TIDMKURA
RNS Number : 7749N
Kurawood PLC
24 February 2009
Kurawood Plc ("Kurawood" or the "Company")
Subscription for 10,000,000 new Ordinary Shares at 2p per share
Conversion of an unsecured, convertible loan into 5,000,000 new Ordinary Shares
at 2p per share
Grant of Warrants to subscribe for 4,000,000 new Ordinary Shares at 2p per share
Approval of a waiver of the obligations under Rule 9 of the Takeover Code
Further to the announcement on 24 December 2008, the Board of Kurawood announces
that on 23 February 2009, it entered into a subscription with Fox Capital
Limited ("Fox Capital") to raise GBP200,000 net of expenses by the issue of
10,000,000 new Ordinary Shares at 2p per share. On the same date it entered into
an agreement with Fox Capital to convert a GBP100,000 convertible loan into
5,000,000 new Ordinary Shares at 2p per share and a warrant agreement under
which Fox Capital have been granted warrants over 4,000,000 new ordinary shares
exercisable at a price of 2p per share.
On completion of the Conversion and the Subscription, which are inter
conditional, Fox Capital will hold 19,787,000 Ordinary Shares, representing
61.83 per cent. of the Enlarged Share Capital. If, subsequent to the Conversion
and Subscription, Fox Capital exercise the Fox Capital Warrants in full,
assuming no further new Ordinary Shares were issued by the Company, it would
hold a maximum of 66.08 per cent. of the issued Share Capital of the Company.
Since the Conversion and the Subscription will result in Fox Capital being
interested in 61.83 per cent. of the issued share capital (and up to a maximum
of 66.08 per cent. of the issued share capital on full exercise of the Fox
Capital Warrants), Fox Capital would, in the absence of a waiver from the
provisions of Rule 9 of the Takeover Code being granted by the Panel, be obliged
to make a general offer to all remaining shareholders of the Company. The Panel
has agreed, however, subject to approval on a poll by the Independent
Shareholders at the General Meeting, to waive this obligation.
The Company has today posted to shareholders a circular detailing the proposals
and convening an Extraordinary General Meeting on 2 April 2009 at which
resolutions will be proposed to approve the Proposals.
Background Information
On 22 September 2008, the Company announced that its largest shareholder, Fox
Capital had made available to the Company an unsecured convertible loan facility
of GBP100,000. The loan, subject to the satisfaction of certain conditions,
would be convertible into new Ordinary Shares at 12p per share. The Company also
announced that Fox Capital had conditionally agreed to subscribe for GBP400,000
worth of new Ordinary Shares in the Company at a price of 12p per share.
Further, on the same date, the Company announced it was in advanced discussions
with Fox Capital and, subject to Shareholder approval, that Fox Capital would
also be granted a warrant to subscribe for such number of new Ordinary Shares at
12p per share as would give Fox Capital an interest of 51 per cent. of the
Company's enlarged issued share capital.
The Company subsequently announced on 24 December 2008 that Fox Capital had
renegotiated the terms of its investment in the Company. The closing middle
market price of the Ordinary Shares had fallen from 14.5p per share on 19
September 2008, being the business day immediately prior to the announcement on
22 September 2008, to 2.5p per share, at the close of business on 23 December
2008, being the business day immediately prior to the announcement on 24
December 2008. Fox Capital confirmed to the Board that, whilst it remained
committed to providing additional funds to the Company, in light of the fall in
the share price of the Company's Ordinary Shares from 14.5p to 2.5p (a decline
of 86.2 per cent.) it was no longer prepared to participate in a conversion and
subscription at 12p per Ordinary Share. Fox Capital therefore renegotiated the
terms of the conversion, the subscription and the grant of warrants.
