14th Nov 2005 08:00
World Gaming PLC14 November 2005 14 NOVEMBER 2005 WORLD GAMING PLC Mailing of Admission Document Proposed Placing of new Ordinary Shares Acquisition of the SPORTSBETTING.COM Group Admission of the Enlarged Issued Share Capital to trading on AIM Notice of Annual General Meeting The Board of World Gaming plc ("the Company") is pleased to announce the mailingto shareholders and ADR holders (together "Shareholders") of the AdmissionDocument in connection with the proposed Acquisition of certain assets of RealEntertainment Ltd and the entire issued share capital of DNI Holdings Ltd,together (the "SPORTSBETTING.COM" Group). SHAREHOLDERS ARE URGED TO READ THE ADMISSION DOCUMENT IN ITS ENTIRETY BECAUSE ITCONTAINS IMPORTANT INFORMATION. Introduction In the admission document relating to the Company's initial admission toAlternative Investment Market of the London Stock Exchange ("AIM") in May 2005,the Directors outlined the Company's and its subsidiaries' (the "Group")strategy to grow and develop the existing business. This strategy included usingthe Company's listed status on AIM to permit the Group to pursue strategicopportunities, including potential acquisitions, which would continue to enhanceshareholder value. Pursuant to this strategy, on 25 October 2005, the Groupannounced that it had entered into a conditional agreement to acquire theSPORTSBETTING.COM Group, which is the Group's largest licensee. The Acquisition contemplates the Group making a payment to the Vendors of theSPORTSBETTING.COM GROUP of up to $96 million payable 75 percent in cash and 25percent in ordinary shares of the Company. At completion of the Acquisition, $54million will be paid in cash to the Vendors. Up to a further $42 million of bothcash and ordinary shares of the Company will be paid to the Vendors onprescribed dates in 2006 depending upon the financial performance of theSPORTSBETTING.COM Group. The cash component of the payment is being financed by:(i) the proceeds of a Placing, (ii) Debt Facilities and (iii) existing capitalresources. The Placing consists of up to 5,600,000 million placing sharesraising up to £7 million before expenses. With respect to the Debt Facilities,the Company is conditionally arranging a term loan of $40 million and arevolving credit facility of up to $10 million. Both the Placing and the DebtFacilities will be conditional on admission. Because of the size of the Acquisition, the transaction constitutes a "ReverseTakeover" for the purpose of the AIM Rules and therefore it is conditional,among other things, upon the Company attaining shareholder approval. Shareholderapproval is being sought at the Company's AGM to be held on 9 December 2005. TheAdmission Document, the mailing of which is announced today, is not onlyintended to be used for admission of the Enlarged Issued Share Capital to AIM,but also sets out the background to and the reasons for the proposals.Furthermore, it explains why the Board considers that the Proposals are in thebest interests of the Company and why the Board recommends that all Shareholdersvote in favour of the resolutions approving the Acquisition and all ancillarymatters. If the resolutions are duly passed at the AGM, the Enlarged Issued Share Capitalis expected to be admitted to trading on AIM thereafter. Dealings on AIM in theEnlarged Issued Share Capital are expected to commence on 12 December 2005. Ifthe resolutions are not passed, or any of the other conditions to theacquisition or the Placing are not met, dealings in the existing Ordinary Shareson AIM will continue. Daniel Stewart has also agreed to use its best endeavours to place 800,000ordinary shares of the Company on behalf of certain the Directors in respect ofwhich such Directors will receive an aggregate of £1 million. Trading on AIM and OTCBB AIMTrading in the Company's ordinary shares had been suspended in accordance withthe rules of the AIM following the announcement of the Acquisition. The Companyhas been advised that trading in the Company's ordinary shares will resume todayfollowing the mailing of the Admission Document. OTCBBOn October 25, 2005, the National Association of Securities Dealers (the"NASD"), acting pursuant to NASD Rule 6545, directed its members to halt tradingand quotations for five business days in the over-the counter ("OTC") market ofthe Company's ADRs that were included in the OTC Bulletin Board (the "OTCBB"). The Company understands that the NASD took this action based on the suspensionof the Company's ordinary shares on the AIM of the London Stock Exchange, whichsuspension was put in place following the announcement by the Company of theconditional purchase agreement to acquire the SPORTSBETTING.COM Group. Pleasesee the Company's press release, dated October 25, 2005, entitled "World GamingAcquisition and Suspension of Trading on AIM." The NASD trading halt was for five business days and expired on 01 November2005. Quotations on the OTCBB of the Company's ADRs, however, may resume onlyafter market makers of the Company's ADRs satisfy applicable requirements