Acquisition
Comeleon PLC
04 December 2003
COMELEON PLC
4 DECEMBER 2003
Proposed Acquisition of Tanfield Holdings Limited
Placing of £1.6 million nominal of 8.5 per cent Convertible Unsecured Loan Stock
2009
Placing of 526,300 Ordinary Shares at a price of 9.5p per share
by
Brewin Dolphin Securities
Nominated Adviser and Broker
Change of name to Tanfield Group plc
Board Changes
Interim Results for the six months ended 31 March 2003
comeleon plc ('comeleon'), the digital imaging company, is pleased to announce
proposals to acquire the entire issued share capital of Tanfield Holdings
Limited ('Tanfield') for a total consideration of £4.74 million. The
consideration will comprise 45.9 million Ordinary Shares in comeleon and
£375,000 nominal of Convertible Loan Stock.
Key Points
• comeleon has successfully raised approximately £1.65 million
(before expenses) through a placing of 523,600 New Ordinary Shares by Brewin
Dolphin Securities at a price of 9.5p per share and the placing of £1.6 million
nominal of Convertible Unsecured Loan Stock 2009. The net proceeds of this
issue, expected to be £1.16 million, will be used to provide working capital for
the enlarged group.
• Tanfield is a manufacturing business, providing technical and
assembly solutions to a broad range of sectors.
• In the financial year ended 31 March 2003, Tanfield had
turnover of approximately £9.5 million and operating profits of £4,000.
• Trading in comeleon's shares has been suspended since 16 April
2003, following the announcement that comeleon was in talks that may or may not
lead to a reverse takeover. Trading in comeleon's shares is expected to be
restored at 8.30am today following the publication of an admission document ('
the Admission Document') in connection with the proposals set out in this
announcement.
Commenting on this announcement, Roy Stanley, Chief Executive said:
'This deal provides a platform for growth of the enlarged business. Being on
AIM will raise Tanfield's profile in key markets. We hope to use our experience
as a technical and manufacturing group to increase market share and target high
margin areas within global industrial and commercial markets.
'We retain our confidence in the comeleon technology and in the immediate term
the target will be to move that part of the business towards a profitable
position by concentrating on technology licensing and ImageBox sales.'
Contacts:
Roy Stanley 07710 090991
Chief Executive, comeleon plc
and Chairman, Tanfield Holdings Limited
Andrew Emmott 0113 2410136
Brewin Dolphin Securities
Introduction
comeleon plc has agreed conditionally to acquire the entire issued share capital
of Tanfield Holdings Limited. Tanfield is a manufacturing business, providing
technical and assembly solutions to a broad range of sectors. The consideration
will be satisfied by the issue of 45,906,312 Consideration Shares representing
approximately 75 per cent. of the Company's issued share capital as enlarged by
the Acquisition and £375,000 nominal of Convertible Loan Stock. At the suspended
mid-price of 9.5 pence per share, the Acquisition values Tanfield at £4.74
million.
The Company intends to raise approximately £1.16 million (net of expenses)
through a placing of 526,300 Ordinary Shares at a price of 9.5p per share and
£1.6 million nominal of Convertible Loan Stock at par by Brewin Dolphin
Securities. The net proceeds of the Placing will be applied to working capital
with the aim of enabling the Enlarged Group to exploit growth opportunities.
The Acquisition is a reverse takeover under the AIM Rules and is therefore
conditional upon the approval of Shareholders. In addition, the Acquisition is
conditional upon the approval by Shareholders of certain other matters
including, inter alia, a waiver of Rule 9 of the City Code and the grant of
authority to the Directors to allot the Consideration Shares and the Convertible
Loan Stock. An EGM has been convened for these purposes to be held at the
Company's offices at Comeleon House, North Industrial Estate, Tanfield Lea, Co
Durham, DH9 9NX at 11.00am on 29 December 2003, notice of which is set out in
the Admission Document.
The Proposals constitute a related party transaction under the AIM Rules as Roy
Stanley, chief executive of comeleon and owner of 29.4 per cent. of the issued
share capital of comeleon, is a controlling shareholder of Tanfield.
Accordingly, Roy Stanley has taken no part in the Board's recommendations to
Shareholders in respect of the Proposals.
The purpose of the Admission Document is to provide you with information about
the Proposals and explain why your Board considers them to be in the best
interests of the Company.
Trading in the Company's shares has been suspended since 16 April 2003,
following the announcement that the Company was in talks that may or may not
lead to a reverse takeover. On 6 June 2003 the Company announced that those
initial talks had ended but requested that the suspension of trading continue
whilst the Board considered a second proposal. It is this second proposal which
has led to today's announcement. Trading in the Company's shares is expected to
be restored at 8.30am on 4 December 2003 following the publication of the
Admission Document.
Shareholders should be aware that if the Resolutions are not passed the
Acquisition and Placing will not proceed and the Company will need to secure an
alternative source of funds in order to continue trading. The Directors
currently see no prospect of alternative funds being available.
