TIDMTEX
TEP Exchange Group PLC
Proposed Subscription and Capital Reorganisation
Introduction
TEP Exchange plc (the "Company") announces the terms of a proposed subscription
for New Ordinary Shares and warrants by SL and certain of its connected
companies. SL is the Company's largest existing shareholder. In connection with
the new issue, the Company is proposing to effect a capital reorganisation,
resulting in a reduction in the nominal value of its ordinary share capital.
The Subscription is conditional, inter alia, upon Shareholders approving
Resolutions 7.1 and 8.1 at the Annual General Meeting of the Company to approve
the Capital Reorganisation and to grant to the Directors authority to allot
shares and power to disapply statutory pre-emption rights on allotment and also
upon the Subscription Shares being admitted to trading on AIM. The Resolutions
are contained in a notice of AGM to be dispatched to shareholders shortly.
Background to and reasons for the Proposals
The economic environment over the last few years has been exceptionally
challenging. Not only has this affected the market in traded endowment
policies, but adverse comment regarding the performance of endowment policies
as an asset class, has exacerbated the position. As a consequence, the
Company's revenue has reduced significantly in the three financial years ended
31 December 2009. As announced previously, the Board has taken drastic action,
materially reducing the Company's overheads to try to preserve Shareholder
value and, with the support of the Company's largest Shareholders in recent
years, has secured the Company's future by entering into licensing agreements
in November 2010.
As set out in the Company's results for the year ended 31 December 2010, the
Company generated GBP164,776 of revenue last year but incurred administrative
expenses totalling GBP221,573 and finance costs of GBP29,661, resulting in a loss
of GBP86,458 after tax for the year. The licensing arrangements, set out below,
were entered into on 12 November 2010 and, therefore, the Company only had the
benefit of approximately six weeks of the licence revenue in the last financial
year. The Directors are confident that revenues will increase in the current
financial year, as licence income continues, although there is a deficiency on
the Company's balance sheet and this will persist until future licence income
is received. However, there is likely to be a timing lag before cash is
received. Accordingly, the Company has arranged the Subscription to fund its
current short term working capital requirements. The proceeds of the
Subscription Shares amount to approximately GBP80,000, after expenses.
The Directors have considered other ways of raising capital and strengthening
the Company's balance sheet, and have concluded that the Proposals are the only
means available to the Company of achieving this. The cost of funds raised
through the Subscription will be substantially less than those associated with
an open offer or rights issue to Shareholders, and such an offer would have had
an uncertain outcome, in the light of SL's dominant shareholding in the
Company. The Directors consider that is it essential that these resolutions are
passed, so that the Subscription can proceed.
The Proposals are subject to the passing of the Resolutions at an AGM to be
held on 3 November 2011.
Current trading
On 29 June 2011 the Company announced its final results for the year ended 31
December 2010. The loss before and after taxation was GBP86,458 compared to the
loss before and after taxation of GBP215,009 in 2009. Despite the turmoil in the
financial markets and the current limited demand for traded endowment policies
the Company's trading performance in the current financial year has improved
compared with 2010 primarily as a result of the income derived from the licence
agreements with SL. The results for the six month period ended 30 June 2011
were announced today. Total revenue for the period was GBP518,000 (six month
period ended 30 June 2010: GBP15,000), of which licence fee income amounted to GBP
500,000 (six month period ended 30 June 2010: GBPnil). The Company achieved a
profit from operations of GBP370,000, compared to a loss from operations of GBP
79,000 in the same period last year. The profit before and after taxation was GBP
357,000, compared to a loss before and after taxation of GBP92,000 in the first
six months of last year.
Capital Reorganisation
The Subscription Warrant Price is below the present nominal value of the
Existing Ordinary Shares. Company law prohibits a company from issuing shares
at a discount to the nominal, or par, value of its shares. Therefore, in order
to carry out the Subscription, it is necessary to reduce the nominal value of
the Company's shares. Accordingly, the Directors, propose to effect a share
reorganisation so that each of the issued Deferred Shares of 0.99p in the
capital of the Company will be sub-divided into 990 New Deferred Shares and
each of the Existing Ordinary Shares of 0.01p will be subdivided and
redesignated into one New Ordinary Share and nine New Deferred Shares.
The rights attaching to the Ordinary Shares will, apart from the change in
nominal value and the entitlement of Shareholders in respect of a return of
capital arising from them, be identical in all respects to those of the
Existing Ordinary Shares.
