AVS.L Regulatory News (AVS)

1 Dec 2006 07:30

2 Way Traffic N.V.01 December 2006 1 December 2006 2 Way Traffic N.V. ("2waytraffic" or the "Company") Proposed Acquisition of the worldwide rights to "Who Wants To Be A Millionaire?" and Celador International, including its format catalogue, Placing and re-admission to AIM 2waytraffic, the interactive content developer and exploiter, today announcesthat it has conditionally agreed to acquire the entire issued share capitals ofComplete Communications Corporation Limited ("CCCL"), Knight WhitehillProductions Limited and The River Studio Limited, (the "Target Group"), whichowns the business, assets and rights to ''Who Wants To Be A Millionaire?''(''WWTBAM'') for an initial consideration of £106 million, deferred earnoutconsideration payable in shares of between £1.5 million and £5.5 million,together with further payments described below. Transaction Highlights: •Acquisition of the companies which own the business, assets and rights to ''Who Wants To Be A Millionaire?'', including the format library of Celador International Limited ("CIL") •Initial consideration of £106 million, financed by £60 million term loan facility from Royal Bank of Scotland ("RBS"), £10 million of the Company's existing cash resources, £6 million of consideration shares and the balance (including fees) through a £38 million Placing fully underwritten by Investec •CIL catalogue of approximately 30 formats including "You Are What You Eat", "Brainiest" and "Mr & Mrs" •Deferred earnout consideration for CIL payable in shares of between £1.5 million and £5.5 million •Target Group adjusted EBITDA for the 9 months to 30 June 2006 of £11.4 million on revenues of £22.0 million. Current trading in line with Target Group's expectations •Acquisition rationale • Well established international format business operating in 39 countries and with multiple revenue streams • Provides access to over 30 high profile Broadcasters with whom the Company can leverage 2waytraffic's existing business • Potential for further substantial interactive and ancillary exploitation of WWTBAM and other formats including participation TV • Significantly increases 2waytraffic's international profile and UK presence • Additional WWTBAM organic growth opportunities •EGM to approve the reverse takeover on 18 December 2006 •Expected date of re-admission of Enlarged Share Capital 20 December 2006 Commenting on the Acquisition, Chris Pye, Chairman of 2waytraffic, said: "This is a transformational deal that will see us acquire "Who Wants To Be aMillionaire?", one of the most popular and sustainable prime time game shows inhistory, as well as a number of other well know formats. 2waytraffic has grownsignificantly since it was formed just three years ago and this acquisition willsee further expansion of 2waytraffic's format library and geographical reach. " Kees Abrahams, Chief Executive of 2waytraffic, said: "The acquisition is a major step forward for 2waytraffic. As part of theEnlarged Group we are confident that 'Who Wants To Be a Millionaire?" and theother successful CIL formats we are acquiring, will benefit from our interactiveexpertise at a time when technology is allowing producers to develop formatswith increased interactivity in TV, mobile and digital. The proposed acquisitionis entirely consistent with the strategy we set out at the time of our IPO. Weare in no doubt that these formats are a perfect fit for 2waytraffic and we arewell placed to become a major international player in the roll out ofinteractive content." Paul Smith, one of the founders of the Target Group, said, "When we were seeking a buyer for Who Wants To Be A Millionaire? and CeladorInternational, our considerations were not purely financial. Millionaire is verymuch our baby, so it was a matter of who would best look after it, share ourphilosophy and believe in it as passionately as we do. I am confident thatcompany is 2waytraffic. They are a vibrant and ambitious organisation with avision for the show that incorporates the growing demand for interactivecontent. Headed by Kees Abrahams, who is an extraordinarily strong and visionaryChief Executive, and Chairman, Chris Pye, whose experience and knowledge of theindustry is unparalleled, I can think of no better new guardians to nurtureMillionaire and Celador International into the future." For further information in relation to the acquisition and the re-admissionplease contact 2waytraffic Kees Abrahams Chief Executive OfficerJeroen Tielens Chief Financial OfficerJonni Abbenhuis Manager, CommunicationsTel: +31 (0) 35 629 98 62 Investec - Nominated Adviser and broker to 2 Way TrafficChris GodsmarkAndrew CraigBen PoynterTel: +44 (0) 20 7597 4000 Financial Dynamics (PR Adviser to 2waytraffic)Charlie PalmerTel: +44 (0) 20 7831 3113 This summary should be read in conjunction with the full text of the AdmissionDocument. The Acquisition will be subject to certain conditions including butnot limited to approval of Shareholders at an EGM to be convened for thispurpose on 18 December 2006. Notice of this meeting is set out in the AdmissionDocument. Certain definitions and terms used in this Announcement are also setout in the Admission Document. Investec, which is authorised and regulated by the Financial Services Authorityin the United Kingdom, is acting exclusively as nominated adviser and broker to2waytraffic in connection with the Placing, Admission and the Acquisition and isnot acting for any other person and will not be responsible to any other personfor providing the protections afforded to customers of Investec or for advisingon the transaction and arrangements proposed in the Admission Document.This announcement does not constitute, or form part of, an offer or invitationto purchase or subscribe for any securities in any jurisdiction. The AdmissionDocument is expected to be published by the Company on the date of thisannouncement and any acquisition of New Ordinary Shares in the Company should bemade only by reference to such Admission Document. This announcement contains statements about members of the Target Group and2waytraffic that are or may be forward-looking statements. All statements otherthan statements of historical facts included in this announcement may beforward-looking statements. Any statements preceded or followed by or thatinclude the words ''targets'', ''plans'', ''believes'', ''expects'', ''aims'',''intends'', ''will'', ''may'', ''anticipates'' or similar expressions or thenegative thereof are forward-looking statements. Forward-looking statementsinclude statements relating to the following: (i) future capital expenditures,expenses, revenues, economic performance, financial condition, dividend policy,losses and future prospects; (ii) business and management strategies and theexpansion and growth of the Target Group or 2waytraffic; and (iii) the effectsof government regulation on the Target Group's or 2waytraffic's business. Theseforward-looking statements involve known and unknown risk, uncertainties andother factors