Background to and reasons for the Acquisition
comeleon floated on 14 December 2000. The flotation prospectus stated that '
comeleon has the technology to apply full colour images on to three dimensional
components. comeleon is a technology group targeting the global and rapidly
developing market for the personalisation, through customisation, of mass
produced consumer products.' The key market at that time was expected to be the
personalisation of mobile phone covers.
On 24 February 2003, the Company warned that losses for the year ending 30
September 2003 would be significantly higher than expected. Sales of imaged
product, principally mobile phone covers, had been significantly less than
expected and had not recovered from a downturn reported in 2002. At the same
time the Directors reported a shift in the nature of the manufacturing market
for consumer electronics and comeleon was faced with adapting to these changes.
In its original business plan comeleon had expected to exploit its technology in
high volume production at its own processing plant. By February 2003, the
Directors were of the opinion that the preference of manufacturers of consumer
electronics was for the imaging technology to be in situ at their own production
facilities. Furthermore, the Directors believed that this trend had been
exacerbated by the general trend of manufacturing outsourcing to low cost
countries around the world.
Since 24 February 2003, comeleon has cut significant costs from its operations.
However, it has not yet reached a stable cash break-even position and has
dwindling cash reserves. The Directors have considered a number of options over
the past six months with the aim of securing the funding position of the Group
and of diversifying its activities. None of these, other than the Acquisition of
Tanfield, has proved viable.
comeleon was demerged from Tanfield shortly before comeleon's flotation.
Tanfield manufactures the ImageBox for comeleon. The two businesses share a
common director and shareholder in Roy Stanley. The two operations are both
located on the North Industrial Estate at Tanfield Lea.
The Directors and Proposed Director believe that the Acquisition will bring the
following benefits to Tanfield and the Enlarged Group:
• access to capital markets to fund growth;
• an AIM quotation will raise Tanfield's profile in its markets;
• Tanfield will be able to use comeleon's currently underutilised factory
space; and
• consolidation of the production and marketing of the ImageBox and the
comeleon technology.
Information on the Tanfield Group
The Tanfield Group was founded in 1996 by Roy Stanley, as a manufacturing
company with a turnover of around £50,000 per annum and nine employees. By March
2003 Tanfield Group had grown by acquisition and organically into a
manufacturing group providing advanced technical and assembly solutions with a
turnover of almost £10 million and 178 employees. Tanfield Group now has a core
customer base of blue chip clients across a diverse range of industries. The
Tanfield Group was originally a component manufacturer. However, with
considerable investment in technology and training and with a strengthened
management team, the Tanfield Group has been able to market itself as a 'single
source' supplier, providing finishing and assembly services, as well as base
component manufacture. The Tanfield Group has already had success with this
strategy in its recent contract wins.
The Tanfield Group has three core operating businesses: Express2Automotive; HMH
Sheet Metal Fabrications; and Express Finishing Systems.
Express2Automotive
Express2Automotive is a precision engineering company providing machined
components principally to the automotive industry. For example,
Express2Automotive is a leading supplier in the precision machined turbocharger
centre housing market. Express2Automotive has developed over recent years and
now also works with the other businesses within the Tanfield Group to provide
integrated technical solutions to customers outside the automotive industry,
such as rail, industrial vehicles and material handling.
HMH Sheet Metal Fabrications
HMH provides a range of technical products to customers in Europe, the USA and
throughout the UK in a broad range of market sectors. Historically HMH has
specialised in component engineering, fabrication and sheet metal. Today it also
offers a broad range of value added capabilities focusing on the systems
integration of electrical, hydraulic, electronic and pneumatic subsystems into
mechanical assemblies. HMH has a blue chip customer base drawn from sectors
including defence and aerospace, construction, automotive, retail, rail,
commercial, electrical and white goods.
Express Finishing Systems
Express Finishing Systems is a finishing and coating specialist. It has a
semi-automated powder coating system with robotic applicators, iron phosphate
pre-treatment and all types of wet paint, plastic and powder coat finishings.
Express Finishing Systems provides its services to the other businesses within
the Tanfield Group, its own customer base and to other manufacturers within the
sector.
The Tanfield Management Team
The key managers of Tanfield are as follows:
Roy Stanley, executive chairman of Tanfield and chief executive of comeleon.
Darren Kell, chief executive of Tanfield and proposed business development
director of comeleon.
Further information on Roy Stanley and Darren Kell is given below under 'Board
Changes'.
Andrew Clark (34) Operations Director
Andy is a graduate engineer with particular strengths in process flow and
operational control as well as quality systems and procedures. Formerly with
Honeywell Corporation and Cummins Diesel, Andy heads the operational team which
focuses on the automotive and vehicular industries.
Mark Hutchinson (30) Operations Director
A graduate engineer, Mark has key strengths in project management, statistical
process and efficiency analysis, and procurement optimisation. Formerly with TRW
Group and Rolls Royce Industrial Power, Mark leads projects in the commercial
and defence sectors.