The New Deferred Shares will have no voting rights and will not carry any
entitlement to attend general meetings of the Company; nor will they be
admitted to AIM or any other market. They will carry only a priority right to
participate in any return of capital to the extent of GBP1 in aggregate over the
class. In addition, they will carry only a priority right to participate in any
dividend or other distribution to the extent of GBP1 in aggregate over the class.
In each case, a payment to any one holder of New Deferred Shares shall satisfy
the payment required. The Company will be authorised at any time to effect a
transfer of the New Deferred Shares without reference to the holders thereof
and for no consideration.
Accordingly, the New Deferred Shares will, for all practical purposes, be
valueless and it is the Board's intention, at an appropriate time, to have the
New Deferred Shares cancelled, whether through an application to the Companies
Court or otherwise. Existing share certificates will continue to be valid
following the Capital Reorganisation and no certificates will be issued in
respect of the New Deferred Shares.
A notice of AGM, being dispatched to Shareholders as soon as practicable,
contains resolutions to give effect inter alia to the proposed Capital
Reorganisation, the Subscription, which are conditional, amongst other matters,
on the passing of the Resolutions.
The Subscription
The Subscribers have agreed to subscribe for the Subscription Shares at 0.02p
per share to raise GBP90,000 (gross) (approximately GBP80,000 (net of expenses))
for the benefit of the Company. The Subscription Shares will represent 52.94
per cent of the thereby enlarged issued ordinary share capital of the Company.
The Subscribers will receive 10 Subscription Warrants for each Subscription
Share. The Subscription Warrants will be exercisable at 0.002p per New Ordinary
Share, representing a discount of 90 per cent. to the Subscription Price. The
issue of New Ordinary Shares to the holders of the Subscription Warrants
following the exercise would generate an additional GBP90,000 for the benefit of
the Company. Accordingly, the Subscription is expected to generate up to GBP
180,000 (gross of expenses) for the Company.
The Warrants may only be exercised if the Company and its wholly owned
subsidiaries achieves average annual consolidated revenue of over GBP600,000 per
annum over the three financial years ending 31 December 2013 or, if earlier,
the Company and its wholly owned subsidiaries achieves consolidated revenue of
at least GBP900,000 in each of the financial years ending 31 December 2011 and 31
December 2012.
In either case, the Company will have to have declared, made and paid dividends
of at least GBP250,000 to all shareholders overall in respect of the period,
before the Subscription Warrants may be exercised. The Subscription Warrants
may only be exercised together as a whole and not in part.
Following the issue of the Subscription Shares, the Concert Party would hold
79.98 per cent. of the then enlarged ordinary share capital, so the minority
shareholders would receive 20.02 per cent of the dividends of GBP250,000 referred
to above. Following the exercise of the Subscription Warrants, a further
4,500,000,000 New Ordinary Shares would be issued to the Concert Party, which
would then hold 96.82 per cent of the then enlarged issued share capital. In
the event that the Subscription Warrants are exercised the Company would offer
to purchase the outstanding shares owned by the minority shareholders and would
also consider, at that time whether it was appropriate for the Ordinary Shares
to remain admitted to trading on AIM.
The Company will seek authority at the AGM to purchase its own shares and the
Board intends to propose a renewal of that authority on an annual basis.
The Subscription is conditional, inter alia, upon the Capital Reorganisation
being effected and Admission. It is expected that Admission will become
effective and dealings in the Subscription Shares and the issued New Ordinary
Shares will commence on 4 November 2011.
The Subscription Shares, when issued and fully paid, will rank equally in all
respects with the issued New Ordinary Shares, including the right to receive
all dividends and other distributions declared, made or paid after issue.
Shareholder participation in the Subscription
Certain substantial Shareholders in the Company have agreed to subscribe for
the Subscription Shares. The respective subscriptions, together with the
resultant holdings in the enlarged issued share capital are as follows:
No. of Shareholding Percentage
Subscription following holding of
Shares Admission enlarged issued
share capital
SL Investment Management Limited 215,000,000 408,032,798 48.00
Close Horizons Limited 85,000,000 186,833,333 21.98
Under the AIM Rules, the Subscription is classified as a related party
transaction. The Independent Directors (being the directors of the Company
other than David Roxburgh who is a director of SL) have consulted with Merchant
Securities Limited in its capacity as the Company's nominated adviser and
consider the terms of the Proposals to be fair and reasonable insofar as
Shareholders are concerned. In advising the Independent Directors, Merchant
Securities Limited has relied upon the commercial assessment of the Independent
Directors.