which may cause the actual results, performance or achievements ofany such entity, or industry results, to be materially different from anyresults, performance or achievements expressed or implied by suchforward-looking statements. These forward-looking statements are based onnumerous assumptions regarding the present and future business strategies ofsuch entity and the environment in which each will operate in the future. Allsubsequent oral or written forward-looking statements attributable to Melrose orany persons acting on its behalf are expressly qualified in their entirety bythe cautionary statement above. Except as required by law, neither 2waytrafficnor any other party intends to update these forward-looking statements, eventhough the affairs of 2waytraffic and the Target Group will change from time totime. Proposed Acquisition of the entire issued share capital of the CCCL, Knight Whitehill Productions Limited and The River Studio Limited Placing and admission to AIM The Board today announced that 2waytraffic has conditionally agreed to acquirethe entire issued share capitals of the CCCL, Knight Whitehill ProductionsLimited and The River Studio Limited, (the "Target Group"), which owns thebusiness, assets and rights to ''Who Wants To Be A Millionaire?'' (''WWTBAM'')for an initial consideration of £106 million, deferred earnout considerationpayable in shares of between £1.5 million and £5.5 million, together withfurther payments described below. The Target Group also owns or has licensesover rights to a number of programme formats, including ''You Are What YouEat'', ''Brainiest'' and ''Mr & Mrs''. These formats will be added to2waytraffic's existing format catalogue and 2waytraffic intends to leverage themthrough its interactive expertise. Furthermore the Acquisition will expand2waytraffic's experienced operational team and increase its presence in the keyUK and other international television markets. Paul Smith, a founder of the CCCL Group, has agreed to join the Enlarged Groupin a consulting role for a period of not less than 12 months followingCompletion. On 17 July 2006, following press speculation regarding the Acquisition,2waytraffic requested the suspension of trading of its Existing Ordinary Sharesin accordance with the AIM Rules. It is expected that trading in the Company'sOrdinary Shares will re-commence today following the publication of theAdmission Document. It is anticipated that Admission of the New Ordinary Sharesand re-admission of the Existing Ordinary Shares to trading on AIM will takeplace after the EGM on 18 December 2006. The Company also announces today a Placing with certain of the Directors (beingKees Abrahams, Unico Glorie and Jeroen Tielens), four other employees,institutional and certain other investors to raise £38.0 million through theissue of 31,147,540 Placing Shares at a price of 122p per share fullyunderwritten by Investec. The Directors set out above and certain employees aresubscribing for New Ordinary Shares to the value of £5.0 million under thePlacing. The Directors are using their existing shares as collateral to fundtheir respective share purchases. The net proceeds of the Placing will be usedto satisfy part of the cash consideration in respect of the Acquisition and alsoto pay for the costs related to the Placing and the Acquisition. The balance ofthe cash consideration in respect of the Acquisition will be financed usingapproximately £10 million of the Company's existing cash resources and by way ofa new £60 million multi-currency senior debt facility from RBS, further detailsof which are set out below. The Company has also entered into a £10 millionmulti-currency credit facility with RBS for general corporate purposes. The RBSfacility is subject to certain conditions The purchase price for the Acquisition comprises the aggregate of the InitialConsideration, Earn Out Consideration and further payments comprising the NAVAdjustments and Pass Through Payment further described below. The Acquisition will be treated as a reverse takeover under the AIM Rules. TheAcquisition requires the prior approval of Shareholders at an EGM which has beenconvened for 10.00 a.m. GMT (11.00 a.m. CET) on 18 December 2006. Irrevocableundertakings to vote in favour of the Resolutions have been received in respectof 75 per cent. of the existing issued share capital of the Company. ShouldShareholder approval be granted, trading in the Company's existing share capitalwill be cancelled and the Enlarged Share Capital will be admitted to trading onAIM which is expected to take place on 20 December 2006. Application has beenmade for the Enlarged Share Capital to be admitted to trading following the EGM. InvestinMedia PLC, through its subsidiary InvestinMedia Holdings Limited, is amajor shareholder in CCCL and is quoted on AIM. Due to the size of its disposalof its interest in CCCL, InvestinMedia is today sending a circular to itsshareholders and is convening an extraordinary general meeting to be held at10.00 a.m. GMT (11.00 a.m. CET) on 18 December 2006 to approve the disposal ofits interest. Included in the circular are details of a recommendation from theboard of InvestinMedia for its shareholders to vote in favour of the resolutionand of the irrevocable undertakings and letters of intent received byInvestinMedia in respect of approximately 55.4 per cent. of the issued sharecapital of InvestinMedia to vote in favour of the sale of its interest. 2waytraffic Overview 2waytraffic is an international developer and exploiter of revenue generatinginteractive entertainment content across television, mobile and digitalplatforms for mass audiences. Founded in 2004 by former executives of Endemol,the Company is based in Hilversum, The Netherlands and currently sells itsformats into 27 countries and has over 100 employees. The Company was floated onAIM on 7 April 2006 raising £24.3 million gross of new equity to fund thedevelopment strategy set out by the Directors at that time. Since that date theCompany has successfully completed the acquisition of Emexus, a mobile contentprovider and existing partner, and Intellygents, a format developer based in TheNetherlands, and reached agreement with Zebra Producciones S.A. to establish ajoint venture in Spain. The Company has also entered into a three year agreementwith SBS (the first two years being on an exclusive basis) in respect ofparticipation formats in Sweden, Norway, Finland, Denmark, The Netherlands,Belgium, Hungary and Romania. The Existing Group develops, distributes and exploits interactive contentthrough extensive relationships which the Directors have cultivated with leadinginternational Broadcasters, telecom service providers and, in some cases,advertisers. 