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    HomeAnalysis & OpinionsDeal Teardown: How Adumo and Lesaka Negotiated their $85.9 million Acquisition Deal 

    Deal Teardown: How Adumo and Lesaka Negotiated their $85.9 million Acquisition Deal 

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    Financial technology company Lesaka is buying South African payments firm Adumo for ZAR 1.59 billion (roughly $85.9 million). This analysis dives deep into the intricacies of the acquisition agreement between Lesaka, the acquiring company, and Adumo, the target company. We’ll break down the key elements of the deal, including the payment structure, conditions that must be met before the acquisition goes through, and the roles and responsibilities of each party involved. By examining these details, we’ll gain valuable insights into the negotiation process and how these companies came to terms on this major transaction.

    Key Parties Involved:

    • Lesaka: The company buying Adumo.
    • Adumo: The company being acquired by Lesaka.
    • Sellers: The owners of Adumo who are selling the company to Lesaka.
    • Crossfin Holdings: A company with claims on a loan from Adumo.

    Important Dates:

    • Signature Date: The date when both parties sign the agreement.
    • Longstop Date: The deadline by which all Conditions Precedent must be met, otherwise the deal is off.

    How Much did the Parties Pay and How? 

    Here’s the breakdown:

    • Stock Swap: Lesaka will create new shares in their company worth ZAR 1.36 billion and give them to Adumo’s owners. Basically, Adumo’s owners become part-owners of Lesaka.
    • Cash Injection: Lesaka will also pay Adumo ZAR 232 million ($12.5 million) in cash. This cash might come from their own savings or from a loan.

    What Conditions Precedent Did the Parties Agree To?

    This is a breakdown of the conditions that must be met before Lesaka can acquire Adumo (Conditions Precedent). These conditions protect both Lesaka (the Purchaser) and the owners of Adumo (the Sellers).

    Breakdown of Conditions Precedent:

    There are several conditions that need to be met before the acquisition can happen. These can be broadly categorized into:

    Internal Approvals (by a certain date):

    • Lesaka’s board and shareholders must approve the deal.
    • Adumo’s board, shareholders (including those with preference shares), and Adumo Payments’ board must approve the deal.
    • Companies with loans to Adumo (like Crossfin Holdings) must agree to the deal.

    External Approvals (by a certain date):

    • Regulatory bodies like competition authorities and the South African Reserve Bank must approve the deal.
    • The Takeover Regulation Panel must exempt the deal from certain regulations.

    Other Requirements (by a certain date):

    • An insurance policy needs to be obtained.
    • Non-solicitation agreements with investors need to be signed.
    • Agreements with Adumo’s management team need to be finalized.
    • Lesaka needs to prove they have enough funds to buy Adumo.

    Special Conditions:

    • Lesaka has the option to buy out a loan owed by Adumo to Crossfin.
    • There’s a specific condition related to amending an agreement with other investors in Adumo.

    Who Can Waive Conditions?

    • Each party can waive certain conditions related to their own approvals.
    • Certain conditions require agreement between both Lesaka and the Sellers.
    • The condition requiring regulatory approvals cannot be waived.

    What Happens if Conditions Aren’t Met?

    • If all Conditions Precedent are not met by the Longstop Date, the deal is cancelled.
    • Neither party can sue the other for the deal falling through, except if one party failed to try to meet the conditions.

    Approval:

    • The deal requires approval from relevant competition authorities before it can be finalized.
    • Both Lesaka and Adumo will work together to submit a merger notification for review.
    • Each party will bear their own legal costs associated with the filing.

    U.S. Compliance:

    • Lesaka will be responsible for ensuring compliance with U.S. securities laws related to the deal.
    • Adumo will contribute a capped amount towards the cost of this process.

    Legal Advice:

    • Adumo has the right to seek legal advice to confirm the legality of the transaction.
    • If the advice identifies any issues, Lesaka and Adumo will negotiate changes to the agreement.

    Adumo’s Role:

    • Adumo will sign a separate agreement confirming its adherence to the main acquisition agreement.
    • Until the deal closes, Adumo will comply with the agreement’s provisions.
    • Adumo’s shareholders will vote in favor of resolutions required for the deal to proceed.

