarantor, such Guarantor or such Surviving Entity. The Issuer, the Parent Guarantor, such Guarantor, or such
Surviving Entity shall attach to each copy a certificate stating (i) that the amount of withholding Taxes evidenced
by the certified copy was paid in connection with payments in respect of the principal amount of Notes then
outstanding, and (ii) the amount of such withholding Taxes paid per principal amount of the Notes.
The Indenture will further provide that if the Issuer, the Parent Guarantor, a Guarantor or a Surviving
Entity conducts business in any jurisdiction (an "Additional Taxing Jurisdiction") other than a Relevant Taxing
Jurisdiction and, as a result, is required by the law of such Additional Taxing Jurisdiction to withhold or deduct
any amount on account of Taxes imposed by such Additional Taxing Jurisdiction from payment under the Notes,
the Parent Guarantee or any Guarantee, as the case may be, which would not have been required to be so withheld
or deducted but for such conduct of business in such Additional Taxing Jurisdiction, the Additional Amounts
provision described above shall be considered to apply as if references in such provision to "Taxes" included taxes
imposed by way of withholding or deduction by any such Additional Taxing Jurisdiction (or any political
subdivision thereof or therein).
In addition, the Issuer, the Parent Guarantor, the Guarantors or a Surviving Entity will pay (i) any present
or future stamp, issue, registration, court documentation, excise or property taxes or other similar taxes, charges
and duties, including interest and penalties with respect thereto, imposed by or in any Relevant Taxing Jurisdiction
in respect of the execution, issue, delivery or registration of the Notes, the Indenture, the Parent Guarantee, any
Guarantee or any other document or instrument referred to thereunder and any such taxes, charges or similar
levies imposed by any jurisdiction as a result of, or in connection with, the enforcement of the Notes, the Parent
Guarantee, the Guarantees or any other such document or instrument following the occurrence of any Event of
Default with respect to the Notes, or (ii) any stamp, court, or documentary taxes (or similar charges or levies)
imposed with respect to the receipt of any payments with respect to the Notes, the Parent Guarantee or the
Guarantees.
The preceding provisions will survive any termination, defeasance or discharge of the Indenture and shall
apply mutatis mutandis to any jurisdiction in which any successor person to the Issuer is organised, incorporated
or otherwise resident for tax purposes and any political subdivision or taxing authority or agency thereof or
therein.
Whenever the Indenture or this "Description of the Notes" refers to, in any context, the payment of
principal, premium, if any, interest or any other amount payable under or with respect to any Note (including
payments thereof made pursuant to the Parent Guarantee or any Guarantee), such reference includes the payment
of Additional Amounts, if applicable.
Currency Indemnity
Euro is the sole currency of account and payment for all sums payable under the Notes, the Parent
Guarantee, the Guarantees and the Indenture. Any amount received or recovered in respect of the Notes, the
Parent Guarantee or a Guarantee in a currency other than euro (whether as a result of, or of the enforcement of, a
judgment or order of a court of any jurisdiction, in the winding up or dissolution of the Issuer, the Parent
Guarantor any Subsidiary or otherwise) by the trustee or a holder of the Notes in respect of any sum expressed to
be due to such holder from the Issuer, the Parent Guarantor or a Guarantor will constitute a discharge of such
obligation only to the extent of the euro amount which the recipient is able to purchase with the amount so
received or recovered in such other currency on the date of that receipt or recovery (or, if it is not possible to
purchase euro on that date, on the first date on which it is possible to do so). If the euro amount that could be
recovered following such a purchase is less than the euro amount expressed to be due to the recipient under any
Note, the Parent Guarantee or a Guarantee, the Issuer will indemnify the recipient against the cost of the
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recipient's making a further purchase of euro in an amount equal to such difference. For the purposes of this
paragraph, it will be sufficient for the trustee or the holder to certify that it would have suffered a loss had the
actual purchase of euro been made with the amount so received in that other currency on the date of receipt or
recovery (or, if a purchase of euro on that date had not been possible, on the first date on which it would have been
possible). These indemnities, to the extent permitted by law:
(a)
constitute a separate and independent obligation from the Issuer's other obligations;
(b)
give rise to a separate and independent cause of action;
(c)
apply irrespective of any waiver granted by any holder of a Note, the Parent Guarantee or a
Guarantee; and
(d)
will continue in full force and effect despite any other judgment, order, claim or proof for a
liquidated amount in respect of any sum due under any Note, the Parent Guarantee or a Guarantee
or any other judgment or order.
Optional Redemption
Optional Redemption prior to 30 April upon Public Equity Offering
At any time prior to 30 April 2010, upon not less than 30 nor more than 60 days' notice, the Issuer may on
any one or more occasions redeem up to 35% of the aggregate principal amount of Notes at a redemption price of
107.75% of their principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net
proceeds from one or more Public Equity Offerings. The Issuer may only do this, however, if:
(a)
at least 65% of the aggregate principal amount of Notes that were initially issued would remain
outstanding immediately after the proposed redemption; and
(b)
the redemption occurs within 90 days after the closing of such Public Equity Offering.
Optional Redemption prior to 30 April 2010
At any time prior to 30 April 2010, upon not less than 30 nor more than 60 days' notice, the Issuer may
also redeem all or part of the Notes at a redemption price equal to 100% of the principal amount thereof plus the
Applicable Redemption Premium and accrued and unpaid interest, if any, to the redemption date.
of:
"Applicable Redemption Premium" means, with respect to any Note on any redemption date, the greater
(a)
1.0% of the principal amount of the Note; and
(b)
the excess of:
(i)
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the present value at such redemption date of (x) the redemption price of the Note at 30
April 2010 (such redemption price being set forth in the table appearing below under the
caption "—Optional Redemption—Optional Redemption on or after 30 April 2010") plus
(y) all required interest payments that would otherwise be due to be paid on the Note
during the period between the redemption date and 30 April 2010 (excluding accrued but
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unpaid interest), computed using a discount rate equal to the Bund Rate at such redemption
date plus 50 basis points; over
(ii)
the outstanding principal amount of the Note.
Optional Redemption on or after 30 April 2010
At any time on or after 30 April 2010 upon not less than 30 nor more than 60 days' notice, the Issuer may
redeem all or part of the Notes. These redemptions will be in amounts of €50,000 and integral multiples of €1,000
above €50,000 at the following redemption prices (expressed as percentages of their principal amount at maturity),
plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period
commencing on 30 April of the years set forth below.
Year
Redemption
Price
2010 ....................................................................................................................................105.813%
2011 ....................................................................................................................................103.875%
2012 ....................................................................................................................................101.938%
2013 and thereafter...............................................................................................................100.000%
Redemption upon Changes in Withholding Taxes
The Issuer may, at its option, redeem the Notes, in whole but not in part, at any time upon giving not less
than 30 nor more than 60 days' notice to the holders (which notice shall be irrevocable and given in accordance
with the procedures described in "—Notices"), at a redemption price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest thereon, if any, to the redemption date, premium, if any, and all
Additional Amounts, if any, then due and which will become due on the date of redemption as a result of the
redemption or otherwise, if the Issuer determines in good faith that the Issuer, the Parent Guarantor, any Guarantor
or any Surviving Entity is or, on the next date on which any amount would be payable in respect of the Notes,
would be obligated to pay Additional Amounts (as defined above under "—Additional Amounts") which are more
than a de minimis amount in respect of the Notes pursuant to the terms and conditions thereof, which the Issuer,
the Parent Guarantor, Guarantor or Surviving Entity, as the case may be, cannot avoid by the use of reasonable
measures available to it (including making payment through a paying agent located in another jurisdiction), as a
result of:
(a)
any change in, or amendment to, the laws or treaties (or any regulations or rulings promulgated
thereunder) of any Relevant Taxing Jurisdiction (as defined above under "—Additional Amounts")
affecting taxation which becomes effective on or after the date of the Indenture or, if the Relevant
Taxing Jurisdiction has changed since the date of the Indenture, the date on which the then current
Relevant Taxing Jurisdiction became the Relevant Taxing Jurisdiction under the Indenture (or, in
the case of a successor person, after the date of assumption by the successor person of the Issuer's
obligations hereunder); or
(b)
any change in the official application, administration, or interpretation of the laws, treaties,
regulations or rulings of any Relevant Taxing Jurisdiction, (including a holding, judgment or order
by a court of competent jurisdiction), on or after the date of the Indenture or, if the Relevant
Taxing Jurisdiction has changed since the date of the Indenture, the date on which the then current
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Relevant Taxing Jurisdiction became the Relevant Taxing Jurisdiction under the Indenture (or, in
the case of a successor person, after the date of assumption by the successor person of the Issuer's
obligations hereunder) (each of the foregoing clauses (a) and (b), a "Change in Tax Law").
Notwithstanding the foregoing, the Issuer may not redeem the Notes under this provision if the Relevant
Taxing Jurisdiction changes under the Indenture and the Issuer, the Parent Guarantor or a Guarantor is obligated to
pay Additional Amounts as a result of a Change in Tax Law of the then current Relevant Taxing Jurisdiction
which, at the time the latter became the Relevant Taxing Jurisdiction under the Indenture, was officially
announced as being or having been formally proposed.
In the case of a Guarantor that becomes a party to the Indenture after the Issue Date or in the case of a
successor person, the Change in Tax Law must become effective after the date that such entity (or another person
organized or resident in the same jurisdiction) first makes a payment on the Notes. In the case of Additional
Amounts required to be paid as a result of an Issuer conducting business in an Additional Taxing Jurisdiction (as
defined above), the Change in Tax Law must become effective after the date the Issuer begins to conduct the
business giving rise to the relevant withholding or deduction.
Notwithstanding the foregoing, no such notice of redemption will be given (a) earlier than 90 days prior to
the earliest date on which the Issuer, the Parent Guarantor, Guarantor or any Surviving Entity would be obliged to
make such payment of Additional Amounts or withholding if a payment in respect of the Notes or Guarantee, as
the case may be, were then due and (b) unless at the time such notice is given, the obligation to pay Additional
Amounts remains in effect.
Prior to the publication or, where relevant, mailing of any notice of redemption pursuant to the foregoing,
the Issuer will deliver to the trustee:
(a)
an Officer's Certificate stating that the Issuer is entitled to effect such redemption and setting forth
a statement of facts showing that the conditions precedent to the right of the Issuer to so redeem
have occurred (including that such obligation to pay such Additional Amounts cannot be avoided
by the Issuer, the Parent Guarantor, Guarantor or Surviving Entity taking reasonable measures
available to it); and
(b)
an opinion of independent tax counsel of recognized standing, qualified under the laws of the
Relevant Taxing Jurisdiction and reasonably satisfactory to the trustee to the effect that the Issuer,
the Parent Guarantor, Guarantor or any Surviving Entity, as the case may be, is or would be
obligated to pay such Additional Amounts as a result of a Change in Tax Law.
Notice of Optional Redemption
The Issuer will publish a notice of any optional redemption of the Notes described above in accordance
with the provisions of the Indenture described under "—Notices." If the Notes are at such time admitted to trade
on the Alternative Securities Market of the Irish Stock Exchange, the Issuer will inform the Irish Stock Exchange
of the principal amount of the Notes that have not been redeemed in connection with any optional redemption. If
fewer than all the Notes are to be redeemed at any time, the trustee will select the Notes by a method that complies
with the requirements, as certified to the trustee by the Issuer, of the principal securities exchange, if any, on
which the Notes are listed at such time or, if the Notes are not listed on a securities exchange, pro rata, by lot or by
such other method as the trustee in its sole discretion shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not redeemed to less than € 50,000. The
trustee will not be liable for selections made by it in accordance with this paragraph.
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Special Mandatory Redemption
If the Offer Conditions Certificates have not been delivered to the trustee in accordance with the Escrow
Agreement on or prior to the fifth Business Day following the Notes Closing Date, the Indenture will provide that
the Issuer will be required to redeem all of the Notes (a "Special Mandatory Redemption") at 100% of the
aggregate principal amount of the Notes in cash using the Escrow Funds.
Notice of any Special Mandatory Redemption (any such notice a "Special Redemption Notice") will be
mailed by first class mail to each Holder at its registered address on the day on which the Issuer becomes required
to implement a Special Mandatory Redemption and will be given in accordance with applicable rules of the Irish
Stock Exchange. The redemption date will be ten Business Days after the mailing of the Special Redemption
Notice.
Offers to Purchase; Open Market Purchases
The Issuer is not required to make any sinking fund payments with respect to the Notes. However, under
certain circumstances, the Issuer may be required to offer to purchase the Notes as described under the captions
"—Purchase of Notes upon a Change of Control" and "—Certain Covenants—Limitation on Sale of Certain
Assets." The Issuer may at any time and from time to time purchase Notes in the open market or otherwise.
Purchase of Notes upon a Change of Control
If a Change of Control occurs at any time, then the Issuer must make an offer (a "Change of Control
Offer") to each holder of Notes to purchase such holder's Notes, in whole or in part, in a minimum amount of
€50,000 and integral multiples of €1,000 above €50,000 at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase (the "Change of Control Purchase Date").
Within 30 days following any Change of Control, the Issuer will:
(a)
cause a notice of the Change of Control Offer to be (i) published in a leading newspaper having a
general circulation in London (which is expected to be the Financial Times); (ii) made available to
the newswire service of Bloomberg, or if Bloomberg does not then operate, any similar agency;
and (iii) published in accordance with the rules and regulations of the Irish Stock Exchange if at the
time of such notice the Notes are listed on the Irish Stock Exchange and the rules of the exchange
require such publication; and
(b)
send notice of the Change of Control Offer by first-class mail, with a copy to the trustee, to each
holder of Notes to the address of such holder appearing in the security register, which notice will
state:
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(i)
that a Change of Control has occurred and the date it occurred;
(ii)
the circumstances and relevant facts regarding such Change of Control (including, but not
limited to, applicable information with respect to pro forma historical income, cash flow
and capitalisation after giving effect to the Change of Control);
(iii)
the Change of Control Purchase Price and the Change of Control Purchase Date, which will
be a Business Day no earlier than 30 days nor later than 60 days from the date such notice
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is mailed, or such later date as is necessary to comply with requirements under the U.S.
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any applicable
securities laws or regulations;
(iv)
that any Note accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Purchase Date unless the Change of Control
Purchase Price is not paid;
(v)
that any Note or part thereof not tendered will continue to accrue interest; and
(vi)
any other procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance (which procedures may also be performed at the
office of the paying agent in Ireland as long as the Notes are listed on the Irish Stock
Exchange and the rules of such exchange so require).
The trustee will promptly authenticate and deliver a new Note or Notes equal in principal amount to any
unpurchased portion of Notes surrendered, if any, to the holder of Notes in global form or to each holder of
certificated Notes; provided that each such new Note will be in a principal amount of €50,000 or an integral
multiple of €1,000 above €50,000. The Issuer will publicly announce the results of a Change of Control Offer on
or as soon as practicable after the Change of Control Purchase Date.
The Issuer will not be required to make a Change of Control Offer if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
In addition, the Issuer will not be required to make a Change of Control Offer in respect of a Change of
Control if a third party has made, and not terminated, a tender offer for all of the Notes with respect to such
Change of Control in the manner applicable to a Change of Control Offer, at a tender offer purchase price in cash
equal to at least 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if
any, and such third party purchases all Notes validly tendered and not withdrawn under such tender offer.
The Issuer will comply with the applicable tender offer rules, including Rule 14e-l under the Exchange
Act, and any other applicable securities laws and regulations in connection with a Change of Control Offer. Any
purchase of the Notes pursuant to a Change of Control Offer would require the prior approval of the South African
exchange control authorities. To the extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Issuer will comply with such applicable securities laws and regulations and will
not be deemed to have breached its obligations under the Indenture by virtue of such conflict.
The Issuer's future indebtedness and that of its Subsidiaries may also contain descriptions of certain events
that, if they occurred, would require such indebtedness to be repurchased. In addition, the exercise by the holders
of the Notes of their right to require a repurchase of the Notes upon a Change of Control could cause a default
under any such future indebtedness, even if the Change of Control itself does not, due to the possible financial
effect on the Issuer of such repurchase.
The provisions of the Indenture will not give holders the right to require the repurchase of the Notes in the
event of certain transactions including a reorganisation, restructuring, merger or similar transaction, that may
adversely affect holders of the Notes, if such transaction is not a transaction defined as a Change of Control. Any
such transaction, however, must comply with the applicable provisions of the Indenture, including those described
under "—Certain Covenants—Limitation on Debt." The existence, however, of a holder of the Notes' right to
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require the Issuer to repurchase such holder's Notes upon a Change of Control may deter a third party from
acquiring the Issuer or any of its Subsidiaries if such acquisition would constitute a Change of Control.
If a Change of Control Offer is made, the Issuer will not be able to provide any assurance that it will have
available funds sufficient to pay the Change of Control Purchase Price for all the Notes that might be delivered by
holders of the Notes seeking to accept the Change of Control Offer. Even if sufficient funds were available, the
terms of the other indebtedness of the Issuer and its Subsidiaries may prohibit the repurchase of the Notes prior to
their scheduled maturity. If the Issuer were not able to prepay any indebtedness containing any such restrictions,
or obtain requisite consents, the Issuer would be unable to fulfill its repurchase obligations to holders of Notes
who accept the Change of Control Offer. If a Change of Control Offer were not made or consummated or the
Change of Control Purchase Price were not paid when due, such failure would result in an Event of Default and
would give the trustee and the holders of the Notes the rights described under "—Events of Default."
The definition of "Change of Control" includes a disposition of all or substantially all of the assets of the
Issuer and the Restricted Subsidiaries, taken as a whole, to any Person. Although there is a limited body of case
law interpreting the phrase "substantially all," there is no precise established definition of such phrase under
applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a
particular transaction would involve a disposition of "all or substantially all" of the assets of the Issuer and the
Restricted Subsidiaries. As a result, it may be unclear as to whether a Change of Control has occurred and whether
a holder of Notes may require the Issuer to make an offer to repurchase the Notes as described above.
"Change of Control" means the occurrence of any of the following events:
(a)
prior to the consummation of an initial Public Equity Offering, any event, the result of which is
that the Permitted Holders cease to be the Beneficial Owners, directly or indirectly, of shares
representing 50% or more of the voting power of the Issuer's outstanding Voting Stock; or
(b)
on or after the consummation of any initial Public Equity Offering, (i) any "person" or "group" (as
such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than a Permitted
Holder or the Permitted Holders, is or becomes the Beneficial Owner, directly or indirectly, of
more than 35% of the voting power of the Issuer's outstanding Voting Stock and (ii) the Permitted
Holders do not Beneficially Own a larger percentage of such Voting Stock than such person or
group; or
(c)
the direct or indirect sale, transfer, conveyance or other disposition (other than in a transaction that
complies with the provisions of "—Certain Covenants—Consolidation, Merger and Sale of
Assets"), in one or a series of related transactions, of all or substantially all of the properties or
assets of the Issuer and its Restricted Subsidiaries, taken as a whole, to any "person" (as such terms
are used in Section 13(d)(3) of the Exchange Act) other than a Permitted Holder; or
(d)
the adoption of a plan relating to the liquidation or dissolution of the Issuer (other than in a
transaction that complies with the provisions of "—Certain Covenants—Consolidation, Merger
and Sale of Assets") whereby the Surviving Entity is substituted for the Issuer under the provisions
of the Indenture described hereunder and under the other provisions of the Indenture; or
(e)
during any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Issuer (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of the Issuer was
approved by a vote of a majority of the directors then still in office who were either directors at the
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beginning of such period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of the Issuer then in office.
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitation on Debt
(1)
The Issuer will not, and will not permit any Restricted Subsidiary to, create, issue, incur, assume,
guarantee or in any manner become directly or indirectly liable with respect to or otherwise become responsible
for, contingently or otherwise, the payment of (individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Debt (including any Acquired Debt); provided that the Issuer and any Restricted Subsidiary
will each be permitted to incur Debt (including Acquired Debt), if in each case:
(a)
after giving effect to the incurrence of such Debt and the application of the proceeds thereof, on a
pro forma basis, no Default or Event of Default would occur or be continuing; and
(b)
at the time of such incurrence and after giving effect to the incurrence of such Debt and the
application of the proceeds thereof, on a pro forma basis, the Consolidated Fixed Charge Coverage
Ratio for the four full financial quarters for which financial statements are available immediately
preceding the incurrence of such Debt, taken as one period, would be greater than 1.75 to 1.0.
(2)
This covenant will not, however, prohibit the incurrence of the following Debt (collectively,
"Permitted Debt"):
(a)
the incurrence by the Issuer or any Restricted Subsidiary of Debt under Credit Facilities in an
aggregate principal amount at any one time outstanding not to exceed the greater of
(i) €50.0 million and (ii) 15% of Total Tangible Assets;
(b)
the incurrence (i) by the Issuer of Debt pursuant to the Notes (other than Additional Notes) and the
incurrence of Debt by any Guarantors pursuant to their Guarantees and (ii) by the Issuer under the
Temporary Senior Bridge Facility for the purpose of the Share Purchase;
(c)
any Debt of the Issuer or any Restricted Subsidiary (other than Debt described in another clause of
this paragraph (2) and in subclause (ii) of this clause (c)) (i) outstanding on the date of the
Indenture or (ii) acquired and repaid in each case in connection with the Corporate Reorganisation;
(d)
the incurrence by the Issuer or any Restricted Subsidiary of intercompany Debt between the Issuer
and any Restricted Subsidiary or between or among Restricted Subsidiaries; provided that
(i)
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if the Issuer or a Guarantor is the obligor on any such Debt and the lender of such Debt is
not the Issuer or a Guarantor, (x) such Debt is unsecured (except for security granted in
respect of the Notes, any Guarantee or any obligations of the Issuer or the Restricted
Subsidiaries under the Indenture) and (y) such Debt is expressly subordinated in right of
payment to the prior payment in full in cash (whether upon Maturity, acceleration or
otherwise) and the performance in full of the obligations of the Issuer or such Guarantor
under the Notes or its Guarantee, as the case may be; and
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(ii)
(x) any disposition, pledge or transfer of any such Debt to any Person (other than a
disposition, pledge or transfer to the Issuer or a Restricted Subsidiary) and (y) the
occurrence of any transaction pursuant to which any Restricted Subsidiary that has Debt
owing to the Issuer or another Restricted Subsidiary ceases to be a Restricted Subsidiary,
will, in each case, be deemed to be an incurrence of such Debt not permitted by this
clause (d);
(e)
any guarantees (i) by the Issuer or a Restricted Subsidiary of Debt of the Issuer or any Guarantor so
long as the incurrence of such Debt is permitted by another provision of this covenant; provided
that any such guarantee of a Restricted Subsidiary is made in accordance with the provisions of the
"Limitation on Guarantees of Debt by Restricted Subsidiaries" covenant described below and
(ii) by a Restricted Subsidiary that is not a Guarantor of Debt of a Restricted Subsidiary that is not
a Guarantor, so long as the incurrence is permitted by another provision of this covenant;
(f)
the incurrence by the Issuer or any Restricted Subsidiary of Debt represented by (x) Capitalized
Lease Obligations, mortgage financings, purchase money obligations or other Debt incurred or
assumed in connection with the acquisition or development of real or personal, movable or
immovable, property or assets, in each case, incurred for the purpose of financing or refinancing all
or any part of the purchase price, lease expense or cost of construction or improvement of property,
plant or equipment used in the Issuer's or any Restricted Subsidiary's business (including any
reasonable related fees or expenses incurred in connection with such acquisition or development);
provided that the principal amount of such Debt so incurred when aggregated with other Debt
previously incurred in reliance on this subclause (x) and still outstanding will not in the aggregate
exceed €15.0 million, (y) mortgage financings incurred or assumed in connection with the
acquisition or development of real property used in the Issuer's or any Restricted Subsidiary's
business (including any reasonable related fees or expenses incurred in connection with such
acquisition or development) (any such financing, a "Mortgage Financing"), provided that the
principal amount of such Debt so incurred when aggregated with other Debt previously incurred in
reliance on this subclause (y) and still outstanding will not in the aggregate exceed €30.0 million
and (z) any Mortgage Financing or other Debt entered into for the sole purpose of financing the
acquisition or development of the Specified Projects, provided that the principal amount of such
Debt so incurred when aggregated with other Debt previously incurred in reliance on this
subclause (z) and still outstanding will not in the aggregate exceed €40.0 million;
(g)
the incurrence by the Issuer or any Restricted Subsidiary of Debt arising from agreements
providing for guarantees, indemnities or obligations in respect of earnouts or other purchase price
adjustments in connection with the acquisition or disposition of assets, including, without
limitation, shares of Capital Stock, other than guarantees or similar credit support given by the
Issuer or any Restricted Subsidiary of Debt incurred by any Person acquiring all or any portion of
such assets for the purpose of financing such acquisition, provided that the maximum aggregate
liability in respect of all such Debt permitted pursuant to this clause (g) shall at no time exceed the
net proceeds, including non-cash proceeds (the Fair Market Value of such non-cash proceeds being
measured at the time received and without giving effect to any subsequent changes in value),
actually received from the sale of such assets;
(h)
the incurrence by the Issuer or any Restricted Subsidiary of Debt under Currency Agreements
entered into in the ordinary course of business and not for speculative purposes;
(i)
the incurrence by the Issuer or any Restricted Subsidiary of Debt under Interest Rate Agreements
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(j)
the incurrence by the Issuer or any Restricted Subsidiary of Debt under Hedging Agreements
(k)
the incurrence by the Issuer or any Restricted Subsidiary of Debt in respect of workers'
compensation and claims arising under similar legislation, or pursuant to self-insurance obligations
and not in connection with the borrowing of money or the obtaining of advances or credit;
(l)
the incurrence of Debt by the Issuer or any Restricted Subsidiary arising from (i) the honouring by
a bank or other financial institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business,
provided that such Debt is extinguished within five Business Days of incurrence, (ii) bankers'
acceptances, performance, surety, judgment, appeal or similar bonds, instruments or obligations,
(iii) completion guarantees or letters of credit provided or obtained by the Issuer or any Restricted
Subsidiary in the ordinary course of business and (iv) in connection with or otherwise supporting
guarantees, performance bonds or similar instruments in favour of governmental regulatory
authorities and required in connection with any legislation, licenses or license applications
applicable to the business of the Issuer and the Restricted Subsidiaries;
(m)
the incurrence by the Issuer of Debt owed to its Direct Parent Company and consisting solely of
Deeply Subordinated Shareholder Loans;
(n)
the incurrence of Debt by the Issuer or a Restricted Subsidiary for the purpose of making a
Permitted Acquisition in an aggregate principal amount at any one time outstanding not to exceed
€10 million;
(o)
the incurrence of Debt arising from guarantees of mortgages of employees of the Issuer and the
Restricted Subsidiaries secured in whole or in part by such employees' shares or interests in any
employee stock ownership or benefit plan or pension or provident funds maintained by the Issuer
or a Restricted Subsidiary;
(p)
the incurrence by the Issuer or any Restricted Subsidiary of Permitted Refinancing Debt in
exchange for or the net proceeds of which are used to refund, replace or refinance Debt incurred by
it pursuant to, or described in, paragraph (1) and paragraphs (2)(b) and (2)(c) of this covenant, as
the case may be; and
(q)
the incurrence of Debt by the Issuer or any of its Restricted Subsidiaries (other than and in addition
to Debt permitted under clauses (a) through (p) above) in an aggregate principal amount (or
accreted value, as applicable) at any one time outstanding not to exceed €10 million.
Any Debt that is permitted to be incurred under paragraph (1) of this covenant or that is Permitted Debt
that, in either case, is Public Debt (other than Acquired Debt not incurred in connection with, or in contemplation
of, a Person merging with or into, or becoming a Restricted Subsidiary of the Issuer or any of its Restricted
Subsidiaries) may only be incurred by the Issuer or a Finance Subsidiary.
(3)
The Issuer will not incur, and will not permit any Guarantor to incur, any Debt (including
Permitted Debt) that is contractually subordinated in right of payment to any other Debt of the Issuer or such
Guarantor unless such Debt is also contractually subordinated in right of payment to the Notes and the applicable
Guarantee of the Notes on substantially identical terms; provided, that no Debt of a Person will be deemed to be
contractually subordinated in right of payment to any other Debt of such Person solely by virtue of being
unsecured or by virtue of being secured on a first or junior Lien basis.
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(4)
For purposes of determining compliance with any restriction on the incurrence of Debt in euro
where Debt is denominated in a different currency, the amount of such Debt will be the Euro Equivalent
determined on the date of such determination, provided that if any such Debt denominated in a different currency
is subject to a Currency Agreement (with respect to euro) covering principal amounts payable on such Debt, the
amount of such Debt expressed in euro will be adjusted to take into account the effect of such agreement. The
principal amount of any Permitted Refinancing Debt incurred in the same currency as the Debt being refinanced
will be the Euro Equivalent of the Debt being refinanced determined on the date such Debt being refinanced was
initially incurred. Notwithstanding any other provision of this covenant, for purposes of determining compliance
with this "Limitation on Debt" covenant, increases in Debt solely due to fluctuations in the exchange rates of
currencies will not be deemed to exceed the maximum amount that the Issuer or a Restricted Subsidiary may incur
under the "Limitation on Debt" covenant.
(5)
covenant:
For purposes of determining any particular amount of Debt under the "Limitation on Debt"
(a)
obligations in the form of letters of credit or Liens, in each case supporting Debt otherwise
included in the determination of such particular amount will not be included;
(b)
any Liens granted pursuant to the equal and ratable provisions referred to in the "Limitation on
Liens" covenant will not be treated as Debt; and
(c)
accrual of interest, accrual of dividends, the accretion or amortisation of original issue discount or
of accreted value, the obligation to pay commitment fees and the payment of interest or dividends
in the form of additional Debt will not be treated as Debt.
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(6)
For purposes of determining compliance with this "Limitation on Debt" covenant, in the event that
an item of proposed Debt meets the criteria of more than one of the categories of Permitted Debt described in
clauses (a) through (q) under paragraph (2) above, or is entitled to be incurred pursuant to paragraph (1) of this
covenant, the Issuer will be permitted to classify and reclassify such item of Debt in each case in any manner that
complies with this covenant. Debt under Credit Facilities outstanding on the date on which Notes are first issued
and authenticated under the Indenture will initially be deemed to have been incurred on such date in reliance on
the exception provided by paragraph (2)(a) of this covenant.
Limitation on Restricted Payments
(1)
The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, take any
of the following actions (each of which is a "Restricted Payment" and which are collectively referred to as
"Restricted Payments"):
(a)
declare or pay any dividend on or make any distribution (whether made in cash, securities or other
property) with respect to any of the Issuer's or any Restricted Subsidiary's Capital Stock (including,
without limitation, any payment in connection with any merger or consolidation involving the
Issuer or any Restricted Subsidiary) (other than (i) to the Issuer or any Wholly Owned Restricted
Subsidiary or (ii) to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis or
on a basis that results in the receipt by the Issuer or a Restricted Subsidiary of dividends or
distributions of greater value than the Issuer or such Restricted Subsidiary would receive on a pro
rata basis), provided that any amount so paid or distributed to holders of Capital Stock of a
Restricted Subsidiary other than the Issuer or a Restricted Subsidiary will be included in the
calculation of the aggregate amount of all Restricted Payments declared or made after the date of
the Indenture for the purposes of paragraph (2) of this "Limitation on Restricted Payments"
covenant except for dividends or distributions payable solely in shares of the Issuer's Qualified
Capital Stock or in options, warrants or other rights to acquire such shares of Qualified Capital
Stock;
(b)
purchase, redeem or otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation), directly or indirectly, any shares of the Issuer's
Capital Stock, any Deeply Subordinated Shareholder Loans or any Capital Stock of any Affiliate of
the Issuer held by Persons other than the Issuer or a Restricted Subsidiary (other than Capital Stock
of any Restricted Subsidiary or any entity that becomes a Restricted Subsidiary as a result thereof)
or any options, warrants or other rights to acquire such shares of Capital Stock or Deeply
Subordinated Shareholder Loans;
(c)
make any principal payment on, or repurchase, redeem, defease or otherwise acquire or retire for
value, prior to any scheduled principal payment, sinking fund payment or Stated Maturity, any
Subordinated Debt (other than intercompany Debt between or among the Issuer and any Restricted
Subsidiary or between or among Restricted Subsidiaries);
(d)
make any payment of interest on any Deeply Subordinated Shareholder Loans (other than non-cash
interest in the form of additional Deeply Subordinated Shareholder Loans); or
(e)
make any Investment (other than any Permitted Investment) in any Person.
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(2)
Notwithstanding paragraph (1) above, the Issuer or any Restricted Subsidiary may make a
Restricted Payment if, at the time of and after giving pro forma effect to such proposed Restricted Payment:
(a)
no Default or Event of Default has occurred and is continuing and such Restricted Payment will
not be an event that is or, after notice or lapse of time or both, would be, an "event of default"
under the terms of any Debt of the Issuer or of any Restricted Subsidiary;
(b)
the Issuer could incur at least €1.00 of additional Debt (other than Permitted Debt) pursuant to the
"Limitation on Debt" covenant; and
(c)
the aggregate amount of all Restricted Payments declared or made after the date of the Indenture
does not exceed the sum of:
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(i)
50% of aggregate Consolidated Adjusted Net Income on a cumulative basis during the
period beginning on 1 January 2007 and ending on the last day of the Issuer's last financial
quarter ending prior to the date of such proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Adjusted Net Income shall be a negative number, minus 100% of
such negative amount), plus
(ii)
the aggregate Net Cash Proceeds received by the Issuer after the date of the Indenture as
capital contributions or from the issuance or sale (other than to any Subsidiary) of shares of
the Issuer's Qualified Capital Stock (including upon the exercise of options, warrants or
rights), warrants, options or rights to purchase shares of the Issuer's Qualified Capital Stock
or Deeply Subordinated Shareholder Loans (except, in each case to the extent such
proceeds are used to purchase, redeem or otherwise retire Capital Stock or Subordinated
Debt as set forth in clause (d) or (e) of paragraph (3) below) (excluding the Net Cash
Proceeds from the issuance of the Issuer's Qualified Capital Stock or Deeply Subordinated
Shareholder Loans financed, directly or indirectly, using funds borrowed from the Issuer or
any Subsidiary until and to the extent such borrowing is repaid), plus
(iii)
(x) the amount by which the Issuer's Debt or Debt of any Restricted Subsidiary is reduced
on the Issuer's consolidated balance sheet after the date of the Indenture upon the
conversion or exchange (other than by a Subsidiary) of such Debt into the Issuer's
Qualified Capital Stock and (y) the aggregate Net Cash Proceeds received after the date of
the Indenture by the Issuer from the issuance or sale (other than to any Subsidiary) of
Redeemable Capital Stock that has been converted into or exchanged for the Issuer's
Qualified Capital Stock, to the extent such Redeemable Capital Stock was originally sold
for cash or Cash Equivalents, together with, in the case of both clauses (x) and (y), the
aggregate Net Cash Proceeds received by the Issuer at the time of such conversion or
exchange (excluding the Net Cash Proceeds from the issuance of the Issuer's Qualified
Capital Stock financed, directly or indirectly, using funds borrowed from the Issuer or any
Subsidiary until and to the extent such borrowing is repaid), plus
(iv)
(x) in the case of the disposition or repayment of any Investment constituting a Restricted
Payment made after the date of the Indenture (other than an Investment constituting a
Restricted Payment made pursuant to clause (h) of paragraph (3) below), an amount (to the
extent not included in Consolidated Adjusted Net Income) equal to the lesser of the return
of capital with respect to such Investment and the initial amount of such Investment, in
either case, less the cost of the disposition of such Investment and net of taxes and (y) in the
case of the designation of an Unrestricted Subsidiary as a Restricted Subsidiary (as long as
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the designation of such Subsidiary as an Unrestricted Subsidiary was deemed a Restricted
Payment), the Fair Market Value of the Issuer's interest in such Subsidiary, provided that
such amount will not in any case exceed the amount of the Restricted Payment deemed
made at the time that the Subsidiary was designated as an Unrestricted Subsidiary.
(3)
Notwithstanding paragraphs (1) and (2) above, the Issuer and any Restricted Subsidiary may take
the following actions so long as (with respect to clauses (c) through (h) and clause (j) below) no Default or Event
of Default has occurred and is continuing:
(a)
the payment of any dividend within 60 days after the date of its declaration if at such date of its
declaration such payment would have been permitted by the provisions of this covenant;
(b)
cash payments in lieu of issuing fractional shares pursuant to the exchange or conversion of any
exchangeable or convertible securities;
(c)
payments or distributions to dissenting shareholders pursuant to applicable law in connection with
or in contemplation of a merger, consolidation or transfer of assets that complies with the
provisions of the Indenture relating to mergers, consolidations or transfers of substantially all of the
Issuer's assets;
(d)
the repurchase, redemption or other acquisition or retirement for value of any shares of the Issuer's
Capital Stock or options, warrants or other rights to acquire such Capital Stock in exchange for
(including any such exchange pursuant to the exercise of a conversion right or privilege in
connection with which cash is paid in lieu of the issuance of fractional shares or scrip), or out of
the Net Cash Proceeds of a substantially concurrent issuance and sale (other than to a Subsidiary)
of, shares of the Issuer's Qualified Capital Stock or options, warrants or other rights to acquire such
Capital Stock;
(e)
the repurchase, redemption, defeasance or other acquisition or retirement for value or payment of
principal of any Subordinated Debt in exchange for, or out of the Net Cash Proceeds of a
substantially concurrent issuance and sale (other than to a Subsidiary) of, shares of the Issuer's
Qualified Capital Stock;
(f)
the purchase, redemption, defeasance or other acquisition or retirement for value of Subordinated
Debt (other than Redeemable Capital Stock) in exchange for, or out of the Net Cash Proceeds of a
substantially concurrent incurrence (other than to a Subsidiary) of, Permitted Refinancing Debt;
(g)
the repurchase of Capital Stock deemed to occur upon the exercise of stock options with respect to
which payment of the cash exercise price has been forgiven if the cumulative aggregate value of
such deemed repurchases does not exceed the cumulative aggregate amount of the exercise price of
such options received;
(h)
the making of any Restricted Payment to fund any purchase, repurchase, redemption, or other
acquisition or retirement for value directly or indirectly of any shares of Capital Stock of the Issuer,
a Restricted Subsidiary or a Parent Company held directly or indirectly by former directors,
officers or employees of the Issuer or a Restricted Subsidiary, upon the death or termination of
employment of such persons, pursuant to the terms of agreements under which such individuals
purchase or sell, or are granted the option to purchase or sell, such shares of Capital Stock,
provided that the total aggregate amount of any such Restricted Payments made pursuant to this
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clause (h) (less any such Restricted Payments repaid or reimbursed to the Issuer or a Restricted
Subsidiary) does not exceed € 5.0 million;
(i)
the making of any Restricted Payment to fund any purchase, repurchase, redemption or other
acquisition or retirement for value directly or indirectly of shares of Capital Stock or indebtedness
of the Issuer, a Restricted Subsidiary or a Parent Company to the extent required by any Gaming
Authority or deemed necessary by the Board of Directors of the Issuer in order to ensure that any
Gaming Licence is not suspended, revoked or derived;
(j)
the making of any Restricted Payment to fund Specified Affiliate Transactions;
(k)
the making of any Restricted Payment (other than and in addition to any Restricted Payment
permitted under clauses (a) through (j) of this paragraph (3); provided that the total aggregate
amount of any such Restricted Payments made pursuant to this clause (k) does not exceed
€15.0 million; or
(l)
transactions with respect to or contemplated by the Transactions.
The actions described in clauses (a), (b), (c), (h) and (i) of this paragraph (3) are Restricted Payments that
will be permitted to be made in accordance with this paragraph (3) but that reduce the amount that would
otherwise be available for Restricted Payments under clause (c) of paragraph (2) above. The amount of all
Restricted Payments made other than in cash will be the Fair Market Value of the asset or the securities to be
transferred as of the date of transfer.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries
The Issuer will not sell, pledge or otherwise dispose of, and will not permit any Restricted Subsidiary
(other than as permitted under the "Limitation on Liens" covenant), directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock). The foregoing sentence, however, will not apply to:
(a)
any issuance or sale of shares of Capital Stock of a Guarantor to the Issuer or a Wholly Owned
Restricted Subsidiary;
(b)
any issuance or sale of directors' qualifying shares or issuances or sales of shares of Capital Stock
of a Restricted Subsidiary to be held by third parties, in each case to the extent required by
applicable law;
(c)
the issuance or sale of shares of Capital Stock of a Restricted Subsidiary in connection with any
employee stock option or benefit plans in favour of employees or managers of such Restricted
Subsidiary;
(d)
any issuance or sale of Capital Stock of a Restricted Subsidiary to black economic empowerment
entities in connection with bid or other undertakings to Gaming Authorities provided that the Net
Cash Proceeds thereof are applied in accordance with the "Limitation on Sale of Certain Assets"
and "Change of Control" Covenants;
(e)
any issuance or sale of shares of Capital Stock of a Restricted Subsidiary if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary (i) remains a Restricted
Subsidiary or (ii) would no longer constitute a Restricted Subsidiary and any remaining Investment
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in such Person would have been permitted to be made under the "Limitation on Restricted
Payments" covenant if made on the date of such issuance or sale; provided, however, that, in the
case of this clause (v), such disposition is effected in compliance with the "Limitation on Sale of
Certain Assets" and "Change of Control" Covenants;
(f)
any issuance or sale of shares of Capital Stock of a Restricted Subsidiary made in compliance with
the "Limitation on Sale of Certain Assets" covenant and if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and
any remaining Investment in such Person would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such issuance or sale;
(g)
any issuance of shares of Capital Stock of a Restricted Subsidiary if after giving effect to such
issuance, the Issuer directly or indirectly maintains at least the same percentage ownership of such
Restricted Subsidiary as it owned prior to such issuance;
(h)
Capital Stock issued by a Person prior to the time:
(i)
such Person becomes a Restricted Subsidiary,
(ii)
such Person consolidates or merges with or into a Restricted Subsidiary,
(iii)
a Restricted Subsidiary consolidates or merges with or into such Person; but only if such
Capital Stock was not issued or incurred by such Person in anticipation of it becoming a
Restricted Subsidiary; or
(iv)
any issuance or sale of shares of Capital Stock of a Restricted Subsidiary in connection
with convertible Debt permitted to be incurred by such Restricted Subsidiary in accordance
with the "Limitation on Debt" covenant, provided that such Capital Stock is redeemed,
repurchased or otherwise cancelled within 5 days of such issuance in accordance with the
terms of the agreements governing such Debt.
Limitation on Transactions with Affiliates
The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets or property or the rendering of any service), with, or for the benefit of, any Affiliate of
the Issuer or any Restricted Subsidiary (an "Affiliate Transaction") unless such Affiliate Transaction is entered
into in good faith and:
(a)
such Affiliate Transaction is on terms that, taken as a whole, are not materially less favourable to
the Issuer or such Restricted Subsidiary, as the case may be, than those that could have been
obtained at the time in comparable arm's-length transactions with third parties that are not
Affiliates;
(b)
if such Affiliate Transaction involves aggregate payments, transfer of assets or provision of
services, in each case having a value greater than €2.0 million, the Issuer will deliver a resolution
of its Board of Directors (set out in an Officer's Certificate to the trustee) resolving with the
participation of the majority of the Disinterested Directors (or in the event that there is only one
Disinterested Director, by the resolution of such Disinterested Director), that such transaction
complies with clause (a) above; and
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(c)
if such Affiliate Transaction (other than a Permitted Investment described in paragraph (n) of the
definition of "Permitted Investments") involves aggregate payments or the transfer of assets or the
provision of services, in each case having a value greater than €10.0 million, the Issuer will deliver
to the trustee a written opinion of an investment banking firm of international standing (or, if an
investment banking firm is generally not qualified to give such an opinion, by an internationally
recognized appraisal firm or accounting firm) stating that the transaction or series of transactions is
fair to the Issuer or such Restricted Subsidiary from a financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this description will not apply to:
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(i)
reasonable and customary directors' fees and directors' and officers' insurance premiums, so
long as the Board of Directors of the Issuer has approved the terms thereof in good faith
and deemed the services theretofore or thereafter to be performed for such compensation or
payments to be fair consideration therefor;
(ii)
any Restricted Payment not prohibited by the "Limitation on Restricted Payments"
covenant or the making of an Investment that is a Permitted Investment (other than a
Permitted Investment described in paragraph (c)(iii) and paragraphs (n) and (o) of the
definition of "Permitted Investment");
(iii)
loans and advances (but not any forgiveness of such loans or advances) to the officers,
directors and employees of the Issuer, any Restricted Subsidiary or any Parent Guarantor
for travel, entertainment, moving and other relocation expenses, in each case made in the
ordinary course of business, provided that such loans and advances do not exceed €
1.0 million in the aggregate at any one time outstanding;
(iv)
agreements and arrangements existing on the date of the Indenture and any amendment,
modification or supplement thereto, provided that following such amendment, modification
or supplement the terms of any such agreement or arrangement so amended, modified or
supplemented are not, taken as a whole, more disadvantageous to the holders of the Notes
and to the Issuer and the Restricted Subsidiaries, as applicable, than the original agreement
or arrangement as in effect on the date of the Indenture and provided further that (x) such
amendment or modification is on a basis substantially similar to that which would be
conducted in an arm's-length transaction with third parties who are not Affiliates and (y) in
the case of any transaction having a Fair Market Value of greater than €2.0 million, the
Issuer will deliver a resolution of its Board of Directors (set out in an Officer's Certificate
to the trustee) resolving with the participation of the majority of the Disinterested Directors
(or in the event that there is only one Disinterested Director, by the resolution of such
Disinterested Director), that such transaction complies with clause (x) above;
(v)
the issuance of securities pursuant to, or for the purpose of the funding of, employment
arrangements, stock options and stock ownership plans, as long as the terms thereof are or
have been previously approved by the Issuer's Board of Directors;
(vi)
transactions with Affiliates solely in their capacity as holders of Debt or Capital Stock of a
Parent Company, the Issuer or any Restricted Subsidiary where such Affiliates are treated
no more favourably than holders of Debt or Capital Stock of the Issuer or any Restricted
Subsidiary that are not Affiliates;
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(vii)
transactions between or among the Issuer and any Restricted Subsidiary and between or
among Restricted Subsidiaries;
(viii)
management and service contracts and agreements entered into the ordinary course of
business with any black economic empowerment entities that are investors or shareholders
of a Parent Company or a Restricted Subsidiary, provided that the maximum total amount
of any consideration paid pursuant to such contracts and agreements shall not exceed
€3.0 million in any one Financial Year;
(ix)
the issuance or sale of Deeply Subordinated Shareholder Loans;
(x)
transactions with respect to or contemplated by the Transactions;
(xi)
Specified Affiliate Transactions; and
(xii)
the issuance or sale of Capital Stock of a Restricted Subsidiary to black economic
empowerment entities in connection with bid or other undertakings to Gaming Authorities.