2waytraffic operates three business divisions: television, mobileand digital. - 2waytraffic develops and exploits television formats for majorBroadcasters that seek to convert the programme's audience intorevenue-generating customers, by enabling the viewer to engage and participatewith the programming via, for example, fixed line telephone calls, mobiletelephone calls or SMS text messages. At present the Existing Group's formatsprovide in excess of 8,000 hours of programming per year from its catalogue ofover 170 formats and works with Broadcasters including SBS6 in The Netherlands,TV Denmark in Denmark, TV4 in Sweden, PrimaTV in Romania, TVN in Poland and VT4in Belgium. - The Existing Group markets its mobile content business by targetingsubscribers through broadcasting ''interactive commercials'' on selectednetworks in North America (MTV, BET and Fox Reality), Central Europe (VIVA andTV2 in Hungary, Slovakia), Asia (Channel 5 & 8 in Singapore, Thailand) and SouthAfrica who address the desired target audience for these services. 2waytrafficgenerates call traffic via two main channels: through buying advertising slotsfrom Broadcasters, or through a ''bartered airtime deal'' where the Broadcasterprovides the advertising slot at no upfront cost to the Existing Group and anyrevenues generated by the Existing Group's programmes are shared with theBroadcaster. - In March 2006, prior to the Flotation, the Existing Group acquiredHIPTV, a Netherlands based digital broadcasting platform, which enables largeaudiences on the internet to simultaneously watch 2waytraffic's or third partyinternet television content on a pay per view, a pay per play or a subscriptionbased basis. HIPTV forms the cornerstone of the 2waytraffic digital strategywhich in the first half year started to generate its first, although small,revenues. Clients of HIPTV include VVN, T.T.G. and Challenge T.V. Further information in relation to 2waytraffic is set out in the AdmissionDocument being posted to shareholders today. Information on WWTBAM and CIL Since its launch in 1998, WWTBAM has become a highly successful internationaltelevision quiz show format and at present it is currently being broadcast in 39territories including the major television markets of the UK, the US, Germany,France, Italy, Japan, the Middle East and Spain. In many cases the programmeacts as a cornerstone of a Broadcaster's primetime television schedule and oftenoutperforms the local broadcast stations' average audience market share. CurrentWWTBAM Broadcasters in the major television markets include ITV in the UK,syndicated television stations affiliated to ABC/BVT in the USA, RTL in Germany,TF1 in France, Mediaset in Italy, FujiTV in Japan and MBC in the Middle East. WWTBAM's global success is partly due to its adaptability, as it is easilyadjusted to suit local audiences around the world, including an ability to filldifferent television network timeslots as either a daily 30 minute show or as aprimetime 60 or 120 minute show. Additionally where new add-ins to the TV showformat such as ''The Walk Away Game'' have proven successful in one broadcastterritory, these have started to be rolled out in other broadcast territorieswhere the appropriate technology is available. The strength of the WWTBAM brand is such that to date it has also been partlyexploited outside of its current TV broadcast format on other platforms and hasbeen able to generate additional incremental revenue streams through brandextension into merchandising (board games, DVDs, quiz books and ancillaryproducts) and interactive products (mobile, PC and console games, DVDs andpromotions and tie-ins). The WWTBAM Business Model WWTBAM revenues are generated from: a) international format and licensing fees;b) production of the UK version of the show for ITV; c) the ownership androyalty payments relating to the WWTBAM music rights; and d) ancillary rightsincome including but not limited to interactive mobile, online exploitation andmerchandising income. International format and licensing CCCL has endeavoured to maintain the uniformity and quality of the WWTBAM brandthrough its specific format license conditions for the television show anddevelopment, production and exploitation of the ancillary products, in anattempt to protect the WWTBAM format. Under WWTBAM's standard format licensingagreements which are used as often as possible, most elements of the WWTBAMtelevision show, including set design, lighting, music and question format, arerequired to comply with CIL's guidelines, with certain permitted adjustmentsallowed for the local audience or regulation. In addition, format licenseconditions typically specify a maximum number of defined length programmes thatmay be broadcast in any license period. Format license fees are typically paidin full on signing or renewal of a contract in advance of the shows beingbroadcast and accordingly provide the Target Group with a strong underlying cashposition. WWTBAM as a TV format has been predominantly distributed to the internationalmarket through format licensing sales and a limited number of co-productionrelationships. WWTBAM's key licensing areas encompass television formatlicensing, consumer products and interactive applications. The table below setsout the major territories and TV broadcasters where WWTBAM is currently beingbroadcast. Territory Broadcaster UK ITV 1 Germany RTL Italy Mediaset (Canal 5) Japan Fuji Spain Antena 3 USA Syndicated Hungary RTL Klub Middle East MBC FZ LLC Austria ORF The Netherlands RTL4 France TF1 Sweden TV4 Sweden Venezuela RCTV Indonesia RCTi Russia ORT/Channel 1 WWTBAM is not currently broadcast in six of the top 20 format importing marketsin the world, which account for approximately 25 per cent. of the availablemarket. Following a general decline in the format's geographic reach in recentyears, the Directors intend to work hard to expand the geographical reach of theWWTBAM television format into territories in which it is currently notbroadcast. These territories may include those in which the format has beenpreviously broadcast but taken off air due to over exposure or where a known'copycat' version of the format exists. The Directors are aware of opportunitiesto enter into additional territories and will actively look to pursue a strategyof international expansion into territories where it is commercially viable andlegally permitted to do so. Production of the UK format for ITV1 in the UKSince its launch in 1998, WWTBAM has been commissioned and broadcast in the UKby ITV. Under the contract with ITV, Celador Productions Limited ("CPL"), (acompany controlled by the Vendors but not forming part of the Target Group beingacquired by the Company) was commissioned to produce the show for ITV. FollowingCompletion, the Enlarged Group will be responsible for the production of the UKprogramme and currently intends to retain the existing production team of theshow going forward. Paul Smith, founder and a creator of WWTBAM, has also agreedto stay as executive producer of the UK show and as a consultant to the EnlargedGroup for an initial period of 12 months. In addition Chris Tarrant iscontracted to host the UK show until 2008 under the current ITV contract. WWTBAM music rightsAdditional revenues are received through music royalty income for pieces ofincidental music used on