20th Dec 2007 16:23
Z Group PLC20 December 2007 Z GROUP PLC 20 December 2007 Z GROUP plc ("Z GROUP" or the "Company") Proposed disposal of CallPal Limited, Net2Roam Limited, Onshare Limited andTurbodial Limited, proposed investing strategy and proposed authority to providedocuments to Shareholders electronically Further to the announcement on 29 November 2007 of the Company's interim resultsand the proposed disposal of the operating subsidiaries of the Company, theboard of Z GROUP announces that the Company today entered into an agreement,conditional on Shareholder approval, for the sale of CallPal Limited, Net2RoamLimited, Onshare Limited and Turbodial Limited, which comprise substantially allof the trading assets of the Company, to Jack Bekhor and James True, who arecurrently joint chief executive officers and directors of the Company (the "Disposal"). An announcement confirming the posting of a circular to Shareholders that setsout the background to the proposed Disposal and containing notice of a generalmeeting of the Company to approve the Disposal and various other matters will bemade in due course (the "Circular"). The purpose of the Circular will be to setout the background to the Disposal, to explain why the Board of Z GROUPconsiders the Disposal to be in the best interests of the Company and itsShareholders, to set out the Company's proposed Investing Strategy followingCompletion and to seek the approval of Shareholders for the Proposals at ageneral meeting of the Company, which is required to approve and implement theProposals. For further information: Z GROUP plc John Standen Tel: +44 (0) 8700 111 173(Chairman) Duncan Neale Tel: +44 (0) 8700 111 173(Finance Director) Landsbanki Securities (UK) Limited (NOMAD) Jeff Keating / Tom Hulme Tel: +44 (0) 20 7426 9593(Corporate Finance) The following is taken from the Circular which will be posted to Shareholders indue course. Defined terms used in this announcement are as will be used in theCircular and set out below following the excerpts from the Circular. Proposed disposal of CallPal Limited, Net2Roam Limited, Onshare Limited and Turbodial Limited Proposed investing strategy Proposed authority to provide documents to Shareholders electronically 1. Introduction On 20 December 2007, the Company entered into an agreement, conditional onShareholder approval, for the sale of the Disposal Companies, which comprisesubstantially all of the trading assets of the Company, to the Buyers, JackBekhor and James True, who are currently joint chief executive officers andDirectors. The cash consideration for the Disposal is £60,000, which will be payable uponCompletion. In addition, further material commercial advantage accrues to the Company underthe terms of the SPA, the details of which are set out in paragraph 5 below, asfollows: • Jack Bekhor and James True, while remaining as part-time executivedirectors of the Company following Completion, have agreed to waive anyremuneration due under their service agreements (other than their entitlement toreceive the statutory minimum wage, which cannot legally be waived) for a periodwhich will be the lesser of at least one year (the precise duration to be agreedwith the Board, dependent upon the performance of the Company in the future) orthe period until the completion by the Company of a reverse takeover under theAim Rules, in the event of which the Buyers shall enter into new servicecontracts with the Company; and • The Company will be paid 100 per cent. of all research and developmenttax credits received by Onshare and Net2Roam after Completion, by means of areduction in inter-company debt which would otherwise be written off, and bydividend. The Board estimates that the combined financial benefit to the Company of thesemeasures, including the Consideration, in the first year after Completion willbe between £264,000 (calculated on the basis that Jack Bekhor and James Truewill only receive the statutory minimum wage for one year) and £688,000,depending upon the level of tax credit recovery achieved. The Board has also negotiated with the Buyers further potential payments in theevent of onward sale of shares and/or assets of the Disposal Companies, whichhas the potential to yield further sums to the Company where any of the DisposalCompanies are sold, or any of the Disposal Companies sell any of their assets,within 15 months from Completion. All material liabilities of the Group, other than in relation to the Lease (anobligation of Z Group of £200,000 plus VAT per annum), reside in the DisposalCompanies. The Directors are actively seeking to assign the Lease. On Completion, Z GROUP will hold no material assets other than the Company'scash balance, which is expected to be in the region of £1,000,000. As detailed in paragraph 3 below, the Disposal will also materially reduce theCompany's cash burn rate. Further details of the terms of the SPA appear in paragraph 5 below. It is proposed that after Completion the Ordinary Shares continue to trade onAIM and that Z GROUP pursue new investment opportunities in accordance with theInvesting Strategy. Under the AIM Rules, the Disposal is classified as a disposal resulting in afundamental change of business and under section 190 of the Companies Act 2006the Disposal is a substantial property transaction with Directors. The Disposalis, therefore, conditional on the consent of Shareholders given in generalmeeting. The Disposal is also deemed a related party transaction under the AIMRules as Jack Bekhor and James True