underthe U.S. Securities Exchange Act of 1934, as amended, and NASD Rules. Inparticular, market makers will need to comply with U.S. Securities and ExchangeCommission Rule 15c2-11 by filing a Form 211 with the NASD. Quotations on theOTCBB by the market maker may resume once the NASD has reviewed and cleared theForm 211. The Company is not aware that any market maker has initiated suchprocess at this date. Holders of the Company's ADRs should contact their brokers or licensedinvestment advisor for additional information. For additional information on the ADR to ordinary share conversion process,please see the Company's press release, dated August 17, 2005, entitled "WorldGaming plc Releases Notice to ADR Holders Regarding Transfer of ADR's toOrdinary Shares," and the information that accompanies that document. Background to the Transaction Following the initial admission to AIM in May 2005, the Group has continued toimplement its strategy of growing revenues within its existing licensingbusiness. Existing licensees continue to experience strong organic growth. Inaddition, following the Director's commitment to pursue new licensingopportunities, the Company has announced a number of new licensing deals, whichthe Directors believe will increase revenue in the future. Notwithstanding thatthe Group is acquiring one of its largest licensees; the Group is committed toremaining a key licensor of gaming software within this sector. The Directors consider that because the Group has the Gaming Software, thehosting facilities and key supplier relationships, which exist within the Group,becoming an Operator, as well as being a licensor of Gaming Software within thesector, will improve the utilisation and effectiveness of the Group's existingassets. The acquisition of the SPORTSBETTING.COM Group is the Group's first step intoInternet Gaming operations in its core business of sports betting, horse racing,casino and on-line poker on a platform sublicensed by the Company. TheSPORTSBETTING.COM Group's operations other than marketing and general managementare carried out, managed, or sub-licensed by the Group. Therefore, theintegration of the SPORTSBETTING.COM Group is expected to be relativelystraightforward. The key strengths of the Group, which were outlined at the time of initialadmission in May 2005, are: •experienced and respected management team; •cash generative, profitable and growing; •established, widely used and highly reliable gaming software and infrastructure; •excellent record for processing a high volume of transactions; •flexible product offering for operators; •track record as provider to the industry leader; •low cost and short timescale set up for new licensees; and •expansion opportunities including potential acquisitions. These key strengths, as outlined above, remain valid and will be significantlyenhanced through the Acquisition. Principle Terms of the Acquisition The following principle terms highlight the key elements of the Acquisition,which has an effective date of 1 October 2005. The effective date, which isearlier than the expected completion date will be the date from which allrevenues and costs from the Acquisition will accrue to the Group. TheSPORTSBETTING.COM Group is to be acquired on a cash-free, debt-free basis as atthe effective date. The consideration paid will be equal to six times the profit before tax ("PBT")of the SPORTSBETTING.COM Group as defined under International AccountingPrinciples for the calendar year of 2005 up to a maximum base consideration of$96 million, which shall be satisfied as to 75 percent in cash and 25 percent bythe issue and allotment of consideration shares. The consideration will be $96 million provided that the PBT is not less than $15million. To the extent that the PBT is below $15 million, the considerationshall be six times the 2005 PBT, subject to a minimum consideration of $72million (see the example detailed below). Any reductions will come 75 percentfrom cash and 25 percent from equity. The Group proposes to pay the consideration as follows: Description Due $millionFirst Payment ExampleCash Only On completion 54.0 Second Payment - 6 x Full Year 2005 PBT less FirstPayment (to a maximum of $16 million)less holdback for Third PaymentCash 7 January 2006 10.8 Shares 7 January 2006 21.6 Third Payment - 10 percent. Holdback of TotalConsiderationCash 7 October 2006 7.2 Shares 7 October 2006 2.4 ------ 96.0 ------ The third payment shall become payable to the Vendors seven days after the firstanniversary of the Effective Date subject to no warranties having been breachedby the SPORTSBETTING.COM Group and any adjustments having been required for thecalendar 2005 full year audit. In the event of a dispute, both parties willagree an independent expert to resolve the disputed portion in a manner bindingon both parties. The terms of the Acquisition require that the Vendor's shareholding in WorldGaming shall not exceed 29.9 percent. The consideration shares issued to theVendor will be at the issue price, will be subject to a lock-up arrangement