programmes that are broadcast including music for eachpiece of title and incidental music, ''fastest finger first'' and ''phone afriend''. Further music royalty income is derived from the use of WWTBAM musicin ancillary products such as DVDs, PC and mobile games and other consumerproducts and tie-ins. Ancillary incomeThe Target Group owns the ancillary rights to WWTBAM worldwide. Ancillary rightsinclude consumer products, such as board games, PC/console games, quiz books,promotions/tie-ins and interactive applications, such as the award winninginteractive DVD game, ''The Walkaway Game'', internet games, SMS and WAPapplications, a wireless i-Mode game and Java game. During the development ofthe WWTBAM interactive products particular care has been taken to help protectthe perceived quality and longevity of the WWTBAM brand. Consumer productlicensing generated gross revenue of £1.4 million and £0.5 million in the yearended 30 September 2005 and 9 months ended 30 June 2006 respectively.Interactive licensing generated gross revenue of £4.1 million and £4.0 millionin the year ended 30 September 2005 and 9 months ended 30 June 2006respectively. In North America all ancillary rights (other than the rights to board games)have been exclusively granted to ABC/BVT, subject to a revenue sharing agreementwith CPL which will be novated to CIL prior to Admission. The Target Group is currently involved in litigation with ABC/BVT in relation tohistoric revenues generated by WWTBAM in North America further details of whichare set out in the Admission Document. CILCIL owns or controls under license a catalogue of approximately 30 televisionformats such as ''You are What You Eat'', ''The Big Call'', ''Brainiest'', ''Mr& Mrs'', ''Turn Back Your Body Clock'', ''Talking Telephone Numbers'', ''Hold OnTo That Million'', ''The People Versus'' and ''Winning Lines''. The Directorsbelieve there is scope for greater exploitation of these formats with theaddition, where appropriate, of interactivity going forward. CIL has an international format sales and licensing division which is currentlyresponsible for the international commercial success of the licensing,production and exploitation activities of the Target Group's formats, includingWWTBAM. This division provides international production support, legal andfinancial expertise to companies within the Target Group. Following theAcquisition, this division will form the nucleus for the Enlarged Group's UKoperations and will also be responsible for the licensing of WWTBAM worldwide.It is expected that a new managing director of the international licensingoperation will start to work for the Enlarged Group in mid 2007, based inHolland. Background to and reasons for the Acquisition 2waytraffic was floated on AIM on 7 April 2006. The Company's strategy was togrow the business organically through the creation of a compelling contentcatalogue, through selective acquisitions and by playing an active role in theconsolidation of the sector. The Directors also stated at that time that theywould seek to acquire new or existing formats (e.g. game shows) which representa significant additional interactive opportunity for 2waytraffic and which theDirectors believe can be redeveloped for the modern interactive broadcastingenvironment. The Directors believe that WWTBAM represents an excellent fit with the abovementioned strategy as it is one of a limited number of truly international gameshow formats that, in the Directors' opinion, has the potential for furthersubstantial interactive and ancillary exploitation and revitalisation.2waytraffic expects to be able to apply its international multi platformexpertise and knowledge base to generate further revenues from WWTBAM and moregenerally from the other formats that are owned or licensed by the Target Groupsuch as ''You Are What You Eat'', ''Brainiest'' and ''Mr & Mrs''. The Directors believe the Acquisition will also provide further opportunitiesfor 2waytraffic to leverage its existing business, through further interactionwith over 30 Broadcasters in markets including the US, Europe, Australia andSouth East Asia. Under the terms of the Share Purchase Agreement, the Company has conditionallyagreed to acquire the entire issued share capital of the Target Group, whichowns amongst others, (i) the WWTBAM rights, including the creative rights of theoriginal concept and format, (ii) the majority of the exploitation rights basedon the WWTBAM format (such as broadcast, production and ancillary rights (otherthan in the US where these rights (other than the rights to board games) are defacto assigned to ABC) and (iii) all materials and know how of the businesscomprising WWTBAM (including music, questions, logos, lighting, graphics gamesoftware and set design), other than in the US where these rights are de factoassigned to ABC. The Share Purchase Agreement is conditional upon; inter alia;(i) the passing of the Resolutions, (ii) the Placing Agreement becomingunconditional in all respects (other than any condition relating to Admission)and not being terminated in accordance with its terms, and (iii) Admission. TheInitial Consideration Shares to be issued to certain of the Vendors willrepresent approximately 3.8 per cent. of the Enlarged Share Capital and, upontheir allotment, will rank pari passu in all respects with the Existing OrdinaryShares and the Placing Shares. Summary of Unaudited Financial Information relating to the Acquisition Set out below is the summary of unaudited financial information relating tocertain rights and assets being acquired under the Acquisition for the threeyears ended 30 September 2005 and the nine months ended 30 June 2006. Theunaudited financial information included below has been extracted frommanagement information provided by the Vendors. Year ended Year ended Year ended Nine months 30 September 30 September 30 September ended 30 June 2003 2004 2005 2006 £'000 £'000 £'000 £'000 (uaudited) (uaudited) (uaudited) (uaudited)RevenueWWTBAM 28,435 22,536 23,705 20,104Non-WWTBAMrevenue 932 2,072 2,806 1,883 --------- -------- -------- ---------Revenue -ongoingoperations 29,367 24,608 26,511 21,987Revenue -operations tobediscontinued 14,371 8,631 8,210 7,244 --------- -------- -------- ---------Total revenue 43,738 33,239 34,721 29,231 ========= ======== ======== ========= Cost of sales --------- -------- -------- ---------WWTBAM cost ofsales beforecreatorroyalties andone off items (8,598) (5,789) (7,748) (5,516)Creatorroyalties (3) (4,162) (2,638) (3,175) (3,389) --------- -------- -------- ---------WWTBAM cost ofsales beforeone-off items (12,760) (8,427) (10,923) (8,905)Non-WWTBAMcost of salesbeforeone-items (80) (1,291) (2,756) (1,921)One-off items(1) (2,330) (3,379) (4,665) - --------- -------- -------- ---------Cost of sales- ongoingoperations (15,170) (13,097) (18,344) (10,826)Cost of sales- operationsto bediscontinued (13,527) (7,106) (6,813) (7,744) --------- -------- -------- ---------Total cost ofsales (28,697) (20,203) (25,157) (18,570) ========= ======== ======== ========= Gross