Michael Wright (46) Commercial Director
Mick has been with HMH since 1978 and has a wide breadth of experience in all
facets of HMH's engineering capabilities. He has developed excellent
relationships with the existing customer base and has key strengths in margin
enhancement and bid management.
Market drivers and the Tanfield approach
Tanfield has developed a strategy based upon its understanding of the key
factors driving its market:
• Time to market: customers recognise that bringing their products to market
before the competition can lead to a significant competitive advantage.
• Reducing size of supplier base: the emphasis is on developing supplier
chains by reducing the number of suppliers.
• Shedding non-core activities: there is a trend for customers to focus on
their core activities.
• Responsiveness: customers require integration of activities that allow a
quicker response to their needs.
• Shared and reduced risk: customers are increasingly seeking partners who
are prepared and able to share the risk on larger projects.
• Added value activities: customers operate in highly competitive markets
where there is a need to evaluate their product in terms of costs and
benefits.
Strategy
Tanfield's strategy has developed along with the needs of its customers.
Tanfield aims to use its experience as a technical and manufacturing group to
increase market share and target high margin areas within global industrial and
commercial markets.
Significant investment in computerised and robotic machinery over recent years
means that the Tanfield Group has the capability to offer turnkey technical
solutions more efficiently and cost effectively. A key objective for the
Tanfield Group is to continue the move up the value chain. Many of the contracts
that Tanfield Group companies have won recently have involved a 'total
solution'.
Tanfield Group seeks projects and products which are at the start of their
lifecycle and have a scheduled requirement spanning years rather than months.
The Directors' and Proposed Director's view is that this should give greater
visibility to revenue generation and production activities.
JoeKnowsIt?
On 4 December 2003, Tanfield entered into the JKI Sale and Purchase Agreement
pursuant to which Tanfield agreed conditionally, to acquire Roy Stanley's
interest in JoeKnowsIt?, being 71 per cent. of the economic value of the company
(75 per cent. of the voting rights).
JoeKnowsIt? is a start up business which offers an interactive method of online
training and learning. JoeKnowsIt? was initially viewed by Tanfield as a
training resource to meet the needs of Tanfield but has developed products with
a proven commercial value. Over the last eighteen months JoeKnowsIt? has
developed around 1200 micro modules, supporting 38 commonly used desktop
software products. Tanfield has supported this development through the provision
of office space and equipment and administration services.
Historic financial information on JoeKnowsIt? is set out the Admission Document.
To date JoeKnowsIt? has been in its development phase and has run at a loss.
JoeKnowsIt? has won a number of contracts recently and will be cash positive in
the current month. The Directors and Proposed Director believe there are
significant opportunities for JoeKnowsIt?'s products. However, they recognise
that JoeKnowsIt? is opening up new markets and that commercial success is
uncertain. The Directors and Proposed Director intend, therefore, to take a very
prudent view of further investment in JoeKnowsIt?.
Financial Information on Tanfield
The trading record of Tanfield for the three years ended 31 March 2003 is
summarised below and has been extracted from the consolidated financial
information included in the Admission Document.
Year ended 31 March
2001 2002 2003
£'000 £'000 £'000
Turnover 9,888 9,334 9,484
Gross profit 2,848 2,980 2,994
Operating (loss)/profit (1,107) 54 4
Net cash inflow from operating activities 1,925 360 825
Net assets 1,455 1,047 704
Information on comeleon
comeleon employs proprietary technology to place images onto three dimensional
plastic products. The emphasis of comeleon's business is now on the sale of the
ImageBox and related consumables, and on the licensing of the technology for use
in situ within the production facilities of high volume consumer electronics
manufacturers. A relatively low volume of production will continue at comeleon's
existing production facility, thereby retaining skills within the business and
enabling continuing refinement of the technology.
ImageBox
ImageBox is a desk-top device which enables small businesses or retailers to put
full colour images on to a range of plastic, glass and ceramic objects.
Typically, ImageBoxes are sold in conjunction with a consumables supply
agreement under which the customer is required to source certain products from
comeleon or one of its authorised suppliers.
On 24 February 2003, comeleon announced that it had contracts to supply over
1,000 ImageBoxes over the following ten months. However, take up of product
under these contracts has been disappointing with 48 having been sold to date.
Volume licence
The comeleon technology can be packaged as a production line and provided under
licence to third party manufacturers for their own use. comeleon has granted two
such licences to date, one to a US based company and one to a company in Japan.
Both agreements incorporate a licence to use the technology and require the
customer to source certain consumable products from comeleon or one of its
authorised suppliers for a period.
Other sales
The announcement on 24 February 2003, also mentioned opportunities to trade
handsets. The Directors and the Proposed Director now believe that the
risk-return profile of this type of activity would not fit within the Enlarged
Group and it will not be pursued.
Financial Information on comeleon
The trading record of comeleon for the period from incorporation to 31 March
2003 is summarised below and has been extracted from the consolidated financial
information included in the Admission Document.
