£8m Placing, £8m Acquisition and Change of Name
POLYDOC PLC
28 October 1999
POLYDOC PLC
£8M PLACING, £8M ACQUISITION AND CHANGE OF NAME
PolyDoc plc ('PolyDoc'), the Anglo-Dutch knowledge management
software company has announced a proposed institutional share
placing, the terms of the proposed acquisition of AppliedNet Ltd.
('AppliedNet') and the proposed change of name to Sopheon plc.
These proposals are subject to the consent of shareholders in
Extraordinary General Meeting.
PolyDoc is quoted on AIM in the UK and on the Nieuwe Markt (NMAX)
in the Netherlands.
Key points
* £8 million, before expenses, is being raised through a placing
of new shares with institutions in the UK. The placing is
being arranged by Durlacher Limited, the technology and new
media investment bank.
* PolyDoc has agreed to acquire AppliedNet for approximately £8
million comprising 6.4 million new ordinary shares in PolyDoc.
Based in Guildford, England, AppliedNet develops and markets
software which harnesses and manages information and corporate
knowledge.
* PolyDoc will change its name to Sopheon plc following the EGM.
* Following the share placing and acquisition, PolyDocs market
capitalisation will be £40.16 million at the placing price of
125p.
* Executive Chairman, Barry Mence stated :
'The acquisition of AppliedNet together with the additional
capital being raised will give PolyDoc the critical mass to
accelerate the pace at which we develop and exploit the
rapidly emerging market for knowledge management and
harvesting together with associated web publishing solutions.'
Barry Mence or Richard Maddocks
(PolyDoc) +44 (0)171-466 5000 today
- rma@PolyDoc.com 0031-20 301 39 00 thereafter
Steve Liebmann / Jennie Roberts
(Buchanan Communications) +44 (0)171-466 5000
- stevel@buchanan.uk.com
CHAIRMANS LETTER
It was announced today that the Company is proposing to issue
6,500,000 New Ordinary Shares, at a price of 125p per share, to
raise approximately £7.55 million after expenses. The Placing
Shares have been conditionally placed with institutional
investors. The Company also announced the conditional acquisition
of the entire issued ordinary share capital of AppliedNet for a
consideration of 6,402,961 New Ordinary Shares.
I am writing to explain the reasons for the acquisition of
AppliedNet, the share capital reorganisation (and amendment of
the Company's articles of association) and the Placing, the net
proceeds of which will support the Company in carrying out its
plans for growth as detailed below. The Company is proposing,
immediately following the acquisition of AppliedNet, to change
its name to Sopheon plc to reflect the new focus of the business
of the Enlarged Group. The Acquisition will require the Company
to reorganise its current share capital which will result in
ordinary shares in the capital of the Company having a nominal
value of 5p rather than 20p as at present. The share capital
reorganisation, amendment of the Company's articles of
association, issue of the New Ordinary Shares and the change of
name require the approval of Shareholders at an extraordinary
general meeting to be held on 22 November 1999, at which the
necessary resolutions will be proposed.
Current Trading and Outlook for Year
We announced our interim results for the six months to 30 June
1999 on 24 September 1999. In that period we achieved a turnover
of £506,000 (1998 : £440,000) and, as expected due to our
continued investment in the development of the business, a loss
before tax of £616,000 (1998 : £390,000). I stated that with our
proposed acquisition of AppliedNet, the expected results of the
Group's intensified activities in healthcare and manufacturing
and the signing of business partnership agreements in the UK,
USA, Netherlands and Italy during recent months, we were
confident of a fruitful conclusion to the year for PolyDoc.
Healthcare
A joint venture company called Pro-GRAM B.V. ('Pro-GRAM') has
been formed by three academic hospitals in the Netherlands to
market, together with PolyDoc NV, on an exclusive basis, the
QualiFlow software and the knowledge created using the software
to a broad range of organisations in the healthcare industry in
Dutch speaking territories.