Impairment of Security Interest
The Parent Guarantor, the Security SPV and Issuer will not, and the Issuer will not permit any Restricted
Subsidiary to, take or omit to take any action that might or would have the result of materially impairing the Notes
Security (it being understood that the incurrence of Permitted Collateral Liens shall under no circumstances be
deemed to materially impair the Notes Security), and the Parent Guarantor, the Security SPV and the Issuer will
not, and the Issuer will not permit any Restricted Subsidiary to, grant to any person other than the trustee and the
holders of the Notes, any interest whatsoever in any of the Collateral, except that the Parent Guarantor, the
Security SPV and the Issuer may incur Permitted Collateral Liens; provided, that the Notes Security may not be
amended, extended, renewed, restated, supplemented or otherwise modified or replaced, unless
contemporaneously with such amendment, extension, renewal, restatement, supplement, modification or renewal,
the Issuer delivers to the trustee, either:
(a)
a solvency opinion from an Independent Financial Advisor, the choice of such Independent
Financial Advisor to be subject to the prior written approval of the trustee (such approval not to be
unreasonably withheld), confirming the solvency of the Issuer and its Subsidiaries, taken as a
whole, after giving effect to any transactions related to such amendment, extension, renewal,
restatement, supplement, modification or replacement; or
(b)
an opinion of counsel, the choice of such counsel to be subject to the prior written approval of the
trustee (such approval not to be unreasonably withheld), confirming that, after giving effect to any
transactions related to such amendment, extension, renewal, restatement, supplement, modification
or replacement, the Lien or Liens created by the Notes Security so amended, extended, renewed,
restated, supplemented, modified or replaced are valid and perfected Liens not otherwise subject to
any limitation, imperfection or new hardening period, in equity or at law, that such Lien or Liens
were not otherwise subject to immediately prior to such amendment, extension, renewal,
restatement, supplement, modification or replacement.
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Limitation on Liens
The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume or suffer to exist any Lien of any kind (except for Permitted Liens) on or with respect to any of the Issuer's
or any Restricted Subsidiary's property or assets, including any shares or stock or Debt of any Restricted
Subsidiary, whether owned at or acquired after the date of the Indenture, or any income, profits or proceeds
therefrom unless:
(a)
in the case of any Lien securing Subordinated Debt, the Issuer's obligations in respect of the Notes,
the obligations of the Guarantors under the Guarantees and all other amounts due under the
Indenture are directly secured by a Lien on such property, assets or proceeds that is senior in
priority to the Lien securing the Subordinated Debt until such time as the Subordinated Debt is no
longer secured by a Lien; and
(b)
in the case of any other Lien, the Issuer's obligations in respect of the Notes, the obligations of the
Guarantors under the Guarantees and all other amounts due under the Indenture are equally and
ratably secured with the obligation or liability secured by such Lien until such time as the
obligation or liability is no longer secured by a Lien.
Limitation on Sale of Certain Assets
unless:
(1)
The Issuer will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale
(a)
the consideration the Issuer or such Restricted Subsidiary receives for such Asset Sale is not less
than the Fair Market Value of the assets sold (as determined by the Issuer's Board of Directors or,
in the case of any Asset Sale having a Fair Market Value greater than €2.0 million, as determined
by the Issuer's Board of Directors and evidenced by a resolution of the Issuer's Board of Directors);
(b)
at least 75% of the consideration the Issuer or such Restricted Subsidiary receives in respect of
such Asset Sale consists of (i) cash; (ii) Cash Equivalents; (iii) the assumption by the purchaser of
(x) the Issuer's Debt or Debt of any Restricted Subsidiary (in each case other than Subordinated
Debt) as a result of which neither the Issuer nor any of the Restricted Subsidiaries remains
obligated in respect of such Debt or (y) Debt of a Restricted Subsidiary that is no longer a
Restricted Subsidiary as a result of such Asset Sale, if the Issuer and each other Restricted
Subsidiary is released from any guarantee of such Debt as a result of such Asset Sale;
(iv) Replacement Assets; (v) any securities, notes or other obligations received by the Issuer or any
such Restricted Subsidiary in consideration of such Asset Sale that are converted within 60 days by
the Issuer or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or
Cash Equivalents received in that conversion; or (vi) a combination of the consideration specified
in clauses (i) to (v); and
(c)
the Issuer delivers an Officer's Certificate to the trustee certifying that such Asset Sale complies
with the provisions described in the foregoing clauses (a) and (b).
(2)
Within 365 days after the receipt of any Net Cash Proceeds from an Asset Sale, the Issuer may
cause such Net Cash Proceeds to be applied as follows:
(a)
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in the case of any transfer of Collateral, (i) to make an investment in or expenditure for
Replacement Assets (provided that in all such cases such investment or expenditure shall be
160
acquired or made by the Issuer or a Guarantor and such Replacement Assets shall be made subject
to the Notes Security), (ii) to permanently repay any Senior Debt of the Issuer or any Guarantor
secured by Liens ranking senior to or equally with the Notes Security and outstanding under a
Credit Facility pursuant to paragraph (2) (a) of the "Limitation on Debt" covenant (and to
permanently reduce the corresponding commitment by an equal amount if the such secured Senior
Debt is revolving credit borrowings) or (iii) any combination of clauses (i) and (ii); and
(b)
in all other cases, (i) to make an investment in or expenditure for Replacement Assets, (ii) to
permanently repay any Senior Debt of the Issuer or any Guarantor outstanding under a Credit
Facility pursuant to paragraph (2) (a) of the "Limitation on Debt" covenant and secured by Liens
ranking senior to or equally with the Notes Security (and to permanently reduce the corresponding
commitment by an equal amount if such secured Senior Debt is revolving credit borrowings) or
(iii) any combination of clauses (i) or (ii).
Any Net Cash Proceeds from Asset Sales that are not applied or invested as provided in the preceding
paragraph will be deemed to constitute "Excess Proceeds."
(3)
When the aggregate amount of Excess Proceeds exceeds €10.0 million, the Issuer will, within 15
Business Days, make an offer to purchase (an "Excess Proceeds Offer") from all holders of Notes and from the
holders of any Pari Passu Debt, to the extent required by the terms thereof, on a pro rata basis, in accordance with
the procedures set forth in the Indenture or the agreements governing any such Pari Passu Debt, the maximum
principal amount (expressed as a multiple of €50,000 and integral multiples of €1,000 above €50,000) of the Notes
and any such Pari Passu Debt that may be purchased with the amount of the Excess Proceeds. The offer price as to
each Note and any such Pari Passu Debt will be payable in cash in an amount equal to (solely in the case of the
Notes) 100% of the principal amount of such Note and (solely in the case of Pari Passu Debt) no greater than
100% of the principal amount (or accreted value, as applicable) of such Pari Passu Debt, plus in each case accrued
and unpaid interest, if any, to the date of purchase.
To the extent that the aggregate principal amount of Notes and any such Pari Passu Debt tendered pursuant
to an Excess Proceeds Offer is less than the aggregate amount of Excess Proceeds, the Issuer may use the amount
of such Excess Proceeds not used to purchase Notes and Pari Passu Debt for general corporate purposes that are
not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and any such Pari Passu
Debt validly tendered and not withdrawn by holders thereof exceeds the aggregate amount of Excess Proceeds, the
Notes and any such Pari Passu Debt to be purchased will be selected by the trustee on a pro rata basis (based upon
the principal amount of Notes and the principal amount or accreted value of such Pari Passu Debt tendered by
each holder). Upon completion of each such Excess Proceeds Offer, the amount of Excess Proceeds will be reset
to zero. Upon consummation of any Asset Sale permitted under the terms of the Indenture consisting of Collateral,
the assets subject thereto will be released from the liens created by the Security Documents.
(4)
If the Issuer is obligated to make an Excess Proceeds Offer, the Issuer will purchase the Notes and
Pari Passu Debt, at the option of the holders thereof, in whole or in part in amounts of €50,000 and integral
multiples of €1,000 above €50,000, on a date that is not earlier than 30 days and not later than 60 days from the
date the notice of the Excess Proceeds Offer is given to such holders or such later date as may be required under
the Exchange Act.
If the Issuer is required to make an Excess Proceeds Offer, the Issuer will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act and any other applicable securities laws and
regulations, including the requirements of any applicable securities exchange on which Notes are then listed. Any
purchase of the Notes pursuant to an Excess Proceeds Offer would require the prior approval of the South African
exchange control authorities. To the extent that the provisions of any securities laws or regulations conflict with
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the provisions of this covenant, the Issuer will comply with such securities laws and regulations and will not be
deemed to have breached its obligations described in this covenant by virtue thereof.
Limitation on Sale and Leaseback Transactions
The Issuer will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction with respect to any property or assets (other than (i) between the Issuer and a Guarantor, (ii) between
Guarantors, (iii) from a Restricted Subsidiary that is not a Guarantor to the Issuer or a Guarantor or (iv) between
or among Restricted Subsidiaries that are not Guarantors) unless:
(a)
the sale or transfer of such property or assets to be leased is treated as an Asset Sale and the
"Limitation on Sale of Certain Assets" covenant is complied with, including the provisions
concerning the application of Net Cash Proceeds (treating all of the net consideration received in
such Sale and Leaseback Transaction as Net Cash Proceeds for the purposes of such covenant);
(b)
the Issuer or such Restricted Subsidiary, as applicable, would be permitted to incur Debt under the
"Limitation on Debt" covenant in the amount of the Attributable Debt incurred in respect of such
Sale and Leaseback Transaction;
(c)
the Issuer or such Restricted Subsidiary, as applicable, would be permitted to grant a Lien to secure
Debt under the "Limitation on Liens" covenant in the amount of the Attributable Debt in respect of
such Sale and Leaseback Transaction; and
(d)
in the case of any Sale and Leaseback transaction having a Fair Market Value greater than
€5.0 million, the gross cash proceeds of that Sale and Leaseback Transaction are at least equal to
the Fair Market Value, as set out in an Officer's Certificate delivered to the trustee, of the property
that is the subject of such Sale and Leaseback Transaction.
Limitation on Guarantees of Debt by Restricted Subsidiaries
(1)
The Issuer will not permit any Restricted Subsidiary that is not a Guarantor, directly or indirectly,
to guarantee, assume or in any other manner become liable for the payment of any Pari Passu Debt or
Subordinated Debt of the Issuer or any Guarantor, unless:
(a)
(i)
such Restricted Subsidiary simultaneously executes and delivers in a form reasonably
satisfactory to the trustee a supplemental indenture to the Indenture providing for a Guarantee of
payment of the Notes by such Restricted Subsidiary on the same terms as the Guarantees of the
Notes provided for in the Indenture; and an Officer's Certificate and an opinion of counsel
(reasonably acceptable to the trustee), each to the effect that the supplemental indenture is the
legal, valid and binding obligation of the Restricted Subsidiary enforceable (subject to customary
exceptions and exclusions) in accordance with its terms; and
(ii)
(b)
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with respect to any guarantee of Subordinated Debt by such Restricted Subsidiary, any
such guarantee will be subordinated to such Restricted Subsidiary's Guarantee with respect
to the Notes at least to the same extent as such Subordinated Debt is subordinated to the
Notes; and
such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit
or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against
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the Issuer or any Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Guarantee.
This paragraph (1) will not be applicable to any guarantees of any Restricted Subsidiary that existed (i) on
the Issue Date or (ii) at the time such Person became a Restricted Subsidiary if the guarantee was not incurred in
connection with, or in contemplation of, such Person becoming a Restricted Subsidiary.
(2)
Notwithstanding the foregoing, any Guarantee of the Notes created pursuant to the provisions
described in paragraph (1) above may provide by its terms that it will be automatically and unconditionally
released and discharged upon:
(a)
any sale, exchange or transfer, to any Person who is not the Issuer's Affiliate, of all of the Capital
Stock owned by the Issuer and its Restricted Subsidiaries in, or all or substantially all the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture); or
(b)
(with respect to any Guarantee created after the date of the Indenture) the release by the holders of
the Issuer's Debt described in paragraph (1) above, of their guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such Debt other than
as a result of payment under such guarantee), at a time when:
(i)
no other Debt of the Issuer has been guaranteed by such Restricted Subsidiary; or
(ii)
the holders of all such other Debt that is guaranteed by such Restricted Subsidiary also
release their guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Debt other than as a result of payment under
such guarantee).
Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries
(1)
The Issuer will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on
the ability of any Restricted Subsidiary to:
(a)
pay dividends, in cash or otherwise, or make any other distributions on, or in respect of, its Capital
Stock or any other interest or participation in, or measured by, its profits;
(b)
pay any Debt owed to the Issuer or any Restricted Subsidiary;
(c)
make loans or advances to the Issuer or any Restricted Subsidiary; or
(d)
transfer any of its properties or assets to the Issuer or any Restricted Subsidiary.
(2)
The provisions of the covenant described in paragraph (1) above will not apply to:
(a)
encumbrances and restrictions imposed by the Notes, and any Hedging Agreements, the Indenture,
the Security Interests, and the Security Documents;
(b)
encumbrances or restrictions imposed by Senior Debt permitted to be incurred under Credit
Facilities or any guarantees thereof in accordance with paragraphs (1) and 2(a) of the "Limitation
on Debt" covenant; provided that such encumbrances and restrictions are not materially more
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disadvantageous to the holders of the Notes than are customary in comparable agreements or
financings (as determined in good faith by the Issuer) and either (i) the Issuer determines in good
faith that such restrictions and encumbrances will not materially affect the Issuer's ability to make
payments of interest or principal on the Notes, or (ii) such restrictions and encumbrances apply
only if a default occurs in respect of a payment or financial covenant relating to such Senior Debt;
(c)
encumbrances and restrictions imposed by instruments governing Debt incurred by the Issuer or
the Restricted Subsidiaries (other than Debt described in another clause of this paragraph (2)) (and
if such Debt is guaranteed, by the guarantors of such Debt) ranking equally with the Notes or any
Guarantee, provided that the encumbrances or restrictions imposed by such other instruments are
not materially more restrictive, taken as a whole, than the restrictions imposed by the Indenture;
(d)
encumbrances or restrictions contained in any agreement in effect on the date of the Corporate
Reorganization (other than an agreement described in another clause of this paragraph (2));
(e)
with respect to restrictions or encumbrances referred to in clause (1)(d) above, encumbrances and
restrictions: (i) that restrict in a customary manner the subletting, assignment or transfer of any
properties or assets that are subject to a lease, license, conveyance or other similar agreement to
which the Issuer or any Restricted Subsidiary is a party; and (ii) contained in operating leases for
real property and restricting only the transfer of such real property upon the occurrence and during
the continuance of a default in the payment of rent;
(f)
encumbrances or restrictions contained in any agreement or other instrument of a Person acquired
by the Issuer or any Restricted Subsidiary in effect at the time of such acquisition (but not created
in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property or assets of the Person, so
acquired;
(g)
encumbrances or restrictions contained in contracts for sales of Capital Stock or assets permitted
by the "Limitation on Sale of Certain Assets" covenant with respect to the assets or Capital Stock
to be sold pursuant to such contract or in customary merger or acquisition agreements (or any
option to enter into such contract) for the purchase or acquisition of Capital Stock or assets or any
of the Issuer's Subsidiaries by another Person;
(h)
encumbrances or restrictions imposed by (i) applicable law or regulation, (ii) by Governmental
Licences (including any Gaming Licence), concessions, franchises or permits or (iii) by any
Gaming Authority;
(i)
encumbrances or restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into the ordinary course of business;
(j)
customary limitations on the distribution or disposition of assets or property of a Restricted
Subsidiary in joint venture agreements or shareholders' agreements entered into in the ordinary
course of business and in good faith; provided that such encumbrance or restriction is applicable
only to such Restricted Subsidiary and provided that:
(i)
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the encumbrance or restriction is not materially more disadvantageous to the holders of the
Notes than is customary in comparable agreements (as determined in good faith by the
Issuer); and
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(ii)
the Issuer determines in good faith that any such encumbrance or restriction will not
materially affect the ability of the Issuer or any Guarantor to make any anticipated principal
or interest payments on the Notes;
(k)
in the case of clause (1)(d) above, customary encumbrances or restrictions in connection with
purchase money obligations, mortgage financings and Capitalized Lease Obligations for property
acquired in the ordinary course of business;
(l)
encumbrances or restrictions with respect to any Permitted Receivables Financing; provided that
such encumbrances or restrictions are customarily required by the institutional sponsor or arranger
of such Permitted Receivables Financing in similar types of documents relating to the purchase of
similar receivables in connection with the financing thereof;
(m)
any encumbrance or restriction arising by reason of customary non-assignment provisions in
agreements;
(n)
encumbrances or restrictions occurring pursuant to any Permitted Lien; or
(o)
any encumbrances or restrictions existing under any agreement that extends, renews, refinances or
replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (2)(a),
(d), (f) and (g); provided that the terms and conditions of any such encumbrances or restrictions are
not materially more restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those under or pursuant to the agreement so extended, renewed, refinanced or
replaced;
Change in Nature of Business
The Issuer will not, at any time and will not permit any Restricted Subsidiary (other than a Finance
Subsidiary) to, directly or indirectly engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Issuer and the Restricted Subsidiaries taken as a whole.
Designation of Unrestricted and Restricted Subsidiaries
The Issuer's Board of Directors may designate any Subsidiary (including newly acquired or newly
established Subsidiaries) to be an "Unrestricted Subsidiary" only if:
(a)
no Default has occurred and is continuing at the time of or after giving effect to such designation;
(b)
the Issuer would be permitted to make an Investment at the time of designation (assuming the
effectiveness of such designation) pursuant to paragraph (2) of the "Limitation on Restricted
Payments" covenant (excluding the requirement imposed by clause (b) of such paragraph (2)), or a
Permitted Investment, in each case in an amount equal to the greater of (i) the net book value of the
Issuer's interest in such Subsidiary calculated in accordance with IFRS or (ii) the Fair Market
Value of the Issuer's interest in such Subsidiary;
(c)
neither the Issuer nor any Restricted Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such Subsidiary unless the
terms of such contract, arrangement, understanding or obligation are no less favourable to the
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Issuer or such Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Issuer or of any Restricted Subsidiary;
(d)
such Subsidiary does not own any Capital Stock, Redeemable Capital Stock or Debt of, or own or
hold any Lien on any property or assets of, or have any Investment in, the Issuer or any other
Restricted Subsidiary;
(e)
such Subsidiary is not liable, directly or indirectly, with respect to any Debt, Lien or other
obligation that, if in default, would result (with the passage of time or notice or otherwise) in a
default on any of the Issuer's Debt or Debt of any Restricted Subsidiary, provided that an
Unrestricted Subsidiary may provide a Guarantee;
(f)
such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not
operate, directly or indirectly, all or substantially all of the business of the Issuer and its
Subsidiaries; and
(g)
such Subsidiary is a Person with respect to which neither the Issuer nor any Restricted Subsidiary
has any direct or indirect obligation to:
(i)
subscribe for additional Capital Stock of such Person; or
(ii)
maintain or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results.
In the event of any such designation, the Issuer will be deemed to have made an Investment constituting a
Restricted Payment pursuant to the "Limitation on Restricted Payments" covenant for all purposes of the
Indenture.
The Indenture will further provide that neither the Issuer nor any Restricted Subsidiary will at any time:
(a)
provide a guarantee of, or similar credit support to, any Debt of any Unrestricted Subsidiary
(including of any undertaking, agreement or instrument evidencing such Debt); provided that the
Issuer or a Restricted Subsidiary may pledge Capital Stock or Debt of any Unrestricted Subsidiary
on a non-recourse basis as long as the pledgee has no claim whatsoever against the Issuer or a
Restricted Subsidiary other than to obtain such pledged property, except to the extent permitted
under the "Limitation on Restricted Payments" and "Limitation on Transactions with Affiliates"
covenants;
(b)
be directly or indirectly liable for any Debt of any Unrestricted Subsidiary, except to the extent
permitted under the "Limitation on Restricted Payments" and "Limitation on Transactions with
Affiliates" covenants; or
(c)
be directly or indirectly liable for any other Debt that provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the occurrence of a default with
respect to any other Debt that is Debt of an Unrestricted Subsidiary (including any corresponding
right to take enforcement action against such Unrestricted Subsidiary).
The Issuer's Board of Directors may designate any Unrestricted Subsidiary as a Restricted Subsidiary:
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(a)
if no Default or Event of Default has occurred and is continuing at the time of, or will occur and be
continuing after giving effect to, such designation; and
(b)
unless such designated Unrestricted Subsidiary shall not have any Debt outstanding (other than
Debt that would be Permitted Debt), immediately after giving effect to such proposed designation,
and after giving pro forma effect to the incurrence of any such Debt of such designated
Unrestricted Subsidiary as if such Debt was incurred on the date of its designation as a Restricted
Subsidiary, the Issuer could incur €1.00 of additional Debt (other than Permitted Debt) pursuant to
the "Limitation on Debt" covenant.
Any such designation as an Unrestricted Subsidiary or Restricted Subsidiary by the Issuer's Board of
Directors will be evidenced to the trustee by filing a resolution of the Issuer's Board of Directors with the trustee
giving effect to such designation and an Officer's Certificate certifying that such designation complies with the
foregoing conditions, and giving the effective date of such designation. Any such filing with the trustee must
occur within 45 days after the end of the Issuer's financial quarter in which such designation is made (or, in the
case of a designation made during the last financial quarter of the Issuer's financial year, within 90 days after the
end of such financial year).
Reports to Holders
So long as any Notes are outstanding, the Issuer will furnish to the trustee (who, at the Issuer's expense,
will furnish by mail to holders of the Notes):
(a)
within 120 days following the end of each of the Issuer's financial years, information including
"Selected Historical Financial Information," "Management's Discussion and Analysis of Results of
Operations" and "Business" sections with scope and content substantially equivalent to the
corresponding sections of the offering memorandum for the Notes (after taking into consideration
any changes to the business and operations of the Issuer after the Issue Date), which information
need not, however, comply with the rules and regulations of the Commission, information
regarding material contracts which the Issuer or the Restricted Subsidiaries have entered into
during the period other than contracts entered into in the ordinary course of business, and
consolidated audited income statements, balance sheets and cash flow statements and the related
notes thereof for the Issuer for the two most recent financial years, in each case in accordance with
IFRS, which need not, however, contain any reconciliation to U.S. GAAP or otherwise comply
with Regulation S-X of the Commission, together with an audit report thereon by the Issuer's
independent auditors;
(b)
within 90 days following the end of the first financial quarter of the Issuer ending after the Issue
Date and within 60 days following the end of each of the Issuer's financial quarters thereafter,
reports containing unaudited balance sheets, statements of income, statements of shareholders
equity and statements of cash flows for the Issuer and the Restricted Subsidiaries on a consolidated
basis, in each case for the quarterly period then ended and the corresponding quarterly period in the
prior financial year and prepared in accordance with IFRS, which need not, however, contain any
reconciliation to U.S. GAAP or otherwise comply with Regulation S-X of the Commission,
together with a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section for such quarterly period and condensed footnote disclosure;
(c)
promptly from time to time after the occurrence of a material acquisition or disposition that would
constitute a Significant Subsidiary (as defined in Regulation S-X of the Commission at the 20%
threshold), financial information of the acquired business and pro forma consolidated financial
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information of the Issuer and the Restricted Subsidiaries giving effect to the acquisition or
disposition to the extent practicable utilizing available information (which need not be required to
contain any U.S. GAAP information or otherwise comply with Regulation S-X of the
Commission); and
(d)
promptly after the occurrence of a material acquisition, disposition, restructuring or change in
accountants or any other material event the Issuer announces publicly, a report containing a
description of such event.
In addition, in the event that the Issuer is neither subject to Section 13(a) or Section 15(d) of the Exchange
Act nor exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, the Issuer shall furnish to the
holders of the Notes and to prospective investors, upon the requests of such holders, any information required to
be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act so long as the Notes are not freely
transferable under the Exchange Act by Persons who are not "affiliates" under the U.S. Securities Act.
The Issuer will also make available copies of all reports furnished to the trustee, (a) to the newswire
service of Bloomberg, or, if Bloomberg does not then operate, any similar agency; and (b) if and so long as the
Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock Exchange so require, copies of such
reports furnished to the trustee will also be made available at the specified office of the Irish Paying Agent.
Consolidation, Merger and Sale of Assets
The Issuer will not, in a single transaction or through a series of transactions, consolidate or merge with or
into any other Person or sell, assign, convey, transfer, lease or otherwise dispose of, or take any action pursuant to
any resolution passed by the Issuer's Board of Directors or shareholders with respect to a divestment or decision
pursuant to which the Issuer would dispose of, all or substantially all of the Issuer's properties and assets to any
other Person or Persons and the Issuer will not permit any Restricted Subsidiary to enter into any such transaction
or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale,
assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of
the Issuer and its Restricted Subsidiaries on a Consolidated basis to any other Person or Persons. The previous
sentence will not apply if at the time and immediately after giving effect to any such transaction or series of
transactions:
(a)
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either (i) the Issuer will be the continuing corporation or (ii) the Person (if other than the Issuer)
formed by or surviving any such consolidation or merger or to which such sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all the properties and assets of the
Issuer and the Restricted Subsidiaries on a consolidated basis has been made (the "Surviving
Entity"):
(x)
will be a corporation duly incorporated and validly existing under the laws of the Republic
of South Africa, a Participating Member State as of the date of the Indenture, the United
States of America, any state thereof, or the District of Columbia; and
(y)
will expressly assume the obligations of the Issuer under the Notes, the Indenture and the
Security Documents, pursuant to a supplemental indenture, in the case of the Notes and the
Indenture, or pursuant to other agreements, in the case of the Security Documents, in each
case in form and substance satisfactory to the trustee, and the Notes, the Indenture, the
Notes Security and the Security Documents will remain in full force and effect as so
supplemented;
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(b)
immediately after giving effect to such transaction or series of transactions on a pro forma basis
(and treating any obligation of the Issuer or any Restricted Subsidiary incurred in connection with
or as a result of such transaction or series of transactions as having been incurred by the Issuer or
such Restricted Subsidiary at the time of such transaction) no Default or Event of Default will have
occurred and be continuing;
(c)
immediately after giving effect to such transaction or series of transactions on a pro forma basis
(on the assumption that the transaction or series of transactions occurred on the first day of the
four-quarter financial period immediately prior to the consummation of such transaction or series
of transactions with the appropriate adjustments with respect to the transaction or series of
transactions being included in such pro forma calculation), the Issuer (or the Surviving Entity if the
Issuer is not a continuing obligor under the Indenture) could incur at least €1.00 of additional Debt
(other than Permitted Debt) under the provisions of the "Limitation on Debt" covenant;
(d)
any Guarantor, unless it is the other party to the transactions described above, will have by
supplemental indenture confirmed that its Guarantee will apply to such Person's obligations under
the Indenture and the Notes;
(e)
if any of the Issuer's or any Restricted Subsidiary's property or assets would thereupon become
subject to any Lien, the provisions of the "Limitation on Liens" covenant are complied with; and
(f)
the Issuer or the Surviving Entity will have delivered to the trustee, in form and substance
satisfactory to the trustee, an Officer's Certificate (attaching the computations to demonstrate
compliance with clause (c) above) and an opinion of independent counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition, and if a
supplemental indenture is required in connection with such transaction, such supplemental
indenture, comply with the requirements of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied and that the Indenture and the Notes
constitute legal, valid and binding obligations of the continuing person, enforceable in accordance
with their terms.
The Surviving Entity will succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under the Indenture; provided, that the predecessor Issuer shall not be relieved from its obligations to
pay the principal and interest on the Notes except in the case of a sale of all or substantially all of the assets of the
Issuer and the Restricted Subsidiaries taken as a whole in a transaction that is subject to, and complies with, this
"Merger and Consolidation" covenant in which case such predecessor shall be released from its obligations under
the Indenture.
Nothing in the foregoing will prevent (i) a Restricted Subsidiary that is not a Guarantor from consolidating
with, merging into or transferring all of substantially all of its properties and assets to the Issuer or any other
Restricted Subsidiary (ii) any Guarantor from consolidating with, merging into or transferring all or substantially
all of its assets to the Issuer or another Guarantor or (iii) any consolidation, merger or transfer made as part of the
Transactions.
Although there is a limited body of case law interpreting the phrase "all or substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may
be a degree of uncertainty as to whether a particular transaction would involve "all or substantially all" of the
property or assets of a Person.
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The Issuer will publish a notice of any consolidation, merger or sale of assets described above in
accordance with the provisions of the Indenture described under "—Notices" and, so long as the rules of the Irish
Stock Exchange so require, notify such exchange of any such consolidation, merger or sale.
Events of Default
(1)
Each of the following will be an "Event of Default" under the Indenture:
(a)
default for 30 days in the payment when due of any interest or any Additional Amounts on any
Note;
(b)
default in the payment of the principal of or premium, if any, on any Note at its Maturity (upon
acceleration, optional or mandatory redemption, if any, required repurchase or otherwise);
(c)
failure to comply with the provisions of "—Certain Covenants—Consolidation, Merger and Sales
of Assets;"
(d)
failure to make or consummate an Excess Proceeds Offer in accordance with the provisions of "—
Certain Covenants—Limitation on Sale of Certain Assets;"
(e)
failure to make or consummate a Change of Control Offer in accordance with the provisions of "—
Purchase of Notes upon a Change of Control;"
(f)
failure to comply with any covenant or agreement of the Issuer or of any Restricted Subsidiary that
is contained in the Indenture or any Guarantees (other than specified in clause (a), (b), (c), (d) or
(e) above) and such failure continues for a period of 30 days or more after the written notice
specified in clause (2) below;
(g)
default under the terms of any instrument evidencing or securing the Debt of the Issuer or any
Restricted Subsidiary having an outstanding principal amount in excess of €15.0 million
individually or in the aggregate, if that default: (x) results in the acceleration of the payment of
such Debt or (y) is caused by the failure to pay such Debt at final maturity thereof after giving
effect to the expiration of any applicable grace periods (and other than by regularly scheduled
required prepayment) and such failure to make any payment has not been waived or the maturity of
such Debt has not been extended, and in either case the total amount of such Debt unpaid or
accelerated exceeds €15.0 million or its equivalent at the time;
(h)
a Parent Guarantee or any Guarantee ceases to be, or shall be asserted in writing by a Parent
Guarantor or any Guarantor, or any Person acting on behalf of a Parent Guarantor or any Guarantor
not to be, of full force and effect or enforceable in accordance with its terms (other than as
provided for in the Indenture, the Parent Guarantee or any Guarantee);
(i)
one or more final judgments, orders or decrees (not subject to appeal and not covered by insurance)
shall be rendered against the Issuer or any Restricted Subsidiary either individually or in an
aggregate amount, in each case in excess of €15.0 million, and either a creditor shall have
commenced an enforcement proceeding upon such judgment, order or decree or there shall have
been a period of 30 consecutive days or more during which a stay of enforcement of such
judgment, order or decree was not (by reason of pending appeal or otherwise) in effect;
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170
(j)
breach by the Issuer or any of its Restricted Subsidiaries of any material representation or warranty
or agreement in the Security Documents, the repudiation by the Issuer or any of its Restricted
Subsidiaries of any of its obligations under the Security Documents or the unenforceability of the
Security Documents (other than in accordance with their terms) against the Issuer or any of its
Subsidiaries for any reason;
(k)
the occurrence of certain specific events of bankruptcy, insolvency, receivership or reorganisation
(other than a Technical Insolvency) with respect to the Issuer or a Restricted Subsidiary;
(l)
failure to deliver each Offer Conditions Certificate in accordance with the provisions of "—
Disbursement of Funds; Escrow Account."
(2)
If an Event of Default (other than as specified in clause (1)(k) above) occurs and is continuing, the
trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding by written
notice to the Issuer (and to the trustee if such notice is given by the holders) may, and the trustee, upon the written
request of such holders, shall declare the principal of, premium, if any, and any Additional Amounts and accrued
interest on all of the outstanding Notes immediately due and payable, and upon any such declaration all such
amounts payable in respect of the Notes will become immediately due and payable.
(3)
If an Event of Default specified in clause (1)(k) above occurs and is continuing, then the principal
of, premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall become and be
immediately due and payable without any declaration or other act on the part of the trustee or any holder of Notes.
(4)
At any time after a declaration of acceleration under the Indenture, but before a judgment or decree
for payment of the money due has been obtained by the trustee, the holders of a majority in aggregate principal
amount of the outstanding Notes, by written notice to the Issuer and the trustee, may rescind such declaration and
its consequences if:
(a)
the Issuer has paid or deposited with the trustee a sum sufficient to pay:
(i)
all overdue interest and Additional Amounts on all Notes then outstanding;
(ii)
all unpaid principal of and premium, if any, on any outstanding Notes that has become due
otherwise than by such declaration of acceleration and interest thereon at the rate borne by
the Notes;
(iii)
to the extent that payment of such interest is lawful, interest upon overdue interest and
overdue principal at the rate borne by the Notes; and
(iv)
all sums paid or advanced by the trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the trustee, its agents and counsel;
(b)
the rescission would not conflict with any judgment or decree of a court of competent jurisdiction;
and
(c)
all Events of Default, other than the non-payment of amounts of principal of, premium, if any, and
any Additional Amounts and interest on the Notes that has become due solely by such declaration
of acceleration, have been cured or waived.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
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(5)
The holders of not less than a majority in aggregate principal amount of the outstanding Notes
may, on behalf of the holders of all the Notes, waive any past defaults under the Indenture, except a default:
(a)
in the payment of the principal of, premium, if any, and Additional Amounts or interest on any
Note; or
(b)
in respect of a covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
(6)
No holder of any of the Notes has any right to institute any proceedings with respect to the
Indenture or any remedy thereunder unless the holders of at least 25% in aggregate principal amount of the
outstanding Notes have made a written request and offered indemnity or security reasonably satisfactory to the
trustee to institute such proceeding as trustee under the Notes and the Indenture, the trustee has failed to institute
such proceeding within 30 days after receipt of such notice and the trustee within such 30-day period has not
received directions inconsistent with such written request by holders of a majority in aggregate principal amount
of the outstanding Notes. Such limitations do not, however, apply to a suit instituted by a holder of a Note for the
enforcement of the payment of the principal of, premium, if any, and Additional Amounts or interest on such Note
on or after the respective due dates expressed in such Note.
(7)
If a Default or an Event of Default occurs and is continuing and is actually known to the trustee,
the trustee will mail to each holder of the Notes notice of the Default or Event of Default within 15 Business Days
after its occurrence. Except in the case of a Default or an Event of Default in payment of principal of, premium, if
any, Additional Amounts or interest on any Notes, the trustee may withhold the notice to the holders of such
Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interests of
the holders of the Notes.
(8)
The Issuer is required to furnish to the trustee annual statements as to the performance of the Issuer
and the Restricted Subsidiaries under the Indenture and the Security Documents and as to any default in such
performance. The Issuer is also required to notify the trustee within 15 Business Days of the occurrence of any
Default and stating what actions it is taking in respect of that Default.
Legal Defeasance or Covenant Defeasance of Indenture
The Indenture will provide that the Issuer may, at its option and at any time prior to the Stated Maturity of
the Notes, elect to have the obligations of the Issuer discharged with respect to the outstanding Notes ("Legal
Defeasance"). Legal Defeasance means that the Issuer will be deemed to have paid and discharged the entire Debt
represented by the outstanding Notes except as to:
(a)
the rights of holders of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due from the trust referred to
below;
(b)
the Issuer's obligations to issue temporary Notes, register, transfer or exchange any Notes, replace
mutilated, destroyed, lost or stolen Notes, maintain an office or agency for payments in respect of
the Notes and segregate and hold such payments in trust;
(c)
the rights, powers, trusts, duties and immunities of the trustee and the obligations of the Issuer and
the Guarantors in connection therewith; and
(d)
the Legal Defeasance provisions of the Indenture.
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In addition, the Issuer may, at its option and at any time, elect to have the obligations of the Issuer and the
Guarantors released with respect to certain covenants set forth in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such covenants will not constitute a Default or an Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events described under "Events of Default"
will no longer constitute an Event of Default with respect to the Notes. These events do not include events relating
to non-payment, bankruptcy, insolvency, receivership and reorganisation. The Issuer may exercise its Legal
Defeasance option regardless of whether it has previously exercised Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a)
the Issuer must irrevocably deposit or cause to be deposited in trust with the trustee, for the benefit
of the holders of the Notes, cash in euro, European Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of an internationally recognized firm
of independent public accountants, to pay and discharge the principal of, premium, if any, and
interest, on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as
the case may be, and the Issuer must (i) specify whether the Notes are being defeased to maturity
or to a particular redemption date and (ii) if applicable, have delivered to the trustee an irrevocable
notice to redeem all of the outstanding Notes of such principal, premium, if any, or interest;
(b)
in the case of Legal Defeasance, the Issuer must have delivered to the trustee an opinion of counsel
(reasonably acceptable to the trustee) stating that (x) the Issuer has received from, or there has been
published by, the U.S. Internal Revenue Service a ruling, or (y) since the date of the Indenture,
there has been a change in applicable U.S. federal income tax law, in either case to the effect that
(and based thereon such opinion shall confirm that) the holders or beneficial owners of the
outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Legal Defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c)
in the case of Covenant Defeasance, the Issuer must have delivered to the trustee an opinion of
counsel (reasonably acceptable to the trustee) to the effect that the holders of the outstanding Notes
will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant Defeasance had
not occurred;
(d)
the Issuer must have delivered to the trustee an opinion of counsel (reasonably acceptable to the
trustee) to the effect that the generality of holders and beneficial owners of the outstanding Notes
should not suffer any material South African tax charge as a result of such Legal Defeasance or
Covenant Defeasance (as the case may be) and are unlikely to suffer any material adverse
treatment from a South African tax perspective (having regard to the amounts in respect of which,
the manner in which, and the time at which holders and beneficial owners will be likely to be
subject to tax in the Republic of South Africa following such Legal Defeasance or Covenant
Defeasance, as the case may be) as compared with the South African tax treatment that would
likely have applied if such Legal Defeasance or Covenant Defeasance (as the case may be) had not
occurred;
(e)
no Default or Event of Default will have occurred and be continuing (i) on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds to be applied to
such deposit) or (ii) insofar as bankruptcy or insolvency events described in clause (1)(k) of "—
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Events of Default" above is concerned, at any time during the period ending on the 123rd day after
the date of such deposit;
(f)
such Legal Defeasance or Covenant Defeasance shall not cause the trustee for the Notes to have a
conflicting interest as defined in the Indenture with respect to any of the Issuer's securities;
(g)
such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or
constitute a default under (other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit), any material agreement or instrument to which the Issuer or
any Restricted Subsidiary is a party or by which the Issuer or any Restricted Subsidiary is bound;
(h)
such Legal Defeasance or Covenant Defeasance shall not result in the trust arising from such
deposit constituting an investment company within the meaning of the U.S. Investment Company
Act of 1940 unless such trust shall be registered under such act or exempt from registration
thereunder;
(i)
the Issuer must have delivered to the trustee an opinion of independent counsel in the country of
the Issuer's incorporation, such counsel to be reasonably acceptable to the trustee, to the effect that
after the 123rd day following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganisation or similar laws affecting creditors' rights
generally and an opinion of independent counsel reasonably acceptable to the trustee that the
trustee shall have a perfected security interest in such trust funds for the ratable benefit of the
holders of the Notes;
(j)
the Issuer must have delivered to the trustee an Officer's Certificate stating that the deposit was not
made by the Issuer with the intent of preferring the holders of the Notes over the other creditors of
the Issuer with the intent of defeating, hindering, delaying or defrauding creditors of the Issuer or
other creditors, or removing assets beyond the reach of the relevant creditors or increasing debts of
the Issuer to the detriment of the relevant creditors;
(k)
no event or condition shall exist that would prevent the Issuer from making payments of the
principal of, premium, if any, and interest on the Notes on the date of such deposit or at any time
during the period ending on the 123rd day after the date of such deposit; and
(l)
the Issuer must have delivered to the trustee an Officer's Certificate and an opinion of counsel,
such counsel to be reasonably acceptable to the trustee, each stating that all conditions precedent
provided for relating to the Legal Defeasance or the Covenant Defeasance, as the case may be,
have been complied with.
If the funds deposited with the trustee to effect Covenant Defeasance are insufficient to pay the principal
of, premium, if any, and interest on the Notes when due because of any acceleration occurring after an Event of
Default, then the Issuer and the Guarantors will remain liable for such payments.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of
registration of transfer or exchange of the Notes as expressly provided for in the Indenture) when:
(a)
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the Issuer has irrevocably deposited or caused to be deposited with the trustee as funds in trust for
such purpose an amount in euro or European Government Obligations sufficient to pay and
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discharge the entire Debt on such Notes (that have not, prior to such time, been delivered to the
trustee for cancellation), for principal of, premium, if any, and any Additional Amounts and
accrued and unpaid interest on the Notes to the date of such deposit (in the case of Notes which
have become due and payable) or to the Stated Maturity or redemption date, as the case may be
and the Issuer has delivered irrevocable instructions to the trustee under the Indenture to apply the
deposited money toward the payment of Notes at Stated Maturity or on the redemption date, as the
case may be and either:
(i)
all the Notes that have been authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes for whose payment money has been
deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust as provided for in the Indenture) have been delivered
to the trustee for cancellation; or
(ii)
all Notes that have not been delivered to the trustee for cancellation (x) have become due
and payable (by reason of the mailing of a notice of redemption or otherwise), (y) will
become due and payable at Stated Maturity within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the trustee for the giving of
notice of redemption by the trustee in the Issuer's name and at the Issuer's expense;
(b)
the Issuer or any Guarantor has paid or caused to be paid all sums payable by the Issuer under the
Indenture; and
(c)
the Issuer has delivered to the trustee an Officer's Certificate and an opinion of counsel, such
counsel to be reasonably acceptable to the trustee, each stating that:
(i)
all conditions precedent provided in the Indenture relating to the satisfaction and discharge
of the Indenture have been satisfied; and
(ii)
such satisfaction and discharge will not result in a breach or violation of, or constitute a
default under, the Indenture or any other agreement or instrument to which the Issuer or
any Subsidiary is a party or by which the Issuer or any Subsidiary is bound.
Amendments and Waivers
The Indenture will contain provisions permitting the Issuer, any Guarantors and the trustee to enter into a
supplemental indenture without the consent of the holders of the Notes for certain limited purposes, including,
among other things, curing ambiguities, defects or inconsistencies, or making any change that does not adversely
affect the rights of any holder of the Notes in any material respect. With the consent of the holders of not less than
a majority in aggregate principal amount of the Notes then outstanding, the Issuer and the trustee are permitted to
amend or supplement the Indenture, the Notes, the Guarantees or the Security Documents; provided that no such
modification or amendment may, without the consent of holders of at least 90% of the aggregate principal amount
outstanding under the Notes:
(a)
change the Stated Maturity of the principal of, or any installment of or Additional Amounts or
interest on, any Note;
(b)
reduce the principal amount of any Note (or Additional Amounts or premium, if any) or the rate of
or change the time for payment of interest on any Note;
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(c)
change the coin or currency in which the principal of any Note or any premium or any Additional
Amounts or the interest thereon is payable;
(d)
impair the right to institute suit for the enforcement of any payment of any Note in accordance with
the provisions of such Note and the Indenture;
(e)
reduce the principal amount of Notes whose holders must consent to any amendment, supplement
or waiver of provisions of the Indenture;
(f)
modify any of the provisions relating to supplemental indentures requiring the consent of holders
of the Notes or relating to the waiver of past defaults or relating to the waiver of certain covenants,
except to increase the percentage of outstanding Notes required for such actions or to provide that
certain other provisions of the Indenture cannot be modified or waived without the consent of the
holder of each Note affected thereby;
(g)
except as otherwise permitted under "—Certain Covenants—Consolidation, Merger and Sale of
Assets," consent to the assignment or transfer by the Issuer of any of the Issuer's rights or
obligations under the Indenture;
(h)
release the Parent Guarantee or any Guarantees except in compliance with the terms of the
Indenture;
(i)
make any change to the provisions of the Indenture affecting the ranking of the Notes in a manner
that adversely affects the rights of the holders of the Notes;
(j)
make any change in the provisions of the Indenture described under "—Additional Amounts" that
adversely affects the rights of any holder of the Notes or amend the terms of the Notes or the
Indenture in a way that would result in a loss of an exemption from any of the Taxes described
thereunder or an exemption from any obligation to withhold or deduct Taxes so described
thereunder unless the Issuer or the Guarantors agree to pay Additional Amounts, if any, in respect
thereof in the supplemental indenture; or
(k)
release any of the Issuer or its Subsidiaries from any of its respective obligations under the Security
Documents, except in accordance with the terms of such Security Documents or the Indenture.
Notwithstanding the foregoing, without the consent of any holder of the Notes, the Issuer, the Parent
Guarantor or any Guarantors and the trustee may modify, amend or supplement the Indenture, the Notes, any
Guarantees, and the Security Documents:
(i)
to evidence the succession of another Person to the Issuer, the Parent Guarantor or any Guarantor
and the assumption by any such successor of the covenants in the Indenture, the Notes, the Parent
Guarantee, a Guarantor's Guarantee, or the Security Documents in accordance with "—Certain
Covenants—Consolidation, Merger and Sale of Assets;"
(ii)
to add to the Issuer's covenants and those of the Parent Guarantor, any Guarantor or any other
obligor upon the Notes for the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Issuer, the Parent Guarantor or any Guarantor or any other obligor upon the
Notes, as applicable, in the Indenture, the Notes, the Parent Guarantee, any Guarantees, or the
Security Documents;
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(iii)
to cure any ambiguity, or to correct or supplement any provision in the Indenture, the Notes, the
Parent Guarantee, any Guarantees, or the Security Documents that may be defective or inconsistent
with any other provision in the Indenture, the Notes, the Parent Guarantee, any Guarantees, or the
Security Documents or make any other provisions with respect to matters or questions arising
under the Indenture, the Notes, the Parent Guarantee, any Guarantees, or the Security Documents;
provided that, in each case, such provisions shall not adversely affect the interests of the holders of
the Notes in any material respect;
(iv)
to conform the text of the Indenture, the Notes, the Parent Guarantee, any Guarantees, or the
Security Documents to any provision of this "Description of the Notes" to the extent that such
provision in this "Description of the Notes" was intended to be a verbatim recitation of a provision
of the Indenture, the Notes, the Parent Guarantee, the Guarantees, or the Security Documents;
(v)
to release the Parent Guarantor or any Guarantor in accordance with and if permitted by the terms
of and limitations set forth in the Indenture and to add a Guarantor or other guarantor under the
Indenture;
(vi)
to evidence and provide the acceptance of the appointment of a successor trustee under the
Indenture;
(vii)
to mortgage, pledge, hypothecate or grant a security interest in favour of the trustee for the benefit
of the holders of the Notes as additional security for the payment and performance of the Issuer's
obligations under the Indenture, in any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security interest is required to be granted to
the trustee pursuant to the Indenture or otherwise;
(viii)
to provide for the issuance of Additional Notes in accordance with and if permitted by the terms of
and limitations set forth in the Indenture and to make such changes as may be required to the
Security Documents to accommodate and implement such issuance of Additional Notes; or
(ix)
to further secure the Notes or to release all or any portion of the Collateral pursuant to the terms of
the Indenture, or the Security Documents.