    Termination:

    • A previous agreement, the Term Sheet, is terminated upon signing this main agreement.

    How Would Adumo’s Shares Be Sold and Settled by the Parties?

    • Adumo’s shares will be sold to Lesaka as a single unit.
    • The benefits and risks associated with the shares will transfer to Lesaka on the closing date, but with retroactive effect to an earlier date (Locked Box Date).
    • Lesaka will gain full ownership and control of the shares on the closing date.

    Purchase Price:

    • The purchase price will be divided into two parts: cash and shares of Lesaka stock (Consideration Shares).
    • The number of Consideration Shares will be determined by subtracting the cash amount from the total purchase price.

    Settlement:

    • The cash portion of the purchase price will be paid on the closing date.
    • Lesaka will issue Consideration Shares to Adumo on the closing date.
    • Adumo can nominate other parties to receive the Consideration Shares on their behalf.
    • Lesaka is not responsible for verifying the accuracy of these nominations.

    Restrictions on Selling Consideration Shares:

    • Adumo (or the nominated parties) cannot sell the Consideration Shares for a set period (Lockup Period) with some exceptions:
    • Shares can be used as collateral for loans.
    • Shares can be sold to certain related entities of Adumo under specific conditions.
    • After a registration statement is effective, a limited number of shares can be sold during the Lockup Period.

    Adjustments for Leakage:

    • If any financial irregularities (Leakage) at Adumo are discovered between the Locked Box Date and the closing date, the cash portion of the purchase price will be reduced accordingly.
    • There’s a process for identifying, verifying, and negotiating the amount of this reduction.

    How Did Parties Treat Any Leakages Arising from the Transaction?

    This part of the agreement is like a guarantee for Adumo in its purchase of Lesaka. Leakage refers to any financial losses suffered by Adumo if Lesaka wasn’t in the expected financial state during a specific period. The agreement outlines how to handle these unexpected losses.

    Types of Leakage

    There are two main scenarios for leakage:

    1. Leakage Identified Before Closing (Clauses 14.1 & 14.2 for Lesaka, 13.1 for Adumo):
    • If leakage is found during audits before the official handover (closing date), the purchase price is adjusted to reflect the loss.
    • For Lesaka, the cash portion of the price simply increases.
    • For Adumo, the agreement gets more specific. The seller provides details and documents about the leakage (think receipts and reports proving the loss). The buyer has a few days to agree or raise objections.
    • If they agree, the amount is finalized.
    • If they disagree, they have a limited window to negotiate. If they can’t reach an agreement, an independent expert settles the dispute. The expert’s decision is final.

    Leakage Identified After Closing

    • This is more complex. If leakage is discovered after the official handover, the seller must repay the buyer the amount of the loss, plus interest.
    • The process is similar to before closing, with notices, objections, and potentially an expert involved.
    • There’s an additional twist for Lesaka leakage: the seller must increase the repayment amount by a factor (1.264) likely to cover taxes or other charges.

    How Was Adumo’s Valuation Treated by the Parties?

    This section dives into how Lesaka, the company buying Adumo, and Adumo, the company being bought, ensured they agreed on a fair price. This could be likened to what happens when you are buying a used car — you want to make sure it’s worth what you’re paying, right? Below is how the parties treated valuation-related issues under the agreement: 

    The Price Check: 

    • Adumo Shows Off Its Financials: Under this part of the agreement, Adumo is to hand over its financial information so Lesaka can assess its true value (Net Enterprise Value or NEV).
    • Lesaka Gets a Second Look: Lesaka has the right to get an independent auditor to double-check Adumo’s numbers by July 31st, 2024. This is like getting a mechanic to inspect the car before you buy it.
    • Disagreeing on the Price? No Problem (Well, Maybe): If Lesaka finds issues with the valuation after the audit, they can raise concerns within 5 business days.
    • Let’s Talk it Out: First, Lesaka and Adumo have a chance to negotiate a new price within another 5 days. Think of this as friendly haggling over the final price.
    • Bringing in the Expert: If they can’t agree, an impartial expert settles the final value within 10 business days. This is like calling in a neutral third party to mediate the car’s worth. 

    Shares on the Table: How Much Ownership Does Adumo Get?