Pro-GRAM's first multi-million guilder contract involving three
(from a total of eight) academic / teaching hospitals in the
Netherlands is progressing well. We have continued to deliver our
QualiFlow software to these customers in the planned stages
enabling them to prepare for the important phase of content
production. We are now making the final deliveries on these
contracts and believe all sizes of hospital have the potential to
become customers of both QualiFlow software and content. We have
had high level indications from several hospitals, both academic
and general, that they intend to contract for the Group's
software to enable them to share the content with existing
customers. We hope to sign further business in this area during
the current year, as we seek to establish our approach as a form
of standard for the Dutch healthcare industry.
As a first phase to the anticipated larger QualiFlow software
sale to the Dutch teaching hospital in Leiden (Lumc), we regard
the recent commitment in principle by Lumc to implement
PolyDoc/Lessenger software in several of its laboratories is a
very important step forward. Also of significance is an approval
from AZM our teaching hospital customer in Maastricht, for a
joint project using our software together with Klinikum Aachen, a
large German teaching hospital.
Lessenger, our recently acquired supplier of document management
software to the healthcare industry, has been fully integrated
into the Group's business. This has started to bring additional
revenue from both its existing fifty Dutch healthcare clients and
new clients. In addition to our commitment to the ongoing
development, enhancement and support of these products, we are
also working to ensure that our QualiFlow healthcare solution
interfaces with the Lessenger family. This should put both the
Group and Pro-GRAM in a strong position to accelerate further our
sales of QualiFlow in the healthcare market.
As part of our strategy to develop the Group's business through
business partnerships, we have entered into agreements with
Hiscom in the Netherlands and Marlow Consulting in the UK, which
are described further in the 'Business Partnerships' section
below. We are also in discussions in the UK, USA, Belgium and
Germany with prospective business partners who have shown
interest in our QualiFlow healthcare solution.
Manufacturing and Defence
DSM, the multi-national chemical manufacturer, went into full
production early this year with the latest version (3.0) of
NormFlow, our solution for the production and maintenance of
standards for the manufacturing and process industries. We have
extended the scope and use of the product at DSM resulting in
additional revenue on top of ongoing maintenance fees.
We have contracted the services of two ex-senior executives of
the Baan Company to initiate the volume selling of this new
enhanced NormFlow product as well as marketing our ResearchFlow
and StudyFlow solutions into the manufacturing and defence
sectors. The marketing of these products is presently underway
and we expect to see sales starting during the current year.
The StudyFlow pilot we have been executing at DERA, the Defence
Evaluation and Research Agency related to the UK Ministry of
Defence, has been successfully evaluated resulting in further
development work being contracted.
Our plans for penetrating the defence industry have become
closely linked to our manufacturing strategy. This is because our
other prospective clients are major defence industry
manufacturers. One of these manufacturers is at the final stages
of evaluating the implementation and benefits of the Group's
solutions, and we believe we will work further with that
organisation and with DERA in the second half of this year.
Knowledge and Content Management Consultancy Services
Our new consultancy services group has been established and is
focusing on generating additional revenue as well as bringing
potential software product customers and business partners into
the Group as paying services customers. Initial consultancy work
has been contracted with DSM, Oce, DERA, IBM and KPMG in the
first half of this year.
Business Partnerships
Our strategy for expanding the Group's business into volume sales
has always been to enter into business partnerships with
established organisations with strong customer bases, once we
have established the early customers in our chosen focus
industries. The Group's initial target markets remain the Benelux
countries, the UK and the US.
In addition to the partnership with the hospital joint venture
company, Pro-GRAM, covering Benelux, we have put in place non-
exclusive agreements with business partners in the UK and the US.
Marlow Consulting in the UK specialises in management consultancy
and systems integration, and they are focusing the Group's
products on a number of potential customers in the healthcare and
pharmaceutical industries. Teltech, a US knowledge management
specialist consulting firm, will be focusing on the manufacturing
industry. All three partners have been working closely with the
Group's staff on business opportunities in the Netherlands, US,
UK and Germany. As a result of this activity we have received a
letter of intent from our first US pharmaceutical customer.