18 months Year 6 months
ended ended ended
30 September 30 September 31 March
2001 2002 2003
£'000 £'000 £'000
Turnover 417 4,503 2,023
Gross profit/(loss) (302) 1,099 (954)
Operating (loss) (4,855) (3,230) (4,086)
Net assets 5,322 5,999 1,799
Terms of the Acquisition
On 4 December 2003, the Company entered into the Tanfield Sale and Purchase
Agreement pursuant to which the Acquisition will be effected. The consideration
for the Acquisition will be satisfied by the issue to Roy Stanley of the
Consideration Shares at the Consideration Share Price, which will rank pari
passu in all respects with the existing Ordinary Shares and the allotment of
£375,000 nominal value of Convertible Loan Stock to Lloyds TSB Development
Capital Limited ('LDC').
The Tanfield Sale and Purchase Agreement is conditional, upon:
(a) Admission of the issued Ordinary Shares and the Consideration
Shares;
(b) approval by Shareholders at the EGM of:
(i) the Acquisition;
(ii) the Rule 9 waiver;
(iii) authorisation for the Directors to allot shares; and
(iv) authorisation for the Directors to issue the Convertible Loan
Stock;
by the passing of Resolutions 1 to 4;
(c) completion of the acquisition by Tanfield of a controlling
interest in JoeKnowsIt? Limited; and
(d) completion of the capitalisation and waiver agreement between
Tanfield, LDC and LDC Co-Investment Plan 1999.
Further details of the Tanfield Sale and Purchase Agreement are set out in the
Admission Document.
Conditional on the passing of Resolutions 1 to 4, Tanfield will acquire a
controlling interest in JoeKnowsIt? from Roy Stanley for a consideration of £151
to be satisfied by the issue to Roy Stanley of 10 'B' ordinary shares of 1p each
in the share capital of Tanfield. Further details of the JKI Sale and Purchase
Agreement are set out in the Admission Document.
Current trading
Tanfield
As at the end of October 2003, Tanfield was trading slightly ahead of its
internal budgets. The order book has grown since the last financial year end (31
March 2003). The company has initiated a number of key continuous supply
projects for customers which have involved investment in processes and people.
The production delivery schedules for these projects have commenced.
comeleon
Since March this year comeleon has concentrated on sales of ImageBoxes and wide
format licences and consumables. In addition, it has continued to receive a low
volume of orders for imaged product. Sales have averaged at around £66,000 per
month over the six months to 30 September 2003. comeleon continues to be loss
making and is consuming cash, albeit at much lower levels than reported in the
Interim Results.
Prospects of the Enlarged Group
The Directors and Proposed Director continue to believe in comeleon's
technology, but take a prudent view of its prospects. The immediate target for
comeleon's business is to operate at a cash break-even.
Tanfield's order book comprises firm orders and extrapolations of historic order
levels under long term supply agreements. The Directors and Proposed Director
anticipate the aggregate sales value under Tanfield's current order book to be
around £11.5 million. In addition to this, the Directors and Proposed Director
are encouraged by the level of enquiries and indications of likely orders being
received by Tanfield.
Change of Name
In recognition of the significance of the Acquisition to the Group, the Company
proposes to change its name to Tanfield Group plc upon Completion. A resolution
for the approval of the change of name will be proposed at the EGM as set out in
the Notice.
Board Changes
As a result of the Proposals there will be a number of changes to your Board.
Brendan Campbell has resigned as a director of comeleon but will remain with the
Enlarged Group to continue his operational role with the comeleon business and
to work on operational improvements in the Tanfield business. Kevin Murtagh
resigned as a director of comeleon on 3 December 2003 and has left the Company.
The Board wishes to thank Kevin for his hard work and effort over the past 3
years. Kevin ensured that comeleon established a good reputation for its
technology.
Darren Kell, chief executive of Tanfield, will join the comeleon board as a
Director following Completion.
Brief biographical details of all members of the Board, as it will be
constituted following Completion, are set out below.
Jon Pither, Non-executive Chairman
Jon joined the Company as non-executive Chairman in October 2000. He was
formerly managing director of Amari plc for nearly 20 years during which time
the company floated on the Official List. Amari plc was acquired by Glynwed
International plc in 1988. Jon is currently chairman of Active Capital Trust
plc, Metnor Group plc and Ultimate Leisure Group plc and is a non-executive
director of several other public companies.
Roy Stanley, Chief Executive
Roy joined the Company in October 2000, having resigned as chief executive of
Tanfield. Tanfield was formed in July 1999 to act as a holding company for the
acquisition of Express 2 Automotive in a management buyout from Express Group
and the acquisition of HMH Sheet Metal Fabrications.
Roy has a background in growing businesses. Roy was responsible for strategic
and business development at Express Group from 1996 to 1999 and his experience
over the past fifteen years has included managing directorships of a
manufacturing business involved in providing capital equipment for the
automotive market and a vehicle manufacturing business and a corporate director
of an engineering group of companies.
He has a strong interest in Enterprise Education, recently taking on the role of
Durham Area Chairman for Young Enterprise and sitting on the North East Regional
Board of Young Enterprise. He is also involved in a number of local charitable
activities.