Licensing arrangements
As stated previously, the Directors are of the view that the Company's
electronic platform is still a cost effective method for market makers to
source policies, particularly direct from the public and in addition, the
technology can be utilised for trading in other assets particularly within the
financial services sector. With this in mind the Directors have negotiated for
the Company to receive quarterly fees from licensing the electronic platform
and all the technology to SL. The Company will continue to be able to utilise
the electronic platform in order that market makers can continue to source
traded endowment policies.
On 12 November 2010 the Company entered into a non-exclusive licence agreement
with SL to licence its electronic platform and all technology to SL. In
consideration for this arrangement, the Company is receiving a quarterly fee of
GBP20,000 plus VAT. In addition, SL was granted exclusive rights to develop and
modify the electronic platform for a quarterly fee payable to the Company of GBP
230,000 plus VAT ("the Licence Agreement") to enable SL to put additional
financial products on to the platform. The Licence Agreement is for a period of
10 years; however, SL may terminate the agreement on 30 April 2012 and every
subsequent 30 April during the life of the contract on giving 30 days' prior
written notice to the Company, in the event that the income generated by SL
from the licence in the preceding 12 months is less than GBP250,000.
In addition, TEP Exchange Limited (the trading subsidiary of the Company) has
entered into a 12 month non-exclusive licence with SL (the Sub-Licence) to
utilise the electronic platform for a quarterly fee of GBP25,000 plus VAT. The
Sub-Licence can be renewed annually at the sole discretion of SL. The
Sub-Licence provides TEP Exchange Limited with access to any developments or
modifications made by SL to the electronic platform for traded endowment
policies.
The net effect of these licensing arrangements, unless terminated as set out
above, is to provide annual income to the Company of GBP900,000.
At the end of June 2011, the Company owed the sum of GBP379,000 to SL in respect
of loan funding. The loan is repayable on demand and interest is charged at 6
per cent per annum. The loan is unsecured. It is the current intention of the
Directors that part of the proceeds of the Subscription will be utilised in
partially discharging the amount owed to SL.
Takeover Code Implications
Two of the Company's major shareholders, SL and CH and also PA, which is not
currently a Shareholder, are deemed, for the purposes of the Code to be acting
in concert (together the "Concert Party") SL and CH hold 193,032,798 and
36,833,333 Ordinary Shares respectively, equivalent to 48.26 per cent and 9.21
per cent respectively of the Company's share capital. Since SL's shareholding
is more than 30 per cent and less than 50 per cent of the issued voting share
capital of the Company, the acquisition of any more shares in the Company would
normally result in the requirement for it to make a mandatory offer in
accordance with Rule 9 of the Code ("Rule 9"). Accordingly, SL would usually
seek to obtain shareholder approval for a waiver of the obligations under Rule
9.
In March 2007, Shareholders approved, on a poll, a waiver of the obligations of
Rule 9 of the Code, permitting the Concert Party to participate in a placing
and open offer carried out by the Company. Shareholders approved the waiver up
to the potential maximum shareholdings of 211,261,557 Ordinary Shares and
20,833,333 Ordinary Shares for SL and CH respectively, equivalent to 52.82 per
cent and 5.21 per cent of the then enlarged share capital of the Company,
respectively. SL is a wholly owned subsidiary of Portfolio Design Group
International Limited and the ultimate shareholders of Portfolio Design Group
International Limited and CH are principally the same entities and persons.
Following completion of the placing and open offer referred to in the paragraph
immediately above, SL and CH held 209,032,798 and 20,833,333 Ordinary Shares
respectively, equivalent to 52.26 per cent and 5.21 per cent of the issued
voting share capital of the Company and the Concert Party held, in aggregate,
229,866,131 Ordinary Shares, equivalent to 57.47 per cent of the issued voting
share capital of the Company. Accordingly, both Portfolio Design Group
International Limited and the Concert Party became interested in Ordinary
Shares carrying more than 50 per cent. of the voting rights of the Company,
with the result that, for as long as they continue to be treated as acting in
concert, both Portfolio Design Group International Limited and the Concert
Party would be able to acquire further Ordinary Shares, without incurring an
obligation to make an offer to Shareholders under Rule 9, although CH would not
be able to increase its percentage interests in Ordinary Shares through 30 per
cent without incurring such an obligation.
