FST.L Regulatory News (FST)

Toumaz Limited

Acquisition of Frontier Silicon and Placing

Toumaz Limited (AIM: TMZ, 'Toumaz, or 'the Group'), a pioneer in and provider of ultra-low power, high-performance wireless communications technologies and solutions, has agreed to acquire Frontier Silicon (Holdings) Limited ('Frontier'), a leading supplier of semiconductor, module and software solutions for digital radio and connected audio systems, for a maximum consideration of up to £32.3m ('Acquisition').

The Group also announces the conditional placing ('Placing') of 285.6m new Ordinary Shares ('Placing Shares') at a placing price of 10.25 pence, raising £29.25m before expenses. The Placing Shares have been placed at a premium by finnCap with both new and existing institutional investors.

Highlights

·; Consideration

o Initial consideration of £27.06m in cash, of which £2.4m will be settled in New Ordinary Shares

o Deferred consideration up to £5.2m will be paid, dependent on the performance of the Enlarged Group, in cash and shares

·; Frontier is a market leading supplier of digital audio chips and modules to global consumer electronic brands

o £22m+ revenue base and historically strong product margins

o Brings important electronic engineering resource, with R&D centres in the UK, Hong Kong and China

·; Strong technological alignment of Toumaz's healthcare, radio and wireless chip technologies and Frontier's expertise in semiconductor, module and software systems, creates a genuine total solution provider

·; Opportunity for Toumaz to exploit Frontier's established tier one customer base, including Bang & Olufsen, Bose, JVC, Panasonic, Philips, Pure, LG, Roberts Radio and Sony

·; Combines Toumaz's proven and internationally approved technology with Frontier's advanced product offering, along with its marketing and commercial expertise

Anthony Sethill, CEO of Toumaz, commented:

"This acquisition is consistent with our strategy for providing ultra-low power, high performance wireless communications across the healthcare, fitness and consumer electronics markets.

"Bringing these two innovative UK technology companies will enable the enlarged Group to exploit the strengths and opportunities of both businesses. Our wireless solutions have huge potential and combined with the software systems, commercial expertise and tier one customer access of Frontier, will create a significant total solution provider for the wireless communications market.

"This acquisition will also enable us to strengthen our commercial presence and provides us with essential engineering and R&D resource, allowing Toumaz to accelerate its profitable expansion towards becoming the global leader in complete wireless platforms."

There will be an analyst conference call at 08.30am; please contact Lucy Moseley at College Hill on +44 (0)20 7457 2040 for details.

A circular detailing the Placing and the Acquisition ('Circular') is to be sent to Shareholders today convening an EGM to be held at the offices of finnCap on 20 July 2012.

Enquiries:

About Toumaz - (www.Toumaz.com)

Toumaz is pioneering ultra-low power, high-performance wireless communications technologies and solutions for a wide range of markets including medical monitoring and internet-connected consumer devices.

The Group has two businesses; Toumaz Healthcare covering health technology solutions, and Toumaz Microsystems covering the design and development of semiconductor chips and solutions for low power and high-performance wireless communication.

Toumaz Healthcare provides wireless healthcare monitoring solutions for the hospital and home health markets. Toumaz's licensable smart sensor interface and transceiver platform, Sensium, is a leader in real-time wireless monitoring of the body's vital signs. Sensium has the potential to transform medical monitoring and reduce the cost of healthcare by wirelessly connecting individuals to healthcare providers - simply, affordably and unobtrusively. For healthcare professionals, this creates new opportunities for pro-active monitoring and improved quality of care. For patients, it delivers new opportunities for lifestyle-compatible personalised healthcare.

Toumaz Microsystems designs, develops and sells low-power and high performance semiconductor chips and solutions for the growing embedded wireless connectivity market, addressing opportunities in a wide range of internet connected devices. These include home and enterprise automation, healthcare, smart power, security/monitoring systems, intelligent toys and other connectivity-centric cloud-enabled systems. Its key product, Telran, the world's lowest power radio system-on-chip forms the basis for Toumaz UK's Sensium platform.