He is a graduate with an MBA from the University of Newcastle upon Tyne.
Darren Kell, Proposed Business Development Director
Darren joined Tanfield in March 2002. A business development professional with
14 years experience in business to business sales, he has been instrumental in
developing and implementing a growth strategy. Darren was previously responsible
for business development and sales activities at Crabtree of Gateshead Limited,
where he helped that company's turnover grow from £10m to £30 million. Darren
has extensive experience in dealing with blue-chip clients at a senior level
both in the UK and overseas, with particular emphasis on the Continental
European and North American markets.
Timothy Robinson ACA, Finance Director
Tim joined the Company in October 2000 and is a chartered accountant. He was
previously European finance director for ViaSystems Inc., a manufacturer of
printed circuit boards with a turnover of £300 million and 5,200 staff in its
European operations. Prior to that, he was finance director of Interconnection
Systems Limited and helped grow turnover from £15 million to £141 million.
John Bridge, Non-executive Director
John joined the Company in January 2002. He is an economist who has extensive
experience in corporate planning and strategic development from roles in the
public, private and academic sectors over the last 30 years. He is currently
chairman of One North East, the regional development agency for the North East
of England. He is a board member of English Partnerships and Kenmore UK Limited
and is chairman of the North East Seedcorn Fund and Northern Sights. He sits on
the Government's Policy Advisory Group on Aviation and is Vice-Chair of the
National Regional Policy Forum. John also acts as consultant to a number of
private sector companies.
Douglas Smith, Non-executive Director
Douglas joined the Company in October 2000. He has over 30 years experience in
the insurance industry and was chairman of Johnson & Higgins UK Limited when it
merged with Marsh & McLennan in 1997 to form a broking and risk management
group. He is currently UK chairman of the private equity and merger and
acquisitions division of Marsh Limited. He is also chairman of Heart of
Midlothian plc and Cairns Bond Limited and a non-executive director of Edinburgh
Income and Value Trust plc and Premium Trust plc.
Interim Results
The Interim Results of the Company for the six months ended 31 March 2003 have
also been announced today.
The City Code
Under Rule 9 of the City Code, when a person or a group of persons acting in
concert acquires shares in a company which is subject to the City Code and such
shares, when taken together with shares already held, would result in such
person or persons holding shares carrying 30 per cent. or more of the voting
rights of the company, such person or group is normally obliged by the Panel to
make a general offer to all shareholders for the remaining shares in the capital
of the company.
Rule 9 of the City Code also provides that where any person or group of persons
acting in concert holds shares carrying not less than 30 per cent. and not more
than 50 per cent. of the voting rights of a company which is subject to the City
Code, such person or group is normally obliged by the Panel to make a general
offer to all shareholders if he or it acquires any further shares in the
company.
Roy Stanley by virtue of being a Vendor, and Timothy Robinson and Darren Kell by
virtue of being grantees of options over Consideration Shares receivable by Roy
Stanley, are regarded collectively by the Panel as a concert party and,
immediately following Completion, will have the following interests in the share
capital of the Company:
Number of Percentage Number of Percentage Maximum Percentage
Ordinary of Ordinary of number of of
Shares at issued Shares at issue Ordinary issued
the ordinary Completion ordinary Shares ordinary
date of this share share following share
document capital capital conversion capital(6)
of
loan stock
and exercise
of options
R Stanley 4,490,762 29.35 50,397,074(1) 81.63 42,268,443(2) 64.19
T Robinson 6,187 0.04 6,187 0.01 6,127,028(3) 9.30
D Kell - - - - 6,120,841(4) 9.30
Number of Ordinary
Shares held by the
Concert Party 4,496,949 29.39 50,403,261 81.64 54,516,312 82.79
Total number of
Ordinary Shares
in issue 15,302,104 61,734,716 65,847,767
Notes:
1. Roy Stanley will receive 45,906,312 Ordinary Shares pursuant to the Tanfield
Sale and Purchase Agreement.
2. Roy Stanley will subscribe for £100,000 of Convertible Loan Stock which will
be capable of being converted into up to 1,052,631 Ordinary Shares.
3. Timothy Robinson currently holds options to subscribe for 538,066 new
Ordinary Shares (expected to increase to options over 1,530,210 new Ordinary
Shares subject to the arrangements described below under 'Share Options') and
holds options to purchase 4,590,631 Consideration Shares from Roy Stanley.
4. Darren Kell is expected to hold options to subscribe for 1,530,210 new
Ordinary Shares subject to the arrangements described below under 'Share
options' and holds options to purchase 4,590,631 Consideration Shares from Roy
Stanley.
5. Further details of the terms of conversion of the Convertible Loan Stock are
set out in Part 6 and further details of the options held and to be held by Tim
Robinson and Darren Kell are set out in the Admission Document.
6. The percentage of issued ordinary share capital shown following conversion of
loan stock and exercise of options assumes that only Concert Party members
convert or exercise and so gives their maximum potential holdings.