In formulating its opinion on such matters, the trustee shall be entitled to require and rely on such evidence
as it reasonably deems appropriate, including an opinion of counsel, such counsel to be reasonably acceptable to
the trustee, and an Officer's Certificate.
The holders of a majority in aggregate principal amount of the Notes outstanding may waive compliance
with certain restrictive covenants and provisions of the Indenture.
It shall not be necessary for the consent of the holders of the Notes to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent approves the substance thereof.
The Indenture will also provide that without the consent of the holders of the Notes the trustee is
authorized to, and upon the request of the Issuer will, enter into additional security documents, or an intercreditor
deed to which the Issuer is a party, provided, among other things, that:
(a)
there is no Default or Event of Default under the Indenture;
(b)
the trustee receives from the Issuer an Officer's Certificate to the effect of (a) above; and
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(c)
the intercreditor deed does not adversely affect the ranking of the Notes, or otherwise adversely
affect the rights of the holders of the Notes.
For the life of the offering memorandum and for so long as the Notes are admitted to the Official List of
the Irish Stock Exchange and traded on its Alternative Securities Market and the rules of such exchange so
require, the Issuer will notify the Irish Stock Exchange of any such amendment, supplement and waiver.
Notices
Notices regarding the Notes will be:
(a)
(i) published in a leading newspaper having general circulation in London (which is expected to be
the Financial Times), (ii) made available to the newswire service of Bloomberg or, if Bloomberg
does not then operate, any similar agency and (iii) published in accordance with the rules and
regulations of the Irish Stock Exchange if at the time of such notice the Notes are admitted to the
Official List of the Irish Stock Exchange and traded on its Alternative Securities Market and the
rules of such exchange require such publication; and
(b)
in the case of certificated Notes, mailed to holders of such Notes by first-class mail at their
respective addresses as they appear on the registration books of the registrar.
If publication as provided above is not practicable, notice will be given in such other manner, and shall be
deemed to be given on such date, as the trustee may approve.
Notices given by first-class mail will be deemed given five calendar days after mailing and notices given
by publication will be deemed given on the first date on which publication is made.
If and so long as the Notes are listed on any other securities exchange, notices will also be given in
accordance with any applicable requirements of such securities exchange.
The Trustee
The Indenture directly or by reference will contain limitations on the rights of the trustee under the
Indenture in the event the trustee becomes a creditor of the Issuer, the Parent Guarantor or any Guarantor. These
include limitations on the trustee's rights to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
The Indenture will contain provisions for the indemnification of the trustee and for its relief from
responsibility, including provisions relieving it from taking action unless indemnified or secured to its satisfaction.
No Personal Liability of Directors, Officers, Employees and Stockholders
A director, officer, employee, promoter, advisor, incorporator, or stockholder, as such, of the Issuer, the
trustee, the Parent Guarantor or any Guarantor shall not have any liability in such capacity for any obligations of
the Issuer under the Notes or the Indenture, of the Parent Guarantor under the Parent Guarantee or of such
Guarantor under its Guarantee or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Note, each holder shall waive and release all such liability. The
waiver and release shall be part of the consideration for the issue of the Notes. Such waiver and release may not be
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effective to waive liabilities under the U.S. Federal securities laws, and it is the view of the Commission that such
a waiver is against public policy.
Governing Law
The Indenture and the Notes will be governed by and construed in accordance with the laws of New York.
Certain Definitions
"Acquired Debt" means Debt of a Person:
(a)
existing at the time such Person becomes a Restricted Subsidiary or is merged into or consolidated
with the Issuer or any Restricted Subsidiary, or
(b)
assumed in connection with the acquisition of assets from any such Person,
in each case provided that such Debt was not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition, as the case may be.
Acquired Debt will be deemed to be incurred on the date the acquired Person becomes a Restricted
Subsidiary or the date of the related acquisition of assets from any Person.
"Additional Amounts" has the meaning given to such term under "—Additional Amounts".
"Affiliate" means, with respect to any specified Person:
(a)
any other Person directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person;
(b)
any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person; or
(c)
any other Person, 10% or more of the Voting Stock of which is beneficially owned or held, directly
or indirectly, by such specified Person.
For the purposes of this definition, "control," when used with respect to any specified Person, means the
power to direct or cause the direction of the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Affiliate Transaction" has the meaning given to such term in "—Certain Covenants—Limitation on
Transaction with Affiliates".
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition (including, without
limitation, by way of merger, consolidation or Sale and Leaseback Transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of:
(a)
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any Capital Stock of any Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Issuer or a Restricted Subsidiary);
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(b)
all or substantially all of the properties and assets of any division or line of business of the Issuer or
any Restricted Subsidiary; or
(c)
any other of the Issuer's or any Restricted Subsidiary's properties or assets.
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(i)
any transfer or disposition of assets that is governed by the provisions of the Indenture described
under "—Certain Covenants—Consolidation, Merger and Sale of Assets";
(ii)
any transfer or disposition of assets by the Issuer to any Guarantor, by any Restricted Subsidiary to
the Issuer or any Guarantor, or between or among Restricted Subsidiaries that are not Guarantors
(including any Person that becomes a Restricted Subsidiary in connection with such transaction), in
each case in accordance with the terms of the Indenture;
(iii)
any single transaction or series of related transactions that involves assets or Capital Stock having a
Fair Market Value of less than €2.0 million;
(iv)
for the purposes of "—Certain Covenants—Limitation on Sale of Certain Assets" only, the making
of a Permitted Investment or a Restricted Payment that is permitted under "—Certain Covenants—
Limitation on Restricted Payments;"
(v)
the sale, lease or other disposition of equipment, inventory or other assets (including obsolete,
worn-out or outdated equipment or equipment no longer required for the business carried on by the
Issuer or one of its Restricted Subsidiaries) in the ordinary course of business;
(vi)
the lease, assignment or sublease of any real or personal property in the ordinary course of
business;
(vii)
an issuance of Capital Stock by a Restricted Subsidiary to the Issuer or to another Restricted
Subsidiary;
(viii)
sales of assets received by the Issuer or any Restricted Subsidiary upon the foreclosure on a Lien
granted in favour of the Issuer or any Restricted Subsidiary;
(ix)
any disposition of Capital Stock, Debt or other securities of an Unrestricted Subsidiary;
(x)
any disposition of accounts receivable and related assets in a Permitted Receivables Financing;
(xi)
the sale or other disposition of cash or Cash Equivalents;
(xii)
the conversion of or foreclosure on any mortgage or note, but only if one of the Restricted
Subsidiaries receives the real property underlying the mortgage or note;
(xiii)
the surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or
other claims, in the ordinary course of business;
(xiv)
granting of Liens not prohibited by the Indenture;
(xv)
the licensing of intellectual property;
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(xvi)
any disposition constituting or resulting from the enforcement of a Lien or the related liquidation,
administration or winding up of a Restricted Subsidiary, in each case by any Person other than the
Issuer, any Subsidiary of the Issuer or any Affiliate of the Issuer; and
(xvii) the issuance or sale of Capital Stock of a Restricted Subsidiary to black economic empowerment
entities in connection with bid or other undertakings to Gaming Authorities; but only for the
purpose of paragraph (1)(a) of the "Limitation on Sale of Certain Assets" covenant.
"Attributable Debt" means, with respect to any Sale and Leaseback Transaction at the time of
determination, the present value (discounted at the interest rate implicit in the lease determined in accordance with
IFRS or, if not known, at the Issuer's incremental borrowing rate for a loan of similar tenor and with the same
security as provided by the lease) of the total obligations of the lessee of the property subject to such lease for
rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction,
including any period for which such lease has been extended or may, at the option of the lessor, be extended, or
until the earliest date on which the lessee may terminate such lease without penalty or upon payment of penalty (in
which case the rental payments shall include such penalty), after excluding from such rental payments all amounts
required to be paid on account of maintenance and repairs, insurance, taxes, assessments, water, utilities and
similar charges; provided, that if such Sale and Leaseback Transaction results in a Capitalized Lease Obligation,
the amount of Debt represented thereby will be determined in accordance with the definition of "Capitalized Lease
Obligation."
"Average Life" means, as of the date of determination with respect to any Debt, the quotient obtained by
dividing:
(a)
the sum of the products of:
(i)
the number of years from the date of determination to the date or dates of each successive
scheduled principal payment of or redemption or similar payment with respect to such Debt
multiplied by
(ii)
the amount of each such payment;
by
(b)
the sum of all such payments.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the
Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used
in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all
securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such
right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.
"Board of Directors" means, as to any Person, the board of directors of such Person or any duly
authorized committee thereof or any equivalent governing body charges under the laws of the jurisdiction of such
Person with equivalent powers and responsibilities to supervise and direct the affairs of such Person.
"Bund Rate" means, with respect to any redemption date, the rate per annum equal to the equivalent yield
to maturity as of such redemption date of the Comparable German Bund Issue, assuming a price for the
Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to the Comparable
German Bund Price for such redemption date, where:
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(a)
"Comparable German Bund Issue" means the German Bundesanleihe security selected by any
Reference German Bund Dealer as having a fixed maturity most nearly equal to the period from
such redemption date to 30 April 2010, and that would be utilized at the time of selection and in
accordance with customary financial practice, in pricing new issues of euro-denominated corporate
debt securities in a principal amount approximately equal to the then outstanding principal amount
of the Notes and of a maturity most nearly equal to 30 April 2010; provided, that, if the period
from such redemption date to 30 April 2010, is less than one year, a fixed maturity of one year
shall be used.
(b)
"Comparable German Bund Price" means, with respect to any redemption date, the average of the
Reference German Bund Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference German Bund Dealer Quotations or, if fewer than four such Reference
German Bund Dealer Quotations can be obtained, the average of all such quotations;
(c)
"Reference German Bund Dealer" means any dealer of German Bundesanleihe securities
appointed by the Issuer in consultation with the trustee; and
(d)
"Reference German Bund Dealer Quotations" means, with respect to each Reference German
Bund Dealer and any redemption date, the average as determined by the Issuer of the bid and
offered prices for the Comparable German Bund issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Issuer by such Reference German Bund Dealer at
3.30 p.m. Frankfurt, Germany time on the third Business Day preceding such redemption date.
"Business Day" means a day of the year other than a Saturday or Sunday on which banks are not required
or authorized by law to close in New York, London and Johannesburg.
"Capital Stock" means, with respect to any Person, any and all shares, interests, partnership interests
(whether general or limited), participations, rights in or other equivalents (however designated) of such Person's
equity, any other interest or participation that confers the right to receive a share of the profits and losses, or
distributions of assets of, such Person and any rights (other than debt securities convertible into or exchangeable
for Capital Stock), warrants or options exchangeable for or convertible into such Capital Stock, whether now
outstanding or issued after the date of the Indenture.
"Capitalized Lease Obligation" means, with respect to any Person, any obligation of such Person under a
lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed), which
obligation is required to be classified and accounted for as a capital lease obligation under IFRS, and, for purposes
of the Indenture, the amount of such obligation at any date will be the capitalized amount thereof at such date,
determined in accordance with IFRS and the Stated Maturity thereof will be the date of the last payment of rent or
any other amount due under such lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means any of the following:
(a)
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any evidence of Debt denominated in rand, euro, Sterling or dollars with a maturity of twelve
months or less after the date of acquisition issued or directly and fully guaranteed or insured by the
government of the Republic of South Africa, a Participating Member State whose sole lawful
currency on the date of the Indenture is the euro, the government of the United Kingdom of Great
Britain and Northern Ireland, the United States of America, any state thereof or the District of
Columbia, or any agency or instrumentality thereof;
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(b)
time deposit accounts, certificates of deposit, money market deposits or bankers' acceptances
denominated in rand, euro, Sterling or dollars with a maturity of twelve months or less after the
date of acquisition issued by a bank or trust company organized in the Republic of South Africa, a
Participating Member State, the United Kingdom of Great Britain and Northern Ireland or any
commercial banking institution that is a member of the U.S. Federal Reserve System, in each case
having combined capital and surplus and undivided profits of not less than €500 million, whose
debt has a rating, at the time any investment is made therein, of at least BBB+ or the equivalent
thereof by S&P and at least Baa1 or the equivalent thereof by Moody's;
(c)
commercial paper with a maturity of twelve months or less from the date of acquisition issued by a
corporation that is not the Issuer's or any Restricted Subsidiary's Affiliate and is incorporated under
the laws of the Republic of South Africa, a Participating Member State, England and Wales, the
United States of America or any state thereof and, at the time of acquisition, rated at least A-1 or
the equivalent thereof by S&P or at least P-l or the equivalent thereof by Moody's;
(d)
repurchase obligations with a term of not more than seven days for underlying securities of the
type described in clauses (a), (b) and (c) above entered into with a financial institution meeting the
qualifications described in clause (b) above;
(e)
Investments in money market mutual or investment funds at least 95% of the assets of which
constitute Cash Equivalents of the kind described in clauses (a) through (d) above; and
(f)
cash deposited under the terms of any Currency Agreements or Interest Rate Agreements.
"Change of Control" has the meaning given to such term under "—Purchase of Notes upon a Change of
Control."
"Collateral" has the meaning given to such term under "—Security."
"Commission" means the U.S. Securities and Exchange Commission.
"Consolidated" refers to the consolidation of accounts in accordance with IFRS.
"Consolidated Adjusted Net Income" means (a) for any period following the Reorganisations, the Issuer's
and the Restricted Subsidiaries Consolidated net income (or loss) for such period or (b) for any period prior to the
Reorganisations, the Issuer's and the Restricted Subsidiaries' Consolidated net income (or loss) for such period on
a pro forma basis after giving effect to the Reorganisations in the case of each of (a) and (b) as determined in
accordance with IFRS, adjusted by excluding (to the extent included in such Consolidated net income (or loss)),
without duplication:
(a)
any net after-tax extraordinary gains or losses;
(b)
any net after-tax gains attributable to sales of assets of the Issuer or any Restricted Subsidiary that
are not sold in the ordinary course of business;
(c)
the portion of net income (but not the loss) of any Person (other than the Issuer or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Issuer or any Restricted Subsidiary
has an equity ownership interest, except that the Issuer's or a Restricted Subsidiary's equity in the
net income of such Person for such period shall be included in such Consolidated Adjusted Net
Income to the extent of the aggregate amount of dividends, payments or other distributions actually
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paid to the Issuer or any Restricted Subsidiary in cash dividends, payments or other distributions
during such period;
(d)
the net income (but not the loss) of any Restricted Subsidiary to the extent that the declaration or
payment of dividends, payments or other distributions by such Restricted Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary or its shareholders (other than restrictions contained in the
Credit Facilities and related agreements permitted by paragraph 2(a) of "—Certain Covenants—
Limitation on Debt" or to the extent of the aggregate amount of dividends, payments or other
distributions actually paid to the Issuer in cash dividends, payments or other distributions during
such period);
(e)
net after-tax gains attributable to the termination of any employee pension benefit plan;
(f)
any restoration to net income of any contingency reserve, except to the extent provision for such
reserve was made out of income accrued at any time following the date of the Indenture;
(g)
any net gain arising from the acquisition of any securities or extinguishment, under IFRS, of any
Debt of such Person;
(h)
the net income attributable to discontinued operations (including, without limitation, operations
disposed of during such period whether or not such operations were classified as discontinued);
(i)
any net non-cash gains and losses from (i) transactions under Currency Agreements and (ii) the
translation on a marked-to-market basis of non-rand liabilities into rand on the Issuer's
Consolidated balance sheet;
(j)
any Specified Non-Cash Interest;
(k)
the cumulative effect of a change in accounting principles or policies in each case as promulgated
under IFRS after the date of the Indenture;
(l)
all fees, costs and expenses relating to the Transactions, and the application of the proceeds
thereof, but only for the purpose of the "—Certain Covenants—Limitation on Restricted
Payments"; and
(m)
the effect of non-cash items resulting from any write up, write-down or write-off of assets of the
Issuer or a Restricted Subsidiary in connection with any acquisition; and
(n)
non-cash charges in connection with the grant of stock-options, performance shares or other bonus
or incentive plans to officers, directors and employees of the Issuer or any Restricted Subsidiary.
"Consolidated Fixed Charge Coverage Ratio" of the Issuer means, for any period, the ratio of:
(a)
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the sum of Consolidated Adjusted Net Income, plus in each case to the extent deducted in
computing Consolidated Adjusted Net Income for such period:
(i)
Consolidated Interest Expense;
(ii)
Consolidated Tax Expense; and
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(iii)
(b)
Consolidated Non-cash Charges, less all non-cash items increasing Consolidated Adjusted
Net Income for such period and less all cash payments during such period relating to noncash charges that were added back to Consolidated Adjusted Net Income in determining
the Consolidated Fixed Charge Coverage Ratio in any prior period;
to the sum of:
(i)
Consolidated Interest Expense; and
(ii)
cash and non-cash dividends due (whether or not declared) on the Issuer's and any
Restricted Subsidiary's Preferred Stock (to any Person other than the Issuer and any Wholly
Owned Restricted Subsidiary), in each case for such period;
provided that:
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(w)
if the Issuer or any Restricted Subsidiary has incurred any Debt since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio is an incurrence of Debt or both, Consolidated
Adjusted Net Income and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Debt as if such Debt had been incurred on
the first day of such period and the discharge of any other Debt repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Debt as if such discharge
had occurred on the first day of such period;
(x)
if, since the beginning of such period, the Issuer or any Restricted Subsidiary shall have
made any Asset Sale, Consolidated Adjusted Net Income for such period shall be reduced
by an amount equal to the Consolidated Adjusted Net Income (if positive) directly
attributable to the assets which are the subject of such Asset Sale for such period, or
increased by an amount equal to the Consolidated Adjusted Net Income (if negative)
directly attributable thereto, for such period and the Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Debt of the Issuer or of any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Issuer and the continuing Restricted
Subsidiaries in connection with such Asset Sale for such period (or, if the Capital Stock of
any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Debt of such Restricted Subsidiary to the extent the Issuer and
the continuing Restricted Subsidiaries are no longer liable for such Debt after such sale);
(y)
if since the beginning of such period the Issuer or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Person that becomes a Restricted
Subsidiary or an acquisition of assets, including any acquisition of an asset occurring in
connection with a transaction causing a calculation to be made hereunder, which constitutes
all or substantially all of an operating unit of a business, Consolidated Adjusted Net Income
and Consolidated Interest Expense for such period shall be calculated after giving pro
forma effect thereto (including the incurrence of any Debt) as if such Investment or
acquisition occurred on the first day of such period; and
(z)
if since the beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Issuer or any Restricted Subsidiary since the
beginning of such period) shall have made any Asset Sale or any Investment or acquisition
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of assets that would have required an adjustment pursuant to clause (x) or (y) if made by
the Issuer or a Restricted Subsidiary during such period, Consolidated Adjusted Net
Income and Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Sale or Investment or acquisition occurred on the
first day of such period.
If any Debt bears a floating rate of interest and is being given pro forma effect, the interest expense on
such Debt shall be calculated as if the rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account any Interest Rate Agreement applicable to such Debt for a period equal to
the remaining term of such Interest Rate Agreement).
"Consolidated Interest Expense" means, for any period, without duplication and in each case determined
on a Consolidated basis in accordance with IFRS, the sum of:
(a)
the Issuer's and the Restricted Subsidiaries' total cash interest expense for such period, including,
without limitation
(i)
amortisation of debt discount;
(ii)
the net costs of Interest Rate Agreements, Currency Agreements and Hedging Agreements
(including amortisation of fees and discounts);
(iii)
commissions, discounts and other fees and charges owed with respect to letters of credit,
bankers' acceptances, financings and similar transactions; and
(iv)
the interest portion of any deferred payment obligation and amortisation of debt issuance
costs; plus
(b)
the interest component of the Issuer's and the Restricted Subsidiaries' Capitalized Lease
Obligations accrued and/or scheduled to be paid or accrued during such period other than the
interest component of Capitalized Lease Obligations between or among the Issuer and any
Restricted Subsidiary or between or among Restricted Subsidiaries; plus
(c)
the Issuer's and the Restricted Subsidiaries non-cash interest expenses and interest that was
capitalized during such period (other than Specified Non-Cash Interest); plus
(d)
the interest expense on Debt of another Person to the extent such Debt is guaranteed by the Issuer
or any Restricted Subsidiary or secured by a Lien on the Issuer's or any Restricted Subsidiary's
assets, but only to the extent that such interest is actually paid by the Issuer or such Restricted
Subsidiary.
Notwithstanding any of the foregoing, "Consolidated Interest Expense" shall not include any net non-cash
gains and losses from (i) transactions under Currency Agreements and Interest Rate Agreements and (ii) the
translation on a marked-to-market basis of non-rand liabilities into rand on the Issuer's Consolidated balance sheet.
"Consolidated Non-cash Charges" means, for any period, the aggregate depreciation, amortisation,
impairment and other non-cash expenses of the Issuer and the Restricted Subsidiaries for such period, determined
on a Consolidated basis in accordance with IFRS (excluding any such non-cash charge that requires an accrual of
or reserve for cash charges for any future period and any Specified Non-Cash Interest).
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"Consolidated Tax Expense" means, for any period with respect to any Relevant Taxing Jurisdiction, the
provision for all national, local and foreign federal, state or other income taxes of the Issuer and the Restricted
Subsidiaries for such period as determined on a Consolidated basis in accordance with IFRS and applicable law.
"Corporate Reorganisation" means the acquisition of the operations, assets and liabilities of the Target
and substantially all of its subsidiaries.
"Counter Indemnity Agreement" has the meaning given to such term under "—Security."
"Credit Facility" or "Credit Facilities" means one or more debt facilities or indentures (including any
Permitted Receivables Financing), as the case may be, or commercial paper facilities with banks, insurance
companies or other institutional lenders providing for revolving credit loans, term loans, notes, letters of credit or
other forms of guarantees and assurances or other credit facilities or extensions of credit, including overdrafts, in
each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time; provided, however, that Debt under Credit Facilities may not include Public Debt.
"Currency Agreement" means, in respect of a Person, any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or arrangements designed to protect such
Person against or to manage exposure to fluctuations in foreign currency exchange rates, in each case entered into
in the ordinary course of business and not for speculative purposes (such purpose to be determined based on the
economic rationale for the relevant Currency Agreement and not solely on the basis of its accounting treatment).
"Debt" means, with respect to any Person, without duplication:
(a)
all liabilities of such Person for borrowed money (including overdrafts) or for the deferred
purchase price of property or services, excluding any trade payables and other accrued current
liabilities incurred in the ordinary course of business;
(b)
all obligations of such Person evidenced by bonds, notes, debentures or other similar instruments;
(c)
all obligations, contingent or otherwise, of such Person in connection with any letters of credit,
bankers' acceptances, receivables facilities or other similar facilities;
(d)
all indebtedness of such Person created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even if the rights and remedies of the
seller or lender under such agreement in the event of default are limited to repossession or sale of
such property), but excluding trade payables arising in the ordinary course of business;
(e)
all Capitalized Lease Obligations of such Person;
(f)
all obligations of such Person under or in respect of Interest Rate Agreements, Currency
Agreements and Hedging Agreements;
(g)
all Debt referred to in (but not excluded from) the preceding clauses (a) through (f) of other
Persons and all dividends of other Persons, the payment of which is secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien upon
or with respect to property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the payment of such
Debt (the amount of such obligation being deemed to be the lesser of the Fair Market Value of
such property or asset and the amount of the obligation so secured);
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(h)
all guarantees by such Person of Debt referred to in this definition of any other Person;
(i)
all Redeemable Capital Stock of such Person valued at the greater of its voluntary maximum fixed
repurchase price and involuntary maximum fixed repurchase price plus accrued and unpaid
dividends; and
(j)
Preferred Stock of any Restricted Subsidiary,
if and to the extent that any of the foregoing (other than letters of credit, guarantees and net exposure of a
Person under or in respect of Interest Rate Agreements, Currency Agreements and Hedging Agreements) would
appear as a liability on the balance sheet (excluding footnotes thereto) of such Person prepared in accordance with
IFRS; provided that the term "Debt" shall not include (i) non-interest bearing installment obligations and accrued
liabilities incurred in the ordinary course of business that are not more than 90 days past due; (ii) Debt in respect
of the incurrence by the Issuer or any Restricted Subsidiary of Debt in respect of standby letters of credit,
performance bonds or surety bonds provided by the Issuer or any Restricted Subsidiary in the ordinary course of
business to the extent such letters of credit or bonds are not drawn upon or, if and to the extent drawn upon are
honoured in accordance with their terms and if, to be reimbursed, are reimbursed no later than the fifth Business
Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit or
bond; (iii) anything accounted for as an operating lease in accordance with IFRS; (iv) any pension obligations of
the Issuer or a Restricted Subsidiary; and (v) Debt incurred by the Issuer or one of the Restricted Subsidiaries in
connection with a transaction where (x) such Debt is borrowed from a bank or trust company incorporated in a
Participating Member State as of the date of the Indenture, or any commercial banking institution that is a member
of the U.S. Federal Reserve System, in each case having a combined capital and surplus and undivided profits of
not less than €500 million, whose debt has a rating immediately prior to the time such transaction is entered into,
of at least BBB+ or the equivalent thereof by S&P and Baa1 or the equivalent thereof by Moody's and (y) a
substantially concurrent Investment is made by the Issuer or a Restricted Subsidiary in the form of cash deposited
with the lender of such Debt, or a Subsidiary or Affiliate thereof, in amount equal to such Debt.
For purposes of this definition, the "maximum fixed repurchase price" of any Redeemable Capital Stock
that does not have a fixed redemption, repayment or repurchase price will be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on
which Debt will be required to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair market value will be determined
in good faith by the management board or Board of Directors, as the case may be, of the issuer of such
Redeemable Capital Stock; provided, that if such Redeemable Capital Stock is not then permitted to be redeemed,
repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such Redeemable
Capital Stock as reflected in the most recent financial statements of such Person.
"Deeply Subordinated Shareholder Loans" means, collectively, any Debt of the Issuer in the form of
loans provided by, or Preferred Stock issued to, a holder of the Issuer's Capital Stock that:
(a)
does not (including upon the happening of any event) mature or require any amortisation or other
payment of principal prior to 30 April 2037 (other than through conversion or exchange of any
such security or instrument for Qualified Capital Stock or for any other security or instrument
meeting the requirements of the definition);
(b)
does not (including upon the happening of any event) require the payment in cash or otherwise, of
interest or any other amounts prior to 30 April 2037 (provided that interest may accrete while such
Deeply Subordinated Shareholder Loan is outstanding and accretion interest may become due upon
maturity as permitted by clause (a) or acceleration of maturity as permitted by clause (c) below and
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any interest may be satisfied at any time by the issue to the holders thereof of additional Deeply
Subordinated Shareholder Loans);
(c)
does not (including upon the happening of any event) provide for the acceleration of its maturity
and its shareholders have no right (including upon the happening of any event) to declare a default
or event of default or take any enforcement action, prior to 30 April 2037;
(d)
is not secured by a lien on any assets of the Issuer or a Restricted Subsidiary and is not guaranteed
by any Subsidiary of the Issuer;
(e)
is subordinated and junior in right of payment to the prior payment in full in cash of all obligations
of the Issuer under the Indenture such that:
(i)
the Issuer shall make no payment in respect of such Deeply Subordinated Shareholder
Loans (whether in cash, securities or otherwise, except as permitted by clause (a) above)
and may not acquire such Deeply Subordinated Shareholder Loans except as permitted by
the Indenture until the prior payment in full in cash of all obligations of the Issuer, the
Parent Guarantor and the Guarantors pursuant to the Indenture;
(ii)
upon any total or partial liquidation, dissolution or winding up of the Issuer or in any
bankruptcy, reorganisation, insolvency, receivership or similar proceeding relating to the
Issuer or its property, the holders of the Notes will be entitled to receive payment in full in
cash of the obligations of the Issuer, the Parent Guarantor and the Guarantors pursuant to
the Indenture before the providers of such Deeply Subordinated Shareholder Loans will be
entitled to receive any payment in respect of such Deeply Subordinated Shareholder Loans;
(iii)
such Deeply Subordinated Shareholder Loans may not be amended such that they would
cease to qualify as Deeply Subordinated Shareholder Loans until a date that is after the
prior payment in full in cash of all obligations of the Issuer, the Parent Guarantor and the
Guarantors pursuant to the Indenture;
(iv)
the providers of such Deeply Subordinated Shareholder Loans shall assign any rights to
vote, including by way of proxy, in a bankruptcy, insolvency or similar proceeding to the
relevant agent or trustee for the holders of the Notes to the extent necessary to give effect to
the priority and subordination provisions described in this definition; and
(v)
the providers of such Deeply Subordinated Shareholder Loans shall agree that, in the event
any payment on such Deeply Subordinated Shareholder Loans is received by such provider
in contravention of its terms and any applicable subordination agreement, then such
payment shall be held in trust for the benefit of, and shall be paid over or delivered to the
relevant agent or trustee for the holders of the Notes, on behalf of the holders of the Notes;
(f)
does not (including upon the happening of any event) restrict the payment of any amounts due in
respect of the Notes, the Parent Guarantee, the Guarantees or otherwise under the Indenture or
compliance by the Issuer, the Parent Guarantors or the Guarantors with its obligations under the
Indenture;
(g)
does not (including upon the happening of any event) prior to 30 April 2037 constitute Voting
Stock; and
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189
(h)
is not (including upon the happening of any event) mandatorily convertible or exchangeable, or
convertible or exchangeable at the option of the holder, in whole or in part, prior to 30 April 2037
other than into or for Qualified Capital Stock of the direct obligor under such Deeply Subordinated
Shareholder Loans,
provided that any event or circumstance that results in any such Debt ceasing to qualify as Deeply Subordinated
Shareholder Loans shall (x) constitute an incurrence of such Debt by the Issuer and (y) reduce the sum described
in clause (c) of paragraph (2) of "—Certain Covenants—Limitation on Restricted Payments" by an amount equal
to the principal amount of such Debt.
"Default" means any Event of Default or any event that would constitute an Event of Default but for the
passage of time or the requirement that notice be given or both.
Issuer.
"Direct Parent Company" means the entity that directly owns 100% of the Qualified Capital Stock of the
"Disinterested Director" means, with respect to any transaction or series of related transactions, a member
of the applicable Board of Directors who does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions or is not an Affiliate, or an officer, director, or
employee of any Person (other than the Issuer) who has any direct or indirect financial interest in or with respect
to such transaction or series of related transactions.
"dollars" means the lawful currency of the United States of America.
"Emperors Palace Reorganisation" means the exchange, by certain minority shareholders of the joint
venture entity that currently owns Emperors Palace, of their joint venture interests for cash, ordinary shares and
preference shares of MRX 80 Investment Holdings (Proprietary) Limited and Maxshell 114 Investments
(Proprietary) Limited.
Union.
"euro", "EUR" and "€" means the single currency of Participating Member States of the European
"Euro Equivalent" means, in relation to an amount denominated in a currency other than euro, the
amount of that currency converted into euro at the Spot Rate on the date of calculation.
"European Government Obligations" means direct obligations (or certificates representing an ownership
interest in such obligations) of a member state of the European Union as of the date of the Indenture (including
any agency or instrumentality thereof) for the payment of which the full faith and credit of such government is
pledged.
"Event of Default" has the meaning specified in "—Events of Default".
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended, or any successor statute,
and the rules and regulations promulgated by the Commission thereunder.
"Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained
in an arm's-length free market transaction between an informed and willing seller under no compulsion to sell and
an informed and willing buyer under no compulsion to buy, as determined in good faith by the Issuer's Board of
Directors.
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"Finance Subsidiary" means a Restricted Subsidiary of the Issuer (i) whose sole operations are
comprised of incurring or issuing indebtedness from time to time to finance the operations of the Issuer and/or its
Restricted Subsidiaries, (ii) which loans the proceeds of such indebtedness to the Issuer (the "Proceeds Loan") and
(iii) which conducts no business and owns no material assets other than intercompany indebtedness referred to in
the preceding clause; provided, that the obligations of the Issuer with respect to the Proceeds Loan will not be
guaranteed by any Restricted Subsidiary.
"Financial Year" means the financial year of the Issuer and its Consolidated Subsidiaries ending on
December 31 of each year.
"Gaming Authority" means any governmental agency, authority, board, bureau, commission, department,
office or instrumentality with regulatory, licensing or permitting authority or jurisdiction over any gaming
business or enterprise or any Gaming Facility or with regulatory, licensing or permitting authority or jurisdiction
over any gaming operation (or proposed gaming operation) owned, managed or operated by the Issuer or any of its
Restricted Subsidiaries.
"Gaming Facility" means any gaming or "parimutuel" wagering establishment, including any casino or
"racino," and other property or assets ancillary thereto or used in connection therewith, including any casinos,
hotels, resorts, race tracks, off-track wagering sites, theatres, parking facilities, recreational vehicle parks,
timeshare operations, retail shops, restaurants, other buildings, land, golf courses and other recreation and
entertainment facilities, marinas, vessels, barges, ships and equipment.
"Gaming Licence" means any license, franchise or other authorisation required to own, lease, operate, or
otherwise conduct activities of the Issuer or any of its Subsidiaries, including without limitation, all such licenses
granted by the Gaming Authority under the regulations promulgated thereby, and other applicable laws.
"guarantee" means, as applied to any obligation:
(a)
a guarantee (other than by endorsement of negotiable instruments for collection or deposit in the
ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation
and
(b)
an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure
in any way the payment or performance (or payment of damages in the event of non-performance)
of all or any part of such obligation, including, without limiting the foregoing, by the pledge of
assets and the payment of amounts drawn down under letters of credit.
"Guarantee" means any guarantee of the Issuer's obligations under the Indenture and the Notes by any
Restricted Subsidiary or any other Person in accordance with the provisions of the Indenture. When used as a
verb, "Guarantee" shall have a corresponding meaning.
"Guarantor" means any Subsidiary of the Issuer that incurs a Guarantee.
"Hedging Agreements" means the Treasury Transactions entered into or to be entered into with the
Hedging Lenders.
"Hedging Lender" means a provider of currency and/or commodity and/or interest rate hedging in respect
of the Notes under any Hedging Agreement.
"IFRS" means the international accounting standards promulgated from time to time by the International
Accounting Standards Board (or any successor board or agency).
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191
"Independent Financial Advisor" means an investment banking firm, accounting firm or any third-party
appraiser, in any such case, of international standing, provided that such firm or appraiser is not an Affiliate of the
Issuer.
"Interest Rate Agreements" means, in respect of a Person, any interest rate protection agreements and
other types of interest rate hedging agreements (including, without limitation, interest rate swaps, caps, floors,
collars and similar agreements) designed to protect such Person against or to manage exposure to fluctuations in
interest rates, in each case entered into in the ordinary course of business and not for speculative purposes (such
purpose to be determined based on the economic rationale for the relevant Interest Rate Agreement and not solely
on the basis of its accounting treatment).
"Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of
credit (including guarantees) or capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Debt
issued or owned by, any other Person and all other items that would be classified as investments on a balance
sheet prepared in accordance with IFRS. In addition, the portion (proportionate to the Issuer's equity interest in
such Restricted Subsidiary) of the Fair Market Value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary will be deemed to be an "Investment" that the
Issuer made in such Unrestricted Subsidiary at such time. The portion (proportionate to the Issuer's equity interest
in such Restricted Subsidiary) of the Fair Market Value of the net assets of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary will be considered a reduction in
outstanding Investments. "Investments" excludes extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Irish Paying Agent" means BNY Fund Services (Ireland) Limited or any other Irish paying agent
appointed in accordance with the Indenture.
"Issue Date" means the date of issuance of the Notes.
"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory or otherwise), privilege,
security interest, hypothecation, assignment for security, claim, preference, priority or other encumbrance upon or
with respect to any property of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person will be deemed to own subject to a Lien any property which such Person has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title
retention agreement. For the avoidance of doubt, no property subject to an operating lease shall be deemed to be
subject to a Lien.
"Maturity" means, with respect to any indebtedness, the date on which any principal of such indebtedness
becomes due and payable as therein or herein provided, whether at the Stated Maturity with respect to such
principal or by declaration of acceleration, call for redemption, purchase or otherwise.
Debt".
"Mortgage Financing" has the meaning given to such term in "—Certain Covenants—Limitation on
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
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(a)
(b)
with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Issuer or any Restricted Subsidiary), net of:
(i)
brokerage commissions and other fees and expenses (including, without limitation, fees and
expenses of legal counsel, accountants, investment banks and other consultants) related to
such Asset Sale;
(ii)
provisions for all taxes paid or payable, or required to be accrued as a liability under IFRS
as a result of such Asset Sale;
(iii)
all payments made on any Debt that is secured by any Property subject to such Asset Sale,
in accordance with the terms of any Lien upon or other security agreement of any kind with
respect to such Property, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale, or by applicable law, be repaid out of the proceeds from such
Asset Sale;
(iv)
all distributions and other payments required to be made to any Person (other than the
Issuer or any Restricted Subsidiary) owning a beneficial interest in the assets subject to the
Asset Sale; and
(v)
appropriate amounts required to be provided by the Issuer or any Restricted Subsidiary, as
the case may be, as a reserve in accordance with IFRS against any liabilities associated
with such Asset Sale and retained by the Issuer or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other postemployment benefit liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all as reflected in an
Officer's Certificate delivered to the trustee; and
with respect to any capital contributions, issuance or sale of Capital Stock or options, warrants or
rights to purchase Capital Stock, or debt securities or Capital Stock that have been converted into
or exchanged for Capital Stock as referred to under "—Certain Covenants—Limitation on
Restricted Payments," the proceeds of such issuance or sale in the form of cash or Cash
Equivalents, payments in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed of for, cash or Cash Equivalents (except to the extent that such
obligations are financed or sold with recourse to the Issuer or any Restricted Subsidiary), net of
attorney's fees, accountant's fees and brokerage, consultation, underwriting and other fees and
expenses actually incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of thereof.
"New Revolving Credit Facility" means a R400.0 million renewable revolving credit facility between the
Issuer and First National Bank, a division of FirstRand Bank Limited bearing interest at the facility provider's
prime rate minus 1.0%.
"Non-Public Debt" means (i) debt represented by promissory notes or similar evidence of Debt under
bank loans or similar financing agreements, including private placements to insurance companies and mezzanine
lenders; and (ii) any other Debt; provided that it (A) is not listed, quoted or tradeable on any exchange or market,
including any market for securities eligible for resale pursuant to Regulation S and/or Rule 144A under the U.S.
Securities Act, (B) does not clear or settle through the facilities of Euroclear or Clearstream Banking or any
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similar facilities, (C) is not issued or sold by means of any prospectus, offering circular (but not an information
memorandum of the type used in a bank syndication) or similar document typically used in connection with road
show presentations and (D) is not marketed in an underwritten securities offering.
"Notes" has the meaning given to such term in the introductory paragraph to "Description of Notes".
"Notes Security" has the meaning given to such term under "—Security".
"Officer's Certificate" means a certificate signed by one or more of the principal executive officer,
principal financial officer or general counsel of the Issuer, Guarantor or a Surviving Entity, as the case may be,
and delivered to the trustee.
"Parent Company" means any Person (other than a natural person) of which the Issuer is or becomes a
direct or indirect Subsidiary after the date of the Indenture; provided that the primary purpose of such Person is to
serve as a direct or indirect holding company for the Issuer.
"Parent Guarantor" means Peermont Global Holdings II (Proprietary) Limited.
"Pari Passu Debt" means any Debt of the Issuer that ranks equally in right of payment with the Notes or,
with respect to any Guarantee, any Debt that ranks equally in right of payment to such Guarantee.
"Participating Member States" has the meaning given to it in Council Regulation EC No. 1103/97 of 17
June 1997 made under Article 235 of the Treaty on European Union.
"Permitted Acquisition" means an acquisition by the Issuer or any Restricted Subsidiary of a business
(whether by way of capital stock or assets) or a Person where
(a)
such business is similar or related to that carried on by the Issuer and its Restricted Subsidiaries
and any other businesses that are related, ancillary or complementary to any of the businesses of
the Issuer and the Restricted Subsidiaries, and
(b)
such person (i) becomes a Restricted Subsidiary or (ii) is merged or consolidated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or any
Restricted Subsidiary.
"Permitted Business" of a Person means any business of the type in which the Target and its Subsidiaries
are engaged in on the date of the Indenture or any business reasonably related, incidental or ancillary thereto.
"Permitted Collateral Liens" means the following types of Liens on the Collateral:
(a)
(i) Liens existing as of the date of the issuance of the Notes and (ii) Liens securing Debt incurred
under the Temporary Senior Bridge Facility pursuant to clause (b) of the definition of Permitted
Debt;
(b)
Liens securing Debt of up to the greater of (x) €50.0 million and (y) 15.0% of Total Tangible
Assets under Credit Facilities (including in connection with any Permitted Receivables Financing)
permitted to be incurred pursuant to clause (a) of the definition of "Permitted Debt";
(c)
Liens ranking equal with or junior to the Notes Security securing Senior Debt of the Issuer or a
Guarantor permitted to be incurred under paragraph (1) of the "Limitation on Debt" covenant,
provided that such Senior Debt does not contain encumbrances or restrictions that are not
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materially more disadvantageous to the holders of the Notes than are customary in comparable
agreements or financings (as determined in good faith by the Issuer) and (i) the Issuer determines
in good faith that such encumbrances and restrictions will not materially affect the Issuer's ability
to make payments of interest or principal on the Notes, or (ii) such restrictions and encumbrances
apply only if a default occurs in respect of a payment or financial covenant relating to such Senior
Debt.
(d)
Liens described in clauses (c) through and including (k), (m) through and including (p) and (s) and
(t) in each case of the definition of Permitted Liens;
(e)
any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing
clauses (a) and (c); provided that any such extension, renewal or replacement shall be no more
restrictive in any material respect than the Lien so extended, renewed or replaced and shall not
extend in any material respect to any additional property or assets; or
(f)
Liens incurred in the ordinary course of business of the Issuer or any Restricted Subsidiary with
respect to obligations that do not exceed €2.0 million at any one time outstanding and that (i) are
not incurred in connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (ii) do not in the aggregate
materially detract from the value of the property or materially impair the use thereof in the
operation of the Issuer's or such Restricted Subsidiary's business.
"Permitted Debt" has the meaning given to such term under "—Certain Covenants—Limitation on Debt."
"Permitted Holder" means (a) Mineworkers Investment Company, (b) MIC Leisure (Proprietary)
Limited, East Rand Children's Trust, The East Rand Youth Trust, The East Rand Community Participation Trust,
The East Rand Chambers of Commerce Trust, Capitau Holdings Limited, Vusumuzi Isaiah Zwane, Monde Temba
Tabata, Anthony Edward Puttergill, The Riviera Trust, DB Consulting International CC, Danisa Eileen Baloyi,
The Clifford Elk Family Trust, Clifford Owen Elk and Maxshell 114 Investments (Proprietary) Limited,
(c) members of management and employees of the Issuer immediately following the Corporate Reorganization
(d) Avenue Europe Investments L.P., Avenue Europe International Ltd; Goldentree European Financing BV,
Goldentree Ltd, Goldentree Multistrategy Financing, GPC LVIII LLC, Goldentree Masterfund Ltd and
Goldentree Masterfund II Ltd, SA Resorts LLC, Cheyne Special Situations Fund LP and Citigroup Financial
Products Inc. and (e) any Affiliate or Related Person of any such Permitted Holder, and any successor to any such
Permitted Holder, Affiliate or Related Person.
"Permitted Investments" means any of the following:
(a)
Investments in cash or Cash Equivalents;
(b)
intercompany Debt to the extent permitted under clause (d) of the definition of "Permitted Debt;"
(c)
Investments in (i) the form of loans or advances to the Issuer, (ii) a Restricted Subsidiary or
(iii) another Person if as a result of such Investment such other Person becomes a Restricted
Subsidiary or such other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all of its assets to, the Issuer or a Restricted Subsidiary;
(d)
Investments made by the Issuer or any Restricted Subsidiary as a result of or retained in connection
with an Asset Sale permitted under or made in compliance with "—Certain Covenants—Limitation
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on Sale of Certain Assets" to the extent such Investments are non-cash proceeds permitted
thereunder;
(e)
expenses or advances to cover payroll, travel entertainment, moving, other relocation and similar
matters that are expected at the time of such advances to be treated as expenses in accordance with
IFRS;
(f)
purchases of the Notes;
(g)
Investments existing at the date of the Indenture;
(h)
Investments in Interest Rate Agreements, Currency Agreements and Hedging Agreements
permitted under clauses (h), (i) and (j) of "—Certain Covenants—Limitation on Debt;"
(i)
loans and advances (but not any forgiveness of such loans or advances) to the Issuer's or any
Restricted Subsidiary's officers, directors and employees for travel, entertainment, moving and
other relocation expenses, in each case made in the ordinary course of business provided that such
loans and advances do not exceed €2.0 million in the aggregate at any one time outstanding;
(j)
Investments in a Person in exchange for the Issuer's Qualified Capital Stock or to the extent that
the consideration therefor consists of the net proceeds of the substantially concurrent issue and sale
(other than to any Subsidiary) of shares of the Issuer's Qualified Capital Stock; provided that the
net proceeds of such sale have been excluded from, and shall not have been included in, the
calculation of the amount determined under clause (2)(c)(ii) of "—Certain Covenants—Limitation
on Restricted Payments;"
(k)
Investments of the Issuer or the Restricted Subsidiaries described under item (v) to the proviso to
the definition of "Debt;"
(l)
(i) stock, obligations or securities received in satisfaction of judgments, foreclosure of liens or
settlement of debts and (ii) any Investments received in compromise of obligations of such Persons
that were incurred in the ordinary course of business, including pursuant to any plan of
reorganisation or similar arrangement upon the bankruptcy or insolvency of any trade creditor or
customer;
(m)
Investments in Permitted Businesses, provided that the total aggregate amount of such Investments
outstanding at any one time, measured by reference to the Fair Market Value of such Investment
on the day it was made does not exceed €10.0 million;
(n)
Investments in Permitted Joint Ventures, provided that the total aggregate amount of such
Investments outstanding at any one time, measured by reference to the Fair Market Value of such
Investment on the day it was made does not exceed €25.0 million;
(o)
Investments by a Restricted Subsidiary in the form of loans, advances to or Preferred Stock in
black economic empowerment entities in each case made to comply with bid or other undertakings
to Gaming Authorities, provided that the proceeds from such Investment are used by such entity to
make a concurrent purchase of Capital Stock of such Restricted Subsidiary for Fair Market Value
(such Fair Market Value to be determined at the time the relevant bid or other undertaking was
made); and
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(p)
any other Investment, provided that the total aggregate amount of such Investments outstanding at
any one time, measured by reference to the Fair Market Value of such Investment on the day it was
made, does not exceed €10.0 million.