are Directors. It is also a requirement,under the AIM Rules, that following a disposal resulting in a fundamental changeof business which results in a company holding only cash, as will be the casewith the Company should the Disposal complete, it must adopt an investingstrategy which outlines, inter alia, the nature of the investments it intends tomake over the next twelve months. A failure to make such an investment within12 months of Completion would result in the London Stock Exchange suspending thetrading of the Company's Ordinary Shares on AIM and, if the Company still failedto comply with the Investing Strategy, the London Stock Exchange would cancelthe admission of the Company's Ordinary Shares to trading on AIM. Thisinvesting strategy must also be approved by Shareholders. The purpose of the Circular is to provide you with details of the Disposal, toexplain why your Board considers the Disposal to be in the best interests of theCompany and its Shareholders, to set out the Company's proposed InvestingStrategy following Completion and to seek your approval for the Proposals at theGeneral Meeting, which is required to approve and implement the Proposals. The Board believes the Disposal is in the best interests of the Company and istherefore asking Z GROUP Shareholders to approve it by voting in favour ofResolution 1 at the General Meeting. 2. Information on Z GROUP Jack Bekhor and James True founded Net2Roam in 2002 and the business wasadmitted to trading on AIM as Z GROUP on 16 June 2005. Z GROUP is aLondon-based technology company which acquires, licences and developstechnologies and commercialises them. Z GROUP currently has five software business lines, all of which are owned by the Disposal Companies: • ShrinkMyTunes - MP3 compression software; • OnShare - file sharing software; • ONSPEED Mobile - mobile phone Internet browser acceleration software; • ONSPEED - Internet acceleration software; and • Net2Roam - pre-paid worldwide Internet access. 3. Background to and reasons for the Proposals On 12 September 2007 the Board announced a trading update and indicated that,whilst trading was in line with management expectations for the six months to 31August 2007, the results for the year would be adversely affected both by thelack of take-up by consumers for Onshare and the anticipated decliningperformance of ONSPEED. Consequently, a write-off of the Company's investmentin Onshare was likely to take place this financial year ending 28 February 2008as a prudent measure. Also, the Board indicated that it was looking atalternative ways to generate revenue from the Onshare technology, which waswithdrawn from the market in November 2007. The Company subsequently reported its interim results for the six months ended31 August 2007 on 29 November 2007. Turnover was £1,000,000 and the tradingloss, including the proposed write-off of the Company's investment in Onshare,which totals £6,900,000, amounted to £7,100,000. The Company's cash balance at31 August 2007 was £1,600,000, which reduced to £1,300,000 at 31 October 2007,representing an average monthly cash burn since 1 March 2007 of £110,000. When Z GROUP was admitted to trading on AIM in June 2005, the intention was togrow the Company by developing and commercialising a product portfolio for usersof the web. ONSPEED was already established in its marketplace and Onshare wasunder development. Onshare has taken much longer to come to market thanoriginally anticipated and its future is now uncertain; consumer uptake has beenslow and it is not considered economically viable in its current form. The Board now believe that the sale of software products to consumers for webenhancing purposes has become increasingly difficult as such products are nowincreasingly being provided free. Consequently, with our principal productONSPEED declining in turnover, Onshare being considered an uncommercialtechnology, and regard being had to the Company's ongoing cash burn, the Boardhas considered the various available options to the Company in order to preserveshareholder value and in particular the cash resources of the Company. In this context, the Buyers approached the Board to buy the Disposal Companiesfor the Consideration and negotiations have concluded on the other termsidentified in paragraph 1 above. The Disposal will reduce the Company's cashburn considerably and is expected to leave the Company with cash resources atCompletion of in the region of £1,000,000. Z GROUP will remain liable under theterms of the Lease, which costs the Company £200,000 plus VAT per annum. TheDirectors are actively seeking to assign the Lease. In view of the continued trading losses and the erosion of the Company's cashresources, the Directors believe that Shareholders' interests would be bestserved by securing a speedy solution to the current problems of Z GROUP. In theopinion of the Board, the Disposal and the adoption of the Investing Strategyrepresent the best available option for the Company and its Shareholders giventhe poor future prospects for the Company in its current form. 4. Financial Information on the Disposal Companies The following consolidated financial information on the Disposal Companies hasbeen extracted, without material adjustment, from the underlying supportingschedules to the audited accounts of the Company for the 12 months ended 28February 2006 and 28 February 2007 and the unaudited interim results of theCompany for the six months ended 31 August 2007. FY06 FY07 H1 FY08 £ £ £Turnover 4,960,922 2,620,969 