Under the renegotiated terms, the unsecured convertible loan of GBP100,000
(which has now been fully drawn down by Kurawood) will be convertible into new
Ordinary Shares at a price of 2p per share. The 10,000,000 new Ordinary Shares
to be subscribed by Fox Capital will be subscribed at a price of 2p per share
(raising GBP159,000, net of expenses, for the Company). Fox Capital will also be
granted warrants to subscribe for 4,000,000 new ordinary shares at 2p per share.
The purpose of the Loan and the Subscription is to provide the Company with
sufficient working capital for its present requirements being for at least the
next 12 months under the revised business strategy which is discussed fully in
the future prospects paragraph below.
The Conversion of the Loan, the Subscription and the grant of the Fox Capital
Warrants are conditional on Shareholders' approval and the Waiver being passed
on a poll by the Independent Shareholders at the General Meeting.
Fox Capital is an investment company whose directors are Roy Tilleard and Justin
Martin, both Directors, and has an interest in 4,787,000 Existing Ordinary
Shares, representing 28.16 per cent. of the existing ordinary share capital. The
issued share capital of Fox Capital is wholly owned by Roy Tilleard.
Roy Tilleard and Justin Martin are both directors of Fox Capital. Fox Capital
cannot vote in respect of Resolution approving the issue of shares to Fox
Capital at the General Meeting. There is no agreement, arrangement or
understanding between any Director and Fox Capital having any dependence upon or
which is conditional upon the Conversion, the Subscription or the grant of the
Fox Capital Warrants.
Further, the Company has, on 23 February 2009, entered into the Relationship
Agreement with Fox Capital further details of which are contained in the
relationship agreement paragraph below.
Background and Benefits to the Company of the proposed Resolutions
In September 2007, the Company raised GBP3,750,000, net of expenses, by way of a
Placing of new Ordinary Shares and its entire issued share capital was admitted
to AIM. The Company's strategy was to manufacture and distribute "Vecowood ", an
organically hardened softwood which is made using, what the Directors believe to
be, a proprietary and innovative timber treatment process. The net proceeds of
the fundraising were used for the phased increase of installed production
capacity at the Company's factory in New Zealand, to provide additional working
capital and for marketing. Whilst the Company's factory now has a nameplate
capacity of 300,000m3 sales have not materialised.
On 13 August 2008, the Company announced that the delay in achieving sales was
having a negative impact on the Company's cash resources. As a result the
Directors each agreed to defer their salaries and undertook a comprehensive
review of the Company's ongoing administrative expenditure requirements and
entered into discussions with Fox Capital concerning future financing to support
the ongoing non-trading activities of the Company. On 22 September 2008, the
Company announced Fox Capital had agreed to provide the Company with an
unsecured, convertible loan facility of GBP100,000 (which had been fully drawn
down as at the date of this document) and had agreed to subscribe for a further
GBP400,000. On 24 December 2008, the Company announced that due to the
likelihood of a protracted global recession, the unwillingness of customers to
commit to purchase products and adverse timber price movements that the
Directors did not believe a manufacturing facility operating from New Zealand
would be economically viable in the medium term. Therefore the Directors
resolved to move from a product manufacturing business model to a technology
licensing business model. The Company also announced that Fox Capital had
renegotiated the terms of its investment in the Company. Under the revised terms
in addition to the unsecured, convertible loan facility of GBP100,000 Fox
Capital will only subscribe for a further GBP200,000. In light of the change in
the Company's business model, the Directors believe that these actions will
provide the Company with sufficient working capital for at least the next 12
months. If the Resolutions are not passed then, without alternative funding, the
Company will not have sufficient working capital for at least the next 12
months.
Earlier today, the Company announced its financial results for the year ended 30
September 2008. In this period the Company remained at the pre revenue stage,
the loss before taxation was GBP6.600 million and the loss per share was 39p.
The loss before taxation includes an exceptional loss of GBP4.661 million in
relation to the write off of goodwill. Cash at the period end was GBP94,471.
Future Prospects
The Directors believe that the aggregate net proceeds from the Conversion and
the Subscription will provide the Company with sufficient funds to implement its
revised business strategy.