    • Part Cash, Part Ownership: Part of the payment involves Lesaka giving Adumo’s shareholders some ownership in Lesaka through shares (Consideration Shares).
    • The Value Dance: The number of shares Adumo gets depends on the relative value of each company after the final audits.
    • A Little Wiggle Room: There’s a buffer zone. If the final valuations are very close (within 1.5% up or down), the share amount stays the same.
    • Adjusting the Scales: If the valuations differ slightly (between 0.5% and 1.5%), the share amount is adjusted accordingly.
    • Walking Away is an Option: But, if the valuations are way off (more than 1.5% difference), either Lesaka or Adumo can walk away from the deal entirely. Imagine if the car inspection revealed major problems — you’d probably walk away, right?

    How did the Parties Treat Adumo’s Pre-Acquisition Tightrope Walk?

    This section explores the nitty-gritty of what Adumo, the target company, can and can’t do during the gap period — the time between signing the acquisition agreement with Lesaka (the buyer) and the official handover. Think of it as Adumo walking a tightrope until the deal closes. Here’s a breakdown of the key restrictions keeping them balanced:

    • Business as Usual (Mostly): Adumo must generally operate like they always have. They can’t make any crazy contracts or take on unexpected risks without Lesaka’s approval. This prevents any last-minute shenanigans that could hurt the value of the business.
    • Asset Freeze on Big-Ticket Items: Saying goodbye to major asset sales or acquisitions exceeding R5 million unless it’s part of their usual routine. This stops Adumo from stripping away valuable assets or making impulsive purchases with Lesaka’s money.
    • Keeping the Books Balanced: Adumo needs to show Lesaka their financial report cards (management accounts) regularly, prepared in the same way they always have been. Transparency is key! This allows Lesaka to monitor Adumo’s financial health and ensure there are no surprises before closing.
    • Honesty is the Best Policy: If something goes wrong or Adumo breaches any warranties or agreements, they have to come clean to Lesaka. This is about full disclosure and avoiding any nasty surprises later.
    • Preserving the Business: Imagine a museum exhibit with a fragile artifact. Adumo has to keep their business operations and assets in roughly the same condition they were in when the agreement was signed. This ensures Lesaka gets what they bargained for.
    • Early Warning System: If Lesaka strays from this “business as usual” approach, they must notify Adumo within two business days. This allows Adumo to address any concerns and prevent delays in closing the deal.
    • Termination for Major Hiccups: If Lesaka breaches the agreement and fails to fix a serious issue (causing damages over ZAR30 million), Adumo has the right to walk away from the deal. This protects Adumo from inheriting unexpected problems. It’s important to note that this is Adumo’s only remedy for such a breach.

    These restrictions are like safety rails on Adumo’s tightrope walk. They protect Lesaka’s investment by ensuring Adumo’s business remains stable and valuable until the acquisition is finalized. If Adumo stumbles and materially breaches these agreements, Lesaka has the right to call off the whole deal.

    How did the Parties Deal with the Issues of Anti-Corruption? 


    Why are Warranties Important?

    These warranties create a safety net for Lesaka. By ensuring Adumo’s business is as represented, Lesaka is protected. If Lesaka discovers a problem later that wasn’t disclosed and breaches a warranty, they might be able to sue Adumo for compensation. This helps balance the risk in the deal for both sides.

    • Uncovering Past Misconduct: If, during the gap period, Lesaka discovers evidence that Adumo has been involved in corruption within the past two years, Lesaka can terminate the deal. This includes things like bribery of government officials, government investigations into Adumo’s anti-corruption practices, or Adumo having ties to sanctioned individuals or countries.
    • Fair Play Before Termination: Lesaka has to be reasonable and give Adumo a chance to respond to the allegations before pulling out of the deal. This ensures a fair process and avoids misunderstandings.
    • Missed Window, No Take Backs: If Lesaka doesn’t terminate the deal due to corruption concerns during the gap period, they can’t claim damages for such issues later on. This encourages Lesaka to be thorough during the due diligence phase.
    • Bribery: If Lesaka or its representatives paid bribes to government officials to gain an advantage, Adumo can walk away.
    • Investigations: If Lesaka is being investigated for corruption, it raises red flags for Adumo, who can then terminate the deal.
    • Government Ties: If Lesaka’s officials are too close to the government in a way that suggests improper influence, Adumo has the right to back out.