In December 2007, SL sold 16,000,000 Ordinary shares to CH. The holding of the
Concert Party remained unchanged, but SL's shareholding fell to less than 50
per cent of the issued voting share capital of the Company. In such
circumstances, SL would normally be unable to acquire additional Ordinary
Shares, without incurring an obligation to make a general offer under Rule 9.
However, in view of the commonality of the ultimate shareholders of Portfolio
Design Group International Limited, the parent company of SL, and CH, described
in the second paragraph of this section, the ultimate controllers, being the
shareholders of Portfolio Design Group International Limited, are deemed to
have continued to exercise effective control over more than 50 per cent of the
issued voting share capital of the Company since March 2007. Accordingly, SL is
free to participate in the Subscription and exercise the Warrants, without
incurring any obligation under Rule 9.
The Concert Party Shareholding at Admission and following exercise of the
Subscription Warrants, assuming that no other Ordinary Shares have been issued
by the Company, are as follows:
At Admission Maximum holding following
exercise of the
Subscription Warrants
Number of Percentage Number of Percentage
Ordinary of enlarged Ordinary of enlarged
Shares issued Shares issued
ordinary
share c
apital share
capital
SL Investment Management 408,032,798 48.00 2,558,032,798 47.81
Limited
Close Horizons Limited 186,833,333 21.98 1,536,833,333 28.73
Preferred Asset Management 85,000,000 10.00 1,085,000,000 20.28
Limited
Totals 679,866,131 79.98 5,179,866131 96.82
Annual General Meeting
A notice convening the AGM to be held at the offices of Merchant Securities
Limited, 51-55 Gresham Street, London EC2V 7HQ at 11 a.m. on 3 November 2011
will be dispatched to shareholders as soon as practicable.
Further enquiries:
TEP Exchange Group plc
David Roxburgh 00 353 87 2431 665
Merchant Securities Limited
John East/Simon Clements 020 7628 2200
DEFINITIONS
The following definitions apply throughout this announcement unless the context
requires otherwise:
"2012 AGM" the annual general meeting of the Company to
take place in 2012
"Admission" admission of the resulting New Ordinary Shares
to trading on AIM
"Annual General Meeting" or the annual general meeting of the Company
"AGM" convened for 3 November 2011 pursuant to the
Notice of AGM
"Articles" the articles of association of the Company in
force at the date of this document
"Board" or "Directors" the directors of the Company as at the date of
this announcement
"Capital Reorganisation" the proposed subdivision of each Existing
Ordinary Share into 1 New Ordinary Share and 9
New Deferred Shares
"CH" Close Horizons Limited
"City Code" The City Code on Takeovers and Mergers
"Company" TEP Exchange Group PLC
"Concert Party" SL Investment Management Limited, Close
Horizons Limited and Preferred Asset Management
Limited
"Existing Ordinary Shares" the 399,999,999 issued ordinary shares of 0.01p
each in the capital of the Company
"Form of Proxy" the form of proxy accompanying this Shareholder
circular for use in connection with the Annual
General Meeting
"Independent Directors" George Kynoch, Moses Kraus and Abraham Weitz
"New Deferred Shares" deferred shares of 0.001p each in the capital
of the Company following the Capital
Reorganisation
"New Ordinary Shares" ordinary shares of 0.001p each in the capital
of the Company following the Capital
Reorganisation
"Notice of AGM" the notice of Annual General Meeting which will
be set out in the circular to Shareholder
"PA" Preferred Asset Management Limited
"Proposals" the Capital Reorganisation and the Subscription
"Resolutions" resolutions 5, 7.1 and 8.1 in the Notice of AGM
"Shareholders" holders of Existing Ordinary Shares
"SL" SL Investment Management Limited
"Subscribers" SL Investment Management Limited, Close
Horizons Limited and Preferred Asset Management
Limited
"Subscription" the Subscription by the Subscribers for the
Subscription Shares
"Subscription Share Price" 0.02p per Share
"Subscription Shares" the 450,000,000 New Ordinary Shares to be
issued by the Company pursuant to the
Subscription
"Subscription Warrants" the warrants to subscribe for 4,500,000,000 New
Ordinary Shares at 0.002p to be issued by the
Company to the Subscribers pursuant to the
Subscription
"Subscription Warrant Price 0.002p per Share
END
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