profit --------- -------- -------- ---------WWTBAM grossprofit beforecreatorroyalties andone-off items 19,837 16,747 15,957 14,588Creatorroyalties (3) (4,162) (2,638) (3,175) (3,389) --------- -------- -------- ---------WWTBAM grossprofit beforeone-off items 15,675 14,109 12,782 11,199Non-WWTBAMgross profitbefore one-offitems 852 781 50 (38)One-off items(1) (2,330) (3,379) (4,665) - --------- -------- -------- ---------Gross profit -ongoingoperations 14,197 11,511 8,167 11,161Gross profit -operations tobediscontinued 844 1,525 1,397 (500) --------- -------- -------- ---------Total grossprofit 15,041 13,036 9,564 10,661 ========= ======== ======== ========= Other operating expenses before depreciation andamortisationOngoingoperations -adjusted (2) (5,232) (4,057) (5,582) (3,234)Operations tobediscontinued -adjusted (2) (2,947) (4,143) (3,561) (4,344) --------- -------- -------- --------- (8,179) (8,200) (9,143) (7,578)Depreciationandamortisation (555) (296) (359) (322) --------- -------- -------- ---------Total otheroperatingexpenses (net) (8,734) (8,496) (9,502) (7,900) ========= ======== ======== ========= AdjustedEBITDA beforecreatorroyalties andone-off costsfor ongoingoperations 15,457 13,471 10,425 11,316One-off items(1) (2,330) (3,379) (4,665) - --------- -------- -------- ---------AdjustedEBITDA beforecreatorroyalties forongoingoperations 13,127 10,092 5,760 11,316 ========= ======== ======== ========= Notes:(1) One-off items included in the year ended 30 September 2003 principallyrelate to legal settlement costs of £1.0 million, settlement of licensee auditsof £0.7 million and new format development costs of £0.6 million. One-off itemsincluded in the year ended 30 September 2004 principally relate to legalsettlement costs of £4.0 million and a settlement of licensee audit credit of£0.6 million. One-off items included in the year ended 30 September 2005principally relate to the losses incurred from a one-off international footballrelated event of £1.8 million, losses incurred on the WWTBAM theatre tour of£1.7 million, the impairment charge for formats of £1.1 million, new formatdevelopment costs of £0.3 million, legal settlement costs of £0.2 million and asettlement of licensee audit credit of £0.5 million.(2) Charges for employee phantom share options schemes of £0.3 million, £0.3million a credit of £0.4 million in each of the financial years ending 30September 2003, 2004 and 2005 and £1.3 million in the 9 months to 30 June 2006are included in operations to be discontinued.(3) Creator royalties have historically been paid to Knight WhitehillProductions Limited and The River Studio Limited which form part of the TargetGroup. These payments will cease on Completion. Enlarged Group Strategy The acquisition of the Target Group represents a significant step in theCompany's strategy of becoming a leading international interactive entertainmentcompany. The WWTBAM format will represent a key format within the EnlargedGroup's content library and will provide access to a large number of additionalBroadcasters globally to whom further formats may be sold. The Target Group willalso provide the Company with a UK footprint from which the Enlarged Group canmaximise its sales efforts in the important UK media market. The Company has spent a significant amount of time with the key personnel withinthe Target Group and has developed a detailed integration plan in order tomaximise the future potential of the Enlarged Group. As part of the integrationprocess, Malcolm Gardner, previously a proposed Non-Executive Director of theCompany, has been asked to become an executive member of the management teamspecifically tasked to lead the integration of the Target Group with2waytraffic. Together with the existing management's considerable experience inmanaging successful global formats, the Directors are confident that they willbe able to successfully execute the Enlarged Group's strategy going forward. Financing the Acquisition The initial consideration payable under the Acquisition of £106 million is to befinanced through a new bank facility of £60 million provided by RBS, £10 millionof existing cash resources, £6 million of Ordinary Shares and the balance incash to be raised through the placing of the Placing Shares with institutionalshareholders, certain of the Directors (being Kees Abrahams, Unico Glorie andJeroen Tielens) and four other employees. The intention is to fund the NAVAdjustment and Pass Through Payment from Target Group resources. As part of thenew banking facilities being used to finance the Acquisition, the Company willalso have access to additional working capital facilities of up to £10 million. Details of the Placing In order to finance part of the cash consideration due under the Acquisition,Investec, on behalf of the Company, has conditionally placed a total of31,147,540 Placing Shares with institutional and certain other investors at thePlacing Price to raise £38 million (before expenses of approximately £7million). The Placing Shares will represent approximately 23.9 per cent. of theEnlarged Share Capital. The Placing is being fully underwritten by Investec. Application has been made for the entire Enlarged Ordinary Share Capital of theCompany including the Placing Shares to be admitted to trading on AIM. ThePlacing Shares have not been marketed in whole or in part to the public inconjunction with the application for Admission. No current Shareholder will sellOrdinary Shares as part of the Placing. The Placing Shares will, when issued andfully paid, rank pari passu in all respects with the Existing Ordinary Sharesand will rank in full for all dividends and other distributions declared, madeor paid thereafter on the issued share capital of the Company. The Directors (and certain of their connected persons and companies) have agreedto subscribe for an aggregate of 3,547,153 Placing Shares, representingapproximately 2.7 per cent. of the Enlarged Share Capital. The Placing isconditional upon, inter alia, the passing of the Resolutions, and on Admissiontaking place on or about 20 December 2006, or such later date as Investec andthe Company may agree, not being later than 15 January 2007. It is expected thatAdmission will become effective and that dealings in the Enlarged Share Capitalwill commence on 20 December 2006. Lock-in Arrangements The Vendors have entered into an agreement with 2waytraffic and Investec not todispose of the Initial Consideration Shares they will receive pursuant to theAcquisition before 30 September 2007 or if earlier seven days following thepublication of the Company's interim results for the half year ending 30 June2007, except in certain limited circumstances. In addition, the Vendors haveagreed with 2waytraffic and Investec not to dispose of the Initial ConsiderationShares for a further twelve month period except through the Company's nominatedbroker. The Vendors have also agreed with 2waytraffic and Investec not todispose of the Consideration Shares issued in satisfaction of the Earn