Toumaz is an AIM listed company (AIM: TMZ) with development centres in Abingdon, UK and Taipei City, Taiwan.

Acquisition of Frontier Silicon (Holdings) Limited

Proposed Placing of 285,365,857 New Ordinary Shares in aggregate at 10.25 pence per share

Notice of Extraordinary General Meeting

1. Introduction

The Company today announces that it has entered into a conditional agreement to acquire the entire issued and to be issued share capital of Frontier for an initial consideration of £27,057,965. The Directors believe that the strengths of Frontier, as one of the world's leading suppliers of semiconductor, module and software solutions for digital radio and network audio systems, with an established sales channel, complements the technological innovations developed by Toumaz Microsystems. Further details of the Acquisition are set out below.

The consideration for the Acquisition comprises of an upfront payment of £27,057,965 with further contingent payments of up to £5,191,522 if certain performance targets are met. It is proposed that the initial sum is to be funded through a placing of 285,365,857 Placing Shares to raise, in aggregate, £29.25 million (before expenses). In addition, Imagination Technologies, which is currently interested in 11.3 per cent. of Toumaz and 8.5 per cent. of Frontier (after the exercise of options and warrants held by employees and others as outlined below) has elected to have sums payable to it in respect of its holding to be settled by way of the issue of Consideration Shares. As set out below, the issue of Consideration Shares and the Subscription Shares to Imagination Technologies constitute related party transaction under the AIM Rules.

The Company is seeking the authority of Shareholders to dis-apply pre-emption rights in relation to the allotment of the Placing Shares. Accordingly, the Company is convening the EGM to approve the Placing. The Resolution to be proposed at the EGM is set out in the Notice of EGM at the end of the Circular.

The Proposals are conditional on, inter alia, the passing of the Resolution to be proposed at the EGM.

The purpose of this letter is to outline the reasons for the Proposals, and explain why the Board considers the Resolution to be in the best interests of the Company and the Shareholders as a whole and why the Independent Directors recommend that you vote in favour of the Resolution, as they intend to do in respect of the 39,461,463 Ordinary Shares held by them (representing 4.84 per cent. of the Existing Shares).

2. Information on Frontier and rationale for the Acquisition

Frontier is a privately-owned, multinational fabless semiconductor company with around 120 staff based across Frontier's offices in the United Kingdom, Europe, and Asia. A significant supplier to the DAB/DAB+ market, and a leader in Internet-connected and streaming audio, the business has a mature product offering and established sales channel. Frontier's customers include a range of consumer related electronics brands including Bang & Olufsen, Bose, Denon, LG, Panasonic, Phillips, Pioneer, PURE, Sony and Yamaha. Prior to his appointment as chief executive of the Company, Anthony Sethill founded and acted as Frontier's chief executive officer for 10 years.

Frontier has achieved revenues in excess of £22 million in each of the last three financial years, of which approximately three-quarters were from the same ten customers in both the financial years ended 31 December 2010 and 2011. Unit sales volumes have increased year-on-year during both of these last two financial years but as the Company's products and addressable market have matured, the business has met with the challenge of increasing pressures on its trading margins which have historically been, in the view of the Independent Directors, above industry norms. Notwithstanding such pressures, Frontier recorded a profit after tax of £2.3 million in the year ended 31 December 2010 although continuing in investing in research and certain one-off expenditure contributed to a loss investment of £0.8 million for the year ended 31 December 2011.

At 31 December 2011, Frontier had net assets of £12.9 million, including a cash balance of £14.3 million, and had issued loan notes amounting to £5.2 million which are proposed to be repaid by Frontier on completion of the Acquisition from Frontier's cash resources which as at 30 June 2012 stood at £10.85 million. It is expected that Frontier will have net current assets of at least £9.7 million at 30 June 2012, and these funds will, in part, be available to fund the working capital needs of the Enlarged Group and add to the existing resources of the Company.