As announced on 24 December, 2008, the Company has not generated revenues from
product sales since Admission and the Directors believe that, due to the
likelihood of a protracted global recession and continued unwillingness of
customers to commit to purchase products, this position is unlikely to change in
the foreseeable future. Additionally, the cost of New Zealand Radiata Pine, (the
raw material used in the manufacture of Vecowood ) is now trading at
approximately twice the price of similar Radiata Pine grown outside of New
Zealand whilst the export prices of other timber species to major Asian markets
have collapsed, in some instances by up to 50 per cent. The Directors believe
that these recent adverse movements in global market conditions means a
manufacturing facility operating from New Zealand is no longer economically
viable in the medium term.
The Directors have therefore resolved to move from a product manufacturing
business to a technology licensing business. With Kurawood owning a UK national
patent, as announced on 25 June 2008, and with further international patent
applications in process, the Directors believe that this business model should
allow Kurawood to better exploit its wood modification technology since
ownership of registered intellectual property rights ("IPR") provides a certain
degree of exclusivity and, thereby, a higher market share as and when the
Company's products prove successful among consumers. As such the Directors place
an increasing reliance on Kurawood's IPR assets as a source of competitive
advantage for the businesses. The Company uses Harrison Goddard Foote
(www.hgfip.com) to ensure its intellectual property is sufficiently protected.
Under the new strategy, the Company will concentrate its limited capital on
technology and brand development, while licensees and/or manufacturing partners
will provide capital for manufacturing and product penetration. The
license-based business model will initially be aimed at major timber processors
with direct access to competitively priced timber resources capable of being
modified with the Company's wood modification technology, (it should be noted
that approximately one third of all species of wood may be physically suitable),
with additional sales efforts being aimed at timber-based product manufacturers
and coatings suppliers in order to gain market acceptance of the Company's
technology.
The licensing model is based on two revenue streams:
* A manufacturing licence fee - predicated on a licence payment per m3 of
nameplate capacity, a percentage of which will be paid on signing of the licence
and the balance over the lifetime of the license. In marked contrast to our
competitors, the manufacturing license fee includes the capital expenditure and
commissioning costs of the licensee's facility, which the Group will bear.
* An ongoing production royalty - predicated on quarterly production output from
the licensee's facility.
Both manufacturing license fees and ongoing production royalties are expected to
be positioned at a significant discount to the cost of competitive offerings.
The Company's licensing revenues will be driven directly by the size and timing
of new licence agreements, which may lead to early volatility in income. Once
established, licence and royalty fees should provide considerable forward
visibility.
In recognition of the revised business strategy and that a manufacturing
facility operating from New Zealand is no longer considered to be economically
viable in the medium term the Directors resolved on 24 December 2008 that the
Company's New Zealand subsidiary, PG Industries Limited, ("PGI") would cease
trading with immediate effect and legal advice is being sought to give full
force and effect to this resolution. The closure of PGI will remove
approximately GBP195,000 annual costs from the business.
On 2 February 2009, the Company announced its second line of modified wood
products, "Acetowood" founded on the Company's own process based on the more
widely understood acetylating of timber. Protection is being sought for
Acetowood, initially via a national patent application.
In light of the above, and with the objective of maximising shareholder value,
the Directors will also seek opportunities to exploit its intellectual property
by entering into strategic alliances with third parties operating within the
industry and discussions with one such party are at an early stage.
Takeover Code
The issue of the Conversion Shares, the Subscription Shares and the grant of the
Fox Capital Warrants to Fox Capital gives rise to certain considerations under
the Takeover Code. Brief details of the Panel, the Takeover Code and the
protections they afford to Shareholders are described below.
The Takeover Code is issued and administered by the Panel. The Company falls
under the jurisdiction of the Takeover Code. Accordingly, Shareholders are
entitled to the protections afforded by the Takeover Code.