"Permitted Joint Venture" means any joint venture agreement (which may be structured as an
unincorporated joint venture, corporation, partnership, association or limited liability company or as a
management contract or services agreement but other than an Unrestricted Subsidiary) with respect to which the
Issuer or any of its Restricted Subsidiaries (i) owns directly or indirectly in the aggregate at least 25% but no more
than 50% of the voting power thereof, or (ii) controls or manages the day-to-day gaming operation of another
person pursuant to a written agreement or (iii) provides, has provided, or has entered into a written agreement to
provide, Development Services with respect to such entity or the applicable Gaming Facility, provided however
that such joint venture is primarily engaged in a Permitted Business (or the development thereof).
"Permitted Liens" means the following types of Liens:
(a)
Liens existing as of the date of the issuance of the Notes;
(b)
Liens securing Debt under Credit Facilities (including in connection with any Permitted
Receivables Financing) permitted to be incurred pursuant to, and in an amount no greater than that
specified in, clause (a) of the definition of "Permitted Debt;"
(c)
Liens in favour of the Issuer or any Guarantor and Liens on any property or assets of a Restricted
Subsidiary that is not a Guarantor in favour of a Restricted Subsidiary that is not a Guarantor;
(d)
Liens on any of the Issuer's or any Restricted Subsidiary's property or assets securing the Notes
(including any Additional Notes) or any Guarantees;
(e)
any interest or title of a lessor under any Capitalized Lease Obligation and Liens to secure Debt
(including Capitalized Lease Obligations and Mortgage Financings) permitted by paragraph (2)(f)
of the definition of "Permitted Debt" covering only the assets acquired or developed with such
Debt;
(f)
Liens arising out of conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Issuer or any Restricted Subsidiary in the ordinary course of
business in accordance with the Issuer's or such Restricted Subsidiary's past practices prior to the
date of the Indenture;
(g)
statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen, employees, pension plan administrators or other like Liens arising in the ordinary
course of the Issuer's or any Restricted Subsidiary's business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate proceedings and for which a reserve or
other appropriate provision, if any, as shall be required in conformity with IFRS shall have been
made or Liens arising solely by virtue of any statutory or common law provisions relating to
attorney's liens or bankers' liens, rights of set-off or similar rights and remedies as to deposit
accounts or other funds maintained with a creditor depositary institution;
(h)
Liens for taxes, assessments, government charges or claims that are not yet delinquent or that are
being contested in good faith by appropriate proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as shall be required in
conformity with IFRS shall have been made;
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(i)
Liens incurred or deposits made to secure the performance of tenders, bids or trade or government
contracts, or to secure leases, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary course of business
(other than obligations for the payment of borrowed money);
(j)
zoning restrictions, easements, licenses, reservations, title defects, rights of others for rights-ofway, utilities, sewers, electrical lines, telephone lines, telegraph wires, restrictions, encroachments
and other similar charges, encumbrances or title defects incurred in the ordinary course of business
that do not in the aggregate materially interfere with, in any material respect, the ordinary conduct
of the business of the Issuer and its Restricted Subsidiaries on the properties subject thereto, taken
as a whole;
(k)
Liens arising by reason of any judgment, decree or order of any court, so long as such Lien is
adequately bonded and any appropriate legal proceedings that may have been duly initiated for the
review of such judgment, decree or order shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have expired;
(l)
Liens on property of, or on shares of Capital Stock or Debt of, any Person existing at the time such
property or Person is acquired by, merged with or into or consolidated with, the Issuer or any
Restricted Subsidiary; provided that such Liens (i) do not extend to or cover any property or assets
of the Issuer or any Restricted Subsidiary other than the property or assets acquired or than those of
the Person merged into or consolidated with the Issuer or Restricted Subsidiary and (ii) were
created prior to, and not in connection with or in contemplation of, such acquisition, merger or
consolidation;
(m)
Liens securing the Issuer's or any Restricted Subsidiary's obligations under Interest Rate
Agreements, Currency Agreements or Hedging Agreements permitted under clauses (h), (i) and
(j) of the definition of "Permitted Debt" or any collateral for the Debt to which such Interest Rate
Agreements, Currency Agreements or Hedging Agreements relate, including rights of offset and
set-off;
(n)
Liens incurred or deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or other insurance
(including unemployment insurance);
(o)
Liens incurred in connection with a cash management program established in the ordinary course
of business for the Issuer's benefit or that of any Restricted Subsidiary in favour of a bank or trust
company of the type described in clause (v) to the proviso in the definition of "Debt;"
(p)
Liens made to secure obligations arising from statutory, regulatory, contractual, or warranty
requirements of the Issuer or any Restricted Subsidiary in the ordinary course of business,
including rights of offset and set-off;
(q)
any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing
clauses (a) and (l); provided that any such extension, renewal or replacement shall be no more
restrictive in any material respect than the Lien so extended, renewed or replaced and shall not
extend in any material respect to any additional property or assets;
(r)
Liens securing Debt incurred to refinance Debt that has been secured by a Lien permitted by the
Indenture, provided that (i) any such Lien shall not extend to or cover any assets not securing the
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Debt so refinanced and (ii) the Debt so refinanced shall have been permitted to be incurred
pursuant to clause (p) of the definition of "Permitted Debt;"
(s)
purchase money Liens to finance property or assets of the Issuer or any Restricted Subsidiary
acquired in the ordinary course of business; provided that (i) the related purchase money Debt shall
not exceed the cost of such property or assets and shall not be secured by any property or assets of
the Issuer or any Restricted Subsidiary other than the property and assets so acquired and (ii) the
Lien securing such Debt shall be created within 90 days of such acquisitions; and
(t)
Liens in favour of customers or revenue authorities to secure payment of customs duties in
connection with the importation or exportation of goods in the ordinary course of business.
"Permitted Receivables Financing" means any financing pursuant to which the Issuer or any Restricted
Subsidiary may sell, convey or otherwise transfer to any other Person or grant a security interest in, any accounts
receivable (and related assets) in an aggregate principal amount equivalent to the Fair Market Value of such
accounts receivable (and related assets) of the Issuer or any Restricted Subsidiary; provided that (a) any covenants,
events of default and other provisions applicable to such financing shall be customary for such transactions and
shall be on market terms (as determined in good faith by the Issuer's Board of Directors) at the time such financing
is entered into, (b) the interest rate applicable to such financing shall be a market interest rate (as determined in
good faith by the Issuer's Board of Directors) at the time such financing is entered into and (c) such financing shall
be non-recourse to the Issuer or any Restricted Subsidiary except to a limited extent customary for such
transactions.
"Permitted Refinancing Debt" means any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this definition and clause (p) of the definition of "Permitted Debt," a
"refinancing") of any Debt of the Issuer or a Restricted Subsidiary or pursuant to this definition, including any
successive refinancings, so long as:
(a)
such Debt is in an aggregate principal amount (or if incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal amount (or if incurred
with original issue discount, the aggregate accreted value) then outstanding of the Debt being
refinanced and (ii) an amount necessary to pay any fees and expenses, including premiums and
defeasance costs, related to such refinancing;
(b)
the Average Life of such Debt is equal to or greater than the Average Life of the Debt being
refinanced;
(c)
the Stated Maturity of such Debt is no earlier than the Stated Maturity of the Debt being
refinanced; and
(d)
the new Debt is not senior in right of payment to the Debt that is being refinanced;
provided in each case that Permitted Refinancing Debt will not include (i) Debt of a Subsidiary (other than a
Guarantor) that refinances Debt of the Issuer, (ii) Debt of a Subsidiary (other than a Guarantor) that refinances the
Debt of any Guarantor, or (iii) Debt the Issuer or any Restricted Subsidiary that refinances Debt of an Unrestricted
Subsidiary.
"Person" means an individual, partnership, corporation (including a business trust), limited liability
company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
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"Preferred Stock" means, with respect to any Person, Capital Stock of any class or classes (however
designated) of such Person that is preferred as to the payment of dividends or distributions, or as to the distribution
of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over the Capital Stock of
any other class of such Person, whether now outstanding or issued after the date of the Indenture and including,
without limitation, all classes and series of preferred or preference stock of such Person.
"pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of
the Notes, a calculation made together in good faith by the Issuer's Board of Directors after consultation with the
Issuer's external auditor, or otherwise a calculation made in good faith by the Issuer's chief executive officer and
chief financial officer.
"Proceeds Loan" has the meaning specified in the definition of "Finance Subsidiary".
"Property" means, with respect to any Person, any interest of such Person in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, including Capital Stock and other securities of, any
other Person. For purposes of any calculation required pursuant to the Indenture, the value of any Property shall be
its Fair Market Value.
"Public Debt" means any Debt that is not Non-Public Debt.
"Public Equity Offering" means an underwritten public offer and sale of capital stock (which is Qualified
Capital Stock) of the Issuer or any direct or indirect parent holding company of the Issuer with gross proceeds to
the Issuer of at least €100.0 million (including any sale of common shares purchased upon the exercise of any
over-allotment option granted in connection therewith).
"Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than
Redeemable Capital Stock.
"rand" or "ZAR" means the lawful currency of the Republic of South Africa.
"Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the
terms of any security into which it is convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior to the final Stated Maturity of
the Notes or is redeemable at the option of the holder thereof at any time prior to such final Stated Maturity (other
than upon a change of control of the Issuer in circumstances in which the holders of the Notes would have similar
rights), or is convertible into or exchangeable for debt securities at any time prior to such final Stated Maturity;
provided that any Capital Stock that would constitute Qualified Capital Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of
any "asset sale" or "change of control" occurring prior to the Stated Maturity of the Notes will not constitute
Redeemable Capital Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are
no more favourable to the holders of such Capital Stock than the provisions contained in "—Certain Covenants—
Limitation on Sales of Certain Assets" and "—Purchase of Notes upon a Change of Control" covenants described
herein and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock
pursuant to such provision prior to the Issuer's repurchase of such Notes as are required to be repurchased pursuant
to "—Certain Covenants—Limitation on Sales of Certain Assets" and "—Purchase of Notes upon a Change of
Control."
"Regulation S" means Regulation S under the U.S. Securities Act (including any successor regulation
thereto), as it may be amended from time to time.
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"Regulation S-X" means Regulation S-X under the U.S. Securities Act (including any successor
regulation thereto), as it may be amended from time to time.
"Related Person" with respect to any Permitted Holder means: (i) in the case of an individual, any spouse,
family member or relative of such individual, any trust or partnership for the benefit of one or more of such
individual and any such spouse, family member or relative, or the estate, executor, administrator, committee or
beneficiaries of any thereof; or (ii) any trust, corporation, partnership or other Person for which one or more of the
Permitted Holder and other Related Persons constitute the beneficiaries, stockholders, partners or owners thereof;
or Persons beneficially holding in the aggregate a majority (or more) controlling interest therein.
"Relevant Taxing Jurisdiction" has the meaning given to such term under "—Additional Amounts".
"Reorganisations" means the Corporate Reorganisation together with the Emperors Palace
Reorganisation.
"Replacement Assets" means properties and assets that are not classified as current assets under IFRS and
that replace the properties and assets that were the subject of an Asset Sale or that will be used in the Issuer's
business or in that of the Restricted Subsidiaries or any and all businesses that in the good faith judgment of the
Board of Directors of the Issuer are reasonably related or complementary to the Issuer's business as conducted on
the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act (including any successor regulation thereto), as it
may be amended from time to time.
"S&P" means Standard and Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. and
its successors.
"Sale and Leaseback Transaction" means any arrangement relating to property owned or hereafter
acquired by the Issuer or its Restricted Subsidiaries whereby the Issuer or a Restricted Subsidiary transfers such
property to a Person (other than any transfer made within 180 days of the later of the completion of construction
and commencement of full operation of such asset or the acquisition of such asset, in each case by the Issuer or a
Restricted Subsidiary) and the Issuer or a Restricted Subsidiary leases such asset from such Person.
"Securities Act" means the U.S. Securities Act of 1933, as amended, or any successor statute, and the
rules and regulations promulgated by the Commission thereunder.
"Security Documents" means each of the agreements and other documents that create or purport to create
the Notes Security or any other Liens in favour of the Security SPV or otherwise for the benefit of the holders of
the Notes.
"Security Interests" has the meaning given to such term under "—Security."
"Security SPV" has the meaning given to such term under "—Security."
"Senior Debt" means all indebtedness, except (a) indebtedness that is subordinated by its terms to other
indebtedness and (b) indebtedness that expressly provides that it is not Senior Debt. Notwithstanding anything to
the contrary in the foregoing, Senior Debt will not include:
(x)
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(y)
any Debt that is incurred in violation of the Indenture or the terms of the Notes, as the case may be;
(z)
any trade payables.
or
In addition, any Senior Debt may be distinguished from another category of Senior Debt by reason of any
Liens or guarantees.
"Significant Subsidiary" means any Restricted Subsidiary that meets any of the following conditions:
(1)
The Issuer's and its Restricted Subsidiaries' investment in and advances to the Restricted
Subsidiary exceed 10% of the total assets of the Issuer and its Restricted Subsidiaries on a consolidated basis as of
the end of the most recently completed financial year;
(2)
the Issuer's and its Restricted Subsidiaries' proportionate share of the total assets (after
intercompany eliminations) of the Restricted Subsidiary exceeds 10% of the total assets of the Issuer and its
Restricted Subsidiaries on a consolidated basis as of the end of the most recently completed financial year; or
(3)
the Issuer's and its Restricted Subsidiaries' equity in the income from continuing operations before
income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Restricted
Subsidiary exceeds 10% of such income of the Issuer and its Restricted Subsidiaries on a consolidated basis for
the most recently completed financial year.
"Specified Affiliate Transaction" means:
(a)
the payment (by way of a dividend, loan, advance and/or distribution) by the Issuer or any
Restricted Subsidiary to any Parent Company of amounts required to pay any such Parent
Company's general operating expenses (other than monitoring fees) and accounting, legal,
corporate reporting, administrative insurance, indemnification or other out of pocket fees or
expenses incurred in the ordinary course of its business (including such expenses in respect of
services provided by directors, officers or employees of such Parent Company) and the payment
(by way of a dividend, loan, advance and/or distribution) by the Issuer or any Restricted Subsidiary
to a Parent Company of amounts required to pay any taxes, duties or similar governmental fees of
such Parent Company, but, in any such case under this paragraph (a), only to the extent such
expenses or other amounts are attributable to such Parent's ownership of the Issuer and its
Subsidiaries; and
(b)
the payment (by way of a dividend, loan, advance and/or distribution) by the Issuer or any
Restricted Subsidiary to a Permitted Holder or any Affiliate of a Permitted Holder of customary
compensation for financial advisory, financing, underwriting or placement services or in respect of
other investment banking activities, including in connection with acquisitions or divestitures,
which payments are approved in good faith by a majority of the members of the Board of Directors
of the Issuer, provided that the total aggregate amount of such payments shall not exceed
€3 million.
"Specified Non-Cash Interest" means any interest or dividend and amortisation of original issue discount,
in each case solely in respect of any Deeply Subordinated Shareholder Loans.
"Specified Projects" means (a) the Umfolozi hotel property, to be constructed and operated by Emanzini
Leisure Resorts (Pty) Ltd, based in KwaZulu-Natal; (b) the Umfolozi casino relocation from Empangeni to
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Richards Bay in KwaZulu-Natal and improvements to be made thereto, such project currently operated by
Emanzini Leisure Resorts (Pty) Ltd; (c) the Rio hotel property, to be constructed and currently operated by Tusk
Resorts (Pty) Ltd in Klerksdorp, North West Province; (d) the Royal Palm Hotel Casino and Convention Resort
property, with respect to a recent bid to build such property in Mthatha, Eastern Cape Province, to be operated by
Peermont Global (Mthatha) (Pty) Ltd; (e) the proposed Thabo Moshate Hotel Casino and Convention Resort, with
respect to a recent bid to build such property in Burgersfort, Limpopo Province, to be operated by Peermont
Global Tubatse (Pty) Ltd; (f) the proposed expansion of the Frontier Inn Casino and Hotel, Bethlehem in the Free
State Province, operated by Peermont Global (Eastern Free State) (Pty) Ltd; (g) the potential acquisition of the
new building being constructed for the head office function of the Issuer in Bryanston, Gauteng Province; (h) the
construction of additional hotel and gaming capacity and entertainment facilities at Emperors Palace, operated
currently by Peermont Global (East Rand) (Pty) Ltd at Kempton Park, Gauteng Province; (i) the acquisition of the
land currently leased by Tusk Resorts (Pty) Ltd on which the Mmabatho Hotel and Casino is located in
Mmabatho, North West Province; (j) the acquisition of the staff housing complex, currently leased by Tusk
Resorts (Pty) Limited, adjacent to the Mmabatho Hotel and Casino, Mmabatho, North West Province; (k) a Group
slots replacement program; and (l) the acquisition by Peermont Global (Botswana) (Pty) Ltd from Admiral
Casinos of two casino operations in Francistown and Selibi Pikwe, Botswana, subject to certain conditions
precedent.
"Spot Rate" means the spot rate of exchange (as determined by the trustee) for the purpose of the relevant
currency with euro in the London foreign exchange market in the ordinary course of business at or about
10.00 A.M. (London time) on the day in question.
"Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the
date specified in such Note as the fixed date on which the principal of such Note or such installment of interest,
respectively, is due and payable, and, when used with respect to any other indebtedness, means the date specified
in the instrument governing such indebtedness as the fixed date on which the principal of such indebtedness, or
any installment of interest thereon, is due and payable.
"Sterling" means the lawful currency of the United Kingdom of Great Britain and Northern Ireland.
"Subordinated Debt" means Debt of the Issuer that is subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person:
(a)
a corporation a majority of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries thereof; and
(b)
any other Person (other than a corporation), including, without limitation, a partnership, limited
liability company, business trust or joint venture, in which such Person, one or more Subsidiaries
thereof or such Person and one or more Subsidiaries thereof, directly or indirectly, at the date of
determination thereof, has at least majority ownership interest entitled to vote in the election of
directors, managers or trustees thereof (or other Person performing similar functions).
"Surviving Entity" has the meaning given to such term under "Consolidation, Merger and Sale of Assets".
"Target" means Peermont Global Limited, a limited liability company incorporated under the laws of the
Republic of South Africa under the Registration Number 1995/004449/06 and any successor thereof.
"Target Shares" means all of the issued and outstanding ordinary shares of the Target.
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"Taxes" has the meaning given to such term under "Additional Amounts".
"Temporary Senior Bridge Facility" means either an (a) up to R4,979 million (€539 million) temporary
bridge advance extended by the lenders under the Temporary Senior Bridge Facility Agreement or
(b) approximately R4,996 million (€540 million) temporary bridge advance extended by the lenders under a local
rand denominated Temporary Senior Bridge Facility Agreement in each case, to the Issuer, upon the terms and
conditions therein.
"Temporary Senior Bridge Facility Agreement" means the senior bridge loan agreement among the
Issuer, the lenders thereunder and other parties providing for the Temporary Senior Bridge Facility, as amended
from time to time.
"Total Tangible Assets" means the consolidated total assets of the Issuer and Restricted Subsidiaries less
goodwill and intangible assets, as shown on the most recent consolidated balance sheet of the Issuer prepared in
accordance with IFRS.
"Transactions" has the meaning given to such term in the section titled "The Transactions."
"Treasury Transaction" means any currency or interest, cap or collar agreement, forward rate agreement,
interest rate or currency future or option contract, foreign exchange or currency purchase or sale agreement,
interest rate swap, currency swap or combined interest rate and currency swap agreement and any other similar
agreement.
"Trust Indenture Act" means the U.S. Trust Indenture Act of 1939, as amended, or any successor statute,
and the rules and regulations promulgated by the Commission thereunder.
"Unrestricted Subsidiary" means:
(a)
any Subsidiary of the Issuer that at the time of determination is an Unrestricted Subsidiary (as
designated by the Issuer's Board of Directors pursuant to the "Designation of Unrestricted and
Restricted Subsidiaries" covenant); and
(b)
any Subsidiary of an Unrestricted Subsidiary.
"U.S. GAAP" means generally accepted accounting principles in the United States of America,
consistently applied, which are in effect from time to time.
"U.S. Securities Act" means the U.S. Securities Act of 1933, as amended, or any successor statute, and
the rules and regulations promulgated by the Commission thereunder.
"Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the
general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers
or trustees (or Persons performing similar functions) of any Person (irrespective of whether or not, at the time,
stock of any other class or classes shall have, or might have, voting power by reason of the happening of any
contingency).
"Wholly-Owned Restricted Subsidiary" means a Restricted Subsidiary all the Capital Stock of which
(other than directors' qualifying equity interests) is owned, directly or indirectly, by the Issuer or another
Wholly-Owned
Restricted
Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
General
Notes sold to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act will be
represented by a global note in registered form without interest coupons attached (the "Rule 144A Global Note").
Notes sold to non-U.S. persons in reliance on Regulation S under the U.S. Securities Act will be represented by a
global note in registered form without interest coupons attached (the "Regulation S Global Note" and, together
with the Rule 144A Global Note, the "Global Notes"). The Global Notes will be deposited with a common
depositary and registered in the name of the nominee of the common depositary for the accounts of Euroclear and
Clearstream Banking.
Ownership of interests in the Rule 144A Global Note ("Rule 144A Book-Entry Interests") and in the
Regulation S Global Note (the "Regulation S Book-Entry Interests" and, together with the Rule 144A Book-Entry
Interests, the "Book-Entry Interests") will be limited to persons that have accounts with Euroclear and/or
Clearstream Banking, or persons that hold interests through such participants. Euroclear and Clearstream Banking
will hold interests in the Global Notes on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositaries. Except under the limited circumstances
described below, Book-Entry Interests will not be held in definitive certificated form.
Book-Entry Interests will be shown on, and transfers thereof will be done only through, records
maintained in the book-entry form by Euroclear and Clearstream Banking and their participants. The laws of some
jurisdictions, including certain states of the United States, may require that certain purchasers of securities take
physical delivery of such securities in definitive certificated form. The foregoing limitations may impair the ability
to own, transfer or pledge Book-Entry Interests. In addition, while the notes are in global form, holders of BookEntry Interests will not be considered the owners or "holders" of notes for any purpose.
So long as the notes are held in global form, Euroclear and/or Clearstream Banking, as applicable (or their
respective nominees), will be considered the sole holders of the Global Notes for all purposes under the indenture.
In addition, participants must rely on the procedures of Euroclear and/or Clearstream Banking, and indirect
participants must rely on the procedures of Euroclear, Clearstream Banking and the participants through which
they own Book-Entry Interests, to transfer their interests or to exercise any rights of holders under the indenture.
Neither we nor the trustee will have any responsibility, or be liable, for any aspect of the records relating to
the Book-Entry Interests.
Redemption of the global notes
In the event any Global Note (or any portion thereof) is redeemed, Euroclear and/or Clearstream Banking,
as applicable, will redeem an equal amount of the Book-Entry Interests in such Global Note from the amount
received by it in respect of the redemption of such Global Note. The redemption price payable in connection with
the redemption of such Book-Entry Interests will be equal to the amount received by Euroclear and Clearstream
Banking, as applicable, in connection with the redemption of such Global Note (or any portion thereof). We
understand that, under the existing practices of Euroclear and Clearstream Banking, if fewer than all of the notes
are to be redeemed at any time, Euroclear and Clearstream Banking will credit their respective participants'
accounts on a proportionate basis (with adjustments to prevent fractions), by lot or on such other basis as they
deem fair and appropriate; provided, however, that no Book-Entry Interest of €50,000 principal amount or less
may be redeemed in part.
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Payments on global notes
We will make payments of any amounts owing in respect of the Global Notes (including principal,
premium, if any, and interest) to the common depositary or its nominee for Euroclear and Clearstream Banking,
which will distribute such payments to participants in accordance with their customary procedures. We will make
payments of all such amounts without deduction or withholding for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature, except as may be required by law and as
described under "Description of The Notes—Additional Amounts." If any such deduction or withholding is
required to be made, then, to the extent described under "Description of The Notes—Additional Amounts" above,
we will pay additional amounts as may be necessary in order that the net amounts received by any holder of the
Global Notes or owner of Book-Entry Interests after such deduction or withholding will equal the net amounts that
such holder or owner would have otherwise received in respect of such Global Note or Book-Entry Interest, as the
case may be, absent such withholding or deduction. We expect that standing customer instructions and customary
practices will govern payments by participants to owners of Book-Entry Interests held through such participants.
Under the terms of the indenture, we and the trustee will treat the registered holder of the Global Notes
(e.g., Euroclear or Clearstream Banking (or their respective nominees)) as the owner thereof for the purpose of
receiving payments and for all other purposes. Consequently, none of us, the trustee or any of our or its respective
agents has or will have any responsibility or liability for any aspect of the records of Euroclear, Clearstream
Banking or any participant or indirect participant relating to, or payments made on account of, a Book-Entry
Interest or for maintaining, supervising or reviewing the records of Euroclear, Clearstream Banking or any
participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest, or Euroclear,
Clearstream Banking or any participant or indirect participant.
Currency of payment for the global notes
The principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Global
Notes will be paid in euro.
Action by owners of book-entry interests
Euroclear and Clearstream Banking have advised us that they will take any action permitted to be taken by
a holder of notes (including the presentation of notes for exchange as described above) only at the direction of one
or more participants to whose account the Book-Entry Interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of notes as to which such participant or participants has
or have given such direction. Euroclear and Clearstream Banking will not exercise any discretion in the granting
of consents, waivers or the taking of any other action in respect of the Global Notes. However, if there is an Event
of Default under the notes, each of Euroclear and Clearstream Banking reserves the right to exchange the Global
Notes for definitive registered notes in certificated form ("Definitive Registered Notes") and to distribute
Definitive Registered Notes to its participants.
Transfers
Transfers between participants in Euroclear and Clearstream Banking will be effected in accordance with
Euroclear and Clearstream Banking rules and will be settled in immediately available funds. If a holder requires
physical delivery of Definitive Registered Notes for any reason, including to sell notes to persons in states which
require physical delivery of securities or to pledge such securities, such holder must transfer its interests in the
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Global Notes in accordance with the normal procedures of Euroclear and Clearstream Banking and in accordance
with the procedures set forth in the indenture governing the notes.
The Global Note for Rule 144A Book-Entry Interests will have a legend to the effect set forth under
"Notice to Investors." Book-Entry Interests in the Global Notes will be subject to the restrictions on transfers and
certification requirements discussed under "Notice to Investors."
Rule 144A Book-Entry Interests may be transferred to a person who takes delivery in the form of a
Regulation S Book-Entry Interest only upon delivery by the transferor of a written certification (in the form
provided in the indenture) to the effect that such transfer is being made in accordance with Regulation S or
Rule 144 under the U.S. Securities Act or any other exemption (if available under the U.S. Securities Act).
In connection with transfers involving an exchange of a Regulation S Book-Entry Interest for a Rule 144A
Book-Entry Interest, appropriate adjustments will be made to reflect a decrease in the principal amount of the
Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note.
Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in
the form of a Book-Entry Interest in any other Global Note will, upon transfer, cease to be a Book-Entry Interest
in the first-mentioned Global Note and become a Book-Entry Interest in such other Global Note, and accordingly
will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests
in such other Global Note for as long as it remains such a Book-Entry Interest.
Definitive registered notes
Under the terms of the indenture, owners of the Book-Entry Interests will receive Definitive Registered
Notes if:
•
Euroclear or Clearstream Banking notifies us that it is unwilling or unable to continue to act as
depositary and a successor depositary is not appointed by us within 120 days;
•
Euroclear or Clearstream Banking so requests following an Event of Default under the indenture; or
•
the owner of a Book-Entry Interest requests such an exchange in writing delivered through either
Euroclear or Clearstream Banking following an Event of Default under the indenture.
In the case of the issuance of Definitive Registered Notes, the holder of a Definitive Registered Note may
transfer such note by surrendering it to the registrar or transfer agent. In the event of a partial transfer or a partial
redemption of a holding of Definitive Registered Notes represented by one Definitive Registered Note, a
Definitive Registered Note will be issued to the transferee in respect of the part transferred and a new Definitive
Registered Note in respect of the balance of the holding not transferred or redeemed will be issued to the
transferor or the holder, as applicable; provided that no Definitive Registered Note in a denomination less than €
50,000 will be issued. We will bear the cost of preparing, printing, packaging and delivering the Definitive
Registered Notes.
We will not be required to register the transfer or exchange of Definitive Registered Notes for a period of
15 calendar days preceding (i) the record date for any payment of interest on the notes, (ii) any date fixed for
redemption of the notes or (iii) the date fixed for selection of the notes to be redeemed in part. Also, we are not
required to register the transfer or exchange of any notes selected for redemption. In the event of the transfer of
any Definitive Registered Note, the trustee may require a holder, among other things, to furnish appropriate
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endorsements and transfer documents as described in the indenture. We may require a holder to pay any taxes and
fees required by law and permitted by the indenture and the notes.
If Definitive Registered Notes are issued and a holder thereof claims that such Definitive Registered Note
has been lost, destroyed or wrongfully taken, or if such Definitive Registered Note is mutilated and is surrendered
to the registrar or at the office of the transfer agent, we will issue and the trustee will authenticate a replacement
Definitive Registered Note if the trustee's and our requirements are met. We or the trustee may require a holder
requesting replacement of a Definitive Registered Note to furnish an indemnity bond sufficient in the judgment of
both to protect us, the trustee or the paying agent appointed pursuant to the indenture from any loss which any of
them may suffer if a Definitive Registered Note is replaced. We may charge for any expenses incurred by us in
replacing a Definitive Registered Note.
In case any such mutilated, destroyed, lost or stolen Definitive Registered Note has become or is about to
become due and payable, or is about to be redeemed or purchased by us pursuant to the provisions of the
indenture, we, in our discretion, may, instead of issuing a new Definitive Registered Note, pay, redeem or
purchase such Definitive Registered Note, as the case may be.
Definitive Registered Notes may be transferred and exchanged only after the transferor first delivers to the
trustee a written certification (in the form provided in the indenture) to the effect that such transfer will comply
with the transfer restrictions applicable to such notes. See "Notice to Investors."
So long as the notes are listed on the Official List of the Irish Stock Exchange and the rules of such
exchange so require, we will publish a notice of any issuance of Definitive Registered Notes in a newspaper
having general circulation in Ireland (which we expect to be the Irish Times). Payment of principal, any
repurchase price, premium and interest on Definitive Registered Notes will be payable at the office of our paying
agent in Ireland so long as the notes are listed on the Official List of the Irish Stock Exchange and the rules of
such exchange so require.
Information concerning Euroclear and Clearstream Banking
Our understanding with respect to the organisation and operations of Euroclear and Clearstream Banking
is as follows. Euroclear and Clearstream Banking hold securities for participating organisations. They also
facilitate the clearance and settlement of securities transactions between their respective participants through
electronic book-entry changes in accounts of such participants. Euroclear and Clearstream Banking provide
various services to their participants, including the safekeeping, administration, clearance, settlement, lending and
borrowing of internationally traded securities. Euroclear and Clearstream Banking interface with domestic
securities markets. Euroclear and Clearstream Banking participants are financial institutions such as underwriters,
securities brokers and dealers, banks, trust companies and certain other organisations. Indirect access to Euroclear
and Clearstream Banking is also available to others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodian relationship with a Euroclear or Clearstream Banking participant, either directly
or indirectly.
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TAX CONSIDERATIONS
Prospective purchasers of the notes are advised to consult their own tax advisers as to the tax
consequences, under the tax laws of the country of which they are resident, of a purchase of notes including
without limitation, the consequences of receipt of interest and premium, if any, on and sale or redemption of, the
notes or any interest therein.
Certain South African tax considerations
The following is a summary of certain South African tax consequences relating to the acquisition, holding
and disposal of the notes by non-residents of South Africa for tax purposes. This information is not a substitute for
independent advice pertaining to your particular circumstances as a holder of notes. It is intended as a general
guide only, and is based on current South African tax legislation and practice in force as at the date of this
document. It relates to your position as a holder of notes, assuming that you are the absolute beneficial owner of
such notes and you own such notes as a capital investment. It is not intended to apply to certain classes of holders
of notes such as brokers or dealers. If you are in any doubt as to your tax position you should consult your own tax
adviser.
Duty on issuance and transfer of notes
No South African duty is payable on the issuance or transfer of notes.
Basis of taxation
The South African income tax system is based on a residence system for South African tax residents and
on a source basis for non-residents of South Africa for tax purposes.
A natural person will not be a resident of South Africa for tax purposes if he or she is not "ordinarily
resident" in South Africa or, if not "ordinarily resident" in South Africa, was not physically present in South
Africa for certain prescribed periods in the five tax years prior to and during the tax year in question ("physical
presence test"). A natural person, not "ordinarily resident" in South Africa but who meets the "physical presence
test", who is physically absent from South Africa for a continuous period of 330 days from the day immediately
after the date on which such person ceases to be physically present in South Africa is deemed not to have been a
resident from the day on which the person ceased to be physically present in South Africa. Holders of notes are
advised to seek assistance in this regard.
A person other than a natural person will be a resident of South Africa for tax purposes if it is
incorporated, established or formed in South Africa or has its place of "effective management" in South Africa.
A non-resident would also include a person who is deemed to be exclusively a resident of another country
for purposes of a double taxation agreement entered into by South Africa and the other jurisdiction.
If any non-resident association, corporation, company, arrangement or scheme which falls within the
definition of a company (a "foreign company") in which, residents of South Africa hold more than 50% of the
participation rights or can exercise, directly or indirectly, more than 50% of the voting rights in that foreign
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company (a "controlled foreign company"), a proportionate amount of the net income and capital gains of the
controlled foreign company will be included in the income of such resident, subject to certain exclusions.
For purposes of this section dealing with Certain South African tax considerations, it is assumed that:
•
The notes will not, at any time, be offered to, acquired by or held by any South African tax resident (as
defined in the Income Tax Act, No. 58 of 1962 (as amended);
•
Any South African tax non-resident holding notes does not have a "permanent establishment," as
defined from time to time in Article 5 of the OECD Model Tax Convention, in South Africa, which
definition includes, for example, a place of management, a branch or a factory.
Income tax
For South African tax purposes, interest must be calculated on a yield-to-maturity basis over the term of
the notes, and includes any issue discount or redemption premium. South Africa does not have any withholding
taxes on interest.
Non tax residents of South Africa presently enjoy the benefit of an exemption from South African income
tax on their interest income, unless one of the disqualifications set out below applies.
Any non tax resident of South Africa is exempt from South African income tax on any interest paid or
accrued in respect of the notes, which includes any issue discount or redemption premium. This exemption will
not, however, apply in certain instances, including to:
•
any natural person who was physically present in South Africa for a period exceeding 183 days in
aggregate during the tax year in question; or
•
any person who carried on a business through a permanent establishment in South Africa at any time
during the tax year in question.
Capital gains tax
A South African tax non-resident will not be subject to capital gains tax in South Africa in respect of the
redemption or other disposal of notes, unless the non-resident has a permanent establishment in South Africa and
the notes were attributable as assets of that permanent establishment.
European Union directive on the taxation of savings interest
The European Union has adopted Council Directive 2003/48/EC regarding the taxation of savings income
(the "Directive"). Member States are required to provide to the tax authorities of other Member States details of
payments of interest or other similar income paid by a person to an individual in another Member State, except
that Belgium, Luxembourg and Austria will instead operate a withholding system for a transitional period unless,
during such period, they elect otherwise.
Additional Amounts will not be payable if any tax is required to be withheld or deducted as a result of the
implementation of the Directive or the introduction of any law implementing or complying with, or introduced in
order to conform to, the Directive.
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Certain United States federal income tax considerations
The following is a general discussion of certain material United States federal income tax considerations
that may be relevant to the purchase, ownership and disposition of the notes by initial investors that are United
States Holders (as defined below). This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing, temporary and proposed Treasury regulations
promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect or proposed on the
date hereof and all of which are subject to change, possibly with retroactive effect, or different interpretations.
This discussion does not address the tax consequences to subsequent purchasers of notes and is limited to initial
investors who purchase the notes at the price set forth on the cover page, and who hold the notes as capital assets
within the meaning of section 1221 of the Code. Moreover, this discussion is for general information only and
does not address the tax consequences to holders that are not United States Holders (as defined below) or the tax
consequences that may be relevant to particular initial investors in light of their personal circumstances or to
certain types of initial investors subject to special tax rules (such as brokers, banks and other financial institutions,
insurance companies, tax-exempt entities, dealers in securities or currencies, traders in securities that elect to use a
mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate
investment trusts, United States expatriates or former long-term residents of the United States, investors liable for
the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, investors that will
hold the notes as part of straddles, hedging transactions or conversion transactions for United States federal
income tax purposes or investors whose functional currency is not the United States dollar). In addition, this
discussion does not include any description of estate and gift tax consequences, or the tax laws of any state, local
or foreign government that may be applicable to the notes. This discussion assumes that the Notes will be treated
as debt for United States federal income tax purposes. We cannot assure you that the United States Internal
Revenue Service ("IRS") will take a similar view as to any of the tax consequences described in this summary.
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, YOU ARE
HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS OFFERING
MEMORANDUM IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED
UPON BY YOU, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU
UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION
WITH THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED
HEREIN; AND (C) YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR CIRCUMSTANCES
FROM AN INDEPENDENT TAX ADVISOR.
As used herein, the term "United States Holder" means a beneficial owner of a note that is, for United
States Federal income tax purposes, (i) a citizen or individual resident of the United States, (ii) a corporation or
other entity taxable as a corporation created or organised in the United States or under the laws of the United
States or of any state thereof (including the District of Columbia), (iii) an estate the income of which is subject to
United States federal income tax regardless of its source, or (iv) a trust (A) if a United States court is able to
exercise primary supervision over the trust's administration and one or more United States persons have authority
to control all substantial decisions of such trust, or (B) that was in existence on 20 August 1996, was treated as a
United States person under the Code on the previous day, and has a valid election in effect to continue to be so
treated.
If a partnership or other pass-through entity holds the notes, the tax treatment of a partner in or owner of
the partnership or pass-through entity will generally depend upon the status of the partner or owner and the
activities of the entity. If you are a partner in or owner of a partnership or other pass-through entity that is
considering holding notes you should consult your tax advisor.
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PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY UNITED STATES
FEDERAL TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR
PROPOSED CHANGES) IN APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
Taxation of interest
It is anticipated that the notes will not be issued with original issue discount for United States federal
income tax purposes. In general, interest paid on a note (including any amount withheld as withholding tax) will
be taxable to a United States Holder as ordinary interest income, generally at the time it is received or accrued, in
accordance with such holder's regular method of accounting for United States federal income tax purposes.
A United States Holder that uses the cash method of tax accounting will be required to include in income
the United States dollar value of the euro interest payment on a note based on the spot rate of exchange on the date
of receipt whether or not converted into United States dollars. No exchange gain or loss will be recognised with
respect to the receipt of such payment (other than exchange gain or loss realised on the subsequent disposition of
the euro so received, see "—Transactions in euro", below).
A United States Holder that uses the accrual method of tax accounting will accrue interest income on a
note in euro and translate the amount accrued into United States dollars based on:
•
the average exchange rate in effect during the interest accrual period, or portion thereof within such
holder's taxable year; or
•
at such holder's election, at the spot rate of exchange on (1) the last day of the accrual period, or the
last day of the taxable year within such accrual period if the accrual period spans more than one
taxable year, or (2) the date of receipt, if such date is within five business days of the last day of the
accrual period.
Such election must be applied consistently by the United States Holder to all debt instruments from year to
year and can be changed only with the consent of the IRS. A United States Holder that uses the accrual method of
tax accounting will recognise foreign currency gain or loss on the receipt of an interest payment if the spot rate of
exchange on the date the payment is received differs from the rate applicable to a previous accrual of that interest
income (as determined above). Such foreign currency gain or loss will be treated as ordinary income or loss, but
generally will not be treated as an adjustment to interest income received on the notes.
Disposition of the notes
Upon the sale, exchange, redemption, retirement at maturity or other taxable disposition of a note
(collectively, a "disposition"), a United States Holder generally will recognise gain or loss equal to the difference
between the amount realised by such holder (except to the extent such amount is attributable to accrued but unpaid
interest, which will be taxable as ordinary interest income (as described above) if such interest has not been
previously included in income) and such holder's tax basis in the note. The tax basis of a note to a United States
Holder will generally be the United States dollar value of the euro purchase price on the date of purchase
calculated at the spot rate of exchange on that date. Upon the disposition of a note, the amount realised by a
United States holder will be the United States dollar value of the euro received calculated at the spot rate of
exchange on the date of disposition.
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If the notes are traded on an established securities market, a United States Holder that uses the cash
method of tax accounting, and, if it so elects, a United States Holder that uses the accrual method of tax
accounting, will determine the United States dollar value of the amount of euro realised (as determined on the
trade date) by translating such amount at the spot rate of exchange on the settlement date of the disposition and
will determine the United States dollar value of the tax basis by translating the amount paid (including possibly by
an initial purchaser) for the note at the spot rate of exchange on the settlement rate of the purchase. The election
available to accrual basis United States Holders discussed above must be applied consistently by the United States
Holder to all debt instruments from year to year and can be changed only with the consent of the IRS.
Except as discussed below in connection with foreign currency gain or loss on a disposition of a note, gain
or loss from the disposition of a note will be capital gain or loss and will constitute long-term capital gain or loss if
the United States holder's holding period for the notes exceeds one year. Long-term capital gains recognised by
individuals are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Gain or loss recognised by a United States Holder on a disposition of a note generally will be treated as ordinary
income or loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in
which the holder held such note. Such exchange gain or loss will generally equal the difference between the
United States dollar value of the euro purchase price of the note determined on the date of disposition (or on the
settlement date, if the notes are traded on an established securities market and the holder is either a cash basis
United States Holder or an electing accrual basis United States Holder) and the United States dollar value of the
euro purchase price of the note determined using the spot rate of exchange on the date the United States Holder
acquired the note (or on the settlement date, if the notes were traded on an established securities market and the
holder is either a cash basis United States Holder or an electing accrual basis United States Holder). The
realisation of such exchange gain or loss will be limited to the amount of overall gain or loss realised on the
disposition of a note.
Transactions in euro
Euro received as interest on, or on a disposition of, a note will have a tax basis equal to their United States
dollar value at the time such interest is received or at the time such proceeds are received. The amount of gain or
loss recognised on a sale or other disposition of such euro will be equal to the difference between (1) the amount
of United States dollars, or the fair market value in United States dollars of the other property received in such sale
or other disposition, and (2) the United States holder's tax basis in such euro.
A United States Holder that purchases a note with previously owned euro will generally recognise gain or
loss in an amount equal to the difference, if any, between such holder's tax basis in such euro and the United States
dollar fair market value of such euro note on the date of purchase. Any such gain or loss generally will be ordinary
income or loss and will not be treated as interest income or expense. The conversion of United States dollars to
euro and the immediate use of such currency to purchase a note generally will not result in any exchange gain or
loss for a United States Holder.
Foreign tax credit considerations
If interest payments on the notes become subject to South African withholding taxes, a United States
Holder may be able, subject to generally applicable limitations, to claim a foreign tax credit or take a deduction for
such withholding taxes imposed on interest payments (including any Additional Amounts). Interest (including any
Additional Amounts) will constitute income from sources outside the United States for United States foreign tax
credit purposes. Interest income (including any Additional Amounts) generally will constitute "passive category
income" or, in the case of certain holders, "general category income" for United States foreign tax credit purposes.
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United States Holders whose tax year began prior to 1 January 2007, should consult their own tax advisors as to
the foreign tax credit rules applicable to them.
Gain or loss on the sale, redemption, retirement at maturity or other taxable disposition of a note by a
United States Holder will generally constitute United States source income or loss for United States foreign tax
credit purposes. Foreign currency gain or loss and gain or loss from a disposition of euro will generally constitute
United States source income or loss for United States foreign tax credit purposes. The rules governing the foreign
tax credit are complex and investors are urged to consult their tax advisors regarding the availability of the credit
under their particular circumstances.
Backup withholding and information reporting
Proceeds from the sale, retirement or other disposition of the notes, or payment of principal and interest on
the notes, may be subject to information reporting requirements. Backup withholding currently at a rate of 28%
may apply to certain payments of principal, premium, if any, and interest on a note and to proceeds of the sale or
other disposition of a note before maturity, if a United States Holder fails to furnish its taxpayer identification
number, certify that such number is correct, certify that such United States Holder is not subject to backup
withholding or otherwise comply with the applicable requirements of the backup withholding rules. Certain
United States Holders, including corporations, are generally not subject to backup withholding and information
reporting requirements. United States persons who are required to establish their exempt status generally must
provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-United States
Holders generally will not be subject to United States information reporting or backup withholding. However,
these holders may be required to provide certification of non-United States status (generally on form W-8BEN) in
connection with payments received in the United States or through certain United States related financial
intermediaries. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding
rules from a payment to a United States Holder will be allowed as a credit against such United States Holder's
United States federal income tax and may entitle the United States Holder to a refund, provided that the required
information is timely furnished to the IRS.
Tax return disclosure requirement
A United States Holder may be required to report a sale, retirement or other taxable disposition of its notes
on IRS Form 8886 (Reportable Transaction Disclosure Statement) if it recognised a foreign currency loss that
exceeds U.S.$50,000 in a single taxable year from a single transaction in the notes, if such United States Holder is
an individual or trust. Higher amounts apply for non-individual United States Holders. United States Holders are
advised to consult their tax advisors in this regard.
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EXCHANGE CONTROLS
The information below is not intended as legal advice and it does not purport to describe all of the
considerations that may be relevant to a prospective purchaser of notes. Prospective purchasers of notes that are
non-South African residents or emigrants from the Common Monetary Area are urged to seek further professional
advice in regard to the purchase of notes. For the purposes of the discussion below, the Common Monetary Area
means South Africa, Lesotho, Namibia and Swaziland.
Exchange controls restrict the export of capital from South Africa, Namibia and the Kingdoms of
Swaziland and Lesotho, collectively known as the Common Monetary Area. These exchange controls are
administered by the South African Reserve Bank ("SARB") and regulate transactions involving South African
companies. The basic purpose of these exchange controls is to mitigate the decline of foreign capital reserves in
South Africa. Our advisers anticipate that South African exchange controls will continue to operate for the
foreseeable future. The South African government has, however, committed itself to gradually relaxing exchange
controls and significant relaxation has occurred in recent years. It is the stated objective of the authorities to
achieve equality of treatment between residents and non-residents in relation to inflows and outflows of capital.