The Panel has agreed to waive any requirement for the Concert Party, or any
member thereof, to make a general offer to Shareholders under Rule 9 of the City
Code as a result of the Proposals, subject to approval by an independent vote on
a poll of Resolution 2 as set out in the Notice of EGM in the Admission
Document.
Accordingly, a poll will be held on Resolution 2 to be proposed as an ordinary
resolution at the EGM, for the purpose of waiving any requirement that the
Concert Party, or any member thereof, should make a general offer to
Shareholders. To be passed, a simple majority of the votes cast must be cast in
favour of Resolution 2. Completion of the Acquisition is conditional on the
passing of Resolution 2. No member of the Concert Party is entitled to vote on
Resolution 2.
The Directors, the Proposed Director and the Concert Party have no intention of
introducing any major changes in the Group's business, other than as described
in the Admission Document, nor do they intend to redeploy the Group's fixed
assets.
Future Dealings
For so long as the aggregate Concert Party holding remains above 50 per cent. of
the issued share capital of the Company, members of the Concert Party will be
entitled to purchase further shares in the Company without triggering any
obligation under Rule 9 of the City Code to make a general offer to the other
Shareholders, subject to no individual member of the Concert Party or any person
acting in concert with him acquiring additional shares which, when taken
together with shares already held, would result in him holding shares carrying
30 per cent. or more of the voting rights of the Company.
Brief details of the members of the Concert Party are set out above under 'Board
Changes' and in the Admission Document.
Change of financial year end
The Company's accounting reference date is currently 30 September. The Directors
and the Proposed Director intend to change the Company's accounting reference
date to 31 December with effect from 31 December 2003.
Directors' and Proposed Director's remuneration
As a part of the Proposals there have been a number of Board changes detailed
above and all of the Directors have agreed to reduced levels of remuneration.
The Directors have taken reduced levels of pay and benefits voluntarily since
January 2003 with the total reductions expected to be around £100,000 by
December 2003. The Directors have agreed to waive their entitlements to back-pay
in respect of these voluntary reductions, save for around £10,000 in aggregate.
New levels of pay have been set for each of the Directors and the Proposed
Director and these are detailed in the Admission Document. The Remuneration
Committee, comprising Jon Pither, John Bridge and Douglas Smith, intends that
there will be no increases in remuneration before the salary review to be held
following the publication of the preliminary results for the year ending 31
December 2004, expected to be in March 2005.
The Company has also made certain commitments on bonus payments to the Directors
and the Proposed Director for the periods ending 31 December 2003 and 31
December 2004. There will be no bonuses paid to any Director or Proposed
Director in the event that the Enlarged Group reports a loss after tax. The
Directors and Proposed Director may receive a bonus of up to 50 per cent. of
basic pay. The maximum level of bonus will only be payable where the Enlarged
Group reports profit after tax significantly higher than market expectations.
The Directors and the Proposed Director may receive a modest bonus if the
Enlarged Group meets its own budgets.
Share options
The Directors and the Proposed Director believe that the award of share options
is crucial to the future success of the business and to incentivise employees
and align their interests directly with those of Shareholders to maximise the
value of the Enlarged Group. There are currently 1,374,760 options with an
exercise price of 1p and 443,146 options with an exercise price of 165p. All
existing share options were granted around the time of the flotation in 2000.
The options at 165p were granted at the time of the Company's flotation, since
when the Company's share price has dropped as it has not met market expectations
and as the market value of technology stocks in general has fallen. All of these
options are held by Tim Robinson. The Company's share price was suspended at
9.5p and the Directors and the Proposed Director believe that the existing share
options with an exercise price of 165p do not offer any incentive. Therefore,
the Directors and the Proposed Director intend to invite Tim Robinson to waive
his existing options with an exercise price of 165p and to grant new options
with performance conditions and with an exercise price based on market prices
following Completion.
The Directors and the Proposed Director intend that the maximum number of
options to subscribe for new Ordinary Shares shall not exceed 6,120,841 (being
10 per cent. of the issued share capital as enlarged by the Acquisition). There
are currently valid options to subscribe for 1,817,906 new Ordinary Shares,
including 443,146 options held by Tim Robinson with an exercise price of 165p.
The Directors and the Proposed Director intend, following Completion, to grant
options to subscribe for 1,435,290 and 1,530,210 new Ordinary Shares to Tim
Robinson and Darren Kell respectively. To benefit from these options the Company
and/or the individuals concerned will have to meet performance criteria over a
number of years set by the Remuneration Committee. Together with options granted
by Roy Stanley to purchase Consideration Shares held by him, Tim Robinson and
Darren Kell will each hold options over 6,120,841 Ordinary Shares (representing
9.9 per cent. each of the issued share capital as enlarged by the Acquisition).
Accordingly, approval for the grant of options to subscribe for new Ordinary
Shares to Tim Robinson and Darren Kell following Completion and further options
subject to the overall limit outlined above is sought at the EGM by means of
Resolution 6.