965,667Gross Profit 3,883,697 1,972,046 707,540Operating profit 1,130,882 (442,992) (2,927,793)PBT 1,033,125 (442,992) (2,927,587)Net assets 2,882,882 2,504,198 (423,390) 5. Principal terms of the SPA On 20 December 2007, Z GROUP entered into the SPA with the Buyers for the saleof the entire issued share capital of the Disposal Companies. Under the SPA,completion of which is conditional upon the passing of the Resolutions at theGeneral Meeting, the Buyers agreed to pay Z GROUP the Consideration. The SPA includes warranties given by Z GROUP as to its title to sell theDisposal Companies and its capacity to enter into the SPA and related documents,but not as to any other matter. The SPA also contains covenants by the Buyers that, in the event that they sellthe shares and/or assets of the Disposal Companies, whether in whole or in part,within 15 months from Completion ("Subsequent Sale"), the Buyers will: 5.1 in relation to the sale of the shares in, or all or substantially all ofthe assets comprising the business of, Onshare, pay to Z GROUP 80 per cent. ofthe net consideration received by the Buyers or Onshare on the Subsequent Sale; 5.2 in relation to the sale of any shares in, or all or substantially all of theassets comprising the business of, any Disposal Company other than Onshare, payto Z GROUP 20 per cent. of the net consideration received by the Buyers or thatother Disposal Company on a Subsequent Sale; and 5.3 in relation to the simultaneous sale to the same buyer(s) of all of theshares in, or all or substantially all of the assets comprising the business ofthe Disposal Companies, pay to Z GROUP 35 per cent. of the net considerationreceived by the Buyers or the relevant Disposal Company on a Subsequent Sale. For the purposes of paragraph 5, "net consideration" means the consideration(including any deferred consideration) received, net of professional fees andany withholding tax or other tax legally due and retained, up to a maximum of 5per cent. of the relevant consideration, incurred by the Buyers or relevantDisposal Company in relation to the Subsequent Sale. However nothing shall be payable to Z GROUP on a Subsequent Sale if theaggregate consideration received by the Buyers or relevant Disposal Company fromsuch Subsequent Sale is less than £40,000. The SPA further provides that Z GROUP agrees to surrender any available taxlosses accruing up to the date of Completion and that it will sign a consent (asrequired by HMRC) to that effect at the time the 2008 returns for the DisposalCompanies are submitted. 6. The Board It is intended that following the conclusion of the General Meeting, assumingthe Resolutions are passed, Polly Williams, Jonathan Slater and I will resign asDirectors with immediate effect and Jon Claydon will become the Company'sChairman. Jack Bekhor, James True and Duncan Neale shall continue as executive directorsof Z Group following Completion. 7. Employees of the Company The only employees of Z GROUP are Jack Bekhor, James True, Duncan Neale andJonathan Slater. Jonathan Slater is being made redundant with effect from andconditional on Completion. Jack Bekhor and James True have agreed to limit the time spent by them on theCompany's business to 10 hours each week and their remuneration is to be reducedaccordingly and will be based on the minimum wage hourly rate. 8. Research and Development Tax Credits Z GROUP has agreed with the Buyers that Z GROUP shall receive 100 per cent. ofall research and development tax credits received by Onshare and Net2Roam forthe years ending 28 February 2006 and 2007 and 29 February 2008 (less anyprofessional fees incurred in claiming them) on the following terms: 8.1 those credits will be used so far as possible to repay those companies'debts to Z GROUP (which will otherwise be written off); and 8.2 to the extent that credits in excess of those debts are received by thosecompanies, Turbodial Limited will pay an equal amount in discharge of finaldividend of £215,000 declared by it on 20 December 2007 in favour of Z GROUP,which dividend will otherwise be waived by Z GROUP. 9. Current Trading The current trading position of the Company is set out in the Company'sunaudited interim results for the six months ended 31 August 2007 as announcedon 29 November 2007. 10. Investing Strategy following Completion and use of proceeds It is a requirement, under the AIM Rules that, following a disposal resulting ina fundamental change of business which results in a company holding only cash,as will be the case with the Company should the Disposal complete, it must adoptan investing strategy which outlines, inter alia, the nature of the investmentsit intends to make over the next twelve months. A failure to make such aninvestment within 12 months of Completion would result in the London StockExchange suspending the trading of the Company's Ordinary Shares on AIM and ifthe Company still failed to comply with the Investing Strategy, the London StockExchange would cancel the admission of the Company's Ordinary Shares to tradingon AIM. This investing strategy must also be approved by Shareholders. Following Completion, the Company is expected to have cash resources of in theregion of £1,000,000. This amount, less the Company's anticipated operatingcosts over the next 12 months of approximately £200,000, will be invested by theRemaining Directors in accordance with the proposed Investing Strategy, wherebythe Company will seek to make an investment or acquisition within 12 months ofthe date of the General