The gradual approach towards the abolition of exchange controls adopted by the South African government is
designed to allow the economy to adjust more smoothly to the removal of controls that have been in place for a
considerable period of time.
The issuance and sale of the notes to the initial purchaser and any payment of interest or principal in
respect thereof, requires the approval of SARB. We have obtained the approval of SARB for the issuance and sale
of the notes to the initial purchaser and payments of interest and principal thereon. We will, however, be required
to obtain the approval of SARB for any redemption of notes prior to their maturity, including upon a change of
control, or to transfer any intellectual property outside South Africa.
Non-residents of the Common Monetary Area
Non-residents of the Common Monetary Area may purchase, hold and transfer the notes without SARB
approval.
Residents of the Common Monetary Area
Under the terms of the SARB approval for the notes, no South African entity or institution nor any
offshore subsidiary or branch operation of a South African entity or institution is allowed to participate in or
underwrite the notes without the prior specific approval of SARB. Accordingly, the notes are not being offered to
prospective investors in the Republic of South Africa.
Emigrants from the Common Monetary Area
Emigrants from the Common Monetary Area may not purchase notes using "blocked" rand amounts
without appropriate SARB approval. For purposes of this paragraph, "blocked" rand amounts mean funds
denominated in rands which may not be transferred out of South Africa or paid into the bank account of a nonSouth African resident.
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PLAN OF DISTRIBUTION
Subject to the terms and conditions stated in the purchase agreement dated the date of this offering
memorandum, the initial purchaser named below has agreed to purchase, and we have agreed to sell to the initial
purchaser, the principal amount of the notes set forth below.
Initial Purchaser
Principal Amount
Citigroup Global Markets Limited................................................................................................ €520,000,000
The purchase agreement provides that the obligations of the initial purchaser to purchase the notes are
subject to approval of legal matters by counsel and to other conditions. The initial purchaser must purchase all the
notes if it purchases any of the notes.
The issuer has been advised that the initial purchaser proposes to resell the notes at the offering price set
forth on the cover page of this offering memorandum within the United States to qualified institutional buyers (as
defined in Rule 144A) in reliance on Rule 144A and outside the United States in reliance on Regulation S. See
"Notice to Investors". The price at which the notes are offered may be changed at any time without notice.
The notes have not been and will not be registered under the U.S. Securities Act or any state securities
laws and may not be offered or sold within the United States except in transactions exempt from, or not subject to,
the registration requirements of the U.S. Securities Act. See "Notice to Investors".
In addition, until 40 days after the commencement of this offering, an offer or sale of notes within the
United States by a dealer that is not participating in this offering may violate the registration requirements of the
U.S. Securities Act if that offer or sale is made otherwise than in accordance with Rule 144A.
The initial purchaser has represented, warranted and agreed that:
(i)
It has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning of
Section 21 of the Financial Services and Markets Act (the "FSMA") received by it in connection
with the issue or sale of the notes in circumstances in which Section 21(1) of the FSMA does not
apply to the issuer;
(ii)
It has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the notes in, from or otherwise involving the United Kingdom;
(iii)
The notes will not be offered, sold or delivered in Italy except (i) to qualified investors (operatori
qualificati), as defined in Article 31, second paragraph, of CONSOB Regulation No. 11522 of 1
July 1998, as amended, provided that such professional investors will act in their own capacity and
not as depositaries or nominees for other shareholders, or (ii) in other circumstances which are
exempted from the rules on solicitation of investments pursuant to Article 100 of Legislative
Decree No. 58 of 24 February 1998, as amended, and its implementing CONSOB regulations,
including Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as
amended; and
(iv)
It has not offered or sold and will not offer or sell, either directly or indirectly, the notes to
prospective investors in the Republic of South Africa.
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The notes will constitute a new class of securities with no established trading market. Application has been
made for the notes to be listed on the Official List of the Irish Stock Exchange and to be admitted for trading on its
Alternative Securities Market. However, the issuer cannot assure you that the prices at which the notes will sell in
the market after this offering will not be lower than the initial offering price or that an active trading market for the
notes will develop and continue after this offering. The initial purchaser has advised the issuer that it currently
intends to make a market in the notes. However, it is not obligated to do so, and it may discontinue any market
making activities with respect to the notes at any time without notice. In addition, market making activity will be
subject to the limits imposed by the U.S. Securities Act and the U.S. Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and may be limited. Accordingly, the issuer cannot assure you as to the liquidity
of or the trading market for the notes.
In connection with the offering, the initial purchaser is not acting for anyone other than us and will not be
responsible to anyone other than us for providing the protections afforded to their clients nor for providing advice
in relation to the offering.
Buyers of the notes sold by the initial purchaser may be required to pay stamp taxes and other charges in
accordance with the laws and practice of the country of purchase in addition to the initial offering price set forth
on the cover of this offering memorandum.
In connection with this offering, Citigroup Global Markets Limited (or persons acting on its behalf) may
purchase and sell notes in the open market. These transactions may include over-allotment, syndicate covering
transactions and stabilising transactions. Over-allotment involves sales of notes in excess of the principal amount
of notes to be purchased by the initial purchaser in this offering (provided that, the aggregate principal amount of
notes allotted does not exceed 105% of the aggregate principal amount of the notes that are the subject of this
offer), which creates a short position for the initial purchaser. Covering transactions involve purchases of the notes
in the open market after the distribution has been completed in order to cover short positions. Stabilising
transactions consist of certain bids or purchases of notes made for the purpose of preventing or retarding a decline
in the market price of the notes while the offering is in progress. Any of these activities may have the effect of
preventing or retarding a decline in the market price of the notes. They may also cause the price of the notes to be
higher than the price that otherwise would exist in the open market in the absence of these transactions. Citigroup
Global Markets Limited may conduct these transactions in the over-the-counter market or otherwise. If Citigroup
Global Markets Limited commence any of these transactions, they may discontinue them at any time, but it must
end no later than 30 days after the date on which the issuer receives the proceeds of the issue, or no later than
60 days after the date of the allotment of the relevant notes.
The issuer has agreed to indemnify the initial purchaser against certain liabilities, including liabilities
under the U.S. Securities Act, or to contribute to payments that the initial purchaser may be required to make
because of any of those liabilities.
We expect to deliver the notes against payment for the notes on or about the date specified in the last
paragraph of the cover page of this offering memorandum, which will be the third business day following the date
of the pricing of the notes.
Other relationships
The initial purchaser and its affiliates have performed commercial and investment banking and advisory
services for Peermont, us and our affiliates from time to time for which they have received customary fees and
expenses. The initial purchaser may, from time to time, engage in transactions with, and perform services for,
Peermont, us and our affiliates in the ordinary course of its and the Peermont businesses. In particular, affiliates of
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the initial purchaser are acting in various capacities under (a) the senior bridge facility agreement, dated as of
17 November 2006, entered into among Opalton Investments (Proprietary) Limited as borrower, and
Citibank, N.A., as lender, among others, providing for a term loan of up to R4.979 billion, to be funded in the euro
equivalent thereof, that the issuer may use in connection with the funding of the Transactions; (b) the R887
million PIK notes due 2015 with Peermont Global Holdings II (Proprietary) Limited as issuer and Citigroup
Global Markets Limited as initial purchaser, to be issued concurrently with the notes offered hereby, to be
denominated in rand, to be used in connection with the financing of the Corporate Reorganisation; and (c) the
payment-in-kind preferred equity loan agreement, dated as of 17 November 2006, entered into among MRX80
Investment Holdings (Proprietary) Limited as PIK equity borrower and certain international investors as lenders,
among others, providing for a loan of up to R1.1165 billion, to be used in connection with the funding of the
Transactions.
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NOTICE TO INVESTORS
The notes have not been registered under the U.S. Securities Act or any state securities laws and, unless so
registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly, the notes
offered hereby are being offered and sold only to qualified institutional buyers (as defined in Rule 144A under the
U.S. Securities Act) in reliance on Rule 144A under the U.S. Securities Act and in offshore transactions in
reliance on Regulation S under the U.S. Securities Act.
Each purchaser of notes, by its acceptance thereof, will be deemed to have acknowledged, represented to
and agreed with us and the initial purchaser as follows:
1.
It understands and acknowledges that the notes have not been registered under the U.S. Securities Act or
any other applicable securities law, are being offered for resale in transactions not requiring registration
under the U.S. Securities Act or any other securities law, including sales pursuant to Rule 144A under the
U.S. Securities Act, and may not be offered, sold or otherwise transferred except in compliance with the
registration requirements of the U.S. Securities Act or any other applicable securities law, pursuant to an
exemption therefrom or in any transaction not subject thereto and in each case in compliance with the
conditions for transfer set forth in paragraph (4) below.
2.
It is not an "affiliate" (as defined in Rule 144 under the U.S. Securities Act) of ours or acting on our behalf
and it is either:
(i)
a Qualified Institutional Buyer, or QIB, within the meaning of Rule 144A under the U.S. Securities
Act and is aware that any sale of notes to it will be made in reliance on Rule 144A under the U.S.
Securities Act, of which the acquisition will be for its own account or for the account of another
QIB; or
(ii)
is purchasing the notes in an offshore transaction in accordance with Regulation S under the U.S.
Securities Act.
3.
It acknowledges that neither we nor the initial purchaser, nor any person representing us or the initial
purchaser, has made any representation to it with respect to the offering or sale of any notes, other than the
information contained in this offering memorandum, which offering memorandum has been delivered to it
and upon which it is relying in making its investment decision with respect to the notes. It has had access
to such financial and other information concerning us and the notes as it has deemed necessary in
connection with its decision to purchase any of the notes.
4.
It is purchasing the notes for its own account, or for one or more investor accounts for which it is acting as
a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection
with, any distribution thereof in violation of the U.S. Securities Act or any state securities laws, subject to
any requirement of law that the disposition of its property or the property of such investor account or
accounts be at all times within its or their control and subject to its or their ability to resell such notes
pursuant to Rule 144A, Regulation S or any other exemption from registration available under the U.S.
Securities Act.
5.
Each holder of notes issued in reliance on Rule 144A ("Rule 144A Notes") agrees on its own behalf and
on behalf of any investor account for which it is purchasing the notes, and each subsequent holder of the
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notes by its acceptance thereof will be deemed to agree, to offer, sell or otherwise transfer such notes prior
to the date (the "Resale Restriction Termination Date") that is two years after the later of the date of the
original issue and the last date on which the issuer or any of our affiliates was the owner of such notes (or
any predecessor thereto) only (i) to us, (ii) pursuant to a registration statement that has been declared
effective under the U.S. Securities Act, (iii) for so long as the notes are eligible pursuant to Rule 144A
under the U.S. Securities Act, to a person it reasonably believes is a QIB that purchases for its own
account or for the account of a QIB to whom notice is given that the transfer is being made in reliance on
Rule 144A under the U.S. Securities Act, (iv) pursuant to offers and sales that occur outside the United
States in compliance with Regulation S under the U.S. Securities Act or (v) pursuant to any other available
exemption from the registration requirements of the U.S. Securities Act, subject in each of the foregoing
cases to any requirement of law that the disposition of its property or the property of such investor account
or accounts be at all times within its or their control and to compliance with any applicable state securities
laws, and any applicable local laws and regulations, and further subject to the issuer's and the trustee's
rights prior to any such offer, sale or transfer (I) pursuant to clause (v) to require the delivery of an opinion
of counsel, certification and/or other information satisfactory to each of them and (II) in each of the
foregoing cases, to require that a certificate of transfer in the form appearing on the other side of the
security is completed and delivered by the transferor to the trustee. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. Each purchaser acknowledges that
each Rule 144A note will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
U.S. SECURITIES ACT OF 1933. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR
ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
U.S. SECURITIES ACT OF 1933, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE
FOR RESALE PURSUANT TO RULE 144A UNDER THE U.S. SECURITIES ACT OF 1933
("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S.
SECURITIES ACT OF 1933 OR (E) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES
ACT OF 1933, SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT
OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH
INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR
CONTROL AND TO COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES
LAWS, AND ANY APPLICABLE LOCAL LAWS AND REGULATIONS AND FURTHER
SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHTS PRIOR TO ANY SUCH
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OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM AND (II) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THE FOREGOING
RESTRICTIONS ON RESALE WILL NOT APPLY SUBSEQUENT TO THE RESALE
RESTRICTION TERMINATION DATE.
6.
It agrees that it will give to each person to whom it transfers the notes notice of any restrictions on transfer
of such notes.
7.
It acknowledges that until 40 days after the commencement of the offering, any offer or sale of the notes
within the United States by a dealer (whether or not participating in the offering) may violate the
registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in
accordance with Rule 144A under the U.S. Securities Act.
8.
It acknowledges that the trustee will not be required to accept for registration of transfer any notes except
upon presentation of evidence satisfactory to us and the trustee that the restrictions set forth therein have
been complied with.
9.
It acknowledges that we, the initial purchaser and others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations, warranties and agreements and agrees that if any of the
acknowledgements, representations, warranties and agreements deemed to have been made by its purchase
of the notes are no longer accurate, it shall promptly notify the initial purchaser. If it is acquiring any notes
as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion
with respect to each such investor account and that it has full power to make the foregoing
acknowledgements, representations and agreements on behalf of each such investor account.
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SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES
The issuer of the notes is a company organised under the laws of South Africa. All of the issuer's directors
and executive officers reside in South Africa. Substantially all of the assets of these persons and substantially all
of the issuer's assets are located in South Africa. As a result, it may not be possible for investors to affect service
of process within the United States upon the issuer's directors and officers, or to enforce against any of them
judgments obtained in U.S. courts predicated upon civil liability provisions of the federal securities laws of the
United States. In addition, there is doubt as to the enforceability in South Africa, in original actions or actions for
the enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal securities laws
of the United States.
Choice of law
In any proceedings for the enforcement of the obligations of any South African party, the South African
courts will generally give effect to the choice of foreign law as contemplated in the notes as the governing law
thereof.
Jurisdiction
Subject as set out below, any party's (i) irrevocable submission under the notes to the jurisdiction of a
foreign court; and (ii) agreement not to claim any immunity to which it or its assets may be entitled, is generally
legal, valid, binding and enforceable under the laws of South Africa, and any judgement obtained in the foreign
jurisdiction will be recognised and be enforceable by the courts of South Africa without the need for reexamination of the merits. The appointment by any party of an agent in the foreign court to accept service of
process in respect of the jurisdiction of the foreign courts is generally valid and binding on that party.
Under South African law, a court will not accept a complete ouster of jurisdiction, although generally it
recognises party autonomy and gives effect to choice of law provisions. However, jurisdiction remains within the
discretion of the court and a court may, in certain instances, assume jurisdiction provided there are sufficient
jurisdictional connecting factors. South African courts may, in rare instances, choose not to give effect to a choice
of jurisdiction clause, if, for example, such choice is contrary to public policy. Proceedings before a court of South
Africa may be stayed if the subject of the proceedings is concurrently before any other court.
Recognition of foreign judgments
Subject to obtaining the permission of the South African Minister of Trade and Industry under the
Protection of Businesses Act, 1978, an authenticated judgement obtained in a competent court of jurisdiction other
than South Africa will be recognised and enforced by ordinary action in accordance with procedures ordinarily
applicable under South African law for the enforcement of foreign judgements; provided, that the judgement was
pronounced by a proper court of law, was final and conclusive (in the case of a judgment for money, on the face of
it), has not become stale, and has not been obtained by fraud or in any manner opposed to natural justice or
contrary to the international principles of due process and procedural fairness, the enforcement thereof is not
contrary to South African public policy and the foreign court in question had jurisdiction and competence
according to the applicable rules on conflict of laws. A foreign judgement will probably not be recognised in
South Africa if the foreign court exercised jurisdiction over the defendant solely by virtue of an attachment to
found jurisdiction or on the basis of domicile alone. South African courts will not enforce foreign revenue or penal
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223
law and South African courts have, as a matter of public policy, generally not enforced awards for multiple or
punitive damages. Permission from the Minister of Trade and Industry will similarly not be granted if it would
result in the recovery of excessive damages.
Where obligations are to be performed in a jurisdiction outside South Africa they may not be enforceable
under the laws of South Africa to the extent that such performance would be illegal or contrary to public policy
under the laws of South Africa, or the foreign jurisdiction or to the extent that the law precludes South African
courts from granting extra territorial orders.
Under the Recognition and Enforcement of Foreign Arbitral Awards Act, 1977 (the "Enforcement Act"),
any foreign arbitral award may, subject to the provisions of sections 3 and 4 thereof, be made an order of court by
any court. Any such award which has been made an order of court pursuant to the provisions of the Enforcement
Act may be enforced in the same manner as any judgment or order to the same effect (subject to the provisions of
the Protection of Business Act, 1978, which apply mutatis mutandis to foreign arbitral awards).
Effect of liquidation on civil proceedings
In general and subject to certain exceptions, civil proceedings (including arbitration proceedings) instituted
by or against an insolvent are automatically stayed on the liquidation of the insolvent's estate until the appointment
of a trustee. A plaintiff wishing to continue with such proceedings against the insolvent must give notice of its
intention to do so within a period of three weeks from the date of the first meeting of creditors, in accordance with
the provisions of the Insolvency Act, 1936, failing which, the proceedings lapse. In circumstances where the court
finds that there was a reasonable excuse for a failure to give the requisite notice, it has a discretion to allow a
plaintiff to continue with proceedings on such conditions as it thinks fit. Execution against the insolvent's assets is
similarly stayed.
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224
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon for us by Paul, Weiss, Rifkind,
Wharton & Garrison LLP, London, England, with respect to U.S. federal and New York law, and the Corporate
Law Advisory Practice of KPMG Services (Proprietary) Limited, Johannesburg, South Africa, with respect to
South African law. Certain legal matters in connection with the offering will be passed upon for the initial
purchaser by Shearman & Sterling (London) LLP, London, England, with respect to U.S. federal and New York
law, and Werksmans Inc., Johannesburg, South Africa, with respect to South African law.
INDEPENDENT AUDITORS
The annual financial statements of the Company as of and for the years ended 31 December 2004, 2005
and 2006 included in this offering memorandum, have been audited by KPMG Inc. Registered Accountants and
Auditors, Chartered Accountants (South Africa), as stated in the reports appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
We are not currently subject to the periodic reporting and other information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act").
Each purchaser of the notes from the initial purchaser will be furnished with a copy of this offering
memorandum and, to the extent provided to the initial purchaser by us for such purpose, any related amendments
or supplements to this offering memorandum. Each person receiving this offering memorandum and any related
amendments or supplements to this offering memorandum acknowledges that:
(1)
such person has been afforded an opportunity to request from us, and to review and has received,
all additional information considered by it to be necessary to verify the accuracy and completeness
of the information herein;
(2)
such person has not relied on the initial purchaser or any person affiliated with the initial purchaser
in connection with its investigation of the accuracy of such information or its investment decision;
and
(3)
except as provided pursuant to (1) above, no person has been authorised to give any information or
to make any representation concerning the notes offered hereby other than those contained herein
and, if given or made, such other information or representation should not be relied upon as having
been authorised by us or the initial purchaser.
For so long as any of the notes remain outstanding and are "restricted securities" within the meaning of
Rule 144(a)(3) under the U.S. Securities Act, we will, during any period in which we are not subject to Section 13
or 15(d) under the Exchange Act nor exempt from reporting thereunder pursuant to Rule 12g3-2(b), make
available to any holder or beneficial holder of a note, or to any prospective purchaser of a note designated by such
holder or beneficial holder, the information specified in, and meeting the requirements of, Rule 144A(d)(4) of the
U.S. Securities Act upon the written request of any such holder or beneficial holder. Any such request should be
directed to us at Bridgeport House, Hampton Park, 20 Georgian Crescent East, Bryanston, South Africa, telephone
number +27 11 267 9200.
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225
LISTING AND GENERAL INFORMATION
Listing
Application has been made for the notes to be listed on the Official List of the Irish Stock Exchange and to
be admitted for trading on its Alternative Securities Market. The issuer and each of the guarantors will use their
best efforts to have the notes listed on the Irish Stock Exchange and to maintain such listing (or a listing on an
exchange in London or Luxembourg) as long as the notes are outstanding.
The issuer will maintain a paying and transfer agent in Ireland for as long as any of the notes are listed on
the Irish Stock Exchange. The issuer reserves the right to vary such appointment and will notify the Irish Stock
Exchange of such change of appointment.
For the life of the offering memorandum and for so long as any of the notes remain outstanding and listed
on the Official List of the Irish Stock Exchange, electronic or printed copies of the following documents will be
made available for inspection at the main office of BNY Fund Services (Ireland) Limited the Irish Paying Agent
located at Guild House, Guild Street, Dublin 1, Ireland and at the issuer's registered office located at Bridgeport
House, Hampton Park, 20 Georgian Crescent East, Bryanston, South Africa.
•
the memorandum and articles of association of the issuer, the parent guarantor, the guarantors and the
security spv;
•
the audited financial statements of the issuer, the parent guarantor, the guarantors and the security spv
for each of the last two financial years, when available, and any other financial statement referred to in
this offering memorandum;
•
the purchase agreement relating to the notes;
•
the indenture relating to the notes (which includes the form of the notes);
•
the guarantees relating to the notes; and
•
any other material documents relating to the listing.
The total expenses related to the admission of the notes to trading on the Official List of the Irish Stock
Exchange are expected to be less than €10,000. Except as disclosed in this offering memorandum, neither the
issuer, nor the parent guarantor, nor any of the guarantors nor the security spv, has been involved in any
governmental, legal or arbitration proceeding relating to claims or comments which are material in the context of
the issue of the notes and may have, or have had during the 12 months preceding the date of this offering
memorandum, a significant effect on the financial position of the issuer nor so far the issuer, or the parent
guarantor, or any of the guarantors or the security spv are aware is any such litigation or arbitration pending or
threatened.
As of the date of this offering memorandum, the most recent audited financial statements available for
Peermont were as of and for the financial year ended 31 December 2006. As of the date of the offering
memorandum, none of the guarantors nor the security spv have any commercial operations, apart from or in
connection with, the Transactions, and no financial statements have been produced. Except as disclosed in this
offering memorandum, there has been no significant or material adverse change in our or any of our guarantors'
financial or trading positions since 31 December 2006.
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226
2007.
The issuance of the notes offered hereby was authorised by the board of directors of the issuer on 17 April
Ratings
The notes have received a rating of B3 from Moody’s Investors Service, Inc. and B from Standard and
Poor’s Rating Services.
Clearing information
The notes sold pursuant to Regulation S and the notes sold pursuant to Rule 144A of the U.S. Securities
Act have been accepted for clearance through the facilities of Euroclear and Clearstream banking under common
codes 029665460 and 029739447, respectively. The international securities identification number for the notes
sold pursuant to Regulation S is XS0296654600 and the international securities identification number for the notes
sold pursuant to Rule 144A is XS0297394479.
Information about the parent guarantor, guarantors and security spv
Peermont Global Holdings II (Proprietary) Limited
Peermont Global Holdings II (Proprietary) Limited is a company organised under the laws of the Republic
of South Africa on 2 March 2006 under Registration No. 2006/006232/07. The executive office of Peermont
Global Holdings II (Proprietary) Limited is located at Bridgeport House, Hampton Park, 20 Georgian Crescent
East, Bryanston, South Africa. The telephone number at its executive office is +27 11 267 9200.
Peermont Global (North West) (Proprietary) Limited
Peermont Global (North West) (Proprietary) Limited is a company organised under the laws of the
Republic of South Africa on 12 September 2006 under Registration No. 2006/028470/07. The executive office of
Peermont Global (North West) (Proprietary) Limited is located at Bridgeport House, Hampton Park, 20 Georgian
Crescent East, Bryanston, South Africa. The telephone number at its executive office is +27 11 267 9200.
Peermont Global (KZN) (Proprietary) Limited
Peermont Global (KZN) (Proprietary) Limited is a company organised under the laws of the Republic of
South Africa on 19 September 2006 under Registration No. 2006/029290/07. The executive office of Peermont
Global (KZN) (Proprietary) Limited is located at Bridgeport House, Hampton Park, 20 Georgian Crescent East,
Bryanston, South Africa. The telephone number at its executive office is +27 11 267 9200.
Peermont Global (Limpopo) (Proprietary) Limited
Peermont Global (Limpopo) (Proprietary) Limited is a company organised under the laws of the Republic
of South Africa on 3 November 2006 under Registration No. 2006/034446/06. The executive office of Peermont
Global (Limpopo) (Proprietary) Limited is located at Bridgeport House, Hampton Park, 20 Georgian Crescent
East, Bryanston, South Africa. The telephone number at its executive office is +27 11 267 9200.
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227
Peermont Global Management (NW&L) (Proprietary) Limited
Peermont Global Management (NW&L) (Proprietary) Limited is a company organised under the laws of
the Republic of South Africa on 19 September 2006 under Registration No. 2006/029265/07. The executive office
of Peermont Global Management (NW&L) (Proprietary) Limited is located at Bridgeport House, Hampton Park,
20 Georgian Crescent East, Bryanston, South Africa. The telephone number at its executive office is
+27 11 267 9200.
Peermont Global Management (KZN) (Proprietary) Limited
Peermont Global Management (KZN) (Proprietary) Limited is a company organised under the laws of the
Republic of South Africa on 12 January 2006 under Registration No. 2006/000558/07. The executive office of
Peermont Global Management (KZN) (Proprietary) Limited is located at Bridgeport House, Hampton Park,
+27 11 267 9200.
Maxitrade 85 Security Holding Company (Proprietary) Limited
Maxitrade 85 Security Holding Company (Proprietary) Limited is a company organised under the laws of
the Republic of South Africa on 6 November 2006 under Registration No. 2006/025081/07. The executive office
of Maxitrade 85 Security Holding Company (Proprietary) Limited is located at Bridgeport House, Hampton Park,
+27 11 267 9200.
Organisational information
Peermont Global (Proprietary) Limited, a limited liability company organised under the laws of the
Republic of South Africa, was incorporated on 3 March 2006, under Registration No. 2006/006340/07 pursuant to
the Republic of South Africa Companies Act, 1973, as amended (the "South African Companies Act").
Peermont Global Limited, a company organised under the laws of the Republic of South Africa, was
incorporated on 22 May 1995 under Registration No. 1995/004449/06 pursuant to the South African Companies
Act.
Peermont Global Holdings I (Proprietary) Limited, a company organised under the laws of the Republic of
South Africa, was incorporated on 25 July 2006 under Registration No. 2006/023109/07 pursuant to the South
African Companies Act.
Peermont Global Holdings II (Proprietary) Limited, a company organised under the laws of the Republic
of South Africa, was incorporated on 2 March 2006 under Registration No. 2006/006232/07 pursuant to the South
African Companies Act. The authorised share capital of Peermont Global Holdings II (Proprietary) Limited is
R204,000 divided into 204,000 ordinary shares with a par value of R1 and the issued share capital is R100 divided
into 100 ordinary shares with a par value of R1 per share.
Peermont Global (North West) (Proprietary) Limited, a company organised under the laws of the Republic
of South Africa, was incorporated on 12 September 2006 under Registration No. 2006/028470/07 pursuant to the
South African Companies Act. The authorised share capital of Peermont Global (North West) (Proprietary)
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228
Limited is R1,000 divided into 1,000 ordinary shares with a par value of R1 and the issued share capital is R100
divided into 100 ordinary shares with a par value of R1 per share.
Peermont Global (KZN) (Proprietary) Limited, a company organised under the laws of the Republic of
South Africa, was incorporated on 19 September 2006 under Registration No. 2006/029290/07 pursuant to the
South African Companies Act. The authorised share capital of Peermont Global (KZN) (Proprietary) Limited is
R1,000 divided into 1,000 ordinary shares with a par value of R1 and the issued share capital is R100 divided into
100 ordinary shares with a par value of R1 per share.
Peermont Global (Limpopo) (Proprietary) Limited, a company organised under the laws of the Republic of
South Africa, was incorporated on 3 November 2006 under Registration No. 2006/034446/07 pursuant to the
South African Companies Act. The authorised share capital of Peermont Global (Limpopo) (Proprietary) Limited
is R1,000 divided into 1,000 ordinary shares with a par value of R1 and the issued share capital is R100 divided
into 100 ordinary shares with a par value of R1 per share.
Peermont Global Management (NW&L) (Proprietary) Limited, a company organised under the laws of the
Republic of South Africa, was incorporated on 19 September 2006 under Registration No. 2006/029265/07
pursuant to the South African Companies Act. The authorised share capital of Peermont Global Management
(NW&L) (Proprietary) Limited is R1,000 divided into 1,000 ordinary shares with a par value of R1 and the issued
share capital is R100 divided into 100 ordinary shares with a par value of R1 per share.
Peermont Global Management (KZN) (Proprietary) Limited, a company organised under the laws of the
Republic of South Africa, was incorporated on 12 January 2006 under Registration No. 2006/000558/07 pursuant
to the South African Companies Act. The authorised share capital of Peermont Global Management (KZN)
(Proprietary) Limited is R1,200 divided into 1,200 ordinary shares with a par value of R1 and the issued share
capital is R120 divided into 120 ordinary shares with a par value of R1 per share.
Maxitrade 85 Security Holding Company (Proprietary) Limited, a company organised under the laws of
the Republic of South Africa, was incorporated on 6 November 2006 under Registration No. 2006/025081/07
pursuant to the South African Companies Act. The authorised share capital of Maxitrade 85 Security Holding
Company (Proprietary) Limited is R1,000 divided into 1,000 ordinary shares with a par value of R1 and the issued
share capital is R100 divided into 100 ordinary shares with a par value of R1 per share. The sole shareholder of
Maxitrade 85 Security Holding Company (Proprietary) Limited is Sentinel International Trust Company
(Proprietary) Limited with a business address at Morning View Office Park, 1st Floor, Block 3, corner of Rivonia
and Alan Roads, Johannesburg, South Africa.
The guarantors and the security spv were all recently formed to facilitate the Transactions. None of the
guarantors nor the security spv will be an operating company.
For the avoidance of doubt, any website referred to in this offering memorandum does not form part of the
listing particulars.
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229
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Audited consolidated financial statements for Peermont Global Limited (Registration
No. 1995/004449/06) for the financial years ended 31 December 2006 and 2005
Definitions.....................................................................................................................................
Directors' responsibility for the annual financial statements.............................................................
Report of the independent auditors .................................................................................................
Directors' report .............................................................................................................................
Accounting policies .......................................................................................................................
Group income statements for the financial years ended 31 December 2006 and 2005.......................
Group balance sheets at 31 December 2006 and 2005 .....................................................................
Group statements of changes in equity for the financial years ended 31 December 2006 and 2005 ...
Group cash flow statements for the financial years ended 31 December 2006 and 2005 ...................
Notes to the group financial statements for the financial years ended 31 December 2006 and 2005 ..
Audited consolidated financial statements for Peermont Global Limited (Registration
No. 1995/004449/06) for the financial years ended 31 December 2005 and 2004
Definitions.....................................................................................................................................
Directors' responsibility for the annual financial statements.............................................................
Report of the independent auditors .................................................................................................
Directors' report .............................................................................................................................
Accounting policies .......................................................................................................................
Group income statements for the financial years ended 31 December 2005 and 2004.......................
Group balance sheets at 31 December 2005 and 2004 .....................................................................
Group statements of changes in equity for the financial years ended 31 December 2005 and 2004 ...
Group cash flow statements for the financial years ended 31 December 2005 and 2004 ...................
Notes to the group financial statements for the financial years ended 31 December 2005 and 2004 ..
Doc #:NY7:390196.4
F-1
F-2
F-4
F-5
F-6
F-9
F-20
F-21
F-22
F-23
F-24
F-68
F-70
F-71
F-72
F-75
F-85
F-86
F-87
F-88
F-89
Peermont Global Limited
Definitions
ABSA.....................................
BEE........................................
BDC.......................................
CSA .......................................
CEI.........................................
CEO .......................................
DPS........................................
EBITDA.................................
ECGBB..................................
Emanzini ................................
EPS ........................................
FCTR .....................................
FSGRB...................................
GGB.......................................
HEPS .....................................
HDI........................................
IFRS.......................................
JIBAR ....................................
JSE.........................................
KZNGB..................................
LGB .......................................
Main Street .............................
MER ......................................
MGB ......................................
MIC Leisure ...........................
MSH ......................................
NACD....................................
NACM ...................................
NACQ....................................
Peermont Global, PGL or
company...............................
PGB .......................................
PGEFS ...................................
PGEFSH.................................
PGER.....................................
PGERH ..................................
PGSH.....................................
PGTH.....................................
PGM ......................................
PMIH .....................................
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ABSA Bank Limited
Botswana Development Corporation
Caesars South Africa Inc.
Caesars Entertainment Inc.
Chief Executive Officer
Dividend per share
Earnings before interest, taxation, depreciation and amortisation
Eastern Cape Gambling and Betting Board
Emanzini Leisure Resorts (Proprietary) Limited, trading as Tusk Umfolozi
Earnings per ordinary share
Foreign currency translation reserve
Free State Gambling and Racing Board
Gauteng Gambling Board
Headline earnings per share
Historically disadvantaged individual
International Financial Reporting Standards
Johannesburg Inter Bank Acceptance Rate
JSE Limited
KwaZulu-Natal Gambling Board
Limpopo Gambling Board
Main Street 368 (Proprietary) Limited
Marang (East Rand) Gaming Investments (Proprietary) Limited
Mpumalanga Gaming Board
MIC Leisure (Proprietary) Limited
Marang (Southern Highveld) Gaming Investments (Proprietary) Limited
Nominal annual compounded daily
Nominal annual compounded monthly
Nominal annual compounded quarterly
Peermont Global (Botswana) (Proprietary) Limited
Peermont Global (Eastern Free State) (Proprietary) Limited, formerly
IncitiCorp (Proprietary) Limited
PGEFS Holdings (Proprietary) Ltd, formerly Magnolia Ridge Properties 149
Peermont Global (East Rand) (Proprietary) Limited
PGER Holdings (Proprietary) Limited
Peermont Global (Southern Highveld) (Proprietary) Limited
Peermont Global Tusk Holdings (Proprietary) Limited
Peermont Global Management (Proprietary) Limited, formerly Peermont
Global East Rand Management (Proprietary) Limited
Peermont Marang Investment Holdings (Proprietary) Limited
F-2
RMB ......................................
SARS .....................................
STC........................................
Tusk Resorts...........................
Tusk or Tusk Group ................
TCHM....................................
TCHMH.................................
TCHMB .................................
TCHMHB ..............................
TRH .......................................
TRHB.....................................
Tusk Mmbatho .......................
Tusk Rio.................................
Tusk Taung.............................
Tusk Venda ............................
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Rand Merchant Bank Limited
South African Revenue Service
Secondary Taxation on Companies
Tusk Resorts (Proprietary) Limited
Tusk Casino Resorts and Hotel Group
Tusk Casino and Hotel Management (Proprietary) Limited
Tusk Casino and Hotel Management Holdings (Proprietary) Limited
Tusk Casino and Hotel Management "B" (Proprietary) Limited
Tusk Casino and Hotel Management Holdings "B" (Proprietary) Limited
Tusk Resorts Holdings (Proprietary) Limited
Tusk Resorts Holdings "B" (Proprietary) Limited
A division of Tusk Resorts
Tusk Venda Casino Limited
F-3
Directors' responsibility for the annual financial statements
The group's directors are responsible for the preparation and fair presentation of the group annual financial
statements, comprising the balance sheets at 31 December 2006 and 2005 and the income statement, the statement
of changes in equity and cash flow statement for the year then ended, and the notes to the financial statements,
which include a summary of significant accounting policies and other explanatory notes, and the directors' report,
in accordance with IFRS.
The directors' responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of these financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
The directors' responsibility also includes maintaining adequate accounting records and an effective
system of risk management.
The directors have made an assessment of the company's ability to continue as a going concern and have
no reason to believe the business will not be a going concern in the year ahead.
The auditor is responsible for reporting on whether group annual financial statements are fairly presented
in accordance with the applicable financial reporting framework.
Approval of the annual financial statements
The group annual financial statements for the years ended 31 December 2006 and 2005 were approved by
the board of directors on 28 March 2007 and are signed on its behalf by
/s/ A E Puttergill
Director
/s/ W G Robinson
Director
Declaration by Company Secretary
In my capacity as Company Secretary, I hereby confirm, in terms of the Companies Act, 1973, that for the
years ended 31 December 2006 and 2005, the Company has lodged with the Register of Companies, all such
returns as are required in terms of this Act and that all such returns are true, correct and up to date.
/s/ DL Petzer
_
DL Petzer
Company Secretary
28 March 2007
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F-4
Report of the independent auditors
To the members of Peermont Global Limited
Report on the Financial Statements
We have audited the group annual financial statements and annual financial statements of Peermont
Global Limited, which comprise the balance sheets at 31 December 2006 and 2005 and the income statements, the
statements of changes in equity and cash flow statements for the years then ended, and the notes to the financial
statements, which include a summary of significant accounting policies and other explanatory notes as set out on
pages F-6 to F-67.
Directors' Responsibility for the Financial Statements
The group's directors are responsible for the preparation and fair presentation of these financial statements
in accordance with International Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit in accordance with International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the
risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, group financial statements present fairly, in all material respects, the consolidated financial
position of Peermont Global Limited at 31 December 2006 and 2005 and the consolidated financial performance
and cash flows for the years then ended in accordance with International Financial Reporting Standards.
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F-5
KPMG Inc.
Registered Auditor
/s/ G Aldrighetti
Per G Aldrighetti
Chartered Accountant (SA)
Registered Auditor
Director
28 March 2007
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F-6
Directors' report
The directors have pleasure in presenting their report for the year ended 31 December 2006.
Business activities
The group's objective is to develop and manage hotel and casino and convention resorts, and related
businesses, both in southern Africa and abroad.
The group's operations currently consist of:
•
PGL, a holding company and PGM a management company in Bryanston, Gauteng. The Mondazur
Resort Estate Hotel at San Lameer in KwaZulu-Natal is a division of PGL;
•
PGB, trading as The Grand Palm Hotel Casino and Convention Resort, in Gaborone (including the
Metcourt Inn), the Mondior Summit Hotel in Gaborone, and the Metcourt Lodge in Francistown;
•
PGSH, trading as Graceland Hotel Casino and Country Club, in Mpumalanga;
•
PGERH, the holding company of PGER trading as Emperors Palace Hotel Casino & Convention
Resort, adjacent to the Johannesburg International Airport.
PGL sold its management and development contract business to PGM for a consideration of R185 million,
with effect from 1 August 2006. The company realised a profit of R181 million on the sale which was eliminated
on consolidation.
In August of 2006 the Peermont Global board finalised the acquisition of a 79% controlling equity interest
in the Tusk Group from the Tusk shareholders. The Tusk Group owns and manages casinos and hotels
comprising:
•
Tusk Mmabatho in Mafikeng, North West Province;
•
Tusk Rio in Klerksdorp, North West Province;
•
Tusk Taung in Taung, North West Province;
•
Tusk Venda in Thohoyandou, Limpopo Province; and
•
Tusk Umfolozi in Empangeni, KwaZulu-Natal Province.
In mid November 2006 the group opened the Frontier Inn and Casino in Bethlehem, Free State. The
complex consists of a 120 slot and a 12 table casino and a 20 key hotel at a capital cost of R103 million, which
was funded out of debt and shareholders' funds. PGEFSH is the holding company of PGEFS, the company that
owns and operates the Frontier Inn and Casino.
Construction of the Mondior Concorde hotel at the Emperors Palace was completed and the hotel opened
for business in March 2006.
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F-7
Scheme of arrangement
On 21 November 2006 an offer was made by a consortium of investors including MIC Leisure and
members of the existing management team, to acquire the entire issued share capital of the company at a price of
R12.90 (plus an escalation calculated at prime plus two percent from 20 March 2007) plus a dividend payment of
10 cents per share before the company's listing on the JSE Limited will be terminated. An independent committee
of the directors recommended the offer to shareholders and a scheme of arrangement in terms of section 311 of the
Company's Act, No. 61 of 1973, as amended was implemented. At a shareholders meeting held on 12 March
2007, shareholders voted in favour of the scheme of arrangement. The court hearing to sanction the arrangement
was held on 20 March 2007 and the scheme was sanctioned subject to the outstanding conditions precedent being
met.
Review of operations
The performance of the group is set out in the annual financial statements.
The group proportionately consolidated 82.96% of PGERH and 97% of PGSH. PGM, PGB, PGTH and
PGEFSH were consolidated.
Dividends
Ordinary shares
Dividends paid on 11 April 2006 (10 April 2005) and 9 October 2006 (3 October 2005)..........
Dividends totalling 28.6 (2005: 32.4) cents per share were declared in respect of the year
under review........................................................................................................................
Interim declared on 4 September 2006 (31 August 2005) and paid on 9 October 2006
(3 October 2005) .................................................................................................................
Final declared on 9 March 2007 (8 March 2006) and payable on 11 April 2007 (3 April 2006)
2006
R'm
2005
R'm
120.1
101.0
18.6
cents
10.0
cents
14.6
cents
17.8
cents
The final dividend is not accounted for in these financial statements as it was declared after year end.
Share capital
Details of the authorised and issued share capital and share premium are contained in notes 15 and 16 to
the group annual financial statements.
Interest in profit for the year of subsidiaries and joint ventures
The company's aggregate interest in the profit/(loss) for the year of subsidiaries and joint ventures are:
2006
Doc #:NY7:390196.4
F-8
2005
Subsidiaries—profit ...............................................................................................................
—loss.........................................................................................................................
Joint ventures.........................................................................................................................
R'm
R'm
54.9
(12.9)
248.3
11.2
—
195.3
Holding company
Peermont Global Limited is a public company with no holding company.
Directors
The directors in office during the year and as at the date of this report are:
Executive
EG Joubert
AE Puttergill
WG Robinson
Non-executive
AF van Biljon
STL Arnold
MD Brand
RI Cassim
RSN Dabengwa
KO Kutoane
SH Müller
P Papadimitropoulos
Deputy Managing Director
Group Financial Director
(Appointed 19 June 2006)
Chairman
(Resigned 25 May 2006)
(Resigned 25 May 2006)
Secretary
The secretary at the date of this report is DL Petzer.
Registered address
Postal
address
PO Box
98670
Sloane Park
2152
Bridgeport House
Hampton Park
20 Georgian Crescent East
Bryanston
2152
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F-9
Accounting policies
Peermont Global Limited is a company administered in South Africa.
The accounting policies have been applied consistently by group entities.
Statement of compliance
The annual financial statements and group annual financial statements have been prepared in accordance
with IFRS and its interpretations adopted by the International Accounting Standards Board and the Companies
Act in South Africa.
Basis of preparation
The annual financial statements are presented in Rand which is the group's functional currency rounded to
the nearest million. The annual financial statements and group annual financial statements are prepared on the
historical cost basis, except for investments in derivative financial instruments that are stated at fair value.
The preparation of annual financial statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects both current and future periods.
Basis of consolidation
Investment in subsidiaries
Subsidiaries are entities controlled by the company. Control exists when the company has the power,
directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases. In the company annual financial statements,
investments are accounted for at cost less impairment losses.
Investment in joint ventures
Joint ventures are those entities over whose activities the group has joint control, established by
contractual agreement. The consolidated financial statements include the group's proportionate share of the
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F-10
entities' assets, liabilities, revenue and expenses with items of a similar nature on a line by line basis, from the date
that joint control commences until the date that joint control ceases. In the company annual financial statements,
investments are accounted for at cost less impairment losses.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are
eliminated in preparing the consolidated annual financial statements. Unrealised gains arising from transactions
with jointly controlled entities are eliminated to the extent of the group's interest in the enterprises. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
Principles of consolidation
The consolidated financial statements of the group include the annual financial statements of the company
and its subsidiaries and interests in joint ventures. The equity and net income attributable to minority shareholders
are shown separately in the balance sheet and income statement respectively.
Revenue
Revenue derived from hotel and conference activities, food and beverage revenues, rentals, entertainment
revenues and other income, is recorded on an accrual basis. Casino winnings are accounted for on a cash received
basis. VAT and other taxes levied on casino winnings are included in revenue and treated as expenses as these are
borne by the company and not its customers. VAT on all other revenue transactions is excluded from revenue.
Expenses
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over
the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the
total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to each period during the lease terms so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
Financial income and financial expenses
Financial income comprises interest receivable on funds invested, dividend income and gains on hedging
instruments recognised in the income statement. Interest income is recognised in the income statement as it
accrues, using the effective interest method. Dividend income is recognised in the income statement on the date
the group's right to receive payments is established which in the case of quoted securities is usually the exdividend date.
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F-11
Financial expenses comprise interest payable on borrowings calculated using the effective interest method,
dividends on redeemable preference shares, interest receivable on funds invested, dividend income, foreign
exchange gains and losses, and gains and losses on hedging instruments that are recognised in the income
statement. The interest expense component of finance lease payments is recognised in the income statement using
the effective interest method.
Taxation
Income taxation on the profit or loss for the year comprises current and deferred taxation. Income taxation
is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in
which case it is recognised in equity.
Current taxation is the expected taxation payable on the taxable income for the year, using taxation rates
enacted or substantially enacted at the balance sheet date, and any adjustment to taxation payable in respect of
previous years.
Deferred taxation is recognised using the balance sheet liability method, providing for temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The amount of deferred taxation provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities, using taxation rates enacted or
substantively enacted at the balance sheet date.
A deferred taxation asset is recognised only to the extent that it is probably that future taxable profits will
be available against which the asset can be utilised. Deferred taxation assets are reduced to the extent that it is no
longer probable that the related taxation benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the
liability to pay the related dividend.
Foreign Currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are
translated to Rand at the foreign exchange rate ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Rand
at foreign exchange rates ruling at the dates the fair value was determined.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation, are translated to Rand at foreign exchange rates ruling at the balance sheet date. The revenues and
expenses of foreign operations are translated to Rand at rates approximating to the foreign exchange rates ruling at
the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a
separate component of equity.
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F-12
Net investment in foreign operations
Exchange differences arising from the translation of the net investment in foreign operations, and of
related hedges are taken to a translation reserve. They are released into the income statement upon disposal.
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where
relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and
an appropriate proportion of production overheads. Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items of property, plant and equipment.
Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is
probable that future economic benefits from the use of assets will be increased. All other subsequent expenditure
is recognised as an expense in the income statement as incurred.
The carrying value of freehold buildings is compared to values determined by professional valuers at least
once every three years, using the open market value basis in continuation of existing use for land and buildings.
When the carrying value of buildings exceeds the value determined by professional valuers, the carrying value is
adjusted downwards through a charge to the income statement. The renewal value, if not insignificant, is
reassessed annually.