andthe Vendor has agreed to certain restricted voting rights. The shares shall havecertain voting restrictions, specifically pertaining to change of control orcomposition of the Board for a period of 2 years. As a result of the Acquisition, under the terms of the Group's Joint VentureArrangements with Sportingbet plc, the Group will be required to pay into aSportingbet plc subsidiary 5 percent of gross margin of the SPORTSBETTING.COMGroup after deductions for certain direct costs. Reasons for the Acquisition The core the Group's management team was established in 2003 with the immediateobjective of stabilising the Group's operations and achieving profitabilitywithin the Group's licensing business. Having met these immediate objectives,the Directors began to focus on leveraging the Group's key assets including theGaming Software, Intellectual Property and the associated infrastructure. Eachof these contributes towards establishing a strong platform to achieving theobjective of becoming an operator and hence moving up the industry value chain.Moving up the industry value chain will allow the Group to earn all of therevenue, or net win, on each gambling transaction as opposed to a percentage ofrevenue under existing licensing models. In addition to maximising the revenue earned on each transaction, the Directorsbelieve that ownership of the underlying customer database that produces suchtransactions will reduce the Company's reliance on a few large licensees. It isexpected that ownership of the underlying customer database will have the effectof giving the Group greater control of performance and operations. This is aresult of having increased influence over end user spending; greaterresponsiveness to customer needs and improved control over essentialrelationships with third parties. With respect to core management, certain Directors of World Gaming, prior toholding their current positions, have worked for operators for a number ofyears. These roles have included the responsibility for acquisitions and thesubsequent integration of these businesses. To become an operator, the Directors believe that there are two viableapproaches, either launching a new internet gaming website utilising the GamingSoftware or the acquisition of an existing operating business. The Directorsbelieve that although a market exists for new entrants who are well positionedand possess sufficiently differentiating attributes to launch a new internetgaming website, this approach is now comparatively risky. Such an approach isconsidered to be time and resource intensive and unlikely to generate thereturns that the Directors believe would fully exploit the existing capabilitiesof the Group. The second approach is to acquire an existing operator. Whilst the Directorsacknowledge that this approach will have a greater initial monetary cost, itwill allow the Group to become a relatively substantial operator within acomparatively short timeframe. Having considered a number of alternatives, theDirectors concluded that the most appropriate option would be to seek to acquireone of the Group's existing and substantial licensees. The SPORTSBETTING.COMGroup possesses not only an established brand, extensive customer database andembedded marketing relationships, which collectively create a robust business,but also has certain other attributes that the Directors believe make it ideal.These include: •The SPORTSBETTING.COM Group uses the Group's existing gaming software, thus removing the risk caused by integrating an operator who use incompatible software platforms or eliminating the cost of operating dual software platforms concurrently; •as the Group already performs, manages or outsource all of the SPORTSBETTING.COM Group's operations other than marketing, the cost, risks and time required for integrating the two businesses will be minimised; •the knowledge that the Directors possess of the SPORTSBETTING.COM Group, having worked closely together for a number of years, therefore being in a strong position to assess its prospects, strengths and challenges; and •acquiring its largest licensee enables the Group to take control of the revenue stream, removing the risk that the licensee decides to change gaming software. The Directors believe that industry consolidation is likely to accelerate. As astrong mid-tier operator with good management and established gaming software,the enlarged Group will be in a strong competitive position to take advantage offurther opportunities that may arise. The Directors believe that the Group's products and services are well placed tosucceed in the rapidly expanding internet gaming market. This market has grownfrom its conception in 1995 to revenues estimated at $6 billion in 2003 and over$8 billion in 2004. Forecasters expect the market to grow by 20-25 percent inboth 2005 and 2006 and to rise by as much as tenfold over the next ten years,Source: Christiansen Capital Advisors, LLC 2005. Information on the SPORTSBETTING.COM Group The SPORTSBETTING.COM Group has established a number of key internet basedgaming