AFRICAN DAWN ANNUAL REPORT 2017 46 Accounting Policies continued Other significant management judgements Knife Capital Group Acquisition – shares held in escrow In terms of the agreements relating to the acquisition of Knife Capital Group, 100 million Afdawn shares at 10 cents per share were issued to the Knife Capital vendors to settle the acquisition price of R10 million. 100% of the shares were issued immediately but 35% are held in escrow for three years. The guidance in IFRS 3 – Business Combinations, has been applied to assess whether the shares that are held in escrow for three years form part of the purchase price relating to the acquisition of Knife Capital or whether they relate to services to be rendered by the vendors of Knife Capital in the three years after the acquisition. This assessment revealed that the shares held in escrow form part of the purchase price based on the following: • All the selling shareholders became employees in the Afdawn Group. The purchase and sale agreement provides for future short term incentives linked to key performance indicators as well as a long-term share incentive scheme and a further long term incentive; • The shares are not automatically forfeited if employment terminates; • The remuneration of the Knife Capital directors is in line with that of the Afdawn Group directors; • The arrangement is not linked to providing services; and • The purpose of the shares being held in escrow is to protect Afdawn Group against possible claims it may have against the sellers during that three year period. These general warranties and representations are verifying conditions that existed at the acquisition date. Knife Capital Group acquisition - purchase price amounts In terms of the agreements relating to the acquisition of Knife Capital Group, the purchase price of R10 million was subject to adjustment in two instances: 1. If the net asset value (“NAV”) of Afdawn Group at the 28 February 2014 was less than 10 cents per share. In this case, the difference between 10 cents and the NAV per share would be multiplied by 100 million shares and would be payable in cash to the sellers on or before 1 March 2015. (“NAV liability”); and 2. If the capital raised by Afdawn Group in the year to 26 March 2015 was less than R50 million, the purchase price would be adjusted as follows: (R50 million – capital raised) x 20% but limited to a maximum of R2 million. This is known as the “share issue liability” and would be settled by Afdawn Group issuing a variable number of shares (i.e. it is calculated by dividing the Rand amount of the share issue liability by the 30 day volume weighted average price of the Afdawn shares). Original issue of shares In terms of the agreements relating to the acquisition of Knife Capital Group, 100 million Afdawn shares at 10 cents per share were issued to the Knife Capital vendors to settle the acquisition price of R10 million. At the date that control passed, the ruling share price was 9 cents per share, which resulted in an initial cost of R9 million instead of the R10 million that was initially expected. First NAV liability In terms of IFRS 3, the fair value of the contingent consideration should be added to the purchase price at the date of the acquisition. At acquisition, the fair value of the first NAV liability could not be determined because it was based on the NAV per share on the 28 February 2014. It therefore became apparent that the NAV was less than 10 cents per share and an amount of R1 460 000 was owed to the sellers to be paid on or before 1 March 2015. This amount was interest-free. (Refer to note 18). In November 2014, the term was renegotiated. It was agreed that this amount would remain interest-free and would be payable to the sellers over twenty four months with effect from November 2014. (Refer to notes 18).
AFRICAN DAWN 2017
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