Depreciation is provided on the straight-line basis over the estimated useful lives of property, plant and
equipment. The residual value, if not insignificant is reassessed annually. Depreciation is not provided on land or
capital work in progress. Current depreciation rates for each category of property, plant and equipment are as
follows:
Freehold buildings ........................................................................................................................ 1% - 2%
Furniture, fittings and equipment ................................................................................................... 10% - 100%
Hotel, casino and other pre-opening expenses are written off in full in the year of commencement of
trading.
The basis of depreciation, residual values and useful lives are reassessed annually.
Gains/(losses) on the disposal of property, plant and equipment are recognised in profit or loss. The
surplus or deficit is the difference between the net disposal proceeds and the carrying amount of the asset.
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised up to the date
the asset is substantially complete. Capitalisation is suspended during extended periods in which active
development is interrupted.
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F-13
Leased assets
Leases in terms of which the group assumes substantially all the risks and rewards of ownership of the
underlying asset to the group are classified as finance leases. Assets acquired in terms of finance leases are
capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the
lease, and depreciated over the estimated useful life of the asset. The capital element of future obligations under
the leases is included as a liability in the balance sheet. Lease payments are allocated using the effective interest
method to determine the lease finance cost, which is charged against income over the lease period, and the capital
repayment, which reduces the liability to the lessor.
Leasehold buildings are depreciated over the remaining leasehold periods.
Operating leases
Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as
operating leases. Payments made under operating leases are charged against income and on a straight-line basis
over the period of the lease.
Intangible assets
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents
amounts arising on acquisition of subsidiaries, associates and joint ventures. In respect of business acquisitions
that have occurred since 31 March 2004, goodwill represents the difference between the cost of the acquisition
and the fair value of the net identifiable assets acquired.
In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which
represents the amount recorded under the company's previous accounting framework, namely South African
Generally Accepted Accounting Practise.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cashgenerating units and is no longer amortised but is tested annually for impairment.
Negative goodwill arising on an acquisition is recognised directly in profit or loss.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific assets to which it relates. All other subsequent expenditure is expensed
as incurred.
Development
Expenditure on development activities is capitalised if the proposed development is technically and
commercially feasible and the group has sufficient resources to complete development. The expenditure
capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads that are directly
Doc #:NY7:390196.4
F-14
attributable to preparing the asset for its intended use. Other development expenditure is recognised in the income
statement as an expense as incurred. Capitalised development expenditure is stated at cost less accumulated
amortisation and impairment losses.
Other intangible assets
Indefinite life intangible assets are carried at cost less any impairment losses. The carrying value is tested
annually for impairment.
Other intangible assets that are acquired by the group are stated at cost less accumulated amortisation and
impairment losses.
Expenditure on internally generated goodwill and brands is recognised in the income statement as an
expense as incurred.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are
systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the
date they are available for use. The current estimated useful lives per category of intangible assets are as follows:
Goodwill ..................................................................................................................................
Casino licences .........................................................................................................................
Right of use of buildings ...........................................................................................................
Bid commitment costs...............................................................................................................
Licence application costs...........................................................................................................
Computer software....................................................................................................................
Franchise costs..........................................................................................................................
Right to receive management fees .............................................................................................
Indefinite
Indefinite
Lease period
0 - 6.7%
Indefinite
33.3% - 50%
Lease period
Indefinite
The basis of amortisation, residual values and useful lives are reassessed annually.
Impairment
The carrying amount of the group's assets excluding deferred taxation is reviewed at each balance sheet
date to determine whether there is any indication of impairment. If there is an indication that an asset may be
impaired, its recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to cash-generating units (group of units) and then, to reduce the carrying amount
of the other assets in the unit (group of units) on a pro rata basis.
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F-15
Goodwill and indefinite-life intangible assets are tested for impairment annually.
Calculation of recoverable amount
The recoverable amount of the group's investments in held-to-maturity securities and receivables carried at
amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective
interest rate. Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their fair value less cost to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-taxation
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs.
Reversals of impairment
An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is
reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the
impairment loss was recognised.
An impairment loss in respect of an investment in an equity instrument classified as available for sale is
not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases
and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit
or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
Investments
Financial instruments held for trading are classified as current assets and are stated both on initial
recognition and subsequent recognition at fair value, with any resultant gain or loss recognised in the income
statement.
Other financial instruments held by the group are classified as being available-for-sale and are stated at fair
value, with any resultant gain or loss being recognised directly in equity, except for impairment losses and, in the
case of monetary items such as debt securities, foreign exchange gains and losses. When these investments are
derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss.
Where these investments are interest-bearing, interest calculated using the effective interest method is recognised
in profit or loss.
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F-16
Financial instruments classified as held for trading or available-for-sale investments are
recognised/derecognised by the group on the date it commits to purchase/sell the investments. Securities held-tomaturity are recognised/ derecognised on the day they are transferred to/by the group.
Other investments of the company are recognised at cost.
Financial guarantee contracts
Financial guarantee contracts are classified as insurance contracts as defined in IFRS 4 Insurance
Contracts. A liability is recognised when it is probable that an outflow of resources embodying economic benefits
will be required to settle such contracts and a reliable estimate can be made of the amount of the obligation. The
amount recognised is the best estimate of the expenditure required to settle the contract at the balance sheet date.
Derivative financial instruments
The group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate
risks arising from operational, financing and investment activities. In accordance with its treasury policy, the
group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do
not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are stated at fair value with any gain or loss on remeasurement to fair
value recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the group would receive or pay to
terminate the swap at the balance sheet date, taking into account current interest rates and the current
creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market
price at the balance sheet date, being the present value of the quoted forward price.
Other financial instruments
Other financial instruments are recognised at fair value.
Hedging
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a
recognised asset or liability, or a highly probable forecasted transaction, the effective part of any gain or loss on
the derivative financial instrument is recognised directly in equity. When the forecasted transaction subsequently
results in the recognition of a non-financial asset or non-financial liability, or the forecast transaction for a nonfinancial asset or non-financial liability the associated cumulative gain or loss is removed from equity and
included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a
forecasted transaction subsequently results in the recognition of a financial asset or a financial liability, the
associated gains and losses that were recognised directly in equity are reclassified into profit or loss in the same
period or periods during which the asset acquired or liability assumed affects profit or loss (i.e., when interest
income or expense is recognised). For cash flow hedges, other than those covered by the preceding two policy
Doc #:NY7:390196.4
F-17
statements, the associated cumulative gain or loss is removed from equity and recognised in the income statement
in the same period or periods during which the hedged forecast transaction affects profit or loss. The ineffective
part of any gain or loss is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes the
designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative
gain or loss at that point remains in equity and is recognised in accordance with the above policy when the
transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or
loss recognised in equity is recognised immediately in the income statement.
Hedge of monetary assets and liabilities
Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a
recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging
instrument is recognised in the income statement.
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F-18
Inventories
Inventories, comprising mainly food and beverage inventories, consumable stores and operating
equipment, are valued at the lower of cost and net realisable value. The cost of inventories comprises all costs in
bringing the inventories to their present location and condition and is determined using the weighted average
method. Obsolete, redundant and slow moving inventories are identified and written down to their estimated net
realisable value.
Accounts and other receivables
Accounts and other receivables originated by the group are stated at cost less impairment losses.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits
held on call with banks and investments in money market instruments, net of bank overdrafts, all of which are
available for use by the group, unless otherwise stated.
Share capital
Preference share capital
Preference share capital is classified as equity if it is non-redeemable and any dividends are discretionary,
or is redeemable but only at the company's option. Dividends on preference share capital classified as equity are
recognised as distributions within equity.
Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of
the shareholders or if dividend payments are not discretionary. Dividends thereon are recognised in the income
statement as an interest expense.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including
directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares
and presented as a deduction from total equity.
Dividends
Dividends on redeemable preference shares are recognised as a liability and expressed on an accrual basis.
Other dividends are recognised as a liability in the period in which they are declared.
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F-19
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over the period of the borrowings on
an effective interest basis.
Financial liabilities
Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal
payments and amortisations.
Accounts and other payables
Accounts and other payables are stated at cost.
Provisions
A provision is recognised in the balance sheet when the group has a present legal or constructive
obligation that can be estimated reliably as a result of a past event, and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting
the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of
money and, where appropriate, the risks specific to the liability.
Employee benefits
Short term employee benefits
The costs of all short-term employee benefits are recognised during the period in which the employee
renders the related service. The provisions for employee entitlement to wages, salaries and annual leave represent
the amount which the group has a present obligation to pay as a result of employees' services provided to the
balance sheet date. The provisions have been calculated at undiscounted amounts based on current wage and
salary rates.
Long-term employee benefits
The group does not incur a liability for post employment medical aid benefits. Liabilities for employee
benefits which are not expected to be settled within 12 months are discounted using the market yields at the
balance sheet date, on high quality bonds with terms which most closely match the terms of maturity of the related
liabilities.
Retirement benefits
Obligations for contributions to defined contribution provident and pension plans are recognised as an
expense in the income statement as incurred.
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F-20
Share-based payment transactions
The share incentive scheme allows group employees to acquire shares of the company. The fair value of
rights granted is recognised as an employee expense with a corresponding increase in equity. The fair value was
measured at grant date and spread over the period during which the employees become unconditionally entitled to
the rights. The fair value of the rights granted is measured using a binomial model, taking into account the terms
and conditions upon which the rights were granted. The amount recognised as an expense is adjusted to reflect the
actual number of share rights that vest except where forfeiture is only due to share prices not achieving the
threshold for vesting.
Share appreciation rights are granted to employees in the group. The fair value of the amount payable to
the employee is recognised as an expense with a corresponding increase in liabilities. The fair value is initially
payment. The fair value of the share appreciation rights is measured based on the Binomial Tree method, taking
into account the terms and conditions upon which the instruments were granted. The liability is remeasured at
each balance sheet date and at settlement date. Any changes in the fair value of the liability are recognised as an
employment cost.
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Offset
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when
the company has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Segment reporting
A segment is a distinguishable component of the group that is engaged either in providing products or
services (business segment), or in providing products or services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from those of other segments.
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F-22
Group income statements
for the financial years ended 31 December 2006 and 2005
Group
Note
2006
R'm
2005
R'm
Revenue.....................................................................................................................
1,632.8 1,236.8
Gaming ......................................................................................................................
Rooms........................................................................................................................
Food and beverage......................................................................................................
Other ..........................................................................................................................
1,302.3
125.0
138.8
66.7
Other income ..............................................................................................................
985.7
92.6
119.1
39.4
1
2.1
0.4
1,634.9 1,237.2
(1,081. (835.2)
0)
Employee costs...........................................................................................................
VAT and gaming levies on gross gaming revenues ......................................................
Promotions and marketing costs ..................................................................................
Depreciation and amortisation .....................................................................................
Property and equipment rentals ...................................................................................
Other operational costs................................................................................................
2
3
(328.4) (260.0)
(255.6) (191.8)
(101.9) (81.0)
(78.2) (65.6)
(23.7) (15.6)
(293.2) (221.2)
Operating profit ........................................................................................................
Net financial (expenses)/income................................................................................
4
553.9
(121.6)
Financial income.........................................................................................................
Financial expenses ......................................................................................................
5
5
8.6
45.3
(130.2) (101.3)
6
432.3 346.0
(143.3) (118.6)
289.0 227.4
Operating costs .........................................................................................................
Profit before taxation................................................................................................
Taxation .....................................................................................................................
Profit for the year......................................................................................................
Attributable to:
Equityholders of Peermont ..........................................................................................
Minority shareholders .................................................................................................
Number of shares (million) .......................................................................................
Issued ordinary shares .................................................................................................
For fully diluted EPS calculation .................................................................................
Earnings per ordinary share (cents) .........................................................................
Basic earnings per share..............................................................................................
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F-23
4
7
7
402.0
(56.0)
275.4
13.6
289.0
220.0
7.4
227.4
330.0
331.0
330.0
331.0
83.5
66.7
Diluted earnings per share ...........................................................................................
Doc #:NY7:390196.4
F-24
83.2
66.5
Group balance sheets
at 31 December 2006 and 2005
Group
Note
Assets
Total non-current assets..............................................................................................
Property, plant and equipment .....................................................................................
Intangible assets..........................................................................................................
Amount due by joint venture .......................................................................................
Derivative instruments ................................................................................................
Deferred taxation asset ................................................................................................
2006
R'm
2005
R'm
3,369.5 2,511.0
9
10
11
12
13
2,199.3 1,808.3
1,153.4 691.1
3.9
4.4
4.1
4.0
8.8
3.2
Total current assets.....................................................................................................
264.2
136.9
Inventories.................................................................................................................. 14
Accounts receivable ....................................................................................................
Amounts due by joint ventures .................................................................................... 25.3
Current portion of derivative instruments..................................................................... 12
Taxation .....................................................................................................................
Cash and cash equivalents ........................................................................................... 26.1
0
29.5
51.5
1.8
7.0
4.4
170.0
23.4
31.5
1.3
14.1
6.6
60.0
Total assets................................................................................................................
Equity
Capital and reserves ....................................................................................................
Minority interest .........................................................................................................
Total equity ...............................................................................................................
Total non-current liabilities.........................................................................................
Interest-bearing long-term borrowings .........................................................................
Preference share liabilities...........................................................................................
Derivative instruments ................................................................................................
Deferred taxation liabilities .........................................................................................
3,633.7 2,647.9
18
449.1
959.1
—
220.6
259.0
583.0
4.3
177.2
Total current liabilities................................................................................................
518.1
443.7
Accounts and other payables .......................................................................................
Provisions................................................................................................................... 21
Amounts due to related parties .................................................................................... 25.4
Current portion of long-term liabilities......................................................................... 19,
178.9
68.5
4.1
147.0
132.6
32.1
2.8
146.1
Doc #:NY7:390196.4
F-25
19
20
12
13
1,322.6 1,158.5
164.2
22.2
1,486.8 1,180.7
1,628.8 1,023.5
20
Current portion of derivative instruments..................................................................... 12
Taxation liabilities ......................................................................................................
Bank overdrafts........................................................................................................... 26.1
0
Total equity and liabilities.........................................................................................
Doc #:NY7:390196.4
F-26
2.6
49.4
67.6
13.3
28.0
88.8
3,633.7 2,647.9
Group statements of changes in equity
Note
Share
Share
Share-
Hedging
Translation
Share
Revaluation
Retained
capital
premium
based
reserve
Reserve
redemption
reserve
earnings
R'm
R'm
payments
Sub-total
Minority
Total
interest
reserve
reserve
R'm
R'm
R'm
R'm
R'm
R'm
R'm
R'm
R'm
Group
Balance at 31 December 2004....................
Profit for the year ..........................................
*
32.9
0.4
—
(1.2)
9.7
25.7
977.5
1,045.0
20.1
—
—
—
—
—
—
—
220.0
220.0
7.4
227.4
—
—
—
—
—
—
—
(101.0)
(101.0)
(2.7)
(103.7)
Foreign exchange translation loss.................
—
—
—
—
(4.0)
—
—
—
(4.0)
(2.6)
(6.6)
Share-based payment charge ........................
—
—
1.3
—
—
—
—
—
1.3
—
1.3
Release of revaluation reserve due to
—
—
—
—
—
—
(0.2)
0.2
—
—
—
—
—
—
(2.8)
—
—
—
—
(2.8)
—
(2.8)
Taxation rate change on revaluation reserve
—
—
—
—
—
—
0.4
(0.4)
—
—
—
*
32.9
1.7
(2.8)
(5.2)
9.7
25.9
1,096.3
1,158.5
22.2
1,180.7
Dividends paid ..............................................
8
1,065.1
depreciation of revalued buildings............
Unrealised loss on fair value of cash flow
hedge .........................................................
—
—
—
—
—
—
—
275.4
275.4
13.6
289.0
—
—
—
—
—
—
—
(120.1)
(120.1)
(3.7)
(123.8)
—
—
—
—
(0.2)
—
—
—
(0.2)
(0.1)
(0.3)
—
—
—
—
—
—
(0.2)
0.2
—
—
—
—
—
1.3
—
—
—
—
—
1.3
—
1.3
Unrealised profit on fair value of cash flow
—
—
—
7.7
—
—
—
—
7.7
—
7.7
—
—
—
—
—
—
—
—
—
132.2
132.2
*
32.9
3.0
4.9
(5.4)
9.7
25.7
1,251.8
1,322.6
164.2
1,486.8
Dividends paid ..............................................
8
hedge .........................................................
Minority interest on acquisition of the Tusk
Group.........................................................
* Less than R50,000
Doc #:NY7:390196.4
Group cash flow statements
Group
Note
Cash flows from operating activities.........................................................................
Financial income.........................................................................................................
Financial expenses ......................................................................................................
Taxation paid..............................................................................................................
Cash generated from operating activities .................................................................
Cash flows from investing activities..........................................................................
Replacement of property, plant and equipment to maintain operations..........................
Acquisition of property, plant and equipment to expand operations ..............................
Replacement of intangible assets to maintain operations...............................................
Acquisition of intangible assets to expand operations ...................................................
Proceeds on disposal of property, plant and equipment.................................................
Decrease in investments ..............................................................................................
Acquisition of businesses ............................................................................................
Share buy-back in joint venture ...................................................................................
Disposal of interest in joint venture..............................................................................
Repayment of shareholder's loan by joint venture.........................................................
26.1
26.2
26.3
26.4
26.5
26.6
26.7
26.8
Cash flows from financing activities .........................................................................
Proceeds on issue of preference shares.........................................................................
Preference share issue costs.........................................................................................
Long-term borrowings raised ......................................................................................
Cash settlement in respect of derivative instruments.....................................................
Long-term borrowings repaid ......................................................................................
Repayment of shareholder's loan .................................................................................
Dividends paid............................................................................................................ 26.9
Net increase/(decrease) in cash and cash equivalents ...............................................
Cash and cash equivalents at beginning of the year ......................................................
Effect of exchange rate fluctuations on cash held .........................................................
Cash and cash equivalents at end of the year ........................................................... 26.1
0
Doc #:NY7:390196.4
F-28
2006
R'm
2005
R'm
665.2 477.0
6.2
7.2
(126.6) (104.6)
(144.2) (112.2)
400.6 267.4
(544.3) (940.3)
(65.5) (54.2)
(82.2) (115.0)
(3.1)
—
(1.5) (183.4)
3.2
1.2
—
1.5
(395.7) (58.3)
— (532.2)
—
(0.2)
0.5
0.3
274.9
614.7
375.0 589.0
(0.2)
(1.5)
348.8 242.0
2.6
6.7
(324.3) (117.8)
(3.2)
—
(123.8) (103.7)
131.2
(28.8)
—
102.4
(58.2)
30.2
(0.8)
(28.8)
Notes to the financial statements
1. Other income
Group
2006
R'm
Profit on acquisition of Tusk Group loans...............................................................................
Profit on sale of assets............................................................................................................
2005
R'm
1.8
0.3
—
0.4
2.1
0.4
2. Employee costs
Group
Wages and salaries.................................................................................................................
Provident fund contributions ..................................................................................................
Increase in leave liability........................................................................................................
Unemployment Insurance Fund costs .....................................................................................
Incentive scheme cost ............................................................................................................
Pension fund contributions .....................................................................................................
2006
R'm
2005
R'm
265.8
25.5
4.5
4.1
25.5
3.0
217.5
19.6
2.8
3.1
14.4
2.6
328.4
260.0
3. VAT and gaming levies on gross gaming revenues
Group
VAT on gross gaming revenues..............................................................................................
Gaming levies........................................................................................................................
Doc #:NY7:390196.4
F-29
2006
R'm
2005
R'm
145.3
110.3
105.5
86.3
255.6
191.8
4. Operating profit
Group
2006
R'm
2005
R'm
Operating profit is stated after taking into account:
Auditors' remuneration...........................................................................................................
3.7
3.1
Audit fee................................................................................................................................
3.4
1.7
—current year .....................................................................................................................
—prior year under provision ................................................................................................
—expenses..........................................................................................................................
3.1
0.1
0.2
1.5
0.1
0.1
Other services ........................................................................................................................
0.3
1.4
Cost of sales ..........................................................................................................................
Depreciation and amortisation ................................................................................................
56.0
78.2
46.6
65.3
—Depreciation of freehold buildings....................................................................................
—Depreciation of leasehold buildings..................................................................................
—Depreciation of furniture, fittings and equipment ..............................................................
—Amortisation of intangible assets......................................................................................
17.2
3.8
52.6
4.6
13.2
2.7
43.3
6.1
Bad debts written off..............................................................................................................
Consulting fees ......................................................................................................................
Pre-opening expenses.............................................................................................................
0.2
6.8
5.9
0.2
2.1
—
5. Net financial (expenses)/income
Group
2006
R'm
2005
R'm
Interest received.....................................................................................................................
Realised foreign exchange gains.............................................................................................
Fair value adjustment on interest rate swap 1 (refer note 12)....................................................
6.2
—
2.4
6.4
37.3
1.6
Financial income....................................................................................................................
8.6
45.3
Doc #:NY7:390196.4
F-30
Preference dividends ..............................................................................................................
Interest paid ...........................................................................................................................
Fair value adjustment on interest rate swaps 2 - 4 (refer note 12) .............................................
(49.0)
(79.0)
(2.2)
(34.9)
(65.1)
(1.3)
Financial expenses ................................................................................................................. (130.2) (101.3)
The preference dividends are accounted for on the effective interest method.
6. Taxation
Group
2006
R'm
2005
R'm
—South African normal taxation............................................................................................
123.4
102.1
—current year .....................................................................................................................
—prior year (over)/under provision......................................................................................
132.7
(9.3)
100.5
1.6
—Deferred ............................................................................................................................
(3.4)
(2.3)
—current year .....................................................................................................................
—rate change ......................................................................................................................
—prior year under/(over) provision......................................................................................
(3.6)
—
0.2
1.5
(3.5)
(0.3)
—STC...................................................................................................................................
24.5
19.7
—current .............................................................................................................................
—deferred ...........................................................................................................................
23.4
1.1
20.8
(1.1)
Withholding taxation on dividend offset .................................................................................
(1.2)
(0.9)
Total taxation.........................................................................................................................
143.3
118.6
Reconciliation of rate of taxation............................................................................................
South African standard taxation rate .......................................................................................
Tax effect of reconciling items:
Deferred tax asset not recognised ...........................................................................................
Capital profits ........................................................................................................................
Non-deductible expenses........................................................................................................
Difference in foreign taxation rate ..........................................................................................
Disallowed expenses..............................................................................................................
Prior year differences .............................................................................................................
STC.......................................................................................................................................
Rate change ...........................................................................................................................
Withholding taxation..............................................................................................................
%
29.0
%
29.0
1.0
(5.8)
—
(0.2)
6.3
(2.2)
5.2
—
0.1
—
(5.9)
0.1
(0.3)
6.9
0.6
5.7
(1.2)
0.1
Doc #:NY7:390196.4
F-31
Reversal of deferred taxation on buildings ..............................................................................
(0.3)
—
(0.3)
(0.4)
Effective rate .........................................................................................................................
33.1
34.3
PGL is carrying a credit of R143.1 million (2005: R130.5 million) for STC for offset against charges
payable on future dividend payments. A deferred taxation asset of R17.9 million (2005: R16.3 million) was not
raised due to the uncertainty of when or if this credit will be utilised.
A subsidiary's estimated taxation loss of R15.6 million has not been raised as a deferred tax asset due to
the uncertainty as to the timing of realising the asset.
7. Earnings per ordinary share
Group
2006
R'm
2005
R'm
Profits attributable to ordinary shareholders ............................................................................
Headline earnings adjustments ...............................................................................................
275.4
(2.1)
220.0
(0.4)
—Profit on sale of assets ........................................................................................................
—Profit on acquisition of Tusk loans......................................................................................
(0.3)
(1.8)
(0.4)
—
Taxation effect of the above adjustments ................................................................................
0.6
0.1
Headline earnings ..................................................................................................................
273.9
219.7
Number of shares for EPS calculation (millions)
Weighted average number of shares in issue ...........................................................................
Weighted average number of share awards .............................................................................
330.0
1.0
330.0
1.0
Adjusted average number of shares in issue ............................................................................
331.0
331.0
Earnings per ordinary share (cents)
Basic earnings per share.........................................................................................................
Headline earnings per share....................................................................................................
83.5
83.0
66.7
66.6
Earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue.
Diluted earnings per ordinary share (cents)
Basic earnings per share.........................................................................................................
83.2
66.5
Headline earnings per share....................................................................................................
82.7
66.4
Fully diluted earnings per share is calculated to take account of potentially dilutive share awards granted to
employees. This is calculated by dividing profit attributable to ordinary shareholders by the weighted
Doc #:NY7:390196.4
F-32
average number of ordinary shares and awards in issue during the year.
8. Dividends paid
Group
An interim dividend in respect of the 2006 financial year of 18.6 (2005: 14.6) cents per share
was declared on 4 September 2006 (31 August 2005) ...........................................................
A final dividend in respect of the 2005 financial year of 17.8 (2004: 16.0) cents per share was
declared on 8 March 2006 (10 March 2005) .........................................................................
Paid to minorities by PGB......................................................................................................
2006
R'm
2005
R'm
(61.4)
(48.2)
(58.7)
(52.8)
(3.7)
(2.7)
(123.8) (103.7)
Doc #:NY7:390196.4
F-33
9. Property, plant and equipment
Depreciation
rate
Cost
Impairment
%
R'm
R'm
Group
2006
Land .........................................................................
Freehold buildings ....................................................
Leasehold buildings ..................................................
Furniture, fittings and equipment ...............................
Capital work in progress............................................
—
1-2
Lease period
10 - 100
—
142.7
1,771.4
142.4
527.8
14.2
2,598.5
—
(15.5)
—
—
—
(15.5)
— 142.7
(59.7) 1,696.2
(13.9)
128.5
(310.1)
217.7
—
14.2
(383.7) 2,199.3
2005
Land .........................................................................
Freehold buildings ....................................................
Leasehold buildings ..................................................
Furniture, fittings and equipment ...............................
Capital work in progress............................................
—
1
Lease period
10 - 100
—
134.5
1,436.1
92.4
427.1
67.9
2,158.0
—
(15.5)
—
—
—
(15.5)
— 134.5
(42.5) 1,378.1
(10.1)
82.3
(281.6)
145.5
—
67.9
(334.2) 1,808.3
Accumulate
d
depreciation
R'm
Carrying
value
R'm
Group
Note
Carrying value of encumbered land, buildings and moveable assets..............................
Certain of the properties are encumbered to secure long-term loans, see
note 19.
Freehold land and buildings comprise the following properties:
—Stand 64, Jones Road, Kempton Park.......................................................................
—Portions 25, 28, 38 of the farm Driehoek 275 IS, portion 71 of the farm Driehoek
137 IS, and erven 5868 and 5869 Secunda Extension 16............................................
—Erf 101 San Lameer, Registration Division ET, Province of KwaZulu-Natal in
extent 6933 metres....................................................................................................
—Lot 16145, Francistown, Botswana..........................................................................
—Portion 152 of the farm Pretoriuskloof, Johan Blignaut Drive, Bethlehem.................
—Erven 995 and 996, Meiringspark Ext 8, Klerksdorp ................................................
—Erf 20, Thohoyandou ..............................................................................................
—Portion 1 of Erf 113, Kuleka, Empangeni.................................................................
Doc #:NY7:390196.4
F-34
2006
R'm
2005
R'm
1,824.3 1,418.5
(i)
(ii)
1,369.5 1,328.1
142.9 144.2
26.4
(iii)
(iv)
(v)
(vi)
26.2
15.1
14.1
61.9
—
108.9
—
34.8
—
79.4
—
1,838.9 1,512.6
(i)
This property was independently valued as at 31 December 2004 by Norman Griffiths, FRICS, FIV (SA) a
registered valuer under the Valuers' Act. The valuation of the group's portion of land and buildings was
R1,327.4 million.
(ii)
This property was independently valued as at 31 December 2004 by Norman Griffiths, FRICS, FIV (SA) a
registered valuer under the Valuers' Act. The valuation was R150.0 million which remains below the
original cost of R165.5 million.
The valuations detailed above were carried out at date of transition to IFRS to obtain the deemed cost
balance for IFRS purposes.
(iii)
This property was independently valued as at 27 January 2005 by Curtis Matobolo, BSc(Hons), MRICS
on behalf of Knight Frank Botswana. The valuation of the land and buildings was P14.3 million.
(iv)
This property was independently valued as at 31 March 2006 by Norman Griffiths, FRICS, FIV (SA) a
registered valuer under the Valuers' Act. The valuation of the land and the buildings was R110 million.
(v)
(vi)
The valuations detailed in (iii) to (vi) above were carried out at the date of acquisition of the companies
that own these properties to determine their fair values.
The properties were valued on the basis of open market value in continuation of existing use. Valuations
are performed at least every three years.
Land
Freehold
buildings
R'm
R'm
Leasehol Furniture
d
,
buildings
fittings
and
equipmen
t
R'm
R'm
Capital
work
in
progress
Total
R'm
R'm
Group
2006
Opening carrying value ................................................
Additions.....................................................................
Acquisition of Tusk Group...........................................
Depreciation ................................................................
Disposals .....................................................................
Transfers .....................................................................
Unrealised foreign exchange movements......................
134.5 1,378.1
—
64.2
6.0 219.0
— (17.2)
—
—
2.2
52.1
—
—
82.3
0.9
49.0
(3.8)
—
—
0.1
145.5
69.3
46.6
(52.6)
(2.9)
11.8
—
67.9 1,808.3
13.3 147.7
— 320.6
— (73.6)
—
(2.9)
(67.0)
(0.9)
—
0.1
Closing carrying value .................................................
142.7 1,696.2
128.5
217.7
14.2 2,199.3
2005
Doc #:NY7:390196.4
F-35
Opening carrying value ................................................
Additions.....................................................................
Assets acquired in joint ventures...................................
Depreciation ................................................................
Disposals .....................................................................
Transfers .....................................................................
Revaluation .................................................................
Unrealised foreign exchange movements......................
103.0 1,044.4
1.1
49.2
30.4 266.1
— (13.2)
—
—
—
1.2
—
30.4
—
—
17.9
36.3
—
(2.7)
—
32.9
—
(2.1)
92.5
72.4
21.6
(43.3)
(0.8)
4.6
—
(1.5)
44.7 1,302.5
64.4 223.4
2.1 320.2
— (59.2)
—
(0.8)
(38.7)
—
—
30.4
(4.6)
(8.2)
Closing carrying value .................................................
134.5 1,378.1
82.3
145.5
67.9 1,808.3
Transfers have been made from property, plant and equipment to intangible assets (refer note 10).
Leased assets to the value of R2.8 million (2005: nil) are included in capital work in progress (refer
note 19).
10. Intangible assets
Group
Amortisation
rate
Cost
%
R'm
2006
Goodwill ....................................................................................
Casino licences ...........................................................................
Right to receive management fees ...............................................
Bid commitment costs (including area exclusivity) ......................
Licence application costs.............................................................
Computer software......................................................................
Franchise costs............................................................................
Right of use of buildings .............................................................
—
—
—
0 - 6.7
—
33.3 - 50
Lease period
Lease period
417.7
333.2
287.6
58.6
35.3
23.8
4.4
13.8
1,174.4
2005
Goodwill ....................................................................................
Right to receive management fees ...............................................
Bid commitment costs.................................................................
Licence application costs.............................................................
Computer software......................................................................
Franchise costs............................................................................
—
—
—
—
33.3 - 50
Lease period
417.1
181.7
49.2
34.4
19.7
4.4
706.5
Accumulate Carrying
d
value
amortisation
R'm
R'm
— 417.7
— 333.2
— 287.6
(0.3)
58.3
—
35.3
(19.0)
4.8
(0.8)
3.6
(0.9)
12.9
(21.0) 1,153.4
—
—
—
—
(15.2)
(0.2)
(15.4)
417.1
181.7
49.2
34.4
4.5
4.2
691.1
Goodwill arose on the acquisitions of the interests in PGERH and PGTH.
The right to receive management fees represents the right of PGM to receive management fees from the
group's management contracted entities.
Doc #:NY7:390196.4
F-36
The casino licences and the licence application and bid commitment costs, with exception of the Tusk
Umfolozi area exclusivity cost, which has a useful life of 15 years, have an indefinite life and are not amortised.
The licences are treated as having an indefinite useful life because they are expected to contribute to the entities'
net cash inflows indefinitely. The carrying amount of the casino licences, licence application, bid commitment
costs and the right to receive management fees were subject to an impairment test as at 31 December 2006, using
a discounted cash flow basis.
The following key assumptions were utilised in determining the future cash flows:
•
growth in revenue of 9% that reduces to 4% in perpetuity;
•
weighted average cost of capital ranging from 12.5% to 14.4%;
•
maintenance capital expenditure equal to a 5% increase on the original capital expenditure base; and
•
rates relating to management fees, taxation and gaming levies to remain the same.
On this basis the fair value amounts were in excess of the carrying value and no impairment was required.
Computer software is amortised over its expected useful life of two to three years.
The PGER casino licence is encumbered as security for the loan as described in note 19.
The right of use of buildings relates to the operating leases of the Tusk Mmabatho and Tusk Taung staff
complexes, and the corresponding promissory note liabilities raised, as described in note 19.
Goodwill
R'm
Right to
Bid
Licence Compute Franchise Casino Right of
receive commitm applicatio
r
costs
licence
use
managem
ent
n
software
s
of
ent
costs
costs
buildings
fees
R'm
R'm
R'm
R'm
R'm
R'm
R'm
Total
R'm
Group
2006
Opening carrying value .............
417.1
181.7
49.2
34.4
4.5
4.2
—
—
Additions..................................
Acquisition of Tusk Group........
0.6
—
—
105.9
—
9.4
0.9
—
3.1
—
—
0.2
—
13.8
Amoritsation.............................
Utilisation of right of use of
buildings ................................
Transfers ..................................
Written off................................
—
—
—
—
(0.3)
—
—
—
(3.7)
—
(0.6)
—
—
333.
2
—
—
—
—
—
—
—
—
—
—
0.9
—
—
(0.2)
—
—
Closing carrying value ..............
417.7
287.6
58.3
35.3
4.8
3.6
333.
2
12.9
1,15
3.4
2005
Opening carrying value .............
74.7
—
36.9
18.9
3.3
—
—
—
133.
Doc #:NY7:390196.4
F-37
—
(0.9)
691.
1
4.6
462.
5
(4.6)
(0.9)
—
0.9
— (0.2)
Additions..................................
—
181.7
—
8.7
6.9
—
—
Increased interest in joint
ventures/ businesses................
Amortisation.............................
Unrealised foreign exchange
movements.............................
342.4
—
12.3
6.8
0.2
4.5
—
—
—
—
—
—
—
—
—
(5.9)
—
(0.2)
(0.1)
—
—
8
197.
3
— 366.
2
— (6.1)
— (0.1)
Closing carrying value ..............
417.1
181.7
49.2
34.4
4.5
4.2
—
—
—
691.
1
11. Amount due by joint venture
Group
2006
R'm
Due by PGSH........................................................................................................................
2005
R'm
3.9
4.4
12. Derivative instruments
PGER entered into four interest rate swap agreements with RMB during 1998 to 1999 resulting in swap
assets and liabilities recorded at fair values below (refer note 28.2).
The group entered into three interest rate swap agreements with Standard Bank and Nedbank during
September 2005. These swap agreements have a notional principal amount of R365 million (group's proportionate
share—R302.8 million) and have been hedge accounted for in terms of the group hedging strategy (refer
note 28.3). The swaps were valued using standard swap pricing methodology.
The group has a right to acquire 50% of the shares in the companies owning the staff complexes at Tusk
Mmabatho and Tusk Taung. The value of these rights were determined by discounting the expected future value
of the staff complex properties to their present value and applying a 12% capital growth rate over the respective
lease periods, which end October 2010 and November 2011, respectively. The present value of the expected future
value was calculated by management. This valuation was compared to an independently calculated value obtained
from Norman Griffith, FRICS, FIV (SA), a registered valuer under the Valuers' Act. The value calculated by
management approximated the independent valuation, as such no adjustment was recognised.
Group
2006
R'm
Term loan funding
Doc #:NY7:390196.4
F-38
2005
R'm
Swap 1 entered into at a floating rate ......................................................................................
Preference share funding
Swap 5 entered into at a fixed rate ..........................................................................................
Right to acquire shares ........................................................................................................
3.5
18.1
1.2
2.5
1.3
2.6
—
—
—
—
On acquisition of PGTH.........................................................................................................
Fair value gains during the year..............................................................................................
2.4
0.2
—
—
Total non-current derivative instruments.................................................................................
Less: current portion of interest rate swaps..............................................................................
11.1
(7.0)
18.1
(14.1)
4.1
4.0
(0.6)
(0.7)
(1.3)
(3.6)
(4.1)
(7.1)
—
—
—
(0.8)
(1.4)
(0.6)
(2.6)
2.6
(17.6)
13.3
—
(4.3)
Term loan funding
Preference share funding
Less: current portion of interest rate swaps..............................................................................
Doc #:NY7:390196.4
F-39
13. Deferred taxation
Group
2006
R'm
2005
R'm
Deferred taxation asset
Temporary differences are made up as follows:
Capital allowances .................................................................................................................
Financial assets......................................................................................................................
Patents and trademarks...........................................................................................................
Prepayments ..........................................................................................................................
Estimated taxation loss...........................................................................................................
Promissory note liability ........................................................................................................
Income received in advance....................................................................................................
Provisions..............................................................................................................................
Employee leave pay ...............................................................................................................
(16.4)
(1.7)
—
(1.6)
7.1
20.6
—
22.5
—
0.1
—
0.6
(0.6)
—
—
0.3
9.7
1.0
Total temporary differences....................................................................................................
30.5
11.1
Total deferred taxation asset ...................................................................................................
8.8
3.2
Deferred taxation liabilities
Temporary differences are made up as follows:
Deferred taxation on fair valuation of land and buildings.........................................................
Capital allowances .................................................................................................................
Deferred taxation on revaluation of franchises ........................................................................
Prepayments ..........................................................................................................................
Derivative instruments ...........................................................................................................
Provisions..............................................................................................................................
Income received in advance....................................................................................................
Employee leave pay ...............................................................................................................
Other temporary differences ...................................................................................................
Financial assets......................................................................................................................
Promissory note liability ........................................................................................................
Accelerated rentals.................................................................................................................
STC taxation credit ................................................................................................................
567.5
256.0
0.7
6.6
0.8
(41.1)
(10.2)
(8.9)
(0.8)
0.9
(5.8)
(0.4)
—
572.2
84.5
0.9
7.0
3.4
(30.1)
(8.3)
(9.6)
(1.3)
—
—
—
(3.6)
Total temporary differences....................................................................................................
765.3
615.1
Foreign deferred taxation at 25%............................................................................................
South African deferred taxation at 29% ..................................................................................
8.0
212.6
7.6
169.6
Doc #:NY7:390196.4
F-40
Total deferred taxation liability...............................................................................................
220.6
177.2
Deferred taxation has been raised at 29% (2005: 29%), except for STC at 12.5% (2005: 12.5%).
14. Inventories
Group
2006
R'm
Food and beverage.................................................................................................................
Operating equipment..............................................................................................................
Consumables stores................................................................................................................
2005
R'm
4.4
12.2
12.9
4.1
9.7
9.6
29.5
23.4
15. Share capital
Group
2006
R'm
2005
R'm
Authorised
10,050,000,000 (2005: 10,050,000,000) ordinary shares of 0.01 (2005: 0.01) cent each ...........
1.0
1.0
Issued
330,000,000 (2005: 330,000,000) ordinary shares of 0.01 (2005: 0.01) cent each.....................
*
*
*
Less than R50,000
16. Share Premium
Group
2006
R'm
2005
R'm
Arising on issue of shares.......................................................................................................
Less issue expenses written off...............................................................................................
33.0
(0.1)
33.0
(0.1)
Balance at end of year ............................................................................................................
32.9
32.9
Doc #:NY7:390196.4
F-41
17. Reserves
Group
2006
R'm
2005
R'm
Share-based payment reserve..................................................................................................
3.0
1.7
The share-based payment reserve relates to the accumulated cost for the future settlement of
liabilities arising from the performance restricted share incentive scheme (refer note 24).
Hedging reserve.....................................................................................................................
4.9
(2.8)
The hedging reserve comprises the effective portion of the cumulative net change in the fair
value of cash flow hedging instruments related to hedged transactions that have not yet
occurred.
Translation reserve.................................................................................................................
(5.4)
(5.2)
The translation reserve comprises all foreign exchange differences arising from the translation
of the financial statements of foreign operations that are not integral to the operations of the
company, as well as from the translation of liabilities that hedge the company's net
investment in a foreign subsidiary.
Share redemption reserve .......................................................................................................
9.7
9.7
The share redemption reserve arose on the redemption of preference shares in PGB.
Revaluation reserve................................................................................................................
25.7
25.9
The revaluation reserve relates to properties revalued to fair value on acquisition of subsidiary
companies. Where property is revalued, usually as part of a business combination, the after
taxation effect is carried in the revaluation reserve.
18. Minority interest
parties.
The minority interest relates to the 40% of PGB, 42.9% of PGEFSH and the 21% of PGTH held by third
Included in minority interests is an equity shareholder loan from MIC Leisure of R117.2 million.
Doc #:NY7:390196.4
F-42
19. Interest-bearing long-term borrowings
Group
2006
R'm
South African—secured
RMB
The loan bears interest at an effective rate of 17.63% NACM, payable quarterly in arrears.
The interest rate swaps entered into (refer note 28.2) have the effect of reducing this interest
to a fixed rate of 16.81% NACM..........................................................................................
A first mortgage bond secures the loan over land and buildings and a general notarial bond
furthermore secures the loan over movable assets on the property, including the PGER
casino licence. Land, buildings and moveable assets have a carrying value of
R1,374.7 million (2005: R1,376.3 million). PGER's insurance rights over these assets have
been ceded to the lender.
PGER has issued promissory notes for the quarterly interest payments to RMB amounting to
R794.8 million. The group's share of the payments that started on 2 April 2001 was
R23.2 million and will end on July 2007 with a payment of R37.3 million. These payments
escalate annually.
ABSA term loan
The loan was raised by PGL and bore interest at JIBAR related rates, payable quarterly in
arrears. ................................................................................................................................
Capital of R170 million was raised and was repayable six monthly from 31 March 2005. The
total capital and interest was repaid in August 2006.
ABSA term loan
The loan was raised by PGM and bears interest at JIBAR related rates, capitalised quarterly in
arrears. ................................................................................................................................
Capital of R185 million was raised and is repayable, together with interest, six monthly from
16 August 2006.
The loan is secured by an unlimited guarantee by PGL for the obligations of PGM, a cession
of the management agreement with PGER, reversionary cessions of the management
agreements with PGSH and with PGB, cession of all management and royalty fees in terms
of the agreement concluded between PGL, MER and PMIH and cession of the Royalty
Agreement between PGL and PGER.
Sub-total carried forward ....................................................................................................
Sub-total brought forward...................................................................................................
RMB bridge loan
A bridging loan agreement for an amount of R405 million was entered into on 14 December
2006. R3.5 million raising fee was paid on 14 December 2006 and capitalised, to be
amortised over the availability period of the bridge loan. The amount bears interest at
JIBAR related rates..............................................................................................................
ABSA term loans
The loans of R35 million and R42.6 million were raised by PGEFS and PGEFSH respectively
Doc #:NY7:390196.4
F-43
2005
R'm
67.1
177.9
—
153.0
191.5
—
258.6
258.6
330.9
330.9
3.5
—
86.0
—
and bear interest at JIBAR related rates. The capital is repayable in 32 quarterly payments
commencing August 2007, and the final payment will be made in June 2015. .......................
The shareholders have subordinated their rights to claim or receive payment of their
shareholder loans owed by PGEFSH until the debt is fully repaid. This loan is further
secured by a guarantee from PGL amounting to 90.7% of any outstanding balances on this
loan.
A mortgage bond and notarial bond have been registered in favour of ABSA over land and
buildings and all other moveable property, plant and equipment respectively, belonging to
PGEFS. Land, buildings and moveable assets have a carrying value of R91.4 million.
ABSA term loan
The loan was raised by Tusk Resorts and bears interest at JIBAR related rates.........................
The loan is secured by a first covering mortgage bond over immovable property for an
amount of R90 million, a collateral general notarial bond over certain movable assets for
R90 million, a pledge and cession in favour of the bank of Tusk Resort's shares in and
claims against Tusk Venda and a cession of its bank accounts in favour of ABSA. Land,
buildings and moveable assets have a carrying value of R105.7 million.
The total capital and interest is to be repaid by 30 September 2010.
39.8
—
ABSA term loan
The loan was raised by Emanzini and bears interest at 10.61% per annum, capitalised in
arrears. ................................................................................................................................
Capital of R75 million was raised and is repayable, together with interest in 16 equal
semi-annual payments.
The loan is secured by a covering mortgage bond over Portion 1 of Erf 113 Kuleka, for an
amount of R70 million and by a general notarial covering bond over certain movable assets
for R20 million. Land, buildings and moveable assets have a carrying value of
R56.4 million.
The total capital and interest is to be repaid by 31 March 2014.
South African—unsecured
Promissory note liabilities
Tusk Resorts currently leases the Tusk Mmabatho and Tusk Taung staff complex properties,
with an option to acquire an effective 50% interest in the shares of the companies owning
the Tusk Mmabatho property and the Tusk Taung leasehold rights, at the end of the
respective lease periods being November 2011 and October 2010 respectively. Promissory
notes for the Tusk Mmabatho and the Tusk Taung staff complex are currently held by
Gensec Properties (Proprietary) Limited (Refer note 10: Right of use of buildings)................
Minority shareholder of PGEFSH—J Seeliger
The loan bears interest at 20% per annum (NACM) and interest is capitalised and only
becomes payable if sufficient cash resources are available. In the event of the prime interest
rate increasing to more than 15%, the interest rate shall be adjusted upwards to a rate of
prime plus 6 percentage points. ............................................................................................
The loan has been subordinated in favour of ABSA and remains in force until the entire debt
owed by PGEFS and PGEFSH is repaid, but it does allow for certain repayments to be made
in terms of a specific priority of payments clause.
387.9
387.9
330.9
330.9
77.7
—
26.4
—
2.8
—
494.8
494.8
330.9
330.9
Doc #:NY7:390196.4
F-44
Retention creditors
PGTH retained certain amounts of the Tusk Group acquisition price for a period of 3 years
from the date on which the 2005 income tax returns of the Tusk Resorts and Emanzini are
duly filed with SARS, as security for the due and punctual performance by the Sellers of all
their obligations in respect of any claim under the acquisition agreement. .............................
The retention amounts bear interest at 7% NACM, repayable at the same time that the
relevant principal sum is due and payable.
Foreign—secured
First National Bank of Botswana Limited
PGB secured a loan facility through First National Bank Botswana Limited for P25 million. ...