Together with Marlow Consulting, a combination of software and
services will be delivered to Xairo, a new joint venture formed
by Elan Corporation and Iomai Corporation. We have also received
information from Teltech regarding their expectation of signing
within the next few weeks their first US customer to use the
Group's software.
We are also in detailed discussions with a small number of
software suppliers with substantial existing customer bases
concerning the integration of parts of our software into theirs,
which we believe have the potential to form the start of a
significant revenue stream. From these discussions, an agreement
has recently been signed with a leading Italian ERP specialist,
Gruppo Formula, whereby the Group's software components will be
integrated into Gruppo Formula's software solutions and marketed
by them to their extensive European customer and prospect base.
We have also entered into a potentially important agreement with
Hiscom in the Netherlands whereby we are to collaborate on
medical knowledge systems to accelerate progress towards
electronic patient dossiers for the Dutch healthcare market.
Hiscom is a market leader in the medical IT market in the
Netherlands, and is increasingly concentrating on new health care
information systems outside its domestic market, in particular in
the UK, Germany and Scandinavia.
Information on AppliedNet
We believe AppliedNet has created a strong market niche since its
creation in 1985 as consultants and as developers and marketers
of software which harnesses and manages information and corporate
knowledge. AppliedNet has built a substantial client portfolio
comprising blue chip multinationals, defence and publishing
organisations. Whilst the Acquisition will strengthen
significantly the Group's present systems integration and
consulting capabilities, of particular interest to PolyDoc is
AppliedNet's recently released Knowledge Agent software, which
can infiltrate, gather and disseminate both internal and external
sources of information.
Based at its headquarters in Guildford, Surrey, AppliedNet, in
the year to 30 September 1998, had turnover of £1,636,927 and
profit before tax of £207,960. It secured a £1.5 million
investment from the venture capitalist, 3i Group plc ('3i'), in
March of this year to develop and commercialise further its
software products and services offerings. A significant
proportion of the monies subscribed by 3i has already been
invested by AppliedNet in the continued development of its
Knowledge Agent software. As a result of this investment, all of
which has been written off, AppliedNet's audited accounts to 30
June 1999 show a turnover of £1,229,003 and a loss before tax of
£697,510 and the unaudited management accounts to 31 August 1999
show a turnover of £1,669,992 and a loss before tax of £850,501.
At 30 June 1999, AppliedNet had net assets of £971,951. Turnover
for the three months ended 30 September 1999 averaged
approximately £298,000 per month which shows an encouraging level
of interest in AppliedNet's Knowledge Agent software and web
publishing services in the last quarter of its financial year.
Terms of the Acquisition
The Company has conditionally agreed to acquire the entire issued
ordinary share capital of AppliedNet, the consideration for which
is being satisfied by the issue of the Consideration Shares. The
Consideration Shares will represent 19.93% of the enlarged issued
ordinary share capital of the Company following Admission. At the
Placing Price, the Consideration Shares are valued at
approximately £8 million in aggregate. The Acquisition is
conditional, inter alia, on the passing of the Resolutions, on
Admission and on the Placing Agreement becoming unconditional.
Assuming completion of the Acquisition, it is proposed that the
New Share Options will be granted. The purpose of the New Share
Options is to replace existing AppliedNet share options with
options over ordinary shares in the capital of the Company. There
are options outstanding in respect of a total of 22,000 ordinary
shares in the capital of AppliedNet. These will be exchanged for
options (on similar terms) in respect of a total of 383,697 5p
Ordinary Shares. The exercise price of the New Share Options will
be 8.6p per share in respect of 305,217 5p Ordinary Shares and
87.32p per share in respect of 78,480 5p Ordinary Shares under
option and as a result the Company's existing share capital needs
to be reorganised as described below.
Future Prospects
Following the successful integration of our first acquisition,
Lessenger, and in line with our acquisition strategy, we now move
on to the more substantial integration of AppliedNet into the
Group. This is a significant step forward and a major milestone
in our business development, and we believe it will provide the
necessary critical mass and additional resources to broaden and
accelerate sales in the European marketplace, and to assist the
Group to expand faster into the US. Additionally, AppliedNet's
impressive UK client portfolio, comprising blue-chip
multinationals, defence and publishing organisations, will
significantly enhance our overall customer base and should bring
an important revenue stream.