Further details of the comeleon plc Share Option Scheme and of existing and
proposed option arrangements are contained in the Admission Document.
Details of the Placing
Brewin Dolphin Securities, as agent for the Company, has agreed conditionally to
use its reasonable endeavours to place a total of £1.6 million nominal of
Convertible Loan Stock at par and 526,300 Ordinary Shares at the Placing Price,
which would raise approximately £1.65 million before expenses for the Company.
After the expenses of approximately £0.49 million (excluding VAT), the net
proceeds receivable by the Company will amount to approximately £1.16 million.
Roy Stanley and Jon Pither have undertaken to subscribe for £100,000 and £50,000
of Convertible Loan Stock respectively in the Placing.
The Placing is conditional, inter alia, upon:
(a) the passing of Resolutions 1, 2, 3 and 4;
(b) the Acquisition becoming wholly unconditional save for Admission
of the issued Ordinary Shares and the Consideration Shares;
(c) the Placing Agreement becoming unconditional and not having been
terminated in accordance with its terms prior to Admission of the issued
Ordinary Shares and the Consideration Shares; and
(d) Admission of the issued Ordinary Shares and the Consideration
Shares having become effective at or before 8.00 am on 30 December 2003 (or such
later date as Brewin Dolphin Securities may agree, not being later than 6
January 2004).
The Placing is not being underwritten in whole or in part by Brewin Dolphin
Securities.
A summary of the principal terms of the Placing Agreement is set out in the
Admission Document.
The Convertible Loan Stock will be issued at par and will carry a coupon of 8.5
per cent. per annum, payable by equal half-yearly instalments (save that the
first interest payment will be made on 31 January 2005 in respect of the period
from the date of issue to 31 December 2004). The Convertible Loan Stock will,
subject to adjustment in certain circumstances, be convertible at the rate of
1000/95 Ordinary Shares for each £1 nominal of Convertible Loan Stock, an
effective price of 9.5p per Ordinary Share rounded down to the nearest Ordinary
Share.
The Convertible Loan Stock will be convertible at the option of the holder
during the months of May and October in any of the years 2004 through to May
2009. The Ordinary Shares issued upon conversion of the Convertible Loan Stock
will entitle the holder to receive (a) in the case of Ordinary Shares allotted
on a May conversion date, all dividends and all other distributions declared,
paid or made on the Ordinary Shares in or in respect of the financial year of
the Company in which the relevant May conversion date falls, other than
dividends in respect of any earlier financial period and shall rank pari passu
in all other respects and form one class with the Ordinary Shares in issue on
the relevant May conversion date and (b) in the case of Ordinary Shares allotted
on an October conversion date, all dividends and all other distributions
declared, paid or made on the Ordinary Shares by reference to record dates
falling after the relevant October conversion date and shall rank pari passu in
all other respects and form one class with the Ordinary Shares in issue on the
relevant October conversion date.
On a winding up of the Company, holders of the Convertible Loan Stock will have
a right of repayment before any distribution is made to holders of Ordinary
Shares. The Convertible Loan Stock will be unsecured and will be redeemed on 30
June 2009, if not previously redeemed or converted. In the absence of any
further issues of Ordinary Shares, the Ordinary Shares which would fall to be
issued on full conversion of the Convertible Loan Stock would represent 21.43
per cent. of the issued share capital as enlarged by the Acquisition and full
conversion. No application will be made to admit the Convertible Loan Stock to
trading on AIM or any recognised investment exchange.
It is expected that the Convertible Loan Stock (save for the LDC Convertible
Loan Stock) will be issued on 31 December 2003. Definitive certificates in
respect of the Convertible Loan Stock are expected to be despatched by 6 January
2004. Until the definitive certificates are despatched, no temporary documents
of title will be issued and transfers will be certified against the register of
Convertible Loan Stock.
The Convertible Loan Stock will be constituted by the Convertible Loan Stock
Instrument particulars of which are set out in the Admission Document.
The Placing Shares will represent 0.67 per cent. of the Company's issued share
capital as enlarged by the Acquisition and will, when issued, rank pari passu in
all respects with the other Ordinary Shares then in issue, including all rights
to all dividends and other distributions declared, made or paid following
Admission of the Placing Shares.
Application will be made to the London Stock Exchange for the Placing Shares to
be admitted to trading on AIM. It is expected that trading in the Placing
Shares will commence on 31 December 2003.
Tax reliefs available to investors
The Directors and the Proposed Director have been advised, and the Inland
Revenue have confirmed provisionally, that an investment in the Convertible Loan
Stock will be capable of being a qualifying investment for VCTs, subject to the
status of individual VCTs.
The Directors and the Proposed Director have been advised, and the Inland
Revenue have confirmed provisionally, that the reliefs available to existing
shareholders under the VCT legislation and EIS legislation should not be
affected by the Proposals.
Any person proposing to invest in Convertible Loan Stock or Placing Shares
should take advice from his/her own investment or taxation adviser on any tax
reliefs applicable to him/her.