The Independent Directors see compelling synergies in combining Frontier, a proven and mature business in a complementary market sector, with Toumaz Microsystems, which is targeting exciting applications for its low-power wireless connectivity technology. Furthermore, the Independent Directors believe that combining the technology being developed by Toumaz and Frontier into innovative new products is the key to accessing new markets and addressing the opportunities and challenges facing both businesses.

With combined revenues in excess of £25 million (based on unaudited financial information for the year ended 31 December 2011), the Enlarged Group will have a strong presence in digital radio with an established client base and a proven sales force, combined with the potential inherent in the technologies being developed by both companies.

Furthermore, the Independent Directors expect that costs within the Enlarged Group can be rationalised by eliminating the existing geographical and operating overlaps of the two groups. It is expected that the Enlarged Group will benefit from both Frontier and Toumaz sharing long-standing strategic and financial partnerships with Imagination Technologies. For example, a proportion of the intellectual property deployed in Frontier's products is done so under licences from Imagination Technologies.

Going forward, the Independent Directors expect that Frontier's resources, customer base and experience can be leveraged in the rollout of the Enlarged Group's product offerings in a number of exciting markets. Growth is foreseen in the Enlarged Group's existing digital radio segment, where independent research as analysed by the Board forecasts that by 2015 over 15 million DAB units will be sold per year as compared to 8 million in 2012. Secondly, the Independent Directors see potential in other exciting areas. For example, according to independent research the network audio market is forecast to grow from approximately 10 million units sold in 2011 to 60 million in 2015 whilst the number of health monitoring and fitness monitoring units is forecast to grow by at least a third in the period to 2015, an area in which the Independent Directors believe Toumaz Microsystems' expertise in the healthcare monitoring segment can be adapted and deployed

The Independent Directors believe that the Acquisition represents an exciting opportunity to accelerate Toumaz Microsystems' growth trajectory and ultimately for the Enlarged Group to become a market leader across a number of markets.

3. Details of the Placing

The Company proposes to raise, in aggregate, approximately £29.25 million, before expenses, through a conditional Placing by its broker, finnCap, of Placing Shares at the Issue Price. The Issue Price for the Placing Shares, as well as the Consideration Shares, is 10.25p per Ordinary Share. The Placing Shares will, following allotment, rank pari passu with the Existing Shares.

The Placing is conditional, inter alia, upon the passing of the Resolution and the Acquisition Agreement becoming unconditional (but for any condition relating to the Placing) and completed in escrow in accordance with its terms (with the only condition to the release of escrow being payment) in each case by no later than 17 August 2012 (or such time and date as the Company and finnCap may agree, being not later than 28 September 2012). The Placing is not being underwritten.

As a result of the settlement terms agreed with placees in the Placing, the Acquisition will complete a Business Day later than the First Placing. It has been necessary to split the Placing into the First Placing and the Second Placing because certain placees would breach the terms of their investment funds by subscribing for their full allocations prior to admission of the Subscription Shares and Initial Consideration Shares.

Application will be made for the Placing Shares to be admitted to trading on AIM. It is expected that First Admission will become effective and dealings in the First Placing Shares will commence on 17 August 2012 and Second Admission will become effective and dealings in the Second Placing Shares, the Subscription Shares and the Initial Consideration Shares will commence on 21 August 2012.

The net proceeds of the Placing (after accounting for the costs allocated for the Acquisition), are expected to amount to approximately £28.4 million. The net proceeds will be used to fund the Acquisition and provide working capital for the Enlarged Group.

4. Details of the Acquisition Agreement and Deed of Warranty

Structure

The Company has entered into a sale and purchase agreement with the Institutional Sellers and the Management Sellers relating to the sale and purchase of the entire issued and to be issued share capital of Frontier.

The Institutional Sellers will immediately prior to completion of the Acquisition own approximately 60 per cent. of Frontier's issued ordinary share capital and the Management Sellers, after exercise of their share options, will own approximately 10 per cent. of Frontier's issued share capital.

Between exchange and completion of the Acquisition, holders of options over Frontier shares will have the opportunity to exercise their share options and warrants. It will be a term of exercise of the options that the option holder undertakes to be bound by the terms of the Acquisition Agreement as if he were named in that agreement as a seller.