OutConsideration for a twelve month period following their issue except through theCompany's nominated broker. On Flotation, each of the Directors, the Major Shareholder and Grupo ContenidosB.V. gave undertakings to Investec and the Company, that they, and theirconnected parties, would not, save in certain specified circumstances, seek tosell, transfer or otherwise dispose of any Ordinary Shares they hold without theprior written approval of Investec, for 12 months from 7 April 2006. Each of theDirectors and the Major Shareholder also gave undertakings to Investec and theCompany to abide by certain orderly marketing arrangements for a further 12months following expiry of the lock-in arrangements referred to above. Save withrespect to the ability of each of the Directors, the Major Shareholder and GrupoContenidos B.V. to charge their Ordinary Shares as security for third partyborrowing, these lock-in arrangements will effectively remain in place and beextended to 30 June 2007 following the Enlarged Ordinary Share Capital'sadmission to AIM and will also include any additional shares acquired pursuantto the Placing. Following Admission, the Directors and the Major Shareholderwill be interested, in aggregate, in 74,300,083 Ordinary Shares representingapproximately 57.0 per cent. of the Enlarged Ordinary Share Capital. The MajorShareholder, who holds 27.0 per cent. of the Enlarged Ordinary Share Capital,has entered into a relationship agreement with the Company on 31 March 2006 toregulate its dealings with the Company further. Current Trading and Prospects of the Enlarged Group Current Trading - 2waytrafficDuring the six months ending on 30 June 2006 2waytraffic achieved severalsignificant milestones and begun to deliver on the strategy set out at the timeof the Flotation. As previously announced, the composition of gross profit andEBITDA differs compared to budget, however the net profitability of the ExistingGroup was for that period in line with the Directors' projections. Good progresswas made across all three divisions and the acquisitions of Emexus in June 2006and Intellygents in August 2006, have strengthened the Company's productoffering and geographical reach. It is expected that the number of hours thatthe Company's formats are broadcast will continue to rise as existingBroadcasters request further content and new Broadcasters generate furtherdemand. For example, TV Denmark has requested substantial additionalparticipation TV hours effective from January 2007. Intellygents has launchedits prime time game show ''Take it or Leave it'' in Q4 2006 in the UK andGreece. ''That's the Question'' has been sold to, and broadcasting has begun byGSN USA, TVP in Poland, Challenge in the U.K. (not yet broadcast) and is underoption in Spain and Belgium. ''Blank Cheque'' has been piloted in the UK as partof a new daytime show for ITV and has received considerable interest fromseveral Broadcasters in The Netherlands and Germany. The mobile business is expected to continue its progression, as evidenced by therecent growth of the number of subscribers primarily generated as a result ofincreased media buying. However, there are early signs of airtime availabilityreducing and therefore airtime increasingly becoming more expensive. Analternative for broadcasting commercials on television is currently beinginvestigated including the potential to advertise on the internet. Emexus hascontinued to grow its customer base by signing contracts in Australia, Canadaand Malaysia. Despite the considerable management time spent on the proposed acquisition ofthe Target Group, in the second half of 2006 the Existing Group continues totrade in line with the Directors' expectations. The Directors are thereforeconfident about the outlook for the full year to 31 December 2006, although thisrequires the recognition of revenue from two significant contracts signed in thefourth quarter of 2006. The outlook for 2007 is encouraging with several recent significant contractwins. Furthermore, the Existing Group's prospect list of potential new businessfor 2007 is strong and the Directors believe it will continue to grow in linewith market expectations as 2waytraffic expands its format catalogue and extendsits global footprint. CCCL Group - Nine months ended 30 June 2006Revenues in relation to WWTBAM for the nine month period to 30 June 2006 of£20.1 million exceed CCCL Group management's expectations in respect of formatsales and interactive revenues. Format sales have increased as a result ofprogramme production in excess of contractual agreement whilst interactiverevenue increases can be attributed to DVD sales in the UK, Germany andAustralia. Gross margin for the nine month period to 30 June 2006 is aboveVendors expectations due to changes in the sales mix. Non-WWTBAM format licensing sales in the nine month period to 30 June 2006 of£1.9 million are behind Vendors expectations reflecting the under performance inthe recently developed formats, including ''You Are What You Eat'' and ''The BigCall.'' WWTBAM - Current TradingWith respect to format sales, in addition to several contract renewals, WWTBAMhas recently been re-licensed to the leading Broadcaster Star in India for afurther five years. ITV has signed a contract for two years until 2008. ''TheWalkaway Game'' has been extended with ITV and a further roll out is expectedwith other Broadcasters. The Target Group has received interest from several international broadcastpartners, including broadcasters in the UK and Australia, for a furtherextension of the interactive activities based on WWTBAM. Trading beyond 30 June2006 is in line with Vendor expectations. Enlarged Group ProspectsThe Directors believe that the Enlarged Group will be well positioned to takeadvantage of the increasing demand for high quality television formats andincreasing broadcaster interest in alternative revenue streams. The Directorsalso expect that the Enlarged Group will benefit from the scale, leverage andinternational coverage which the combination of the Existing Group and theTarget Group will bring. Notwithstanding that in recent years WWTBAM has beendeclining in terms of revenue and geographical reach, the Directors believethere is a significant opportunity to further exploit the WWTBAM formatinternationally across Participation TV, mobile content and prime time formatsales and that the entrepreneurial, specialist interactive and internationalskills and experience of 2waytraffic will assist in exploiting this opportunity. The Directors view performance of the Enlarged Group in the current year and thefuture with confidence and believe that 2waytraffic is well positioned tocontinue its development and become an established, successful and respectedinternational operator. Following Completion, the Directors are confident thatthey can create value for shareholders of the Enlarged Group. Related Party transactions Unrelated to the proposed transaction set out above, the Company has enteredinto a co-operation agreement with a group of companies