We believe that the combination of the Group's knowledge capture
and content management software and AppliedNet's knowledge
harvesting software and web publishing solutions will create a
competitive and commercial range of solutions in the fast
emerging knowledge management and e-business marketplaces. With
our expansion into the US starting to take shape via our business
partnership agreements and our small team of senior executives
led by Paul Heller, we hope to make an acquisition in the US in
the year 2000.
On completion of the Acquisition, James Macfarlane, managing
director and founder of AppliedNet, will be appointed a Director
of the Company and will take on the role of Group Business
Development Director and Mike Brooke, AppliedNet's non-executive
chairman, will be appointed as a Non-Executive Director of the
Company. Further Group positions will be taken by senior
AppliedNet staff including Craig Robinson, as sales and marketing
director, Nigel Folkes, as product development director and Mike
Robinson, as consultancy services director.
Recent months have seen several important announcements in the
Knowledge Management arena from market leading software companies
such as Microsoft which we believe add substantial credibility to
Knowledge Management software solutions of which the Group is a
provider. We believe we will benefit because our software is
complementary to that being brought to the market by companies
such as Microsoft and also because we integrate the technology
from several leading suppliers, including Microsoft and Oracle,
into our Knowledge Management applications.
1999 has, so far, been a year of considerable progress for
PolyDoc that to-date has not substantially benefited our revenue
figures. The benefits of this progress should have a more
substantial impact in the year 2000 and beyond with revenue
generation being anticipated in most, if not all, of the above
mentioned areas. The Directors believe that these developments
together with the Placing will form the foundation from which to
move our business forward at an enhanced pace, which in turn
should bring interesting opportunities for both Shareholders and
staff.
New operational structure
Following the Acquisition, there will be changes in several areas
of operational structure which should, we believe, significantly
enhance both the effectiveness and efficiency of the Enlarged
Group.
The Enlarged Group's product development, software code
production and testing will be increasingly concentrated in the
UK where we believe the availability of highly-skilled technology
resources at competitive costs is one of the most plentiful in
Europe and that AppliedNet already has strong management and
expertise in place. This will be supplemented by a smaller,
technology focused team that has started to be established in the
US, giving the Company access and exposure to additional leading-
edge technology developments. Product research, especially in
linguistics where we believe the Company has established a
leading competitive edge, will continue to be conducted primarily
from the current centre in the Netherlands.
Marketing and communications is an area where the impact of
campaigns and promotional activities in the marketplace is
expected to be enhanced by developing strategy centrally and
approaching and then customising the implementation locally for
each area. Also of importance is the ability in the business
partnerships element of the Company's business to centrally
establish pan-European and global relationships with
international partners and subsequently manage and drive those
relationships locally in a similar manner.
It is intended that finance and administration will be
centralised and controlled from the UK following the appointment
in due course of a Finance Director of the Enlarged Group who
will report directly to me. Given our expansion plans, we also
hope to appoint a Human Resources Manager, based in the UK, to
support the ongoing management and development of existing and
future employees.
Use of Proceeds
The net proceeds of the issue of the placing and subscription
amounting to approximately £7.55 million, will be used to meet
ongoing financial requirements, principally in the following areas:
1. the commercial development of the business in the UK, the
Netherlands and the US;
2. the integration and further development of the software owned
by the Group and AppliedNet;
3. to develop further the international business partner network;
and
4. to eliminate borrowings including, if required, the redemption
of the Convertible Loan Stock.
Share Capital Reorganisation
To accommodate the New Share Options as outlined above it will be
necessary to reduce the nominal value of the Existing Ordinary
Shares. It is therefore proposed to reorganise the existing share
capital of the Company such that the Existing Ordinary Shares,
being the shares of the Company currently in issue, are divided
and converted into ordinary shares of 5p each and deferred shares
of 15p each. The division and conversion will be on the following
basis:
one Existing Ordinary Share = one 5p Ordinary Share and one
Deferred Share.