    How did the Parties Resolve the Issues of Warranties?

    Imagine warranties as ironclad promises. Here, Adumo is guaranteeing specific aspects of their business (Adumo Group and the Business) to Lesaka. These guarantees hold weight because if broken, Lesaka can take legal action.

    Unpacking the Adumo’s Warranties

    • Annexure B holds the key: The nitty-gritty of these warranties resides in a separate document called Annexure B.
    • Independent and Everlasting (almost): Each warranty in Annexure B is a separate entity. A breach of one won’t automatically impact the others. These warranties apply not only now, but also for future events and promises made by Adumo. They remain in effect throughout the entire acquisition process, from signing to closing.
    • Material Matters: Importantly, these warranties are considered material. This legal term signifies they’re significant enough to influence Lesaka’s decision to buy Adumo. In simpler terms, if a warranty is breached, it’s a big deal.

    Lesaka’s Reliance

    This clause is like Lesaka saying, “We’re trusting you, Adumo, based on the truthfulness of these warranties.”

    Limits on Adumo’s Guarantees 

    Adumo’s warranties aren’t limitless. They can be weakened by:

    • Information Adumo Already Disclosed: This includes the Seller’s Disclosure Schedule, Due Diligence materials, and any other relevant documents Lesaka reviewed before signing.
    • Lesaka’s Pre-existing Knowledge: If Lesaka’s team already knew about a certain issue before signing, they can’t claim a warranty breach later.

    Knowing is Key

    This clause clarifies that when Adumo says they’re “not aware” of something, it also considers what any key person within Adumo knows (or should have known with reasonable effort). Basically, Lesaka is saying, “We expect you to be thorough, Adumo.”

    No More Hidden Surprises

    This is a crucial point. Adumo isn’t providing any guarantees beyond what’s explicitly stated in the agreement or Annexure B. Lesaka is buying Adumo “as is” with all its strengths and weaknesses, known or unknown at this point.

    Both Parties Agreed to Cap the Deal’s Warranty and Indemnity Provisions

    • There’s a Minimum Threshold for Claims (Except for Title and Authority): Adumo can’t make small claims against Lesaka. Any claim Adumo wants to make needs to be at least ZAR 4,462,500 (South African Rand) unless it’s related to Lesaka’s ownership of the business (title warranty) or their legal right to sell it (capacity and authority warranty). There’s no minimum amount for claims related to those two things.
    • Lesaka’s Maximum Liability is Capped (Except for Title and Authority): Even if Adumo has a big claim, there’s a limit to how much Lesaka has to pay. The total amount Lesaka pays for all claims (except title and authority) can’t be more than ZAR 178,500,000. Each seller’s share of that amount is based on their ownership stake in Lesaka. Again, title and authority warranty claims aren’t capped.
    • Lesaka Must Disclose Issues Promptly: If Lesaka becomes aware of something that could lead to a claim from Adumo, they have to tell Adumo as soon as possible and provide any relevant information. This helps Adumo identify and address potential problems early on.
    • Time Limits for Making Claims: Adumo can’t wait forever to bring a claim against Lesaka. There are deadlines depending on the type of claim:
      – Most claims must be submitted within three years of the closing date.
      – Tax-related claims have a seven-year window.
      – Title and authority warranty claims also have a seven-year window, but for certain specific situations, the deadline is only 36 months from the closing date.
    • Certain Losses Aren’t Covered: Adumo can’t claim compensation for everything. Lesaka isn’t on the hook for:
      – Lost profits or other indirect losses.
      – Losses based on guesses or predictions about the future.
      – Losses caused by new laws passed after the deal is signed.
      – Losses caused by Adumo’s own actions or omissions.
      – Losses caused by Adumo changing its accounting practices after the deal is closed.

    How did the Parties Treat Insurance over the Deal? 

    According the terms agreed by the parties, Lesaka will get insurance to cover losses if any of the warranties made by Adumo turn out to be false. These warranties are basically promises Adumo makes about the business being sold, like its financial health or legal ownership.

    The cost of this insurance is shared between Lesaka and Adumo, splitting the risk. Adumo will contribute up to a maximum of R1,897,950 ($102,820)

    Who Pays When Warranties are Broken?