brands since its inception in September 1999. Its flagship domain iswww.sportsbetting.com and its other primary sites are www.racebook.com andwww.win4real.com. The SPORTSBETTING.COM Group offers a full suite of sportsbetting, horseracing, casino, and poker products on each of its sites using thegaming software, which it licenses and sublicenses from the Group. The SPORTSBETTING.COM Group also includes certain other domain names, websitecontent, customer databases and trade marks. The Group provides software andassociated infrastructure requirements from its gaming servers in its secureleased facility in Antigua. In addition, the Group facilitates critical thirdparty relationships for transaction processing, customer service and riskmanagement. At present only the marketing and hosting of the front end websitesused for marketing is outside the control of the Group. As part of theAcquisition, the marketing activity that has been carried out by and on behalfof the SPORTSBETTING.COM Group since its inception will be performed by theGroup. The performance of these activities will be assisted through keymarketing relationships that were in existence prior to the Acquisition andpreviously used by the Vendors. The SPORTSBETTING.COM Group has grown significantly since its inception. TheDirectors believe that the URLs, particularly www.sportsbetting.com, which nowgenerates a substantial majority of its revenue, have been integral to itssuccess. Another key driver of growth has been the affiliate programs, wherebyother websites drive traffic to the SPORTSBETTING.COM Group's websites in returnfor a portion of the revenues derived from those customers. TheSPORTSBETTING.COM Group also makes extensive use of on-line and off-lineadvertising as well as using competitions, print advertising, physicalmail-outs, advertising at events and customer loyalty programs. The Directorsbelieve that the growth of the business in this period demonstrates the successof the marketing techniques employed and scalability of the SPORTSBETTING.COMGroup's operating model. The SPORTSBETTING.COM Group currently has a strong focus on the United States,from where the overwhelming majority of its users currently bet on the Group'sgaming servers located and licensed in Antigua. With the strength of theSPORTSBETTING.COM Group's brands, the Directors believe there is an opportunityto target other geographic regions, which will increase revenues, diversify riskand reduce the seasonality, which exists due to the sports seasons in the UnitedStates. The addition of non-event reliant products such as poker will furthermitigate seasonal demand. The SPORTSBETTING.COM Group experiences competition from a number of otherOperators; however, the Directors believe that the internet gaming market isfragmented and is growing sufficiently quickly so that no Operator represents acurrent and material commercial threat. As the market matures, however, theDirectors believe there will be increased competitive pressures betweenOperators and consolidation within the industry. The Directors believe that theenlarged Group has sufficiently strong operations and management to operatesuccessfully in this environment and to take advantage of consolidation and theopportunities presented. Further Legal Notice This communication shall not constitute an offer to sell or the solicitation ofan offer to buy securities, nor shall there by any sale of securities in anyjurisdiction in which such solicitation or sale would be unlawful prior toregistration or qualification under the securities laws of such jurisdiction. Information on World Gaming The Group's business was established in June 1996 and it is a gaming softwareprovider offering a comprehensive suite of products and services for operators.The Group licenses the gaming software and provides to operators a package ofrelated services for which it charges fees, including a royalty, amongst otherfees, to operators. The Group's hosting, systems administration and certain keymanagement functions are based in Antigua. The Group intends to grow its revenues from both existing and new licensees. TheGroup's existing licensees continue to experience strong organic growth and theGroup is developing new products and services to support and maximise growthopportunities for these licensees. In addition, the Group has refocused itsefforts on licensing the gaming software both to additional establishedoperators and those businesses with existing Internet traffic or databases whoare looking to enter the internet gaming market. The products and servicesoffered by the Group enables the provision of flexible gaming solutions to awide variety of operators. Use of FundsThe net proceeds of the Placing receivable by the Company are expected to beapproximately £5,457,225, which together with the Debt Facility and ExistingResources, will be used for the Acquisition and for additional working capital. Current Trading and ProspectsThe Company's year to date trading and prospects are meeting or exceedingmanagement's expectations at all