Meeting. Following Completion, the Investing Strategy will be to seek high growth,profitable, cash generative businesses in three sectors: • technology; • media; and • sciences. The Remaining Directors intend to examine, inter alia, the following matters inassessing whether or not a potential target company or business is suitable asan acquisition for the Company: • the experience of the company's management team; • the size of the projected market for the company's products and/or services; • the potential for growth of that market; • the stage of development of the company; • the company's intellectual property rights; • the company's competitive position within its market; and • the ease of market entry for the company's products and/or services. Potential investments will be reviewed and initial screening and due diligencewill be carried out by the Remaining Directors. Any decision on whether toproceed will be made by the unanimous decision of the Board. Outsideconsultants and professional advisers will be used where appropriate but theCompany will endeavour to keep this to a minimum in order to control expenses.The Board will use professional advisers in their due diligence processes. If the Board has not found a suitable transaction within 12 months of theGeneral Meeting, the Remaining Directors intend to return any remaining cash toShareholders. The Consideration will be retained by the Company and used for its InvestingStrategy. The Board believes it is in the best interests of the Company to adopt theInvesting Strategy and is therefore asking Z GROUP Shareholders to approve it byvoting in favour of Resolution 2 at the General Meeting. 11. Authority to send or supply documents and information via the Website andin electronic form Under Resolution 3 set out in the Notice, the Company is seeking Shareholders'consent to send and supply documents and information to them in electronic formor via the Website. Increased use of electronic communications will deliver savings to the Companyin terms of administration, printing and postage costs, as well as speeding upthe provision of information to Shareholders. The reduced use of paper willalso have environmental benefits. Under the provisions of the Act, the Company is also required to ask youindividually to confirm your agreement to the Company sending or supplyingdocuments and information to you as a member of the Company via the Website orby other electronic means. Provision of information via the Website Assuming that the Resolution to send and supply documents and information to themembers in electronic form and via a website is passed by Shareholders, if theCompany does not receive a response from you within 28 days of the date of theCircular, you will be taken to have agreed (under paragraph 10 of Schedule 5 tothe Act) that the Company may send or supply documents and information to youvia the Website. Therefore, if you agree to the Company sending or supplyingdocuments or information to you via the Website, you need take no further actionin relation to this part of the Circular. If you would prefer to receivedocuments and information in paper form rather than via the Website, you willneed to complete the form of authority enclosed with the Circular and return itto the Company at the address appearing on it. In order to access documents and information on the Website and by email, youwill need a web browser, a connection to the Internet and Adobe Reader (if youdo not have Adobe Reader you can download it from www.adobe.com/products/acrobat/readstep2.html). Alternative pdf viewers are also available. The Company will notify you when documents and information are available toaccess on the Website and we will provide you with: • the address of the Website; • the place on the Website where the documents and information may be accessed; and • details of how to access the documents or information. Provision of information by email Assuming that the Resolution to send and supply documents and information to themembers in electronic form and via a website is passed by Shareholders, if youagree to the Company sending or supplying documents or information to you byemail (in accordance with paragraph 6 of Schedule 5 to the Act), you will needto complete the form of authority enclosed with the Circular (and providedetails of your email address) and return it to the Company at the addressappearing on it. If the Company is required to restrict the sending of any documents orinformation to any Shareholders within the European Economic Area (EEA), forexample due to the local laws of the EEA country in which the particularshareholders are resident or otherwise located, the Company will not bepermitted to use electronic means to communicate with any Shareholders holdingshares of the same class as those Shareholders within the EEA. In any suchcase, the Company will send you hard copies of the documents or information. 12. General Meeting The General Meeting will be convened for 11 a.m. on 7 January 2008 at theoffices of Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN. The Notice will beset out at the end of the Circular. At the General Meeting, the following resolutions will be proposed: 1. That the proposed sale by the Company of the Disposal Companies in accordance with the SPA be approved and entered into; 2. That the Investing Strategy be approved; and 3. That the Company be permitted to send or supply documents or information to members by making them available on a website or by other electronic means. 