    Let’s say the insurance policy has a limit of R1 million. If a warranty about the business’s finances is broken, causing Lesaka a loss of R1.5 million:

    1. Insurance First: Lesaka will first try to claim R1 million ($54,000) from the insurance company.
    2. Seller Pays the Difference (Shortfall): For the remaining R500,000 ($27,000) loss (the shortfall), Lesaka can then sue Adumo to get that money back.

    Exceptions: When the Seller is Directly Liable

    There’s an important exception. If Adumo lied (committed fraud) or hid crucial information (fraudulent non-disclosure) about the business, Lesaka can sue Adumo directly for the entire loss, skipping the insurance altogether. In this case, only the seller who cheated is responsible, not the other seller if there was one.

    How did the Parties Expose their Individual Liabilities under the Contract? 

    Warranties by Adumo

    This section of the agreement is like Adumo promising it is in a great shape. Here, Adumo agrees to financially cover Lesaka (and even Adumo itself!) if:

    1. Something Adumo Promised Isn’t True (Sellers’ Warranties): Adumo makes a bunch of guarantees about their company, called warranties. These could be things like Adumo’s finances being accurate or them not having any hidden lawsuits. If any of these turn out to be false, Adumo has to pay for any damages Lesaka suffers.
    2. Surprise Tax Bills (Tax Liability): Lesaka shouldn’t be surprised by huge tax bills from Adumo’s past. The agreement says Adumo will cover any unknown tax issues, except for normal business taxes and things Lesaka already knew about.

    Here’s the Catch (Limits on Recovery):

    This “guarantee” isn’t completely open-ended. Lesaka can’t find every little problem and demand a payout. Imagine finding a tiny dent in the used car. Lesaka can’t claim it’s a total wreck. Here’s how the agreement limits recovery:

    • No Double Dipping: If one issue leads to multiple complaints, Lesaka can’t get paid twice for the same problem. It’s like finding one scratch on the car and claiming it damages both the paint and resale value. Lesaka gets compensated for the overall damage, not each tiny detail.
    • Lesaka Calls the Shots: Lesaka gets to decide whether to claim a breach of warranty (broken promise) or seek compensation under the indemnity (financial guarantee). It’s like Lesaka choosing between getting the car fixed or getting some money back for the dent.

    In any case, it’s also important to note that the parties agreed that each seller’s financial responsibility is limited. They can only be sued for the amount of money they received from the sale (consideration). Additionally, each seller is only liable for their own warranty breaches, not the mistakes of the other seller(s). Sellers here refer to shareholders in Adumo. 

    Warranties by Lesaka (Purchaser Holdco)

    This section dives into the warranties provided by Lesaka, the company acquiring Adumo (the Sellers) in this deal. These warranties act as assurances from Lesaka regarding the accuracy of their information and financial health.

    Key points:

    Lesaka Warranties: 
    Lesaka makes several guarantees to Adumo, detailed in a separate agreement and an annexure. These warranties are considered material and rely on the information Lesaka provided during the due diligence process.

    Limitations on Lesaka’s Warranties:

    • Lesaka’s warranties are limited by what was disclosed to Adumo beforehand. This includes information in a disclosure schedule, a virtual data room, and anything known by Adumo’s representatives or Adumo itself on the signing date.
    • Any changes in laws or interpretations of laws can also limit these warranties.
    • Lesaka’s knowledge is determined by what its deal team knew, not just Lesaka itself.

    Sellers’ Warranties Claims:
    If Lesaka breaches a warranty, Adumo can make a claim against them. However, there are limitations on these claims:

    • There’s a minimum claim amount of ZAR 27 million (around $1.5 million) except for specific warranty breaches.
    • There’s a maximum total claim amount of ZAR 135 million (around $7.4 million) for most breaches, with some exceptions.
    • Adumo must notify Lesaka of any claim within 12 months (except for certain warranty breaches) for it to be valid.
    • The claim cannot be for indirect or future losses, or based on future expectations.

    Lesaka’s Further Protections: Lesaka is further protected from claims for:

    • Losses due to changes in accounting methods after the deal closes.
    • Losses caused by Adumo’s own actions or inaction.