The loan bears interest at rates linked to the Botswana prime rate. Capital and interest are
payable monthly in arrears. Capital is repayable starting from 31 January 2007 subject to the
full loan including interest being repaid by 31 October 2013.
The loan is secured by a first covering mortgage bond for P15 million over lease area 507KO, portion of plot 17989, Gaborone, with a carrying value of P69.0 million (2005:
P70.7 million) and by a written undertaking by the lessor not to invoke clause 17 of the
lease agreement, relating to non-payment of rental or any other amounts payable by the
lessee. A fire policy and a loss of income policy over area 507-KO, portion of plot 17989,
Gaborone, is to be held at all times and the bank's interest in the policy to be noted by the
insurance company.
35.0
—
23.8
23.8
Foreign—secured
First National Bank of Botswana Limited
PGB secured a loan facility through First National Bank Botswana Limited for P25 million. ...
The loan bears interest at rates linked to the Botswana prime rate. Capital and interest are
repayable in equal instalments from 1 March 2005 until 28 February 2015.
The loan is secured by a first covering mortgage bond for P18 million over Plot 21117,
Gaborone and a first covering mortgage bond over Plot 16145, Francistown. The buildings
have a carrying value of P11.9 million (2005: P11.0 million). A fire policy and a loss of
income policy over Plot 21117, Gaborone and Plot 16145 Francistown is to be held at all
times and the bank's interest in the policy to be noted by the insurance company.
Foreign—unsecured
Corporate Bond
Corporate notes issued to local institutions for P25 million. The repayment of the nominal
value is due on 31 March 2010. The draw down date was 16 February 2005. ........................
The bond bears interest at a fixed rate of 12.25% per annum. Interest is payable semi-annually
on 31 March and 30 September.
553.6
553.6
354.7
354.7
9.6
20.9
29.5
29.5
Finance leases
Iskus Power (Proprietary) Limited..........................................................................................
592.7
592.7
405.1
405.1
2.9
—
Minimu
Present
m
value of
lease
minimum
lease
payments
payments
Doc #:NY7:390196.4
F-45
R'm
Amounts payable under finance leases:
—within one year .....................................................................................
—in the second to fifth years inclusive ......................................................
—thereafter ..............................................................................................
Less: future finance charges ......................................................................
Present value of lease obligations ..............................................................
Less: amount due for settlement within 12 months (shown under current
liabilities) ...............................................................................................
Amounts due for settlement after 12 months ..............................................
The group leases certain of its equipment under finance leases. The
average lease term is 6 years. For the year ended 31 December 2006, the
average effective borrowing rate was 10.5%. Interest rates are linked to
the prime interest rate in South Africa. The fair value of the lease
obligation approximates the carrying amount of the underlying asset. The
assets will be transferred from capital work in progress to plant and
equipment when these are commissioned in January 2007.
Total interest-bearing long-term liabilities.............................................
Current portion included in current liabilities .............................................
Doc #:NY7:390196.4
F-46
0.7
2.6
0.5
3.8
(0.9)
2.9
(0.5)
R'm
0.5
1.9
0.5
2.9
2.4
595.6 405.1
(146.5) (146.1)
449.1 259.0
20. Preference share liabilities
Group
2006
R'm
Authorised and issued
1,024 Class "A" cumulative non-convertible redeemable preference shares of 1 cent each
issued on 29 March 2005 .....................................................................................................
Premium received from the issue............................................................................................
Less: issue costs offset against preference share premium .......................................................
Less: share premium amortised ..............................................................................................
* Less than R50,000
The nominal value of the preference shares is redeemable in 16 quarterly tranches of 64
preference shares each, starting on 30 June 2008 and ending on 31 March 2012.
The preference dividend on the unredeemed preference shares is calculated at 73% of the
prevailing prime interest rate, compounded monthly and payable quarterly in arrears
together with the redemption cash flow payments. Interest rate swaps have been entered into
to hedge 50% of the interest rate risk (refer note 12).
PGERH has pledged its shares in PGER, as well as its rights of any nature whatsoever in and
interests of any nature whatsoever to the shares as security for the preference shares.
Various covenants exist in respect of the preference share debt. These covenants, if breached,
result in the total preference share debt becoming due and payable with immediate effect.
The covenants relate to the liquidation of PGER, any general offer of compromise with the
companies creditors, late payment of the preference dividend, maintaining a debt service
cover excluding cash of 1.3:1 (including cash of 1.5:1) at specific reporting dates, exceeding
R1.3 billion in total debt, the reduction of its major shareholding interest in PGERH to less
than 75%, the reduction of shareholding in PGERH's investment in PGER to less than
100%, any adverse negative effect to any material licence owned by the company, any
default of the company in excess of R10 million and any material breach of warranties and
undertakings provided and/or any material adverse change in the business.
It is estimated that the following cash outflows will result from this funding arrangement:
1 year .....................................................................................................
2 to 5 years.............................................................................................
Thereafter...............................................................................................
Doc #:NY7:390196.4
F-47
2006
R'm
2005
R'm
53.8
679.0
37.6
45.2
546.8
194.6
2005
R'm
*
*
589.0
(1.5)
(3.3)
589.0
(1.5)
(4.5)
584.2
583.0
584.2
584.2
583.0
583.0
770.4
786.6
Authorised and issued
375,000 cumulative variable rate redeemable preference shares of 1 cent
each issued on 21 August 2006 ...............................................................
*
*
Premium received from the issue...............................................................
Less: issue costs offset against preference share premium ..........................
Plus: accrued preference share interest.......................................................
375.0
(0.2)
0.1
—
—
—
374.9
—
959.1
583.0
Shares are to be redeemed within 8 years from drawdown. PGL must place
cash, based on the following agreed percentage of the total subscription
amount on deposit with RMB, or begin redeeming the balance of the
preference shares outstanding as follows:
Year 4:
Year 5:
Year 6:
Year 7:
20%
40%
60%
80%
The floating rate preference share coupon rate is 72% of the prime overdraft rate (NACM).
Dividend payment dates are on a bi-annual basis at 30 June and 31 December of each year.
As security for the preference shares, PGM has ceded to FirstRand Bank Limited any and/or
all of its rights, title and interest accruing to PGM arising from or in relation to the
management agreements entered into between PGL and PGSH and between PGL and PGB.
Sub-total carried forward ...................................................................................................
Doc #:NY7:390196.4
F-48
Group
2006
R'm
2005
R'm
959.1
583.0
0.5
—
959.6
(0.5)
583.0
—
959.1
583.0
Various covenants exist in respect of the preference share debt. The covenants, if breached,
result in the total preference share debt becoming due and payable with immediate effect.
The covenants relate to any general offer of compromise with the company's creditors,
disposal of the whole or substantially the whole of its undertaking or any of its assets,
variation of rights attached to any class of shares, acts which will result in the holder's rights
being diminished or detrimentally affected, redemption of all or any of the preference
shares, maintaining a debt service cover ratio excluding cash of 3.75:1 (including cash of
4.0:1), not exceeding R2 billion in total debt (other than in respect of the acquisition of the
Tusk Group), and the provision of dividend declaration resolutions.
It is estimated that the following cash outflows will result from this funding arrangement:
2006
R'm
1 year
2 to 5 years
Thereafter...............................................................................................
34.4
276.2
259.4
570.0
2005
R'm
—
—
—
—
On 6 April 2004, a Preference Share Subscription Agreement was signed with ABSA
whereby ABSA subscribed for and was issued one participating, redeemable A preference
share in Tusk Resorts at a par value of R1. This preference share confers the right to a
preference dividend with effect from 6 April 2004, calculated biannually at 1% of the net
annual profit after tax of Tusk Resorts and its subsidiary. It is expected that these preference
dividends will be capitalised until 31 March 2007. Dividends of R0.5 million were
outstanding at year end. .......................................................................................................
Total preference share liabilities..........................................................................................
Current portion included in current liabilities ..........................................................................
Doc #:NY7:390196.4
F-49
21. Provisions
Share
based
incentive
schemes
R'm
Bonus
Legal fees
Onerous
contracts
Total
R'm
R'm
R'm
R'm
Group
2006
Balance at beginning of year .......................................................
Provisions raised during the year .................................................
Provisions utilised during the year ...............................................
Acquisition of business ...............................................................
19.2
25.8
(12.8)
—
11.5
23.7
(21.4)
—
1.4
2.2
(1.1)
—
—
—
(0.9)
20.9
32.1
51.7
(36.2)
20.9
Balance at end of year .................................................................
32.2
13.8
2.5
20.0
68.5
2005
Balance at beginning of year .......................................................
Provisions raised during the year .................................................
Provisions utilised during the year ...............................................
Additional interest acquired in joint ventures ...............................
Unrealised foreign exchange difference .......................................
11.7
13.1
(7.4)
1.9
(0.1)
8.6
22.8
(20.8)
1.1
(0.2)
1.5
0.8
(1.4)
0.5
—
—
—
—
—
—
21.8
36.7
(29.6)
3.5
(0.3)
Balance at end of year .................................................................
19.2
11.5
1.4
—
32.1
Share based incentive schemes
The group provides for amounts payable to employees in terms of various share incentive schemes in
place (see note 24).
Bonus
The group provides for amounts payable to management in terms of incentive bonus schemes.
Legal fees
Provision has been made for estimated costs on legal claims against the group, actions instituted by the
group, as well as future settlements arising from claims made against the company as a result of past events.
Onerous contracts
Provision has been made for an onerous contract identified in Tusk Taung on acquisition of the Tusk
Group. The provision is calculated as the present value of the portion which management deem to be onerous in
Doc #:NY7:390196.4
F-50
light of the current market conditions, discounted using market-related rates. Tusk Taung is in the process of being
disposed of and as such no goodwill was attributed to Tusk Taung at acquisition. Based on the outcome of the
pending sale, management will reassess the onerous contract provision and whether goodwill should be
recognised within the forthcoming financial year.
22. Commitments
Group
2006
R'm
Capital commitments
authorized
—contracted for.....................................................................................................................
—not contracted for ...............................................................................................................
2005
R'm
—
126.3
83.6
59.0
126.3
142.6
The proposed capital expenditure will be financed by way of bank loans and cash
flow from operations.
Group
2006
R'm
Lease commitments
Future operating lease charges
—payable within 1 year .........................................................................................................
—payable 2 to 5 years............................................................................................................
—payable thereafter...............................................................................................................
2005
R'm
10.3
38.8
70.5
6.6
21.1
58.7
119.6
86.4
23. Retirement benefit information
The group provides retirement benefits for its permanent employees through
defined contribution schemes.
Group
2006
2005
Number Number
Number of employees ............................................................................................................
Doc #:NY7:390196.4
F-51
3,300
2,613
Number of employees consists of 100% of all permanent employees within the
group entities.
Group
2006
R'm
2005
R'm
The total amount expensed during the year to:
Peermont Global Provident Fund............................................................................................
25.5
19.6
Global Resorts Pension Fund..................................................................................................
3.0
2.6
These amounts include the full cost to the company and its subsidiaries, and a proportionate share of the
joint venture costs.
The group provides no post retirement benefits.
Doc #:NY7:390196.4
F-52
24. Share incentive schemes
Performance Restricted Share Incentive Scheme
In terms of this scheme the board may periodically award to participants the contingent right to acquire
Peermont Global Limited shares, after a predetermined period of time and subject to certain performance criteria,
including measures such as growth in HEPS, growth in EBITDA per share and annual return on equity, being met.
This scheme allows participants to receive a specified number of shares in the company for no consideration. The
board may elect to acquire shares awarded under this scheme in the market or to issue new shares to participants.
The award shares were valued at the date of issue by an independent third party using a Discreet Dividend
European Binomial valuation model. Inputs used were the daily closing prices of comparable listed companies;
the JSE Leisure and Hotels Index from 1991 to 2004 to calculate the short, medium and longer dated historic
volatilities; the company's prelisting statement and its stated dividend policy forecast income statements, balance
sheets, dividends as prepared by management; CPIX at 4%; cost of equity at 14.7%; the daily risk free rate based
on R112c - 3 year zero coupon yield; and, a 100% probability of vesting.
The aggregate number of shares that may be utilised under this scheme may not exceed 1% of the
aggregate number of shares in issue at any time, currently a maximum of 3 300 000 shares. No single employee
may be issued a number of shares exceeding 0.5% of the total shares in issue at a point in time. The benefits of the
shares, such as voting rights and rights to dividends, shall transfer to the participant on the date that the shares vest
with the participant. The following percentages of the awarded shares will vest on 8 September 2007 if the
required group financial performance targets are met:
Vesting%
Target threshold is met or exceeded......................................................................................................
Minimum threshold is achieved............................................................................................................
Minimum threshold is not achieved ......................................................................................................
(straight line interpolation between 50 and 100% of award shares is utilised for actual achievements
between the minimum and target thresholds)
100
50
—
On 8 September 2004, contingent rights in respect of 1 059 671 shares were awarded to 18 employees for
no consideration. To date, no units have vested.
Group
2006
2005
Number of units in issue—vesting on 8 September 2007 if performance criteria are met .......... 1,024,0 1,024,0
66
66
Number of units in issue at the beginning of the year .............................................................. 1,024,0 1,024,0
66
66
Doc #:NY7:390196.4
F-53
Units issued during the year ...................................................................................................
Awards forfeited during the year ............................................................................................
—
—
—
—
Number of units in issue at the end of the year ........................................................................ 1,024,0 1,024,0
66
66
Liability recognised at beginning of the year....................................................................................................................
Costs recognised during the year .....................................................................................................................................
R'm
1.7
1.3
R'm
0.4
1.3
Liability recognised at end of the year .............................................................................................................................
3.0
1.7
Share Appreciation Right Scheme
This scheme does not result in any shares being acquired by the participant and can be described as a cashsettled scheme linked to the appreciation in value of the Peermont Global Limited shares. The scheme periodically
awards appreciation units to participants which vest proportionately over a period and result in a cash payment to
the participant. The number of appreciation units awarded in terms of the scheme shall not exceed 4% of the
number of issued shares at any time, currently a maximum of 13,200,000 units. No single employee may be issued
a number of units exceeding 0.5% of the total shares in issue at a point in time. Provided that the employee
remains in the employ of the group at the time, the units shall vest or have vested as follows:
•
33% rounded upward to the next whole number will vest on the second anniversary of the award date.
•
33% rounded upward to the next whole number will vest on the third anniversary of the award date.
•
The remaining units will vest on the fourth anniversary of the award date.
After the units have vested, the participant is entitled to convert these to cash at any time up to the sixth
anniversary date, at which time, the units will be converted and paid out automatically.
On 8 September 2004, 3,947,936 units were awarded to 31 employees at a price of R4.55, which escalates
by CPIX until the relevant vesting date.
On adoption of IFRS 2 Share-based payments, an independent valuation of the awards was obtained for
each of the required reporting dates. The valuations were based on the binomial tree method. The tree
incorporated a lognormal distribution of the underlying share price; the existing term structure of interest rates;
discrete dividend information; the closing price of the share at R12.40 (2005: R9.00) as at 31 December 2006; the
forecast CPIX curve; a flat volatility of 20% (2005: 25%) based on historical share data of the company and other
companies in the same JSE sector; a latest maturity date of 8 September 2010; and, estimated dividend
information was determined using consensus forecasts until 2010.
Group
2006
2005
Number of units in issue at the beginning of the year .............................................................. 3,564,6 3,799,5
Doc #:NY7:390196.4
F-54
06
84
Units issued during the year ...................................................................................................
—
—
Awards forfeited during the year ............................................................................................ (137,10 (234,97
3)
8)
Number of units in issue at the end of the year ........................................................................ 3,427,5 3,564,6
03
06
Vested on 8 September 2006 .................................................................................................. 1,142,5 1,188,2
01
02
Vesting on 8 September 2007................................................................................................. 1,142,5 1,188,2
01
02
Vesting on 8 September 2008................................................................................................. 1,142,5 1,188,2
01
02
R'm
R'm
Liability recognised at beginning of the year...........................................................................
Costs recognised during the year ............................................................................................
5.4
14.0
0.8
4.6
Liability recognised at end of the year ....................................................................................
19.4
5.4
Phantom Share Incentive Scheme
This scheme does not result in any shares being acquired by the participant and can be described as a
bonus scheme linked to the profitability of PGERH. The scheme awarded 50,340,000 notional units to qualifying
employees (who were in the employ of the group at 1 July 2003) which vest proportionately over a period and
result in a cash payment to the participant. Provided that the employee remains in the employ of the group at the
time, the notional units vested, as follows:
•
25% at 31 December 2003
•
•
•
The value of the payment is determined utilising a formula based on PGERH's audited profit before
interest and taxation in each year to establish a notional unit price at each vesting date. The entry unit price was set
at the outset of the scheme and ranges from R0.84 to R1.18, depending on the date the qualifying employee joined
the group.
At 31 December 2006, the formula derived price was R2.32 (2005: R1.99). This resulted in the payments
to participants of:
Doc #:NY7:390196.4
F-55
Group
Number of notional shares vesting..........................................................................................
Amounts payable/paid to participants .....................................................................................
Costs recognised in the year ...................................................................................................
2006
000
2005
000
10,032
10,519
R'm
R'm
16.6
10.2
11.2
8.5
25 Related parties
25.1
Identity of related parties with whom material transactions have occurred:
The company is the holding company of PGEFSH, PGTH, PGM and PGB. The company is a partner in
two joint ventures, PGSH and PGERH, which owns PGER.
PGL is a shareholder in PMIH, which in turn is a 66.66% shareholder in PGERH.
PGM is the management company of PGER, PGSH, PGEFS and PGB.
The BDC is a 40% shareholder in PGB. BDC holds all the shares in Holding Company 2574 (Pty) Ltd,
which leases land to PGB.
PGEFSH is the holding company of PGEFS.
PGTH is the holding company of TCHMH, TRH, TCHMHB, TRHB, TCHM, TCHMB and Emanzini.
TRH is the holding company of Tusk Resorts. Tusk Venda is a wholly owned subsidiary of Tusk Resorts.
All of the above entities are related parties to the company. Other than with the directors of the company,
there are no other related parties with whom material transactions have taken place.
25.2
Types of related party transactions
Management fees, development fees, payroll and ancillary cost payments and lease payments have been
made and dividends have been received from certain related parties.
25.3
Amounts due by:
Group
2006
R'm
Doc #:NY7:390196.4
F-56
2005
R'm
Joint ventures:
PGER....................................................................................................................................
PGSH....................................................................................................................................
25.4
1.7
0.1
1.2
0.1
1.8
1.3
Amounts due to:
Group
2006
R'm
Related parties:
MER .....................................................................................................................................
Holding Company 2574 (Proprietary) Limited........................................................................
MSH .....................................................................................................................................
2005
R'm
0.9
1.7
1.5
0.5
1.8
0.5
4.1
2.8
26. Notes to the cash flow statement
26.1
Cash flows from operating activities
Group
2006
R'm
2005
R'm
Adjusted for:
—fair value adjustment on derivative instruments...................................................................
—depreciation .......................................................................................................................
—amortisation of intangible assets .........................................................................................
—operating rental charge—staff complexes............................................................................
—intangible assets written off ................................................................................................
—profit on sale of assets ........................................................................................................
—unrealised exchange rate movements ..................................................................................
—share-based payments charge..............................................................................................
553.9
402.0
(0.2)
73.6
4.6
0.9
0.2
(0.3)
(0.4)
1.3
—
59.5
6.1
—
—
(0.4)
(0.7)
1.3
Cash generated by operations before working capital changes .................................................
Cash generated by changes in working capital ........................................................................
633.6
31.6
467.8
9.2
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F-57
Increase in inventories............................................................................................................
Increase in accounts receivable...............................................................................................
Increase in accounts and other payables and provisions...........................................................
Decrease in amounts due by joint ventures..............................................................................
Decrease in amounts due by related parties and subsidiaries ....................................................
Increase in amounts due to related parties ...............................................................................
26.2
(1.5)
(12.1)
44.4
(0.5)
—
1.3
(6.0)
(11.7)
26.3
(0.2)
0.2
0.6
665.2
477.0
Financial income
Group
2006
R'm
Realised foreign exchange profits...........................................................................................
26.3
2005
R'm
6.2
—
6.4
0.8
6.2
7.2
Financial expenses
Group
Interest paid ...........................................................................................................................
2006
R'm
2005
R'm
(59.5)
(67.1)
(39.5)
(65.1)
(126.6) (104.6)
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F-58
26. Notes to the cash flow statement
26.2
Financial income
26.4
Taxation paid
Group
2006
R'm
2005
R'm
Amounts outstanding at beginning of year .............................................................................. (21.4)
(5.7)
Income statement charge........................................................................................................ (145.6) (122.0)
Unrealised foreign exchange difference ..................................................................................
—
(0.1)
Balance acquired in joint ventures ..........................................................................................
—
(5.8)
Businesses acquired ............................................................................................................... (22.2)
—
Amounts outstanding at end of year........................................................................................
45.0
21.4
(144.2) (112.2)
26.5
Decrease in investments
Group
2006
R'm
Investment to secure Bethlehem Casino licence ......................................................................
26.6
2005
R'm
—
1.5
—
1.5
Acquisition of businesses
Group
Doc #:NY7:390196.4
F-59
2006
R'm
2005
R'm
Asset and liabilities acquired at fair value:
Fair value adjustment of land and buildings ............................................................................
Intangible assets.....................................................................................................................
161.4
159.2
462.5
—
54.5
4.5
Fair value adjustment of intangible assets ...............................................................................
Casino licences ......................................................................................................................
Management contracts ...........................................................................................................
Other intangible assets ...........................................................................................................
(7.3)
333.2
105.9
30.7
—
—
—
4.5
2.4
Inventories.............................................................................................................................
4.6
Accounts receivable ...............................................................................................................
8.1
131.0
Shareholders' loans ................................................................................................................
(8.7)
Interest-bearing long-term borrowings .................................................................................... (198.1)
Deferred taxation liability....................................................................................................... (40.1)
Accounts payable and provisions............................................................................................ (38.2)
Taxation ................................................................................................................................ (22.2)
—
0.5
0.9
—
—
(0.4)
(1.1)
(0.6)
—
Fair value of net assets acquired .............................................................................................
Less: minority share of fair value of net assets ........................................................................
621.9
(15.0)
58.3
—
Total acquisition consideration...............................................................................................
606.9
Cash balances acquired .......................................................................................................... (131.0)
MIC contribution to PGTH for Tusk acquisition ..................................................................... (120.4)
Acquisition consideration for shareholders' loans ....................................................................
74.4
Retention creditors................................................................................................................. (34.2)
58.3
—
—
—
—
Cash flow on purchase of the Tusk Group...............................................................................
58.3
395.7
As further explained in the directors' report, PGL acquired a 79% interest in the Tusk Group through its
subsidiary, PGTH, with effect from 1 September 2006.
PGB acquired the Syringa Hotels in Botswana with effect from 1 March 2005.
26.7
Share buy-back in joint venture
In 2005, PGL became entitled to an additional 20,74% of PGERH with effect from 31 March 2005:
Group
2006
R'm
Doc #:NY7:390196.4
F-60
2005
R'm
Assets and liabilities acquired:
Fair value adjustment of land and buildings ............................................................................
Intangible assets.....................................................................................................................
Inventories.............................................................................................................................
Interest-bearing long-term borrowings ....................................................................................
Deferred taxation ...................................................................................................................
Accounts payable...................................................................................................................
Current portion long-term borrowings ....................................................................................
Taxation ................................................................................................................................
—
—
—
—
—
—
—
—
—
—
—
—
30.4
324.9
19.3
6.0
2.8
2.8
28.7
(39.8)
(42.5)
(33.2)
(28.9)
(5.7)
Fair value of net assets acquired .............................................................................................
Goodwill ...............................................................................................................................
—
—
264.8
342.4
Total acquisition consideration...............................................................................................
Non-cash flow option gain .....................................................................................................
Cash balances acquired ..........................................................................................................
—
—
—
607.2
(46.3)
(28.7)
Cash flow on share buy-back in joint venture..........................................................................
—
532.2
26.8
Disposal of interest in joint venture
In 2005, PGL disposed of 3% of PGSH with effect from 30 April 2005:
Group
2006
R'm
2005
R'm
Assets and liabilities disposed of:
Inventories.............................................................................................................................
Bank and cash........................................................................................................................
Shareholder's loan..................................................................................................................
Accounts payable...................................................................................................................
Taxation ................................................................................................................................
—
—
—
—
—
—
—
4.7
0.1
0.1
0.2
(4.7)
(0.3)
(0.1)
Net assets disposed of ............................................................................................................
—
—
Cash outflow on disposal of shares to MSH............................................................................
—
(0.2)
Doc #:NY7:390196.4
F-61
26.9
Dividends paid
Group
2006
R'm
2005
R'm
Dividends paid....................................................................................................................... (120.1) (101.0)
Dividends paid to minority shareholders.................................................................................
(3.7)
(2.7)
(123.8) (103.7)
26.10 Cash and cash equivalents
Group
2006
R'm
2005
R'm
170.0
60.0
Current account......................................................................................................................
Cash on hand .........................................................................................................................
134.8
35.2
36.5
23.5
Bank overdrafts......................................................................................................................
(67.6)
(88.8)
102.4
(28.8)
27. Interest in Joint Ventures
The group has a 82.96% interest in a joint venture, PGERH and its wholly-owned subsidiary, PGER, and a
97% interest in PGSH, the principal activities of which are operating casinos, hotels and ancillary facilities.
Included within the consolidated balance sheets and income statements of the group are the following items,
which represent the group's interest in the assets, liabilities, revenues and expenses of the joint ventures:
Group
2006
R'm
2005
R'm
Revenue ................................................................................................................................ 1,334.0 1,084.7
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F-62
440.4
339.1
Profit before taxation..............................................................................................................
Taxation ................................................................................................................................
361.4
113.2
294.0
98.8
Profit for the year...................................................................................................................
248.2
195.2
Non-current assets.................................................................................................................. 1,963.4 1,617.2
Current assets ........................................................................................................................
78.9
69.1
Non-current liabilities ............................................................................................................
Current liabilities ...................................................................................................................
741.1
334.3
923.3
381.5
Cash flows from operating activities.......................................................................................
332.3 257.7
Cash flows from investing activities ....................................................................................... (54.3) (135.9)
Cash flows from financing activities....................................................................................... (252.2) (190.0)
28. Financial instruments
28.1
Interest risk
The group's exposure to interest rate risk by virtue of its interest-bearing long-term borrowings is detailed
in notes 19 and 20.
Hedging instruments and the effect those have on the effective interest rates on financial instruments at
balance sheet date, is recorded in the swaps identified in notes 28.2 and 28.3.
In managing interest rate risks the group aims to reduce the impact of short-term fluctuations on the
group's earnings by utilising derivative instruments to hedge approximately 50% of this risk.
At 31 December 2006, it is estimated that a movement of one percentage point in interest rates would
affect the group's profit before tax by approximately R6.0 million (2005: R4.1 million).
Doc #:NY7:390196.4
F-63
28. Financial instruments
28.2
PGER term loan
PGER entered into interest rate swap contracts that entitle it to receive interest at fixed or floating rates on
notional principal amounts and oblige it to pay interest at these rates on the same amounts. The swaps have the
effect of reducing the rate on long-term borrowings to 16.81% NACM (refer to note 12) until 2 July 2007.
1 year or
less
R'm
1-3 years
Total
R'm
R'm
2006
Swap 1 entered into to pay floating rate ........................................................
3.5
—
3.5
Swap 2 entered into to pay fixed rate ............................................................
(0.6)
(0.7)
(1.3)
—
—
—
(0.6)
(0.7)
(1.3)
(2.6)
—
(2.6)
2005
Swap 1 entered into to pay floating rate ........................................................
14.1
4.0
18.1
(2.8)
(3.2)
(5.5)
(0.8)
(0.9)
(1.6)
(3.6)
(4.1)
(7.1)
(11.5)
(3.3)
(14.8)
At 31 December 2006 the fixed rate on swap 1 is 18.38% NACD (2005: 18.38%) and the floating rates
vary from 10.35% to 11.50% (2005: 10.35% to 11.50%). On swap 2 the fixed rate is 16.60% NACD (2005:
16.60%) and the floating rates vary from 10.35% to 11.50% (2005: 10.35% to 11.50%). On swap 3 the fixed rate
is 17.55% NACD (2005: 17.55%) and the floating rates vary from 10.35% to 11.50% (2005: 10.35% to 11.50%).
On swap 4 the fixed rate is NACD 16.55% (2005 16.55%) and the floating rates vary from 10.35% to 11.50%
(2005: 10.35% to 11.50%).
Doc #:NY7:390196.4
F-64
28.3
PGER Preference shares
PGER entered into interest rate swaps where it agreed with other parties to exchange, at specified
intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to the agreed
notional principal amounts.
The intention at the outset of this transaction was to enter into a cash flow hedge for 50% of the preference
share debt, at the appropriate time, to fix a portion of the floating interest rate (preference coupon) element of the
preference shares. The chosen instruments are interest rate swaps with the floating leg linked to the prime rate.
The swaps have the effect of fixing the rate on the preference shares at 73% of 11.1% NACQ (Nedbank)
and at 73% of 11.0% NACQ (Standard Bank) respectively. Swaps to the value of R151.4 million expire on
28 September 2007, with the remaining R151.4 million expiring on 30 September 2008.
1 year or
less
R'm
1-3 years
Total
R'm
R'm
2006
Swap 5 (Nedbank) .......................................................................................
Swap 6 (Standard Bank)...............................................................................
0.9
1.8
0.9
0.3
0.7
0.4
1.2
2.5
1.3
2005
Swap 5 (Nedbank) .......................................................................................
(0.5)
(0.9)
(0.4)
(0.3)
(0.5)
(0.2)
(0.8)
(1.4)
(0.6)
At 31 December 2006 the fixed rate on swap 5 is 73% of 11.1% NACQ and the floating rate is 73% of
10.5% NACQ (2005: 7.7%). On swap 6 and 7 the fixed rate is 73% of 11.06% NACQ (2005: 8.1%) and the
floating rate is 73% of 10.5% NACQ (2005: 7.7%).
28.4
Repricing
Derivative instruments are by their nature sensitive to interest rate repricing risk, but the exposure on a net
basis is minimal due to the hedging effect of the respective assets and liabilities or limited to the cost of the option
premium paid.
28.5
Credit risk
Financial assets, which are potentially subject to concentrations of credit risk, consist principally of cash,
short- and long-term deposits and trade receivables. The cash equivalents and short-term deposits are placed with
high credit quality financial institutions. Trade receivables are presented net of the allowance for doubtful
receivables. Credit risk with respect to trade receivables is limited due to the large number of customers
comprising the group's customer base and their dispersion across different industries and different geographical
areas. Therefore at balance sheet date there were no significant concentrations of credit risk.
Doc #:NY7:390196.4
F-65
The carrying amounts of financial assets included in the balance sheet represent the group's exposure to
credit risk in relation to these assets.
28.6
Liquidity Risk
The group's current liabilities exceed its current assets. This is consistent with historical trends and is
similar to many other companies within the gaming industry. The net result is that the working capital cycle
generates cash for the group and current liabilities continue to be met by cash generated from operations.
28.7
Currency risk
The group is exposed to currency risk (Botswana Pula: Rand) through its assets, liabilities and operations
in Botswana. The company's total investment in its Botswana subsidiary amounted to R9.6 million at
31 December 2006. The group is also exposed to currency risk through its joint venture and subsidiaries which
import gaming and other equipment, principally denominated in US dollars and Euro. The bulk of the foreign
currency risk is mitigated where possible through negotiating fixed currency rates with suppliers.
29. Borrowings
The company's articles of association place no limitations as to the quantum of borrowings the company
may raise.
The group's borrowing capacity is however constrained by certain loan agreements, which place a limit on
borrowings.
In terms of agreements signed on 31 January 2005, PGERH's consolidated borrowing level was limited to
R1.3 billion (group share: R1,078.5 million). PGERH has guaranteed the debts of PGER and pledged its shares in
PGER as security for these debts.
The company entered into an agreement on 20 April 2006, whereby its borrowing level was limited to
R2 billion. As security for this debt, PGM has ceded to FirstRand Bank Limited any and/or all of its rights, title
and interest accruing from management agreements between PGL and PGSH and between PGL and PGB.
In terms of agreements commencing on 16 August 2006, the company's maximum interest-bearing debt is
limited to 110% of shareholders' funds as at 30 June and 31 December for the reporting periods 2006 to 2009,
100% for the 2010 reporting period, 80% for the 2011 reporting period and 60% thereafter.
On 16 February 2005, PGB issued notes totalling BWP25 million in terms of an approved note
programme. The conditions attached to these notes limit PGB's maximum interest-bearing debt to 120% at
31 December 2006 and 100% at 31 December 2007 and until such time as the notes are redeemed on 1 March
2010.
Refer to notes 19 and 20 for disclosure of the interest-bearing long-term liabilities and preference share
liabilities, respectively.
Doc #:NY7:390196.4
F-66
30. Contingent liabilities
Group
2006
R'm
Guarantees
Guarantees have been issued by FirstRand Bank Limited on behalf of PGER in favour of the
GGB as security for the payment of Gambling Board levies and any gambling debts.............
2005
R'm
37.4
34.6
The First National Bank of Botswana Limited has issued a guarantee on behalf of PGB in
favour of the Botswana Casino Control Board as security for the payment of gaming levies
and any gambling debts........................................................................................................
0.4
0.4
Nedbank Limited has issued a guarantee on behalf of PGEFS in favour of the FSGRB as
security for the payment of gambling board levies and any gambling debts. ..........................
0.6
—
PGL has issued a guarantee in favour of ABSA in terms of which PGL guarantees the
guaranteed obligations of PGEFSH, limited to 90.7% of the outstanding balance of the
guaranteed obligations at any time........................................................................................
42.2
—
RMB has issued a guarantee to the ECGBB for 100% of the obligations of Peermont Global
(Mthatha) (Proprietary) Limited in terms of its bid application should it be awarded a casino
licence.................................................................................................................................
210.0
—
Emanzini holds an amount on call as security for guarantees issued to the KZNGB and to the
City of Imhlathuze. ..............................................................................................................
2.7
—
Tusk Venda holds an amount on call as security for guarantees issued to the LGB...................
0.5
—
Tusk Resorts holds an amount on call as security for guarantees issued to Eskom. ...................
0.3
—
Nedcor Limited has issued a forfeitable guarantee on behalf of PGEFS to the FSGRB in the
amount of R5 million, as security for the completion of the casino development....................
5.0
5.0
Staff housing loans
Certain companies within the group assist their employees to obtain housing loans through First National
Bank. This is achieved by employees granting First National Bank security over their provident fund assets for
housing loans granted to them. The companies have given a further guarantee to First National Bank for any
shortfall realised by the bank on the foreclosure on any housing loans.
Doc #:NY7:390196.4
F-67
Taxation
SARS performed integrated audits at two of the group companies covering the 1999 to 2003 years of
assessment. SARS issued a final letter of findings to both units. The most significant findings related to the
deductibility of pre-opening expenses amounting to R24.7 million, (tax effect: R7.4 million) royalties amounting
to R60.1 million (tax effect: R18.0 million) and the wear and tear write-off periods claimed in respect of certain
assets categories, predominantly slot machines.
The companies, in consultation with their legal and taxation advisors, rejected SARS' contentions on most
items in comprehensive letters written to SARS. The companies continue to engage SARS on these matters.
Management firmly believes, as supported by legal advice, that SARS has erred in reaching its conclusions as
contained in its letters of findings.
It is impractical, premature and may be misleading to quantify the potential tax exposure emanating from
the SARS letters of findings at present, as certain factual issues and calculations are still being debated and the
substance of the contentions is predominantly based on the interpretation of a variety of case law.
31. Significant accounting judgements and estimates
Estimates, judgements and assumptions are continually evaluated and are based on historical experience
and other factors including expectations of future events that are believed to be reasonable under the
circumstances. Although these estimates are based on management's best knowledge of current events and actions,
actual results may ultimately differ from these estimates.
The group makes estimates, judgements and assumptions concerning the future. Those that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are detailed below.
Residual value and useful life
The group depreciates its assets over their estimated useful lives taking into account residual values,
which, following the adoption of International Accounting Standards (IAS16) Property, plant and equipment
(revised), are re-assessed on an annual basis. The actual lives and residual values of these assets can vary
depending on a variety of factors.
Technological innovation, product life cycles and maintenance programmes all impact the useful lives and
residual values of assets. Residual value assessments consider issues such as future market conditions, the
remaining life of the asset and projected disposal values.
Income taxes
The group recognises the net future tax benefit related to deferred income tax assets to the extent that it is
probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the
recoverability of deferred income tax assets requires the company to make significant estimates related to
expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from
operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and
taxable income differ significantly from estimates, the ability of the company to realise the net deferred tax assets
Doc #:NY7:390196.4
F-68
recorded at the balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions
in which the company operates could limit the ability of the company to obtain tax deductions in future periods.
Management applies its judgement to the fact patterns and advice it received from its attorneys, advocates
and other advisors in assessing if an obligation is probable, more likely than not, or remote. This judgement
application is used to determine if the obligation is recognised as a liability or disclosed as a contingent liability.
Impairment of intangible assets
The group annually tests goodwill and indefinite life assets for impairment. This involves using certain
assumptions and judgements regarding future events that principally affect future cash flows of the group (refer
note 10).
Share incentive scheme costs
The costs associated with certain of the group's share incentive schemes were determined using certain
assumptions and financial estimates (refer note 24).
32. Standards and interpretations issued but not yet effective at 31 December 2006
At the date of approval of the annual financial statements, the following Standards and Interpretations that
apply to the company were in issue but not yet effective:
Standard/Interpretation
IFRS 7..................... Financial Instruments: Disclosures
(including amendments to IAS 1,
Presentation of Financial Statements:
Capital Disclosures)
*
Effective date
Annual periods commencing on or after
1 January 2007*
All statements will be adopted at their effective date.
IFRS 6, IFRIC 9 to 12 and IAS 503 were effective but are not applicable to the business of the company
and will therefore have no impact on future financial statements. The directors are of the opinion that the impact
of the application of the remaining standards will be as follows:
IFRS 7
The disclosures provided in respect of financial instruments in the financial statements of the period
ending 31 December 2007, as well as comparative information, will be compliant with IFRS 7. The disclosure
requirements of IFRS 7 require additional disclosure compared to that required in terms of existing IFRS in
respect of the following:
Qualitative disclosures
Doc #:NY7:390196.4
F-69
•
Further information regarding each type of financial instruments risk including the exposures to risk
and how they arise; the company's objectives, policies and processes for managing the risk; the
methods used to measure the risk; and, any changes from the previous period.
Quantitative disclosures
•
Further information regarding each type of the company's financial instruments risk including
summary quantitative data about exposure to that risk at the reporting date including any
concentrations of credit risk; financial assets that are either past due or impaired; any collateral and
other credit enhancements obtained; liquidity risk; market risk; and, capital objectives and policies.
The adoption of IFRS 7 will not have any impact on the accounting policies adopted for financial
instruments.
Doc #:NY7:390196.4
F-70
Notes to the financial statements (continued)
33. Segmental analysis
Expansion
capital
Depreciation
2006
Replacement
expenditure
and
Operating
Profit for
capital
&
Segment
Segment
Revenue
EBITDA R
amortisation
profit
the year
expenditure
investment
assets*
liabilities*
R'm
R'm
R'm
R'm
R'm
R'm
R'm
R'm
R'm
Emperors Palace—100%..............................
1,464.8
586.7
(62.4)
506.2
281.5
(49.8)
(9.9)
2,305.7
1,274.1
Less share not proportionately
(249.6)
(100.0)
10.7
(86.2)
(47.9)
8.5
1.7
(433.1)
(219.5)
1,215.2
486.7
(51.7)
420.0
233.6
(41.3)
(8.2)
1,872.6
1,054.6
consolidated...............................................
Emperors Palace—proportionately consolidated share
Graceland—100%.........................................
122.4
28.6
(6.0)
20.8
15.1
(5.1)
—
174.9
21.4
Less share not proportionately consolidated
(3.6)
(0.9)
0.2
(0.6)
(0.4)
0.2
—
(5.2)
(0.6)
Graceland—proportionately consolidated share
118.8
27.7
(5.8)
20.2
14.7
(4.9)
—
169.7
20.8
Botswana#.....................................................
144.6
42.2
(9.2)
28.8
16.4
(7.3)
—
151.9
89.5
Head Office ...................................................
108.0
34.1
(0.6)
32.3
(4.4)
(0.9)
—
1,716.4
598.4
Mondazur ......................................................
16.4
4.1
(0.9)
2.9
1.9
(0.8)
—
33.3
2.0
Bethlehem .....................................................
4.0
(5.8)
(0.5)
(6.3)
(12.9)
—
(77.9)
107.8
92.7
Intercompany ................................................
(92.5)
10.0
(0.4)
9.5
11.5
—
2.4
(1,308.3)
7.0
Tusk Group ...................................................
118.3
56.8
(9.1)
46.5
28.2
(10.2)
(395.7)
890.3
281.9
Tusk Mmabatho ............................................
23.6
7.1
(0.9)
5.2
2.8
(2.4)
—
64.7
45.3
Tusk Taung ...................................................
2.1
(0.5)
—
(1.0)
(0.9)
(0.1)
—
8.2
6.6
Tusk Rio........................................................
42.6
19.4
(2.6)
16.5
10.0
(2.5)
—
88.5
43.2
Tusk Venda ...................................................
17.0
5.4
(0.8)
4.6
3.3
(2.1)
—
30.4
5.4
Tusk Umfolozi ..............................................
35.1
14.2
(3.2)
10.8
6.0
(3.0)
—
98.6
84.2
TCHM...........................................................
8.2
5.8
—
5.6
3.3
(0.1)
—
17.5
0.6
TCHMB ........................................................
2.9
1.9
—
1.9
1.8
—
—
3.4
2.8
Doc #:NY7:390196.4
Other..............................................................
5.6
5.4
—
5.4
13.1
—
(395.7)
624.1
34.6
Intercompany ................................................
(18.8)
(1.9)
(1.6)
(2.5)
(11.2)
—
—
(45.1)
59.2
Peermont Group total....................................
1,632.8
655.8
(78.2)
553.9
289.0
(65.4)
(479.4)
3,633.7
2,146.9
#
Average exchange rate (ZAR/BWP) 1.1788 applied to income statement and cash flow items, year end rate of 1.1795 applied to balance sheet
*
Segment assets and segment liabilities include deferred taxation assets and liabilities as well as taxation assets and liabilities.
Doc #:NY7:390196.4
Notes to the financial statements (continued)
33. Segmental analysis (continued)
2005
Revenue
EBITDA
Depreciation
Operating
Profit for
Replacement
Expansion
Segment
Segment
and
profit
the year
capital
capital
assets*
liabilities*
R'm
R'm
amortisation
expenditure
expenditure
& investment
R'm
R'm
R'm
R'm
R'm
R'm
R'm
Emperors Palace—100%..............................
1,250.4
483.9
(62.5)
410.7
235.4
(50.0)
(749.0)
1,843.5
1,387.1
(273.9)
(106.7)
13.1
(91.1)
(53.9)
9.1
130.2
(314.1)
(236.4)
Emperors Palace—proportionately consolidated share
976.5
377.2
(49.4)
319.6
181.5
(40.9)
(618.8)
1,529.4
1,150.7
Graceland—100%.........................................
110.5
25.6
(4.3)
19.9
14.0
(5.4)
—
177.1
168.2
(2.3)
(0.5)
0.1
(0.4)
(0.3)
0.2
—
(5.3)
(5.0)
Graceland—proportionately consolidated share
108.2
25.1
(4.2)
19.5
13.7
(5.2)
—
171.8
163.2
Botswana#.....................................................
144.2
43.8
(8.1)
31.1
18.6
(7.1)
(64.2)
154.6
98.9
Head Office ...................................................
80.8
38.4
(2.9)
34.3
17.3
(0.7)
(167.8)
1,090.7
168.0
Mondazur ......................................................
7.5
(0.5)
(0.6)
(1.3)
(0.9)
—
(22.7)
34.1
34.5
Bethlehem .....................................................
—
—
—
—
—
—
(13.9)
15.4
15.4
Intercompany ................................................
(80.4)
(0.8)
(0.4)
(1.2)
(2.8)
0.9
—
(348.1)
(163.5)
Group total ....................................................
1,236.8
483.2
(65.6)
402.0
227.4
(53.0)
(887.4)
2,647.9
1,467.2
Doc #:NY7:390196.4
Definitions
ABSA.....................................
BEE........................................
BDC .......................................
CSA .......................................
CEI.........................................
CEO .......................................
DPS........................................
EBITDA.................................
ECGBB ..................................
Emanzini ................................
EPS ........................................
FCTR .....................................
FSGRB...................................
GGB.......................................
HEPS......................................
HDI ........................................
IFRS.......................................
IncitiCorp ...............................
JIBAR ....................................
JSE.........................................
KZNGB..................................
LGB .......................................
Magnolia ................................
Main Street .............................
MER.......................................
MGB ......................................
MIC Leisure ...........................
MSH.......................................
NACD ....................................
NACM ...................................
NACQ ....................................
Peermont Global, PGL or
company...............................
PGB .......................................
PGER .....................................
PGERH ..................................
PGSH .....................................
PGTH.....................................
PGM.......................................
PMIH .....................................
RMB ......................................
SA GAAP...............................
SARS .....................................
Doc #:NY7:390196.4
ABSA Bank Limited
Botswana Development Corporation
Caesars South Africa Inc.
Caesars Entertainment Inc.
Dividend per share
Earnings before interest, taxation, depreciation and amortisation
Eastern Cape Gambling and Betting Board
Emanzini Leisure Resorts (Proprietary) Limited, trading as Tusk Umfolozi
Foreign currency translation reserve
Free State Gambling and Racing Board
Gauteng Gambling Board
Headline earnings per share
Historically disadvantaged individual
International Financial Reporting Standards
IncitiCorp (Proprietary) Limited
Johannesburg Inter Bank Acceptance Rate
JSE Limited
KwaZulu-Natal Gambling Board
Limpopo Gambling Board
Magnolia Ridge Properties 149 (Proprietary) Limited
Main Street 368 (Proprietary) Limited
Marang (East Rand) Gaming Investments (Proprietary) Limited
Mpumalanga Gaming Board
MIC Leisure (Proprietary) Limited
Marang (Southern Highveld) Gaming Investments (Proprietary) Limited
Nominal annual compounded daily
Nominal annual compounded monthly
Nominal annual compounded quarterly
Peermont Global (Botswana) (Proprietary) Limited
Peermont Global (East Rand) (Proprietary) Limited
PGER Holdings (Proprietary) Limited
Peermont Global (Southern Highveld) (Proprietary) Limited
Peermont Global Tusk Holdings (Proprietary) Limited
Peermont Global Management (Proprietary) Limited, formerly Peermont
Global East Rand Management (Proprietary) Limited
Peermont Marang Investment Holdings (Proprietary) Limited
Rand Merchant Bank Limited
South African Generally Accepted Accounting Practice
South African Revenue Service
F-74
STC........................................