Under Rule 9 of the Takeover Code, any person who acquires, whether by a series
of transactions over a period of time or not, an interest in shares which (taken
together with shares in which he and persons acting in concert with him are
interested), carry 30 per cent. or more of the voting rights of a company which
is subject to the Takeover Code that person, and any persons acting in concert
with him, is normally required to make a general offer to all of the company's
shareholders to acquire the remaining shares in that company not held by him and
his concert party.
An offer under Rule 9 must be made in cash and at the highest price paid by the
person required to make the offer, or any person acting in concert with him, for
any interest in shares acquired during the 12 months prior to the announcement
of the offer.
At the date of this document Fox Capital is interested in 4,787,000 Ordinary
Shares representing 28.16 per cent. of the issued share capital. Following the
Conversion and the Subscription, Fox Capital would be interested in 19,787,000
Ordinary Shares representing approximately 61.83 per cent. of the Enlarged Share
Capital. On full exercise of the Fox Capital Warrants, assuming no further new
Ordinary Shares have been issued and no other subscription rights have been
exercised, Fox Capital would be interested in 23,787,000 Ordinary Shares
representing approximately 66.08 per cent. of the issued share capital of the
Company.
Assuming that the Resolutions are approved by Shareholders, Fox Capital will,
immediately following Admission, hold more than 50 per cent. of the Company's
voting share capital which under Rule 9 of the Takeover Code would mean that
they would be free to acquire further shares in the Company without incurring a
further obligation under Rule 9 of the Takeover Code to make a general offer
under the Takeover Code to the other Shareholders.
The Panel has agreed, subject to the waiver Resolution being passed (on a poll)
by the Independent Shareholders at the General Meeting, to waive the obligation
on Fox Capital to make a general offer to Shareholders under Rule 9 of the
Takeover Code that would otherwise arise as a result of the Conversion and
Subscription.. Accordingly, Independent Shareholders' approval (on a poll) for
the waiver of any obligations of Fox Capital under Rule 9 is sought in
Resolution 2. Fox Capital will not vote on Resolution 2 at the General Meeting.
Relationship Agreement
Due to the size of Fox Capital's interest in the Enlarged Share Capital upon
completion of the Conversion of the Loan and the Subscription, the Company has
entered into the Relationship Agreement with Fox Capital, conditional upon the
passing of the Resolutions. The purpose of this agreement is to ensure that the
Company will be capable at all times of carrying on the business independently
of Fox Capital and that all transactions and relationships between the two
parties are carried out at arm's length and on a normal commercial basis.
Related Party Transactions
Roy Tilleard (the beneficial owner of the entire issued share capital of Fox
Capital) and Justin Martin are directors of Fox Capital and the Company.
Therefore, the Conversion, the Subscription, the grant of Fox Capital Warrants
and the Relationship Agreement constitute related party transactions for the
purposes of the AIM Rules for companies.
Where a company whose shares are quoted on AIM enters into a related party
transaction the directors independent to the transaction are required to
consider, having consulted with the Company's nominated adviser, that the terms
of the transaction are fair and reasonable insofar as its shareholders are
concerned.
The Independent Directors, having consulted with Zeus Capital, the Company's
nominated adviser, consider that the terms of the Related Party Transactions are
fair and reasonable insofar as Shareholders are concerned. In providing advice
to the Independent Directors, Zeus Capital has taken into account the commercial
assessment of the Independent Directors.
A Circular will today been posted to shareholders containing details of the
proposals and convening an Extraordinary General Meeting to be held on 2 April
2009.