13. Irrevocable Undertakings The Company has received irrevocable undertakings from the holders of, inaggregate 9,649,968 Ordinary Shares (representing approximately 40.64 per cent.of the Company's issued share capital) to vote in favour of the Resolutions.Under English law and pursuant to the AIM Rules, a majority vote is required toapprove the Resolutions. 14. Action to be taken by Shareholders You will find enclosed with the Circular a Form of Proxy for use at the GeneralMeeting or any adjournment thereof. Whether or not you wish to attend theGeneral Meeting, you are urged to complete and return the enclosed Form of Proxyin accordance with the instructions set out thereon, as soon as possible but inany event by no later than 11 a.m. on 5 January 2008. Completed Forms of Proxyshould be returned to the Company's registrars, Capita Registrars, The Registry,34 Beckenham Road, Beckenham, Kent, BR3 4TU. The completion and return of theForm of Proxy will not preclude you from attending and voting in person at theGeneral Meeting if you so wish. 15. Recommendation The Independent Directors, having consulted with Landsbanki, the Company'snominated adviser, consider that the terms of the Disposal are fair andreasonable in so far as Shareholders are concerned. In providing its advice,Landsbanki has taken into account the commercial assessment of the Directors. Furthermore, the Board considers the Proposals to be in the best interests ofthe Shareholders as a whole. Accordingly, the Board unanimously recommends that all Shareholders vote infavour of the Resolutions to be proposed at the General Meeting, as theDirectors (other than Duncan Neale, Jonathan Slater and Polly Williams who arenot Shareholders) have undertaken to do in respect of their own beneficialshareholdings (amounting in aggregate to 9,649,968 Ordinary Shares, representingapproximately 40.64 per cent. of the existing issued share capital of Z GROUP). Definitions: Act means the Companies Act 1985 (as amended) and shall include, so far as it is in force and applicable, the Companies Act 2006; AIM means the market of that name operated by the London Stock Exchange; AIM Rules means the AIM Rules for Companies of the London Stock Exchange governing admission to trading on and the operation of AIM; Buyers means Jack Bekhor and James True; Board or Directors means the directors of Z GROUP, whose names appear on page 5 of the Circular; CallPal means CallPal Limited, a company registered in England and Wales, Company No. 4651754; Capita Registrars means Capita Registrars, the Company's registrars; Company or Z GROUP means Z GROUP plc; Completion means completion of the Disposal pursuant to the SPA; Consideration means the consideration payable to the Company by the Buyers for the Disposal Companies, being £60,000 (sixty thousand pounds); Disposal means the proposed disposal of the Disposal Companies pursuant to the SPA; Disposal Companies means Callpal, Net2Roam, Onshare and Turbodial, each of 31 Vernon Street, London W14 0RN; Form of Proxy means the form of proxy attached at the end of the Circular for use at the General Meeting; General Meeting means the General Meeting of the Company to be held on 7 January 2008 at 11 a.m. at the offices of Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN, or any adjournment thereof, notice of which is set out at the end of the Circular; Group means the Company and the Disposal Companies; HMRC means Her Majesty's Revenue & Customs; Independent Directors means John Standen, Polly Williams and Duncan Neale; Investing Strategy means the proposed investing strategy of the Company following Completion, prepared in accordance with the AIM Rules, the details of which are set out in paragraph 10 of the Circular; Landsbanki means Landsbanki Securities (UK) Limited; Lease means the ten year lease of the premises occupied by the Company at 31 Vernon Street, London W14 0RN, entered into on 18 July 2006, at a cost of £200,000 plus VAT per annum and which has a break clause exercisable on its fifth anniversary; London Stock Exchange means London Stock Exchange plc; Net2Roam means Net2Roam Limited, a company registered in England and Wales, Company No. 4397528; Notice means the notice of the General Meeting set out at the end of the Circular; Onshare means Onshare Limited, a company registered in England and Wales, Company No. 5135560; Ordinary Shares means the 5p par value ordinary shares of the Company; Proposals means together the Disposal, the Investing Strategy and the giving of authority to the Company pursuant to Schedule 5 of the Act; Remaining Directors means Jon Claydon, Jack Bekhor, James True and Duncan Neale; Resolutions means the resolutions to be proposed to Shareholders at the General Meeting and which are set out in the Notice; Shareholder means a holder of Ordinary Shares of the Company from time to time; SPA means the conditional share purchase agreement entered into between (1) the Company and (2) the Buyers on 20 December 2007 pursuant to which the Buyers have agreed to buy and the Company has agreed to sell the entire issued share capital of the Disposal Companies; Turbodial means Turbodial Limited, a company registered in England and Wales, Company No. 4892997; UK Listing Authority means the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000, as amended; and Website means www.zgroupplc.com or such other website as may be operated by the Company from time to time. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
1Spatial Holdings