operating levels, with growth in wageringvolumes on the Group's servers and royalty revenues when compared to the sameperiod last year. Net profit for the Company remains ahead of management's expectations. Thefourth and first quarters are historically the Group's busiest period. Based onperformance to date, the Company is confident that its financial results willmeet expectations. The Group invested in necessary upgrades to its hosting facility in the secondand third quarters of 2005. These upgrades have generated greater scalabilityand increased performance of the Group's database system on which all licenseetransactions are generated. Details of the Placing The Company is seeking to raise £7 million, conditional upon admission, throughthe issue of up to 5,600,000 Placing Shares at the issue price pursuant to thePlacing. Daniel Stewart has conditionally placed these shares with institutionaland other investors. The Placing Shares represent approximately 9.98 percent. of the Enlarged IssuedShare Capital. The Placing is conditional upon the passing of the certainresolutions, completion of the Acquisition and admission to trading on AIM. Itis expected that admission will become effective and that dealings in theEnlarged Issued Share Capital will commence on 12 December 2005 (or such laterdate, being not later than 23 December 2005, as Daniel Stewart and the Companymay agree). If admission has not so occurred, application monies will bereturned to the applicants without interest, at their own risk, as soon aspracticable thereafter. The Placing Shares will rank pari passu with the existing ordinary sharesincluding the right to all dividends and distributions declared, made or paidafter the date of their issue. The Placing has not been underwritten. ThePlacing shares will be issued fully paid. Subject to admission, the Directors will dispose of an aggregate of 800,000ordinary shares comprising 800,000 new ordinary shares, which will be issued tothem upon the exercise of certain options. Daniel Stewart has conditionallyplaced these shares (at the issue price) as part of the Placing withInstitutional and other investors. Details of the Debt FacilitiesThe Company intends to enter into a conditional debt facility pursuant to whichit has agreed to raise debt of up to $50 million. The proceeds of the debtfacility will be used to satisfy part of the cash element of the considerationto be paid to the Vendors for the Acquisition and for working capital purposes.The debt facility is conditional, upon the passing certain resolutions by theShareholders, completion of the Acquisition and admission. The Company'sobligations under the debt facility will be secured by fixed and floatingcharges over the assets and undertakings of the enlarged Group. Annual General MeetingThe approval of the Shareholders in relation to the proposals will normally besought at an extraordinary general meeting of the Company. As the timing forsuch approval coincides with the proposed holding of the AGM, the approval ofthe Shareholders will be sought by the tabling of certain resolutions as specialbusiness at the AGM. A notice has been sent to Shareholders convening an AGM of the Company, which isto be held at Minerva House, 5 Montague House, London SE1 9BB at 10.00 a.m. GMTon 9 December 2005. Copies of the Admission Document will be available, free of charge to the publicfrom Daniel Stewart at Becket House, 36 Old Jewry, London, EC2R 8DD duringnormal office hours on any weekday (Saturdays and public holidays excepted) fromthe date of this document until a date one month after Admission. Enquiries: World Gaming plc Tel. +1 888 883 0833Daniel Moran, Chief Executive Daniel Stewart & Company Tel. 020 7776 6550Ruari McGirr Bishopsgate Communications Limited Tel: 020 7430 1600Maxine BarnesDominic Barretto U.S. SECURITIES ACT NOTICE The ordinary shares to be issued in connection with the Company's proposedacquisition transaction or the related equity offering have not been and willnot be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States or to, orfor the account or benefit of, a U.S. person (as such term is defined inRegulations S under the Securities Act) absent registration or an applicableexemption from registration under the Securities Act. ABOUT THE WORLD GAMING GROUP World Gaming is a UK based holding company whose subsidiaries participate inI-gaming software and e-business. The World Gaming Group is an internationaldeveloper, licensor, and provider of online gaming products, including casino,sportsbook, and pari-mutuel betting. For more information about the World GamingGroup, visit its main website at www.worldgamingplc.co.uk.Interactive Systems Inc., a subsidiary of World Gaming is incorporated andoperating out of Antigua, licenses its gaming software to third parties for aninitial licensing fee and monthly royalties. Alea Software Inc., inparticipation with the World Gaming Group develops gaming software and webpages. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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