    Exceptions to Limitations : There are some exceptions to these limitations:

    • Adumo can still be liable for fraud.
    • Under specific circumstances, Adumo may be liable under U.S. or South African securities laws.

    No Duplicate Recovery: If a single issue causes multiple warranty breaches, Adumo can’t recover damages multiple times for the same loss.

    Virtual Data Room Records: Both sides are required to create a record of all information shared during due diligence. These records will be held by their respective lawyers for a set period.

    How did the Parties Agree on other General but Important Matters?

    Adumo’s Right to Terminate

    Adumo can terminate the agreement anytime before the Closing Date if certain events occur. These events include:

    • Lesaka going into liquidation or facing legal restrictions on the deal.
    • Business rescue proceedings being commenced against Lesaka.
    • A court order or other legal action prohibiting the deal from going through.
    • An “Lesaka MAC” occurs ( A Lesaka Material Adverse Change (MAC) is a significant event after the signing that reduces Lesaka’s business by 10% or more, cannot be fixed within 20 days, and wasn’t caused by the buyer or already disclosed by the seller. It delays the closing of the sale.).
    • Even if one of these events occurs, Adumo can still choose to waive its right to terminate the agreement. However, if Adumo waives its termination right, it cannot claim damages for the event that triggered its right to terminate.
    • The clause referring to “Material Adumo Group Company” defines that this clause applies to Adumo and its subsidiaries, including Adumo Technologies, GAAP POS, Adumo Payments, and Adumo Payouts.

    Lesaka’s Right to Terminate

    Lesaka has similar rights to terminate the agreement as Adumo. Lesaka can terminate the agreement anytime before the Closing Date if certain events occur. These events mirror those that give Adumo the right to terminate, including:

    • Adumo going into liquidation or facing legal restrictions on the deal.
    • Business rescue proceedings being commenced against Adumo.
    • A court order or other legal action prohibiting the deal from going through.
    • A “Adumo MAC” occurs (already explained above).
    • Just like Adumo, even if one of these events occurs, Lesaka can still choose to waive its right to terminate the agreement. However, if Lesaka waives its termination right, it cannot claim damages for the event that triggered its right to terminate.
    • The clause referring to “Material Purchaser Group Company” defines that this clause applies to Purchaser and its subsidiaries, including Purchaser Holdco, Cash Connect Capital, Cash Connect Management Solutions, and many others (full list provided in the agreement).

    Multiple Sellers

    • Although there are multiple sellers involved in this agreement, the entire transaction between Adumo and Lesaka is considered one indivisible event.
    • This means that if one seller breaches the agreement, all of the sellers will be liable to compensate Adumo for the breach, in proportion to their stake in the deal (unless otherwise stated in the agreement).
    • However, there is an exception to this rule for breaches of warranties related to the seller’s title to the business or their capacity and authority to enter the agreement. In these cases, each seller will only be liable for their own specific breach.

    How did the Parties Handle Key Persons to Lead the Transition Period? 

    Adumo has appointed a group of four people, Dean Sparrow, Paul Kent, Nic Smalle and Grant Manicom, to act as their representatives in this deal. These people are called “Sellers’ Representatives.”

    What can the Seller’s Crew Do?

    The Sellers’ Representatives have important powers. They can:

    • Agree to extend deadlines or change requirements for things Adumo needs to do before the sale closes (called “Conditions Precedent”).
    • Give approval for things on behalf of all of Adumo’s owners (Sellers).
    • Set the final closing date for the sale.
    • Send and receive official notices according to the agreement.

    But There’s a Catch…

    Before they do any of these things, the Sellers’ Representatives have to talk to all the individual owners of Adumo (Sellers) and get the agreement of the majority (based on their ownership stake). So, while the Representatives can act, they ultimately need the blessing of most of the sellers.

    Protection for the Seller’s Crew

    Being a Sellers’ Representative sounds important, but it also comes with some risk. The agreement says that Lesaka (the buyer) can rely on anything the Representatives say or do without having to double-check with each individual seller. That means if the Representatives mess up, it could cause problems for Adumo’s owners.

    To protect the Representatives, the agreement says that each seller will share any burden (financial or legal) that comes from the Representatives acting on their behalf. Basically, the sellers are agreeing to back up the decisions of their crew.