Save in respect of their nominal value, the 5p Ordinary Shares
will have exactly the same rights and entitlements as the
Existing Ordinary Shares.
The Deferred Shares will have no rights of value attached to
them. In particular, holders of Deferred Shares will not, in
respect of such shares, have any right to vote at general
meetings, receive a dividend or participate in a return of
capital (whether on a winding up of the Company or otherwise)
unless all ordinary shareholders in the capital of the Company
first receive £100,000 in respect of each ordinary share that
they hold. The Deferred Shares will not be dealt in on either AIM
or NMAX and no share certificates will be issued in respect of
them. The Company will be entitled to transfer Deferred Shares to
a nominee for a consideration of 1p per holding of Deferred
Shares.
Subject to the approval of shareholders in EGM, the un-issued
Deferred Shares will be cancelled immediately following their
creation and it is expected that the issued Deferred Shares will
be cancelled or eliminated in due course by way of a share buy-
back or reduction of share capital.
For the reasons given in the following section, the New Ordinary
Shares which are being placed are only being offered to a limited
number of institutional investors, principally in the United
Kingdom: they are not being offered generally either to
Shareholders or to any persons outside the United Kingdom.
Specifically, no New Ordinary Shares are or will be offered to
persons resident in Holland. As a result, no application is being
made or will be made to list the New Ordinary Shares on NMAX.
However, for technical reasons, it would not be possible for the
Company to issue 5p Ordinary Shares pursuant to the Placing and
the Acquisition without listing these shares on NMAX. This is the
reason why the Company is proposing to create and conditionally
allot a new class of shares, the New Ordinary Shares.
The New Ordinary Shares and the 5p Ordinary Shares will rank pari
passu and have the same rights save that the New Ordinary Shares
will automatically convert into 5p Ordinary Shares prior to
admission to trading on AIM. This means that following Admission,
there will be just two classes of shares in issue, ordinary
shares of 5p each which will be dealt in on AIM and deferred
shares of 15p each which will not. As noted above we expect to
cancel or eliminate the Deferred Shares in due course leaving the
Company with only 5p Ordinary Shares in issue.
Details of the Placing
The Company has entered into the Placing Agreement with Bell
Lawrie Wise Speke and Durlacher which is conditional, inter alia,
on the passing of the Resolutions, and on completion of the
Acquisition.
If the Resolutions are passed, it is anticipated that the Placing
Shares will be allotted for cash as soon as practicable after the
EGM. Save as noted above, the New Ordinary Shares will rank pari
passu in all respects with the 5p Ordinary Shares. Application
has been made to the London Stock Exchange to admit the 5p
Ordinary Shares, into which the New Ordinary Shares will convert
prior to Admission, to trading on AIM and it is anticipated that
dealings will commence on 24 November 1999.
As noted above, the New Ordinary Shares will not be offered
generally to Shareholders or to the holders of any other
securities in the Company, whether on a pre-emptive basis or
otherwise. The Placing is not therefore an open offer or rights
issue and Shareholders will not become entitled to apply for New
Ordinary Shares through the Placing.
As stated above, the New Ordinary Shares will be offered to a
limited number of institutional investors principally in the
United Kingdom. Your Directors consider that, by restricting the
number of placees, the costs of raising the funds are relatively
low in comparison with the alternatives of conducting a rights
issue or an open offer with 'clawback' with a larger number of
placees, both of which would involve more time and documentation
and, therefore, expense to the Company.
Change of Name
As outlined above, the newly combined group resulting from the
Company's acquisition of AppliedNet will, we believe, create a
new profile in the Knowledge Management marketplace. With the
forthcoming integration of the individual organisations and their
respective product ranges, the Directors believe that it is an
appropriate time to drive the Enlarged Group forward under the
new name of 'Sopheon' plc. Existing share certificates will
remain valid.
Extraordinary General Meeting
An extraordinary general meeting will be held at the offices of
edge ellison, 18 Southampton Place, London WC1A 2AJ at 12 noon on
22 November 1999. The Nominated Broker to the Company is Bell
Lawrie Wise Speke.
Barry Mence
Executive Chairman
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