and their shareholdersand directors (including Henk Keilman and including companies relating to MrKeilman, collectively known as ''EMC'') in relation to the joint development ofproducts involving the use of sports content owned by EMC including ''ShapeDVDs'' which contain contents relating to sport and entertainment celebrities.The agreement was entered into on 2 October 2006 and, pursuant to its terms, theCompany paid EMC €1,000,000 as an unsecured loan bearing annual interest of 5per cent. The Company has not provided any further investment and EMC hasguaranteed that the loan will be repaid by 30 June 2007. The Directors (excluding Mr Keilman), having consulted with Investec, considerthe terms of the transaction to be fair and reasonable in so far as shareholdersare concerned. Admission to AIM and Dealings The proposed Acquisition will constitute a reverse take-over under the AIM Rulesand is therefore also conditional upon the approval of Shareholders being givenat the Extraordinary General Meeting, details of which are set out below.Irrevocable undertakings have been received from Shareholders representingapproximately 75 per cent. of the Existing Issued Share Capital of the Companyto vote in favour of the Resolutions. Application will be made for the EnlargedShare Capital to be admitted to trading on AIM and it is anticipated thatAdmission will become effective and that trading in the Ordinary Shares on AIMwill commence on 20 December 2006. The Company has established a depository facility with the Depository wherebyDepository Interests, representing the Ordinary Shares, will be issued topersons who wish to hold Ordinary Shares in electronic form in CREST. DepositoryInterests have been constituted because the Company is registered in TheNetherlands and electronic settlement of securities through CREST is onlypermitted in respect of securities issued by companies incorporated in the UK. The Company will apply for the Depository Interests to be admitted to CREST witheffect from Admission. Accordingly, settlement of transactions in Depositary Interests followingAdmission may take place within CREST, if the relevant persons so wish.Depository Interests will have the same international security identificationnumber (ISIN) as the underlying Ordinary Shares and will not require a separateapplication for admission to trading on AIM. The ISIN number of the OrdinaryShares is NL0000181469. CREST is a computerised securities transfer and settlement system in the UK. Thesystem allows shares and other securities to be held in electronic form ratherthan paper form, although a shareholder can continue to hold and transferOrdinary Shares without using CREST by execution of deeds of Dutch (notorial)transfer and compliance with other formalities required by Dutch law. For moreinformation concerning CREST, Shareholders should contact their brokers orCRESTCo at 33 Cannon Street, London EC4M 5SB. Trading in Depository Interests will require Shareholders to deal through astockbroker or other intermediary who is a member of CREST. Shareholders shouldensure that their stockbroker is either a member of the London Stock Exchange orhas in place arrangements allowing them to effect trades on AIM or (in the caseof Depositary Interests) CREST. It should be noted that if at any time a CREST member requires any furtherinformation regarding the depository arrangements and the holding of OrdinaryShares in the form of DIs or wishes to withdraw its Depository Interests fromCREST and hold Ordinary Shares in dematerialised registered form, they shouldcontact the Depository for further information and in order to comply withprocedural and Dutch law requirements relating to such transfer or withdrawal. Extraordinary General Meeting In view of the size of the Acquisition and in order to implement the Placing andthe issue of the Consideration Shares, it will be necessary for the Shareholdersof 2waytraffic to approve the passing of the Resolutions set out below. An Extraordinary General Meeting, to be held at the offices of DLA PiperNederland N.V., Amstelveenseweg 638, 1081 JJ, Amsterdam, has been convened for10.00 a.m. GMT (11.00 a.m. CET) on 18 December 2006 for this purpose. A Form ofProxy to be used in connection with the Extraordinary General Meeting will besent to Shareholders with the Admission Document.. At the Extraordinary General Meeting, ordinary resolutions will be proposed to:(a) approve the Acquisition on the terms and conditions set out in the ShareSale Agreement; (b) authorise the Directors to allot and issue the Placing Shares and theConsideration Shares on a non-preemptive basis; (c) authorise the Directors to issue 12,471,387 Ordinary Shares of which1,870,563 Ordinary Shares may be on a pre-emptive basis; (d) resolve to appoint Malcolm Gardner as an Executive Director of theCompany; (e) resolve to change the name of the Company to ''2waytraffic N.V.'' andthe change of the statutory seat of the Company to Hilversum by the adoption ofnew articles of association; and (f) to authorise each lawyer and notorial employee at DLA Piper NederlandN.V. to apply for the Declaration of No-Objections to the Ministry of Justiceand to execute the notorial deed of amendment required to effect the adoption ofthe new articles of association referred to in (e) above. Recommendation The Directors believe that the terms of the Acquisition are fair and reasonableand are in the best interests of the Company and Shareholders as a whole.Accordingly, the Directors recommend that you vote in favour of the Resolutionsas they intend to do in respect of their own aggregate shareholdings of70,752,930 Ordinary Shares, representing approximately 75 per cent. of theexisting issued ordinary share capital of the Company. The definitions set out below have the following meanings, unless the contextrequires otherwise. "Acquisition" the proposed acquisition by 2waytraffic of the entire issued share capital of the Target Group "Admission" the re-admission of the Existing Ordinary Shares and the admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules "AIM" the AIM market operated by the London Stock Exchange "AIM Rules" the rules and guidance notes contained in Parts One and Two respectively of the booklet entitled "AIM RULES FOR COMPANIES" published by the London Stock Exchange governing the admission of securities to trading on, and the operation of, AIM "Articles of the articles of association of the CompanyAssociation" or"Articles" "Audit Committee" the audit committee duly appointed by the Board "Board" or the board of directors of the Company"Directors" "CCCL" Complete Communications Corporation Limited "CCCL Group" CCCL and all subsidiary undertakings which includes various subsidiaries not being acquired by the Company as part of the Acquisition ""certificated" or in relation to a share or other security, a share or other "uncertificated security title to which is recorded in the relevant registerform" of the share or other security as being held in certificated form (that is not