Tusk Resorts ...........................
Tusk or Tusk Group ................
TCHM....................................
TCHMH .................................
TCHMB .................................
TCHMHB...............................
TRH .......................................
TRHB.....................................
Tusk Mmbatho........................
Tusk Rio.................................
Tusk Taung.............................
Tusk Venda ............................
Doc #:NY7:390196.4
Secondary Taxation on Companies
Tusk Resorts (Proprietary) Limited
Tusk Casino Resorts and Hotel Group
Tusk Casino and Hotel Management (Proprietary) Limited
Tusk Casino and Hotel Management Holdings (Proprietary) Limited
Tusk Casino and Hotel Management "B" (Proprietary) Limited
Tusk Casino and Hotel Management Holdings "B" (Proprietary) Limited
Tusk Resorts Holdings (Proprietary) Limited
Tusk Resorts Holdings "B" (Proprietary) Limited
Tusk Venda Casino Limited
F-75
Directors' responsibility for the annual financial statements
The directors are responsible for monitoring the preparation and integrity of the annual financial
statements and related information included in this annual report.
In order for the board to discharge its responsibilities, management has developed and continues to
maintain a system of internal control. The board has ultimate responsibility for the system of internal control and
reviews its operation primarily through the audit committee and risk committee.
The internal controls include a risk-based system of internal accounting and administrative controls
designed to provide reasonable, but not absolute assurance that assets are safeguarded and that transactions are
executed and recorded in accordance with generally accepted business practices and the group's policies and
procedures. These controls are implemented by trained, skilled personnel with an appropriate segregation of
duties, are monitored by management and include a comprehensive budgeting and reporting system operating
within strict deadlines and an appropriate control framework.
As part of the system of internal control, the group internal audit function conducts operational, financial
and specific audits and co-ordinates audit coverage with the external auditors. The external auditors are
responsible for reporting on the annual financial statements.
The annual financial statements are prepared in accordance with IFRS. The annual financial statements are
based on appropriate accounting policies consistently applied and supported by reasonable and prudent
judgements and estimates. Nothing has come to the attention of the directors to indicate that any material
breakdown in the functioning of internal controls and systems has occurred during the year under review.
The directors believe that the group will be a going concern in the year ahead. For this reason, they
continue to adopt the going concern basis in preparing the group annual financial statements.
The annual financial statements for the years ended 31 December 2005 and 2004, set out on pages F-72 to
F-125, were approved by the board of directors on 8 March 2006 and 10 March 2005, respectively and are signed
on its behalf by:
/s/ ALAN VAN BILJON
Alan van Biljon
Chairman
/s/ ERNIE JOUBERT
Ernie Joubert
Declaration by Company Secretary
In my capacity as Company Secretary, I hereby confirm, in terms of the Companies Act, 1973, that for the
years ended 31 December 2005 and 2004, the company has lodged with the Registrar of Companies, all such
returns as are required in terms of this Act and that all such returns are true, correct and up to date.
/s/ DL PETZER
DL Petzer
Doc #:NY7:390196.4
F-76
Company Secretary
8 March 2006
Doc #:NY7:390196.4
F-77
Report of the independent auditors
To the members of Peermont Global Limited
We have audited the group annual financial statements of Peermont Global Limited set out on pages F-72
to F-125 at 31 December 2005 and 2004 and for the years then ended. These annual financial statements are the
responsibility of the company's directors. Our responsibility is to express an opinion on these financial statements
based on our audit.
We concluded our audit in accordance with International Standards on Auditing. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the annual financial statements present fairly, in all material respects, the financial position
of the group at 31 December 2005 and 2004, and the results of their operations and cash flows for the years then
ended in accordance with International Financial Reporting Standards.
/s/ KPMG INC.
KPMG Inc.
Registered Accountants and Auditors
Chartered Accountants (SA)
8 March 2006
Doc #:NY7:390196.4
F-78
Directors' report
The directors have pleasure in presenting their report for the year ended 31 December 2005.
Business activities
The company's objective is to develop and manage hotel and casino and convention resorts, and related
businesses, both in southern Africa and abroad.
The group's operations currently consist of:
•
PGL, a holding and management company in Bryanston, Gauteng of which the Mondazur Resort
Estate Hotel at San Lameer in KwaZulu-Natal is a division;
•
The Grand Palm Hotel Casino and Convention Resort, in Gaborone (including the Metcourt Inn and
the Gaborone International Convention Centre), the Mondior Summit Hotel in Gaborone and the
Metcourt Lodge in Francistown, all of which are owned and operated by PGB, in which PGL has a
60% shareholding;
•
Graceland Hotel Casino and Country Club, in Mpumalanga, owned and operated by PGSH, in which
PGL has an effective 97% financial interest; and
•
Emperors Palace Hotel Casino and Convention Resort, adjacent to the Johannesburg International
Airport, which is owned and operated by PGER which is a wholly owned subsidiary of PGERH. PGL
holds an effective economic holding of 82.96% in PGERH.
Negotiations with the empowerment partners in PGSH were finalised during 2005 and an agreement was
concluded in terms of which their shareholding will be restructured. The revised shareholding is still to be
approved by the MGB. In terms of these agreements the PGSH empowerment partners will hold 50.1% and PGL
the remaining shares in a new company which will have a 50% interest in PGSH. As a result of this transaction,
PGL's effective economic interest in PGSH will decrease from the current 97% to an effective 75%. PGSH
remains under the management control of PGL.
The acquisition of the Syringa Hotel in Gaborone and the Syringa Lodge in Francistown became effective
on 1 March 2005. The acquisition was funded by a mortgage bond over the properties and the raising of a
corporate bond for P25 million.
The repurchase of shares by PGERH and the acquisition of the 50% interest in PGERM by PGL from
CSA were completed and became effective on 29 March 2005. This increased PGL's effective holding in PGERH
to 82.96% until December 2016 (after which date the effective economic interest will decline to 66.67%) and
increased its interest in PGERM to 100%. The cost related to the reduction in PGL's effective economic interest
will be expensed over the period to December 2016.
The refurbishment of the Mondazur Resort Estate Hotel at San Lameer, which resulted in the hotel being
either partially or fully closed from April 2005 until it reopened in September 2005, was completed at a total cost
Doc #:NY7:390196.4
F-79
of R23.9 million of which R22.7 million was spent in 2005. The first full year of operation of the refurbished
property will be 2006.
Construction of the Mondior Concorde Hotel, that adds 151 rooms at the Emperors Palace complex,
commenced during 2005 and R64.3 million was spent by 31 December. The hotel is expected to open during
March 2006 at a total cost of R78 million.
PGL acquired an effective 57.1% interest in the company developing the hotel and casino facilities in
Bethlehem, Free State. Construction commenced in November 2005 and the facility will consist of a 120 slot and
a 12 table casino and a 20 key hotel at an estimated capital cost of R103 million.
On 21 December 2005, the board announced that Peermont Global had concluded agreements, subject to
the fulfilment of certain conditions precedent, to acquire a controlling equity interest in the Tusk Group from the
Tusk shareholders. The Tusk Group owns and manages casinos and hotels comprising Tusk Mmabatho in
Mafikeng, Tusk Rio in Klerksdorp and Tusk Taung in Taung, all in the North West province; Tusk Venda in
Thohoyandou, Limpopo province; and Tusk Umfolozi in Empangeni, KwaZulu-Natal province.
Peermont Global will pay a total purchase consideration, in cash, of a minimum of R440.3 million and a
maximum of R583.0 million, for the controlling interest in these casino and hotel operations. The purchase
consideration will be determined based on the audited EBITDA of the Tusk Group for the financial year ending
31 March 2006, multiplied by an average EBITDA multiple of 6.8 times, and adjusted for actual levels of
indebtedness and working capital at 31 March 2006. The purchase consideration for the Tusk transaction will be
financed by means of additional preference share funding facilities extended by financial institutions to Peermont
Global, amounting to R375 million and from Peermont Global's own resources and existing facilities. The
transaction is expected to be implemented in June 2006 and therefore does not affect these financial statements.
Review of operations
The performance of the group is set out in the annual financial statements.
The group proportionately consolidated 62.22% of PGERH to 31 March and 82.96% for the balance of the
year. PGB continued to be consolidated. The interest in PGSH was diluted from 100% to 97% effective from
1 May 2006 as the empowerment shareholders became entitled to 3% of the equity value of the company from
that date. The new shareholding arrangements are similar in principle to the PGERH agreements, and
consequently from 1 May 2005, PGSH is proportionately consolidated at 97%.
Dividends
2005
R'm
Ordinary shares
Dividends paid on 10 April 2005 and 3 October 2005 (11 October 2004) .................
Dividends totalling 32.4 (2004: 27.4) cents per share were declared in respect of the
year under review.
Interim declared on 31 August 2005 (10 September 2004) and paid on 3 October
2005 (11 October 2004) ........................................................................................
Final declared on 8 March 2006 (10 March 2005) and payable on 3 April 2006
Doc #:NY7:390196.4
F-80
2004
R'm
101.0
37.6
14.6 cents
11.4 cents
17.8 cents
16.0 cents
(11 April 2005).....................................................................................................
The final dividend is not accounted for in these financial statements as it was
declared after year end.
Share capital
Details of the authorised and issued share capital and share premium are contained in notes 17 and 18 to
the annual financial statements.
Interest in profit for the year of subsidiaries and joint ventures
The company's aggregate interest in the profit for the year of subsidiaries and joint ventures was:
2005
R'm
Subsidiaries ............................................................................................................
Joint ventures..........................................................................................................
11.2
195.3
2004
R'm
17.3
96.6
Holding company
Peermont Global Limited is a public company with no holding company.
Directors
The directors in office during the year and as at the date of this report are:
Executive
EG Joubert
AE Puttergill
JE Forrer
K Houston
Non-executive
AF van Biljon
SH Müller
P Papadimitropoulos
STL Arnold
MD Brand
RI Cassim
RSN Dabengwa
KO Kutoane
Doc #:NY7:390196.4
Deputy Managing Director/Group Financial
Director
Executive Director: Group Development
Executive Director: Group Human Resources
(British)
Chairman
F-81
(Resigned 31 August 2005)
(Resigned 31 August 2005)
Secretary
The secretary at the date of this report is DL Petzer.
Registered address
Bridgeport House
Hampton Park
20 Georgian Crescent East
Bryanston
2152
Doc #:NY7:390196.4
F-82
Postal address
PO Box 98670
Sloane Park
2152
Accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and in preparing an opening IFRS balance sheet at 1 January 2004 for the
purposes of the transition to IFRS.
The accounting policies have been applied consistently by group entities.
Statement of compliance
The annual financial statements and group annual financial statements have been prepared in accordance
with IFRS and its interpretations adopted by the International Accounting Standards Board and the Companies
Act in South Africa. An explanation of how the transition to IFRS has affected the reported financial position,
financial performance and cash flows of the group is provided in note 35. These are the group's first consolidated
financial statements prepared utilising IFRS and IFRS 1 First time adoption of IFRS has been applied.
Basis of preparation
The annual financial statements are presented in Rand, rounded to the nearest million. The annual financial
statements are prepared on the historical cost basis, except for investments in derivative financial instruments that
are stated at fair value.
The preparation of annual financial statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects both current and future periods.
Basis of consolidation
Investment in subsidiaries
Subsidiaries are entities controlled by the company. Control exists when the company has the power,
directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into
account. The financial statements of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Doc #:NY7:390196.4
F-83
Investment in joint ventures
Joint ventures are those entities over whose activities the group has joint control, established by
contractual agreement. The consolidated financial statements include the group's proportionate share of the
entities' assets, liabilities, revenue and expenses with items of a similar nature on a line by line basis, from the date
that joint control commences until the date that joint control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are
eliminated in preparing the consolidated annual financial statements. Unrealised gains arising from transactions
with jointly controlled entities are eliminated to the extent of the group's interest in the enterprises. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
Revenue
Revenue derived from hotel and conference activities, food and beverage revenues, dividend income,
rentals, entertainment revenues and other income, is recorded on an accrual basis. Casino winnings are accounted
for on a cash received basis.
VAT and other taxes levied on casino winnings are included in revenue and treated as expenses as these
are borne by the company and not its customers. VAT on all other revenue transactions is excluded from revenue.
Interest income is recognised in the income statement as it accrues, using the effective interest rate
method. Dividend income is recognised in the income statement on the date the entity's right to receive payments
is established which, in the case of quoted securities, is usually the ex-dividend date. The interest expense
component of finance lease payments is recognised in the income statement using the effective interest rate
method.
Expenses
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over
the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the
total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding
liability. The finance charge is allocated to each period during the lease terms so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
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Financial expenses
Financial expenses comprise interest payable on borrowings calculated using the effective interest rate
method, dividends on redeemable preference shares, interest receivable on funds invested, dividend income,
foreign exchange gains and losses, and gains and losses on hedging instruments recognised in the income
statement.
Taxation
Income taxation on the profit or loss for the year comprises current and deferred taxation. Income taxation
is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in
which case it is recognised in equity.
Current taxation is the expected taxation payable on the taxable income for the year, using taxation rates
enacted or substantially enacted at the balance sheet date, and any adjustment to taxation payable in respect of
previous years.
Deferred taxation is provided using the balance sheet liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes. The amount of deferred taxation provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using taxation rates enacted or substantively enacted at
the balance sheet date.
A deferred taxation asset is recognised only to the extent that it is probable that future taxable profits will
be available against which the asset can be utilised. Deferred taxation assets are reduced to the extent that it is no
longer probable that the related taxation benefit will be realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the
liability to pay the related dividend arises.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are
translated to Rand at the foreign exchange rate ruling at that date. Foreign exchange differences arising on
translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Rand
at foreign exchange rates ruling at the dates the fair value was determined.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
consolidation, are translated to Rand at foreign exchange rates ruling at the balance sheet date. The revenues and
expenses of foreign operations are translated to Rand at rates approximating the foreign exchange rates ruling at
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the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a
separate component of equity.
Net investment in foreign operations
Exchange differences arising from the translation of the net investment in foreign operations, and of
related hedges, are taken to a translation reserve. They are released into the income statement upon disposal.
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Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and
impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial
estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they
are located, and an appropriate proportion of production overheads. Where parts of an item of property, plant and
equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Certain items of property that were revalued to fair value at 1 January 2004, the date of transition to IFRS,
are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation.
Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is
probable that future economic benefits from the use of assets will be increased. All other subsequent expenditure
is recognised as an expense in the income statement as incurred.
The carrying value of freehold buildings is compared to values determined by professional valuers at least
once every three years, using the open market value basis in continuation of existing use for land and buildings.
When the carrying value of buildings exceeds the value determined by professional valuers, the carrying value is
adjusted downwards through a charge to the income statement.
Depreciation is provided on the straight-line basis over the estimated useful lives of property, plant and
equipment. The residual value, if not insignificant, is reassessed annually. Depreciation is not provided on land or
capital work in progress.
Hotel, casino and other pre-opening expenses are written off in full in the year of commencement of
trading.
Surpluses/(deficits) on the disposal of property, plant and equipment are credited/(charged) to income. The
surplus or deficit is the difference between the net disposal proceeds and the carrying amount of the asset.
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to complete for its intended use or sale, are capitalised up to the date
the asset is substantially complete. Capitalisation is suspended during extended periods in which active
development is interrupted.
Leased assets
Finance leases
Leases that transfer substantially all the risks and rewards of ownership of the underlying asset to the
group are classified as finance leases. Assets acquired in terms of finance leases are capitalised at the lower of fair
value and the present value of the minimum lease payments at inception of the lease, and depreciated over the
estimated useful life of the asset. The capital element of future obligations under the leases is included as a
liability in the balance sheet. Lease payments are allocated using the effective interest rate method to determine
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the lease finance cost, which is charged against income over the lease period, and the capital repayment which
reduces the liability to the lessor.
Leasehold buildings are depreciated over the remaining leasehold periods.
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Intangible assets
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents
amounts arising on acquisition of subsidiaries, associates and joint ventures. In respect of business acquisitions
that have occurred since 31 March 2004, goodwill represents the difference between the cost of the acquisition
and the fair value of the net identifiable assets acquired.
In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which
represents the amount recorded under previous GAAP. The classification and accounting treatment of business
combinations that occurred prior to 31 March 2004 has not been reconsidered in preparing the group's opening
IFRS balance sheet at 1 January 2004.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cashgenerating units and is no longer amortised but is tested annually for impairment.
Negative goodwill arising on an acquisition is recognised directly in profit or loss.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific assets to which it relates. All other subsequent expenditure is expensed
as incurred.
Development
Expenditure on development activities is capitalised if the proposed development is technically and
commercially feasible and the group has sufficient resources to complete development. The expenditure
capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other
development expenditure is recognised in the income statement as an expense as incurred. Capitalised
development expenditure is stated at cost less accumulated amortisation and impairment losses.
Other intangible assets
Indefinite life intangible assets are carried at cost less any impairment losses. The carrying value is tested
annually for impairment. Other intangible assets that are acquired by the group are stated at cost less accumulated
amortisation and impairment losses. Expenditure on internally generated goodwill and brands is recognised in the
income statement as an expense as incurred.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are
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systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the
date they are available for use.
Impairment
The carrying amount of the group's assets is reviewed at each balance sheet date to determine whether
there is any indication of impairment. If there is an indication that an asset may be impaired, its recoverable
amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit
exceeds its recoverable amount. Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to cash-generating units (group of units) and then to reduce the carrying amount
of the other assets in the unit (group of units) on a pro rata basis.
Goodwill and indefinite-life intangible assets were tested for impairment at 1 January 2004, the date of
transition to IFRS, even though no indication of impairment existed.
Calculation of recoverable amount
The recoverable amount of the group's investments in held-to-maturity securities and receivables carried at
amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective
interest rate. Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their net selling price and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-taxation
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs.
Reversals of impairment
An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is
reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the
impairment loss was recognised.
An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is
not reversed through profit or loss. If the fair value of a debt instrument classified as available-for-sale increases
and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit
or loss, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss.
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount.
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An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had
been recognised.
Investments
Investments in debt and equity securities
Financial instruments held for trading are classified as current assets and are stated at fair value, with any
resultant gain or loss recognised in the income statement.
Other financial instruments held by the group are classified as being available-for-sale and are stated at fair
value, with any resultant gain or loss being recognised directly in equity, except for impairment losses and, in the
case of monetary items such as debt securities, foreign exchange gains and losses. When these investments are
derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss.
Where these investments are interest-bearing, interest calculated using the effective interest method is recognised
in profit or loss.
Financial instruments classified as held for trading or available-for-sale investments are
recognised/derecognised by the group on the date it commits to purchase/sell the investments. Securities held-tomaturity are recognised/derecognised on the day they are transferred to/by the group.
Other investments of the company are recognised at cost.
Derivative financial instruments
The group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate
risks arising from operational, financing and investment activities. In accordance with its treasury policy, the
group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do
not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition,
derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is
recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of
any resultant gain or loss depends on the nature of the item being hedged.
The fair value of interest rate swaps is the estimated amount that the group would receive or pay to
terminate the swap at the balance sheet date, taking into account current interest rates and the current
creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market
price at the balance sheet date, being the present value of the quoted forward price.
Other financial instruments
Other financial instruments are recorded at fair value less any impairments.
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Hedging
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a
recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the
derivative financial instrument is recognised directly in equity. When the forecast transaction subsequently results
in the recognition of a non-financial asset or non-financial liability, the cumulative gain or loss is removed from
equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of
a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the
associated gains and losses that were recognised directly in equity are reclassified into profit or loss in the same
period or periods during which the asset acquired or liability assumed affects profit or loss (i.e., when interest
income or expense is recognised). For cash flow hedges, other than those covered by the preceding two policy
statements, the associated cumulative gain or loss is removed from equity and recognised in the income statement
in the same period or periods during which the hedged forecast transaction affects profit or loss. The ineffective
part of any gain or loss is recognised immediately in the income statement.
When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of
the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at
that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If
the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in
equity is recognised immediately in the income statement.
Hedge of monetary assets and liabilities
Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a
recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging
instrument is recognised in the income statement.
Inventories
Inventories, comprising mainly food and beverage inventories, consumable stores and operating
equipment, are valued at the lower of cost and net realisable value. The cost of inventories comprises all costs
incurred in bringing the inventories to their present location and condition and is determined using the weighted
average method. Obsolete, redundant and slow moving inventories are identified and written down to their
estimated net realisable value.
Accounts and other receivables
Accounts and other receivables originated by the group are stated at amortised cost.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits
held on call with banks and investments in money market instruments, net of bank overdrafts, all of which are
available for use by the group, unless otherwise stated.
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Share capital
Preference share capital is classified as equity if it is non-redeemable and any dividends are discretionary,
or is redeemable but only at the company's option. Dividends on preference share capital classified as equity are
recognised as distributions within equity.
Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of
the shareholders or if dividend payments are not discretionary. Dividends thereon are recognised in the income
statement as an interest expense.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including
directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares
and presented as a deduction from total equity.
Dividends
Dividends on redeemable preference shares are recognised as a liability and expressed on an accrual basis.
Other dividends are recognised as a liability in the period in which they are declared.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs.
Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over the period of the borrowings on
an effective interest basis.
Financial liabilities
Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal
payments and amortisations.
Financial guarantee contracts
Financial guarantee contracts are classified as insurance contracts as defined in IFRS 4 Insurance
Contracts. A liability is recognised when it is probable that an outflow of resources embodying economic benefits
will be required to settle such contracts and a reliable estimate can be made of the amount of the obligation. The
amount recognised is the best estimate of the expenditure required to settle the contract at the balance sheet date.
Accounts and other payables
Accounts and other payables are stated at cost.
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Provisions
A provision is recognised in the balance sheet when the group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to
settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash
flows at a pre-taxation rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
Employee benefits
Short-term employee benefits
The costs of all short-term employee benefits are recognised during the period in which the employee
renders the related service. The provisions for employee entitlement to wages, salaries and annual leave represent
the amount which the group has a present obligation to pay as a result of employees' services provided to the
balance sheet date. The provisions have been calculated at undiscounted amounts based on current wage and
salary rates.
Long-term employee benefits
The group does not incur a liability for post employment medical aid benefits.
Liabilities for employee benefits which are not expected to be settled within 12 months, are discounted
using the market yields at the balance sheet date, on high quality bonds with terms which most closely match the
terms of maturity of the related liabilities.
Retirement benefits
Obligations for contributions to defined contribution pension plans are recognised as an expense in the
income statement as incurred.
Share-based payment transactions
The share incentive scheme allows group employees to acquire shares of the company. The fair value of
rights granted is recognised as an employee expense with a corresponding increase in equity. The fair value is
the rights. The fair value of the rights granted is measured using a binomial model, taking into account the terms
and conditions upon which the rights were granted. The amount recognised as an expense is adjusted to reflect the
actual number of share rights that vest except where forfeiture is only due to share prices not achieving the
threshold for vesting.
Share appreciation rights are granted to employees in the group. The fair value of the amount payable to
the employee is recognised as an expense with a corresponding increase in liabilities. The fair value is initially
payment. The fair value of the share appreciation rights is measured based on the Binomial Tree method taking
into account the terms and conditions upon which the instruments were granted. The liability is remeasured at
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F-94
each balance sheet date and at settlement date. Any changes in the fair value of the liability are recognised as an
employment cost.
Offset
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when
the company has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Segment reporting
A segment is a distinguishable component of the group that is engaged either in providing products or
services (business segment), or in providing products or services within a particular economic environment
(geographic segment), which is subject to risks and rewards that are different from those of other segments.
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Group income statements
Group
2005
2004
R'm
R'm
Note
Revenue...........................................................................................................................................
1,236.8
916.8
Gaming ............................................................................................................................................
Rooms..............................................................................................................................................
Food and beverage ............................................................................................................................
Other revenue ...................................................................................................................................
985.7
92.6
119.1
39.4
738.5
62.2
88.1
28.0
1
0.4
1,237.2
(835.2)
1.9
918.7
(637.6)
Employee costs.................................................................................................................................
VAT and gaming levies on gross gaming revenues .............................................................................
Promotions and marketing costs.........................................................................................................
Depreciation and amortisation............................................................................................................
Property and equipment rentals..........................................................................................................
Other operational costs......................................................................................................................
2
3
(260.0)
(191.8)
(81.0)
(65.6)
(15.6)
(221.2)
(200.3)
(145.4)
(42.1)
(63.1)
(11.8)
(174.9)
Operating profit ..............................................................................................................................
Net financial (expenses)/income.......................................................................................................
4
402.0
(56.0)
281.1
(36.8)
Financial income...............................................................................................................................
Financial expenses ............................................................................................................................
5
5
45.3
(101.3)
15.6
(52.4)
Profit before taxation ......................................................................................................................
Taxation ...........................................................................................................................................
Profit for the year............................................................................................................................
6
346.0
(118.6)
227.4
244.3
(69.7)
174.6
220.0
7.4
227.4
167.3
7.3
174.6
330.0
331.0
330.0
330.4
66.7
66.5
50.7
50.6
Other income....................................................................................................................................
Operating costs ...............................................................................................................................
4
Attributable to:
Equityholders of Peermont ................................................................................................................
Minority shareholders........................................................................................................................
Number of shares (million)..............................................................................................................
Issued ordinary shares .......................................................................................................................
For fully diluted EPS calculation........................................................................................................
Earnings per ordinary share (cents)................................................................................................
Basic earnings per share ....................................................................................................................
Diluted earnings per share .................................................................................................................
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F-96
7
7
Group balance sheets
at 31 December 2005 and 2004
Note
Assets
Total non-current assets.....................................................................................................................
Property, plant and equipment............................................................................................................
Intangible assets ................................................................................................................................
Amount due by joint venture..............................................................................................................
Investments.......................................................................................................................................
Derivative instruments.......................................................................................................................
Deferred taxation asset.......................................................................................................................
9
11
12
13
14
15
Total current assets ...........................................................................................................................
Inventories........................................................................................................................................
Accounts receivable...........................................................................................................................
Amounts due by joint ventures...........................................................................................................
Current portion of derivative instruments............................................................................................
Taxation ...........................................................................................................................................
Cash and cash equivalents..................................................................................................................
16
28.3
14
28.1
Total assets ......................................................................................................................................
Equity
Capital and reserves...........................................................................................................................
Minority interest................................................................................................................................
Total equity .....................................................................................................................................
Total non-current liabilities ...............................................................................................................
20
Interest-bearing long-term borrowings................................................................................................
Preference share liability....................................................................................................................
Derivative instruments.......................................................................................................................
Deferred taxation liabilities ................................................................................................................
21
22
14
15
Total current liabilities ......................................................................................................................
Accounts and other payables..............................................................................................................
Provisions.........................................................................................................................................
Amounts due to related parties ...........................................................................................................
Current portion of long-term borrowings ............................................................................................
Current portion of derivative instruments............................................................................................
Taxation liabilities.............................................................................................................................
Bank overdraft ..................................................................................................................................
Total equity and liabilities ...............................................................................................................
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F-97
23
27.4
21
14
28.1
Group
2005
2004
R'm
R'm
2,511.0
1,452.9
1,808.3
691.1
4.4
—
4.0
3.2
1,302.5
133.8
—
1.5
12.4
2.7
136.9
119.9
23.4
31.5
1.3
14.1
6.6
60.0
14.6
16.9
1.1
35.0
1.5
50.8
2,647.9
1,572.8
1,158.5
22.2
1,180.7
1,023.5
1,045.0
20.1
1,065.1
305,6
259.0
583.0
4.3
177.2
158.5
—
10.1
137.0
443.7
202.1
132.6
32.1
2.8
146.1
13.3
28.0
88.8
81.8
21.8
2.3
55.4
13.0
7.2
20.6
2,647.9
1,572.8
Group Statements of changes in equity
Note
Share
Share
Share-
Hedging
Translation
Share
Re-valuation
Retained
capital
premium
based
reserve
reserve
redemption
reserve
earnings
R'm
R'm
payments
Minority
Sub-total
Total
interest
reserve
reserve
R'm
R'm
R'm
R'm
R'm
R'm
R'm
R'm
R'm
Group
Release/revaluation of buildings on
*
32.9
—
—
2.2
9.7
393.7
272.5
711.0
18.8
729.8
—
—
—
—
—
—
(29.4)
211.0
181.6
—
181.6
*
32.9
—
—
2.2
9.7
364.3
483.5
892.6
18.8
911.4
transition to IFRS ......................................
Restated opening balance on transition
to IFRS at 1 January 2004 .....................
—
—
—
—
—
—
—
167.3
167.3
7.3
174.6
—
—
—
—
—
—
—
(37.6)
(37.6)
(3.8)
(41.4)
—
—
—
—
(3.4)
—
—
—
(3.4)
(2.2)
(5.6)
—
—
0.4
—
—
—
—
—
0.4
—
0.4
Revaluation of buildings on increase in
—
—
—
—
—
—
25.7
—
25.7
—
25.7
Realisation of investment valuation gain......
—
—
—
—
—
—
(364.3)
364.3
—
—
—
Restated balance at 31 December 2004 ....
*
32.9
0.4
—
(1.2)
9.7
25.7
977.5
1,045.0
20.1
1,065.1
Dividends paid ..............................................
8
holding in joint
ventures .........................................................
—
—
—
—
—
—
—
220.0
220.0
7.4
227.4
—
—
—
—
—
—
—
(101.0)
(101.0)
(2.7)
(103.7)
—
—
—
—
(4.0)
—
—
—
(4.0)
(2.6)
(6.6)
—
—
—
—
—
—
(0.2)
0.2
—
—
—
—
—
1.3
—
—
—
—
—
1.3
—
1.3
Unrealised loss on fair value of cash flow
—
—
—
(2.8)
—
—
—
—
(2.8)
—
(2.8)
Dividends paid ..............................................
8
hedge .........................................................
Taxation rate change on revaluation reserve
—
—
—
—
—
—
0.4
(0.4)
—
—
—
*
32.9
1.7
(2.8)
(5.2)
9.7
25.9
1,096.3
1,158.5
22.2
1,180.7
* Less than R50,000
Doc #:NY7:390196.4
Group cash flow statements
Group
Note
Cash flows from operating activities.......................................................................
Financial expenses ....................................................................................................
Financial income.......................................................................................................
Taxation paid ............................................................................................................
Net cash from operating activities...........................................................................
Cash flows from investing activities........................................................................
Replacement of property, plant and equipment to maintain operations ........................
Acquisition of property, plant and equipment to expand operations.............................
Proceeds on disposal of property, plant and equipment...............................................
Increased interest in joint venture...............................................................................
Acquisition of intangible assets .................................................................................
Decrease in investments ............................................................................................
Acquisition of businesses ..........................................................................................
Decreased interest in joint venture .............................................................................
Repayment of shareholder's loan by joint ventures .....................................................
28.1
28.2
25.3
28.4
28.7
28.5
28.4
28.8
Cash flows from financing activities .......................................................................
Proceeds on issue of preference shares.......................................................................
Preference share issue costs.......................................................................................
Long-term borrowings raised.....................................................................................
Cash settlement in respect of derivative instruments...................................................
Derivative instruments purchased ..............................................................................
Long-term borrowings repaid ....................................................................................
Repayment of shareholders' loans ..............................................................................
Dividends paid ..........................................................................................................
2005
R'm
2004
R'm
477.0 347.5
(104.6) (45.0)
7.2
7.7
(112.2) (86.3)
267.4 223.9
(940.3) (133.4)
(54.2)
(115.0)
1.2
(532.2)
(183.4)
1.5
(58.3)
(0.2)
0.3
(27.3)
(68.1)
0.4
—
(47.7)
9.3
—
—
—
614.7 (149.2)
23.6
589.0
(1.5)
242.0
6.7
—
(117.8)
—
(103.7)
—
—
—
3.9
(19.1)
(56.8)
(35.8)
(41.4)
Net decrease in cash and cash equivalents..............................................................
Cash and cash equivalents at beginning of the year ....................................................
Effect of exchange rate fluctuations on cash held .......................................................
Cash and cash equivalents at end of the year ......................................................... 28.10
(58.2)
30.2
(0.8)
(28.8)
(58.7)
89.6
(0.7)
30.2
Doc #:NY7:390196.4
F-99
1.
Other income
Group
2005
R'm
Reversal of impairment on PGSH buildings............................................................................
Loss on implementation of PMIH BEE structure.....................................................................
Profit/(loss) on sale of assets ..................................................................................................
2.
2004
R'm
—
—
0.4
10.7
(8.4)
(0.4)
0.4
1.9
Employee costs
Group
Wages and salaries.................................................................................................................
Provident fund contributions ..................................................................................................
Increase in leave liability........................................................................................................
Unemployment Insurance Fund costs .....................................................................................
Incentive scheme cost ............................................................................................................
Pension fund contributions .....................................................................................................
3.
2005
R'm
2004
R'm
217.5
19.6
2.8
3.1
14.4
2.6
168.6
14.8
2.5
1.5
10.5
2.4
260.0
200.3
VAT and gaming levies on gross gaming revenues
Group
2005
R'm
VAT on gross gaming revenue ...............................................................................................
Gaming levies........................................................................................................................
Doc #:NY7:390196.4
F-100
105.5
86.3
2004
R'm
80.5
64.9
191.8
4.
145.4
Operating profit
Group
2005
R'm
2004
R'm
Operating profit is stated after taking into account:
Auditors' remuneration...........................................................................................................
3.1
2.6
Audit fee................................................................................................................................
1.7
1.4
—current year .....................................................................................................................
—expenses..........................................................................................................................
1.5
0.1
0.1
1.2
0.1
0.1
Other services ........................................................................................................................
1.4
1.2
Cost of sales ..........................................................................................................................
Depreciation and amortisation ................................................................................................
46.6
65.6
27.6
63.1
—depreciation of freehold buildings ....................................................................................
—depreciation of leasehold buildings...................................................................................
—depreciation of furniture, fittings and equipment ...............................................................
—depreciation of pre-opening expenses ...............................................................................
—amortisation of intangible assets.......................................................................................
13.2
2.7
43.3
0.3
6.1
24.9
1.9
34.3
—
2.0
Bad debts written off..............................................................................................................
Consulting fees ......................................................................................................................
Reversal of impairment of investment.....................................................................................
0.2
2.1
—
0.4
1.6
(0.5)
5.
Net financial (expenses)/income
Group
2005
R'm
Realised foreign exchange profits...........................................................................................
Fair value adjustment on interest rate swap 1 (refer note 30.2).................................................
Doc #:NY7:390196.4
F-101
6.4
37.3
1.6
2004
R'm
7.4
0.3
7.9
Financial income....................................................................................................................
45.3
15.6
Interest paid ...........................................................................................................................
Fair value adjustment on interest rate swaps 2, 3 and 4 (refer note 30.2) ..................................
(34.9)
(65.1)
(1.3)
—
(45.0)
(7.4)
Financial expenses ................................................................................................................. (101.3)
(52.4)
The preference dividends are accounted for at amortised cost.
6.
Taxation
Group
2005
R'm
2004
R'm
—Normal taxation .................................................................................................................
102.1
71.8
—current year .....................................................................................................................
100.5
1.6
69.9
1.9
—Deferred ............................................................................................................................
(2.3)
(10.5)
—current year .....................................................................................................................
—rate change ......................................................................................................................
—prior year over provision ..................................................................................................
1.5
(3.5)
(0.3)
(8.3)
—
(2.2)
—STC...................................................................................................................................
19.7
9.8
—current .............................................................................................................................
—deferred ...........................................................................................................................
20.8
(1.1)
9.8
—
(0.9)
(1.4)
Total taxation.........................................................................................................................
118.6
69.7
Reconciliation of rate of taxation
South African standard taxation rate .......................................................................................
Tax effect of reconciling items
Capital expenses ....................................................................................................................
Capital profits ........................................................................................................................
Deferred taxation asset not recognised in prior years...............................................................
Depreciation on permanent differences ...................................................................................
Difference in foreign taxation rate ..........................................................................................
Disallowed expenses..............................................................................................................
BEE expenses........................................................................................................................
%
29.0
%
30.0
—
(5.9)
—
0.1
(0.3)
6.9
—
0.9
(5.8)
(1.2)
1.7
(0.4)
2.1
1.0
Doc #:NY7:390196.4
F-102
Prior year differences .............................................................................................................
Revaluation of buildings ........................................................................................................
STC.......................................................................................................................................
Rate change ...........................................................................................................................
Withholding taxation..............................................................................................................
Reversal of deferred taxation on buildings ..............................................................................
0.6
—
5.7
(1.2)
0.1
(0.3)
(0.4)
(0.4)
(2.4)
4.0
—
—
(1.0)
—
Effective rate .........................................................................................................................
34.3
28.5
PGL is carrying an STC credit of R130.5 million (2004: R107.0 million) for offset against charges payable
on future dividend payments. A deferred taxation asset of R16.3 million (2004: R13.4 million) was not raised as,
due to the current dividend policy, uncertainty exists as to when or if this credit will be utilised.
Doc #:NY7:390196.4
F-103
7.
Group
2005
R'm
2004
R'm
Profit attributable to ordinary shareholders..............................................................................
Headline earnings adjustments ...............................................................................................
220.0
(0.4)
167.3
(1.9)
Reversal of impairment on PGSH buildings............................................................................
Loss on implementation of PMIH BEE structure.....................................................................
(Profit)/loss on sale of assets ..................................................................................................
—
—
(0.4)
(10.7)
8.4
0.4
Taxation effect of the above adjustments ................................................................................
0.1
(0.1)
219.7
165.3
Number of shares for EPS calculation (million)
Weighted average number of shares in issue ...........................................................................
Weighted average number of share awards .............................................................................
330.0
1.0
330.0
0.4
Adjusted average number of shares in issue ............................................................................
331.0
330.4
Earnings per ordinary share (cents)
Basic earnings........................................................................................................................
66.7
50.7
66.6
50.1
Earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue.
Diluted earnings per ordinary share (cents)
Basic earnings........................................................................................................................
66.5
50.6
66.4
50.0
Fully diluted earnings per share are calculated to take account of potentially dilutive share awards granted to
employees. This is calculated by dividing profit attributable to ordinary shareholders by the weighted
average number of ordinary shares and awards in issue during the year.
8.
Dividends paid
Doc #:NY7:390196.4
F-104
Group
An interim dividend in respect of the 2005 financial year of 14.6 (2004: 11.4) cents per share
was declared on 31 August 2005 (10 September 2004) .........................................................
A final dividend in respect of the 2004 financial year of 16.0 cents per share was declared on
10 March 2005 ....................................................................................................................
Paid to minorities by PGB......................................................................................................
9.
2005
R'm
2004
R'm
(48.2)
(37.6)
(52.8)
—
(2.7)
(3.8)
(103.7)
(41.4)
Depreciation
rate
%
Cost/
deemed
cost
R'm
Impairment
Accumulated
depreciation
Carrying
value
R'm
R'm
R'm
Group
2005
Land ..........................................................
Freehold buildings .....................................
Leasehold buildings ...................................
Furniture, fittings and equipment ................
Pre-opening expenses.................................
Capital work in progress.............................
—
1
Lease period
10 – 100
100
—
134.5
1,436.1
92.4
427.1
12.0
67.9
2,170.0
—
(15.5)
—
—
—
—
(15.5)
—
(42.5)
(10.1)
(281.6)
(12.0)
—
(346.2)
134.5
1,378.1
82.3
145.5
—
67.9
1,808.3
2004
Land ..........................................................
Freehold buildings .....................................
Leasehold buildings ...................................
Furniture, fittings and equipment ................
Pre-opening expenses.................................
Capital work in progress.............................
—
2.5
Lease period
10 – 100
100
—
103.0
1,081.3
26.5
300.6
11.8
44.7
1,567.9
—
(15.5)
—
—
—
—
(15.5)
—
(21.4)
(8.6)
(208.1)
(11.8)
—
(249.9)
103.0
1,044.4
17.9
92.5
—
44.7
1,302.5
Group
Note
Net book value of encumbered land, buildings and moveable assets .......................
Certain of the properties are encumbered to secure long-term loan facilities, see
note 21.
Freehold land and buildings comprise the following properties:
—Stand 64, Jones Road, Kempton Park.................................................................
Doc #:NY7:390196.4
F-105
2005
R'm
2004
R'm
1,418.5
988.0
(i) 1,328.1
989.7
—Portions 25, 28, 38 of the farm Driehoek 275 IS, portion 71 of the farm Driehoek
137 IS, and erven 5868 and 5869 Secunda Extension 16......................................
—Erf 101 San Lameer, Registration Division ET, Province of KwaZulu-Natal in
extent 6,933 metres.............................................................................................
—Lot 16145, Francistown, Botswana....................................................................
(ii)
(iii)
144.2
150.0
26.2
7.7
14.1
—
1,512.6 1,147.4
(i)
This property was independently valued as at 31 December 2004 by Norman Griffiths, FRICS, FIV (SA),
a registered valuer under the Valuers' Act. The valuation of the group's portion of land and buildings was
R1,327.4 million.
(ii)
This property was independently valued as at 31 December 2004 by Norman Griffiths, FRICS, FIV (SA),
a registered valuer under the Valuers' Act. The valuation was R150 million which remains below the
original cost of R165.5 million.
(iii)
This property was independently valued as at 27 January 2005 by Curtis Matobolo, BSc (Hons), MRICS
on behalf of Knight Frank Botswana. The valuation of the land and buildings was P14.3 million.
The properties were valued on the basis of open market value in continuation of existing use. Valuations
are performed at least every three years. San Lameer was acquired in 2004 and will be valued in 2007.
GROUP
2005
Opening net book value .................................
Additions.......................................................
Net assets acquired/disposed of in joint
ventures.......................................................
Depreciation ..................................................
Disposals .......................................................
Transfers .......................................................
Revaluation ...................................................
Unrealised foreign exchange movements........
Land
Freehold
buildings
R'm
R'm
Capital
work in
progress
Preopening
expenses
Total
R'm
R'm
R'm
17.9
36.3
—
92.5
72.4
21.6
44.7
64.4
2.1
(13.2)
—
1.2
30.4
—
(2.7)
—
32.9
—
(2.1)
(43.3)
(0.8)
4.6
—
(1.5)
—
—
(38.7)
—
(4.6)
Closing net book value...................................
134.5 1,378.1
82.3
145.5
67.9
— 1,808.3
2004
Additions.......................................................
Depreciation ..................................................
Disposals .......................................................
Transfers .......................................................
101.5
1.5
—
—
—
22.7
(0.7)
(1.9)
—
—
89.6
35.8
(34.3)
(0.5)
3.4
4.1
44.1
—
—
(3.5)
— 1,170.6
—
95.4
— (61.1)
—
(0.8)
—
—
Doc #:NY7:390196.4
103.0 1,044.4
1.1
49.2
30.4 266.1
Leasehol Furniture
d
,
buildings
fittings
and
equipmen
t
R'm
R'm
—
—
—
—
—
F-106
952.7
14.7
(24.9)
(0.3)
0.1
— 1,302.5
0.3 223.7
— 320.2
(0.3)
—
—
—
—
(59.5)
(0.8)
—
30.4
(8.2)
Revaluation ...................................................
Doc #:NY7:390196.4
—
—
102.1
—
—
(2.2)
—
(1.5)
—
—
103.0 1,044.4
17.9
92.5
44.7
F-107
—
—
102.1
(3.7)
— 1,302.5
10.
Change in accounting estimate
While examining the component aspects of property, plant and equipment arising from IAS 16 Property,
Plant and Equipment, the group reviewed the expected useful life of its buildings. The buildings were viewed to
be special purpose buildings having a finite useful life. Based on advice from structural engineers and architects,
after taking into account the high level of continuing maintenance expenditure on the buildings, the life
expectancy of the owner occupied buildings was revised from 40 to 100 years. The change was treated as a
change in estimate with effect from 1 January 2005. The depreciation rate has been changed accordingly in the
current period from 2.5% to 1% per annum. No changes have been made to opening costs or accumulated
depreciation values of property, plant and equipment.
11.
Intangible assets
Amortisatio
n
rate
%
Cost
Accumulate Carrying
d
value
amortisation
R'm
GROUP
2005
Goodwill ...........................................................................................
Right to receive management fees ......................................................
Bid commitment costs........................................................................
Licence application costs....................................................................
Computer software.............................................................................
Franchise costs...................................................................................
2004
Goodwill ...........................................................................................
Bid commitment costs........................................................................
Licence application costs....................................................................
Computer software.............................................................................
—
—
—
—
33.3 – 50
Lease
period
—
—
—
33.3 – 50
R'm
R'm
417.1
181.7
49.2
34.4
19.7
4.4
—
—
—
—
(15.2)
(0.2)
417.1
181.7
49.2
34.4
4.5
4.2
706.5
(15.4)
691.1
74.7
36.9
18.9
11.8
142.3
—
—
—
(8.5)
(8.5)
74.7
36.9
18.9
3.3
133.8
Goodwill arose on the acquisitions of the interest in PGERH.
The licence application and bid commitment costs have an indefinite life and are not amortised. The
licences are treated as having an indefinite useful life because they are expected to contribute to the entities' net
cash inflows indefinitely.
Computer software is amortised over its expected useful life of two to three years.
The PGER casino licence is encumbered as security for the loan as described in note 21.
Doc #:NY7:390196.4
F-108
11.
Intangible assets
Goodwill
R'm
Right to
Bid
Licence Compute Franchise
receive commitm applicatio
r
costs
managem
ent
n
software
ent
costs
costs
fees
R'm
R'm
R'm
R'm
R'm
Total
R'm
GROUP
2005
Additions.......................................................
Increased interest in joint ventures/businesses.
Amortisation..................................................
74.7
—
342.4
—
—
—
181.7
—
—
—
36.9
—
12.3
—
—
18.9
8.7
6.8
—
—
3.3
6.9
0.2
(5.9)
—
—
—
4.5
(0.2)
(0.1)
133.8
197.3
366.2
(6.1)
(0.1)
417.1
181.7
49.2
34.4
4.5
4.2
691.1
2004
Additions.......................................................
Amortisation..................................................
—
74.7
—
—
—
—
5.8
31.1
—
3.2
15.7
—
4.4
0.9
(2.0)
—
—
—
13.4
122.4
(2.0)
74.7
—
36.9
18.9
3.3
—
133.8
12.
Amount due by joint venture
Group
2005
R'm
Due by joint venture...............................................................................................................
Doc #:NY7:390196.4
F-109
4.4
2004
R'm
—
13.
Investments
Group
2005
R'm
Non-current unlisted investments at cost
Investment to secure Bethlehem Casino licence ......................................................................
—
2004
R'm
1.5
PGSH is proportionally consolidated at 97% by the group. The outside joint venture partner's interest will
increase from 3% to 25% dur

Peermont Global (Proprietary) Limited

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