    Plan B: If the Crew Gets Grounded

    The agreement also considers what happens if one of the Representatives can’t do their job anymore. In that case, the remaining Sellers (again, by majority vote based on ownership) will pick someone new to take their place. Lesaka will then be informed about the new appointment.

    How the Parties Agreed to Treat Adumo’s Guarantees 

    Imagine Adumo has provided financial guarantees to other companies, like promising to cover a loan if a borrower defaults. These guarantees are the “Security Documents” mentioned here.

    Lesaka agrees to help Adumo get released from these guarantees, ideally by the Closing Date, which is the day the acquisition is finalized.

    What Lesaka Will Do

    To achieve this release, Lesaka will use all reasonable efforts, meaning they’ll take appropriate actions, to convince the other companies involved to agree to let Adumo off the hook.

    There’s a condition, though. Lesaka will only help if the guarantees are considered “ordinary course obligations” and the terms are typical for such guarantees. Think of ordinary obligations as standard business commitments, not something unusual or risky.

    The Burden of Proof

    The agreement puts the responsibility on Adumo to prove that any guarantee they want to be released from is indeed ordinary and has typical terms. If there’s a disagreement about whether a guarantee is standard, Adumo needs to provide evidence to convince Lesaka.

    Lesaka’s Backup Plan

    If simply asking nicely doesn’t work, Lesaka has another option. They can offer their own guarantees to the other companies in exchange for releasing Adumo. But there’s a catch: these new guarantees from Lesaka will be based on standard market terms, which might not be as favorable as Adumo’s original obligations.

    What Lesaka Won’t Do

    It’s important to note that Lesaka won’t pay off any outstanding debts or agree to changes in the original guarantee terms. Their help is limited to convincing the other companies to release Adumo or, if that fails, providing their own guarantees based on market conditions.

    How would the Parties Resolve their Disputes?

    This section of the agreement outlines the steps Adumo and Lesaka will take if a disagreement arises during the acquisition process. Let’s break down the key points:

    1. Informal Negotiation (Without Prejudice):

    • If a dispute pops up, both companies (Adumo and Lesaka) will first attempt to resolve it informally within five days. This means they’ll meet and discuss the issue openly, but anything said during this meeting cannot be used as evidence in future legal proceedings. The meeting location will be a neutral venue in Sandton, chosen by the party who initiates the discussion.

    2. Non-Binding Mediation

    • If the informal talks don’t settle the dispute within 10 days (or an agreed-upon extension), the agreement moves to non-binding mediation. Here, a neutral third party (mediator) helps Adumo and Lesaka reach a solution, but any decisions made are not mandatory.
    • Each company appoints a senior representative as a mediator. If they can’t agree on the mediators, the chairperson of the Johannesburg Bar Council will appoint them.
    • The mediators have specific rules to follow:
    • They can meet with either company separately or together.
    • Any confidential information shared by one company must be kept private by the mediators.
    • The mediators must be impartial and disclose any potential conflicts of interest.
    • They can push for continued mediation if they believe a resolution is possible.
    • All communication during mediation is confidential and cannot be used in future legal actions.

    3. Arbitration (Binding Decision):

    • If mediation fails, the disagreement goes to arbitration. This is a formal process where a neutral arbitrator (judge) issues a binding decision that both Adumo and Lesaka must follow.
    • The Arbitration Foundation of Southern Africa (AFSA) will determine the specific arbitration rules, but expedited procedures won’t apply unless both companies agree.
    • The arbitration will take place in Sandton, South Africa, in English and will be confidential.
    • Either company can still seek temporary relief from a court on urgent matters.
    • Both Adumo and Lesaka agree to the jurisdiction of the South African High Court (Gauteng Local Division, Johannesburg) for enforcing the arbitrator’s decision.
    • Unless the arbitrator decides otherwise, the costs of mediation and arbitration will be shared equally by both companies.

    4. Severability:

    • This dispute resolution clause (Section 47) is independent from the rest of the agreement. Even if other parts of the agreement are found invalid, this section on how to handle disagreements will still apply.

    The Agreement will in all respects be governed by and construed under the laws of South Africa

    Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert. As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard.

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