Risk Factors
Investing in the Company involves a degree of risk. The Directors and the
Proposed Director consider that the factors and risks described below are the
most significant and should be carefully considered, together with all other
information contained in the Admission Document. The price of Ordinary Shares
could decline due to any of these risks and investors could lose all or part of
their investment. It should be noted that the risks described below are not the
only risks faced by the Company. There may be additional risks that the
Directors and the Proposed Director currently consider not to be material or of
which they are currently unaware.
If any of the following risks were to materialise, the Enlarged Group's
business, financial condition and results of operations could be materially
adversely affected:
• both comeleon and Tanfield have reported losses recently and there can be
no certainty that the Enlarged Group will achieve any sales growth or that
it will be profitable;
• failure to meet the quality and delivery requirements of customers in
larger and more technically demanding projects; and/or
• failure to manage effectively the integration of comeleon and Tanfield.
Extraordinary General Meeting
Set out in the Admission Document is a notice convening the Extraordinary
General Meeting of the Company to be held at the registered office of the
Company at 11.00 am on 29 December 2003 at which the following Resolutions will
be proposed:
1. to approve the Acquisition;
2. to approve the Rule 9 Waiver;
3. to increase the authorised share capital, authorise the Directors to allot
Ordinary Shares, including the Consideration Shares and the Placing Shares,
and to allot the Convertible Loan Stock;
4. to disapply Shareholders' statutory pre-emption rights in respect of the
allotment of the Placing Shares, Ordinary Shares and the Convertible Loan
Stock;
5. to change the name of the Company to Tanfield Group plc; and
6. to authorise the Remuneration Committee to agree to the grant of options.
Resolutions 1, 2 and 3 will be proposed as ordinary resolutions. Resolution 2
will be taken on a poll. Resolutions 4, 5 and 6 will be proposed as special
resolutions.
For the Proposals to proceed, Resolutions 1, 2, 3 and 4 must be passed. In the
event that any of Resolutions 1, 2, 3 or 4 are not passed, the Acquisition will
not proceed.
Recommendation
Roy Stanley is a majority shareholder of Tanfield and as such is regarded as a
related party under the AIM Rules for the purposes of the Proposals. For this
reason, Roy Stanley has not participated in the Board's recommendations to
Shareholders in respect of the Proposals and will not vote on any of the
Resolutions. The Directors other than Roy Stanley, consider, having consulted
with Brewin Dolphin Securities, that the Proposals are fair and reasonable
insofar as the Shareholders are concerned.
Your Directors, other than Roy Stanley, unanimously recommend you to vote in
favour of Resolutions 1, 3, 4, 5 and 6. All of the Directors, other than Roy
Stanley, intend to vote in favour of Resolutions 1, 3, 4, 5 and 6 in respect of
their own beneficial holdings amounting to in aggregate 169,280 existing issued
Ordinary Shares representing 1.11 per cent. of the issued Ordinary Shares
entitled to vote on Resolutions 1, 3, 4, 5 and 6.
Roy Stanley is a member of the Concert Party by virtue of his interest in the
Tanfield Sale and Purchase Agreement and Tim Robinson is a member of the Concert
Party by virtue of his share option described at paragraph 6.3 of Part 7 and,
therefore, in accordance with the City Code, neither of them has participated in
the Board's recommendation of Resolution 2 and will not vote on that resolution.
The Independent Directors, having been so advised by Brewin Dolphin Securities,
consider the Rule 9 Waiver and the passing of Resolution 2 to be in the best
interests of the Company and the Shareholders as a whole. In providing its
advice, Brewin Dolphin Securities has taken into account the Board's commercial
assessments .
The Independent Directors unanimously recommend that Independent Shareholders
vote in favour of Resolution 2 as they intend to do so in respect of their own
beneficial shareholdings which together amount to 163,093 existing Ordinary
Shares representing, in aggregate, 1.07 per cent. of the Ordinary Shares
entitled to vote on Resolution 2.
AVAILABILITY OF THE ADMISSION DOCUMENT
Copies of the Admission Document will be available free of charge to the public
during normal business hours on any weekday (except Saturdays and public
holidays) from the offices of Brewin Dolphin Securities Ltd, 5 Giltspur street,
London EC1A 9BD from today until the date one month from Admission.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Restoration of trading on AIM of the existing issued Ordinary Shares 8.30am on 4 December 2003
Latest time and date for receipt of completed Forms of Proxy for the EGM 11.00am on 27 December 2003
EGM 11.00am on 29 December 2003
Admission to trading on AIM of the issued Ordinary Shares and Consideration 30 December 2003
Shares
Completion of the Acquisition 30 December 2003
Issue of the LDC Convertible Loan Stock 30 December 2003
Admission to trading on AIM of the Placing shares and CREST accounts credited 31 December 2003
Issue of the share certificates in respect of the Consideration Shares 6 January 2004
Issue of certificates in respect of the Convertible Loan Stock 6 January 2004
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 14th May 2024
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