DEFINITIONS
The following definitions apply above unless the context requires otherwise:
+--------------------------------------+----------------------------------------+
| "Board" or "Directors" | the directors of the Company, as at 24 |
| | February 2009 |
+--------------------------------------+----------------------------------------+
| "Company" or "Kurawood | Kurawood Plc |
+--------------------------------------+----------------------------------------+
| "Conversion" | the proposed conversion of the Loan, |
| | excluding any accrued interest, into |
| | the Conversion Shares at the |
| | Conversion Price |
+--------------------------------------+----------------------------------------+
| "Conversion Price" | 2p per Conversion Share |
+--------------------------------------+----------------------------------------+
| "Enlarged Share Capital" | The Ordinary Shares in issue following |
| | completion of the Conversion and the |
| | Subscription |
+--------------------------------------+----------------------------------------+
| "Existing Ordinary Shares" | the 17,000,000 ordinary shares of 1p |
| | each in the share capital of the |
| | Company in issue at the date of this |
| | document |
+--------------------------------------+----------------------------------------+
| "Fox Capital" | Fox Capital Limited, a company |
| | incorporated in the Isle of Man with |
| | registered number 106551C |
+--------------------------------------+----------------------------------------+
| "Fox Capital Warrants" | the Warrants to be granted to Fox |
| | Capital over 4,000,000 new Ordinary |
| | Shares at an exercise price of 2p per |
| | share |
+--------------------------------------+----------------------------------------+
| "General Meeting" | the general meeting of the Company to |
| | be held at Zeus Capital Limited, 3 |
| | Ralli Courts, West Riverside, |
| | Manchester M3 5FT, convened for 11.00 |
| | a.m. on 2 April 2009 |
+--------------------------------------+----------------------------------------+
| "Independent Directors" | Peter James Scott Hammonds and Peter |
| | Duncan McArthur |
+--------------------------------------+----------------------------------------+
| "Loan" | the unsecured, convertible loan |
| | granted by Fox Capital to the Company |
| | on 22 September 2008 |
+--------------------------------------+----------------------------------------+
| "New Ordinary Shares" | the Conversion Shares and the |
| | Subscription Shares |
+--------------------------------------+----------------------------------------+
| "Ordinary Shares" | Ordinary shares of 1p each in the |
| | share capital of the Company |
+--------------------------------------+----------------------------------------+
| "Panel" | the Takeover Panel |
+--------------------------------------+----------------------------------------+
| "Subscription" | the proposed subscription of the |
| | Subscription Shares |
+--------------------------------------+----------------------------------------+
| "Subscription Price" | 2p per Subscription Share |
+--------------------------------------+----------------------------------------+
| "Subscription Shares" | the 10,000,000 new Ordinary Shares to |
| | be issued by the Company pursuant to |
| | the Subscription |
+--------------------------------------+----------------------------------------+
| "Related Party Transactions" | the Conversion, the Subscription, the |
| | grant of the Fox Capital Warrants and |
| | the Relationship Agreement |
+--------------------------------------+----------------------------------------+
| "Relationship Agreement" | the agreement dated 23 February 2009 |
| | between Fox Capital and the Company |
+--------------------------------------+----------------------------------------+
| "Resolutions" | the resolutions set out in the notice |
| | of General Meeting set out at the end |
| | of the Circular |
+--------------------------------------+----------------------------------------+
| "Takeover Code" | the Takeover Code, published by the |
| | Panel |
+--------------------------------------+----------------------------------------+
| "Waiver" | the waiver by the Panel of the |
| | obligations under Rule 9 of the |
| | Takeover Code in relation to Fox |
| | Capital |
+--------------------------------------+----------------------------------------+
| "Zeus Capital" | Zeus Capital Limited, a company |
| | incorporated in England with |
| | registered number 04417845 |
+--------------------------------------+----------------------------------------+
Enquiries:
Justin Martin, Kurawood plc; Tel: 01624 820 040
Ross Andrews, Zeus Capital Limited; Tel: 0161 831 1512
Tom Rowley, Zeus Capital Limited; Tel: 0161 831 1512
Ruari McGirr, St Helen's Capital plc; Tel: 020 7628 5582
Mark Anwyl, St Helen's Capital plc; Tel: 020 7628 5582
This information is provided by RNS
The company news service from the London Stock Exchange
END
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