There are other shareholders of Frontier that are not party to the Acquisition Agreement. The Institutional Sellers have today served a notice on Frontier stating their intention to sell their shares in Frontier and giving Frontier's other shareholders (other than the Management Sellers) the opportunity to acquire such shares on a pre-emptive basis. If no person takes up their rights to acquire such shares, the Institutional Sellers have agreed to serve a "Compulsory Sale Notice" on the other members of Frontier which will require such persons to sell their Frontier shares to the Company on the same or equivalent terms as those offered to the Institutional Sellers and Management Sellers. It is expected that this process may take up to 43 days to complete.

Price

The Company has agreed to pay up to £32,249,487 for Frontier as follows:

● £27,057,965 at completion of the Acquisition to Frontier's shareholders which will be paid in cash other than for £2,409,779 which will be settled by the allotment and issue of 23,510,036 Initial Consideration Shares, at the Issue Price, to Imagination Technologies; and

● up to £5,191,522 will be paid by way of Deferred Consideration, depending on the performance of the Enlarged Group in the 24 months following completion of the Acquisition. Such payment will be made in cash except for the payment to Imagination Technologies and those sellers who are Frontier Ordinary Shareholders whose payments will be settled in Consideration Shares at the Issue Price.

At completion of the Acquisition, Frontier will pay £5,248,513 to redeem, in full, loan notes issued by Frontier.

In addition, the Company has agreed to pay up to £502,000 towards the accounting, corporate finance and legal costs of Frontier and its shareholders incurred in connection with the Acquisition.

The consideration payable is subject to adjustment (downwards only) if Frontier's net current assets as at 30 June 2012 are less than £9,700,000 and will be applied in offset against the Deferred Consideration.

Conditions

Completion of the Acquisition Agreement is conditional upon:

● completion of the First Placing;

● the amount of Frontier's net current assets at 30 June 2012 having been agreed or determined; and

● the Institutional Sellers serving a notice on Frontier stating that they wish to transfer their shares on the terms of the Acquisition Agreement. Frontier's shareholders have a 30 day window in which they can state their wish to acquire such shares. At the end of the 30 day period, the selling shareholders can serve a "Compulsory Sale Notice" on all the other shareholders requiring them to sell on the same or equivalent terms. That notice must set a date for completion which is not less than ten business days from the date of the notice.

It is expected that completion of the Acquisition will occur on or around 20 August 2012.

Deferred Consideration

Payment of up to £5,191,522 of the purchase price is performance related as follows:

● for the Deferred Consideration, to be payable, the Enlarged Group has to achieve agreed revenue targets in the 2012 and 2013 financial years. The revenue targets relate to invoiced, shipped and paid sales of Frontier's chips;

● for the Frontier Ordinary Shareholders, 62.5 per cent. of their Deferred Consideration (approximately £2,165,295 of the £5,191,522) will be paid out if the 2012 revenue target is met and the balance if the 2013 target is met;

● for the Frontier A Ordinary Shareholders (whose Deferred Consideration will be settled in Consideration Shares):

- 30.5 per cent. of their Deferred Consideration is contingent on the same two revenue targets being achieved;

- 39 per cent. of their Deferred Consideration is contingent on them remaining in the group's

employment for three years (with a third of this portion released each year) and on agreed revenue targets for 2012, 2013 and 2014 being achieved; and

- 30.5 per cent. of their Deferred Consideration is contingent on there being no breach of warranty or any claim under the indemnities (see below).

Toumaz may set off claims under the warranties and indemnities (referred to below) against all of the Deferred Consideration due to all of the Frontier Ordinary Shareholders and 30.5 per cent. of the Deferred Consideration due to the Frontier A Ordinary Shareholders.

Warranties and Deed of Warranty

In the Acquisition Agreement, the Institutional Sellers and the Management Sellers have given customary warranties as to their title and authority. These warranties are not subject to any limitations on liability.