in CREST) "CET" Central European Time "CIL" Celador International Limited, a wholly owned subsidiary of CCCL "Company" or 2 Way Traffic N.V. a company incorporated and registered in "2waytraffic" The Netherlands with the Dutch Chamber of Commerce with registered number 32099652, also acting under the trade name "2waytraffic" "Completion" completion of the Share Purchase Agreement "Completion Date" the date on which Completion occurs "Consideration the Ordinary Shares to be issued to the Vendors pursuant toShares" the Share Purchase Agreement, including the Initial Consideration "CPL" Celador Productions Limited, a subsidiary of the CCCL Group (and not part of Target Group)"CREST" the relevant system (as defined in the CREST Regulations) for paperless settlement of share transfers and the holding of shares in uncertificated form which is administered by CRESTCo "CRESTCo" CRESTCo Limited, the operator (as defined in the Regulations) of CREST "CREST the Uncertificated Securities Regulations 2001 (SI 2001 NoRegulations" 3755) "dealing day" a day on which the London Stock Exchange is open for trading "DCC" Dutch Civil Code "Depository" Computershare Investor Services plc, whose registered office is at The Pavillions, Bridgwater Road, Bristol, BS13 8AE "Depository a dematerialised depository interest which represents anInterests" or entitlement to Ordinary Shares"DIs" "Dutch Corporate the Dutch Corporate Governance Code published by theGovernance Code" Committee "Tabaksblat" on 9 December "Earn Out earnout consideration due in respect of CILConsideration" "Enlarged Group" 2waytraffic and its subsidiaries following Completion or any one or more of them as the context may require "Enlarged Ordinary the issued share capital of 2waytraffic as it will beShare capital" or following the issue of the New Ordinary Shares"Enlarged ShareCapital" "EU" European Union "Executive Kees Abrahams, Unico Glorie, Taco Ketelaar, Jeroen TielensDirectors" and Malcolm Gardner (who is proposed to be appointed prior to Admission subject to the shareholder approval at the EGM) "Existing Group" the Company and its affiliates and subsidiaries as at today's date "Existing Ordinary the 94,330,590 Ordinary Shares in the capital of the CompanyShares" in issue at present "Extraordinary the Extraordinary General Meeting of 2waytraffic convenedGeneral Meeting" or for 10 a.m. GMT (11a.m. CET) on 18 December 2006 to vote on "EGM" Resolutions and any adjournment thereof "Flotation" the admission to trading of the Company's Ordinary Shares on AIM on 7 April 2006 "Form of Proxy" the form of proxy for use by Shareholders in connection with the EGM "FSA" the United Kingdom Financial Services Authority "General Meeting" the general meeting of shareholders of the Company "GMT" Greenwich Mean Time "Initial the consideration to be paid on CompletionConsideration" "Initial the 4,918,033 Ordinary Shares to be issued to the Vendors atConsideration Completion pursuant to the Share Purchase AgreementShares" "Investec" Investec Bank (UK) Limited and its divisions Investec Investment Banking and Investec Securities, as the context requires "InvestinMedia" InvestinMedia PLC, a company quoted on AIM and a shareholder in the Target Group "IPO Admission the Admission Document dated 3 April 2006, prepared inDocument" connection with the Flotation "London Stock London Stock Exchange plcExchange" "Major Atharva Investments II B.V., an associate of Henk Keilman, aShareholder" Non-Executive Director of the Company "NAV Adjustments" potential payments due under the SPA "New Ordinary The 36,065,573 Ordinary Shares, comprising of the PlacingShares" Shares and the Initial Consideration Shares "Non-Executive Henk Keilman and Chris PyeDirectors" "North America" The United States of America, its territories and possessions, Puerto Rico, Saipan, Bermuda, Canada and Mexico "Official List" the Official List of the UKLA "Ordinary Shares" the ordinary shares with a nominal value of €0.01 each in the share capital of the Company "Pass Through the sum (if any) payable by reference to the net cash amountPayment" arising as a result of settlement payments made to CIL in respect of the ABC litigation "Placing" the conditional placing of the Placing Shares by Investec at the Placing Price pursuant to the Placing Agreement "Placing the conditional agreement dated 1 December 2006 between (1)Agreement" the Company, (2) Investec, (3) the Directors and (4) Grupo Contenidos B.V. relating to the Placing "Placing Price" 122 pence per Placing Share "Placing Shares" the 31,147,540 Ordinary Shares to be issued in connection with the Placing "Prospectus the prospectus rules published by the FSARules" "RBS" The Royal Bank of Scotland, debt provider to the Acquisition "Registrars" Computershare Investor Services (Channel Islands) Limited"Remuneration the remuneration committee of the Company duly appointed by Committee" the Board "Resolutions" the resolutions to be proposed at the EGM (and set out in the notice of EGM at the end of this document) "Share Purchase the share purchase agreement dated 1 December 2006 betweenAgreement" or the Company and the Vendors pursuant to which, conditional,"SPA" inter alia, upon the passing of the Resolutions, 2waytraffic has agreed to acquire and the Vendors have agreed to sell the entire issued share capitals of each of CCCL, Knight Whitehill Productions Limited and The River Studio Limited "Shareholder" or holders of Ordinary Shares"OrdinaryShareholder" "Target Group" CCCL, (together with its wholly owned subsidiaries, CIL and Who Wants To Be A Millionaire? Limited), Knight Whitehill Productions Limited and The River Studio Limited "the Stichting" Stichting Way 2 Dream "The Netherlands" the Kingdom of The Netherlands "UK" or "United the United Kingdom of Great Britain and Northern IrelandKingdom" "UKLA" or "UK the FSA, acting in its capacity as the competent authorityListing for the purposes of Part VI of the Financial Services andAuthority" Markets Act 2000 (as amended) "Uncertificated" or a share or other security title to which it is recorded on"in uncertificated the relevant register of the share or security concerned asform " being held in uncertificated form in CREST, and title to which may be transferred by means of CREST "US", "USA" or the United States of America, its territories and"United States" possessions, any state of the United States of America and the District of Columbia and all other areas subject to its jurisdiction "US dollars" or the basic monetary units of currency in the US"$" "Vendors" the shareholders of CCCL, Knight Whitehill Productions Limited and The River Studio Limited "£", "Pounds the basic monetary unites of currency in the UKSterling", "p" or"pence" "•", "EUR" or the lawful currency of the member States of the European"Euro" Union that adopt single currency in accordance with the Treaty establishing the European Community, as amended by the Treaty on the European Union This information is provided by RNS The company news service from the London Stock Exchange