Separately, the Management Sellers have agreed to give trading warranties to Toumaz. These are contained in the Deed of Warranty and are intended to mitigate risk in key commercial areas. In addition, the Management Sellers have agreed to give indemnities to Toumaz in respect of specific issues raised in the legal and financial due diligence.

The warranties and indemnities are limited as follows: the threshold for warranty claims is £75,000; claims must be made on or before 30 June 2014; and, the maximum liability of the Management Sellers is 30.5 per cent. of the amount of their Deferred Consideration (that is £395,190). It should be noted that Toumaz has the ability to set off warranty and indemnity claims against the Deferred Consideration due to the Frontier Ordinary Shareholders (£3,464,472).

As a consequence of Frontier's shareholder base comprising principally of private equity funds, which as a matter of policy will not give trading warranties, Toumaz is obtaining very limited warranties. The Company's only recourse for breach of the trading warranties or for a claim under the indemnities will be to set off the claim against part of the Deferred Consideration (to the extent that it is earned) which means that the Company will have only £3,859,662 of such warranty cover. These warranties are not cash backed by a retention against the purchase price. The Independent Directors have considered this risk in calculating the purchase consideration; they have also conducted detailed legal and financial due diligence and been able to discuss diligence issues with Anthony Sethill, the Company's chief executive officer and, until recently, the former chief executive officer of Frontier.

5. Current trading

The Company continues to make considerable progress in the health and consumer sectors. The Sensium disposable digital plaster solution is expected to be deployed on patients at a hospital in the US later this year and we look forward to announcing further progress with our interim financial results, expected to be released in September 2012.

The Board intends to strengthen the non-executive composition of the Board and will be making an announcement in this regard shortly.

During the first four months of 2012, which are not traditionally its peak months, Frontier has achieved revenues ahead of its internal budget and this performance is broadly in line with the equivalent period during the previous financial year.

6. Related party transactions

Imagination Technologies is a substantial shareholder in the Company. The issue by the Company to Imagination Technologies of the Consideration Shares and the subscription by Imagination Technologies for the Subscription Shares constitute related party transactions pursuant to the AIM Rules. The Independent Directors consider, having consulted with finnCap, that these transactions are fair and reasonable insofar as the Shareholders are concerned.

7. Irrevocable undertakings

Except as set out below, each of the Directors has given irrevocable undertakings to vote in favour of the Resolution in respect of their own beneficial holdings of 13,812,161 Ordinary Shares, representing, in aggregate, 1.69 per cent. of the Existing Ordinary Shares. In addition, shareholders holding 215,136,751 Ordinary Shares, representing in aggregate 26.38 per cent. of the Existing Ordinary Shares have given a similar undertaking. For practical reasons Winston Wong has not been able to provide an irrevocable undertaking. He has, however confirmed to the Board his support for the Proposals and his intention to vote the 25,649,302 Existing Ordinary Shares in which he is beneficially interested in support of the Resolution.

8. Extraordinary General Meeting

A notice convening the EGM, to be held at the offices of finnCap, 60 New Broad Street, London EC2M 1JJ at 10.00 a.m. on 20 July 2012 is set out at the end of the Circular at which a resolution will be proposed to disapply the pre emption rights conferred by article 17 of the Company's articles of association in connection with the allotment of Ordinary Shares pursuant to the Placing.

This authority will be without prejudice to the authority granted at the Company's annual general meeting on 4 May 2012. Subject to the passing of the Resolution and following Admission, the Directors will have authority to allot up to 203,835,212 Ordinary Shares for cash free of pre-emption rights, representing approximately 18 per cent, of the Enlarged Issued Share Capital.

9. Recommendation

The Independent Directors consider the terms of the Proposals outlined above to be in the best interests

of the Company and its Shareholders as a whole. Accordingly, the Independent Directors recommend that

you vote in favour of the Resolution to be proposed at the EGM, as they (with the exeption of Winston Wong for the reason given above) have undertaken to do in respect of their own holdings of Ordinary Shares, totalling 13,812,161 Ordinary Shares, being approximately 1.69 per cent. of the Existing Shares.

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise: