20 May 2010 18:25
imJack plc (AIM: IMJ)
("The Company")
Board Changes
Publication of Circular
Proposed placing of Ordinary Shares to raise £1.0 million
Issue of Convertible Loan Stock to raise £0.2 million
Proposed acquisition of John Devonshire Connect Limited
Proposed acquisition of Tellbrook Limited
Conversion of Directors' Loans to be capitalised into equity
Conversion of debts owed to certain creditors to be capitalised into equity
Approval of waiver of obligations under Rule 9 of the City Code on Takeover and Mergers
Notice of General Meeting
Change of Nominated Adviser
imJack plc ("imJack" or the "Company"), the digital educational secure networking business is pleased to announce that, further to the announcement made by the Company on 11 January 2010 in respect of the suspension of trading in its ordinary shares (the "Ordinary Shares") on AIM as a result of the financial uncertainty of the Company, it proposes to raise £1.2 million in aggregate, by means of a proposed placing (the "Placing") of 66,666,667 new Ordinary Shares at a price of 1.5 pence per new Ordinary Share (the "Placing Price") and the issue of convertible loan stock (the "Convertible Loan Stock") to raise £0.2 million.
The Company is also pleased to announce the appointment of Mr Jeffrey Morris as interim Chief Executive Officer, with immediate effect. Further details in respect of Mr Morris pursuant to the AIM Rules are set out below in addition to the announcement of further board changes. The directors expect to strengthen the board in the near future through the appointment of a non-executive director following completion of the proposals set out below.
Furthermore, the Company has today entered into conditional agreements for the acquisition of John Devonshire Connect Ltd ("JD Connect") and Tellbrook Ltd ("Tellbrook"), the conversion of certain loans into Ordinary Shares, the conversion of certain outstanding creditor balances into Ordinary Shares which together with the Placing and other arrangements as set out below will be collectively described as the Proposals.
To summarise, the Proposals comprise the following:
·; Placing of new Ordinary Shares to raise £1.0 million;
·; The issue of the Convertible Loan Stock to raise £0.2 million;
·; The acquisition of JD Connect, the exclusive reseller of the ImJack technology platform;
·; The acquisition of Tellbrook which owns the core underlying Intellectual Property ("IP") of the business;
·; The conversion of £1,065,000 of loans from Jeffrey Morris and connected parties into equity through the issue of 71,000,000 shares;
·; The conversion of £61,113 of loans from Michael Abrahams into equity through the issue of 4,074,176 shares;
·; The conversion of £30,000 owed to certain creditors of the Company into equity through the issue of 2,000,000 Ordinary Shares;
·; The creditors voluntary arrangement ("CVA") of ImJack Secure Communications Limited ("ImJack Secure"), a wholly owned subsidiary of the Group releasing £653,423 owed to creditors from the balance sheet of ImJack Secure.
A circular containing details of the Proposals together with a notice of general meeting to be held on 7 June 2010 has today been sent to the shareholders of the Company ("Shareholders") and is now available on the Company's website.
It is important for Shareholders to understand the serious financial condition of the Company, which is the reason for the suspension from trading on AIM of the existing Ordinary Shares. Should the independent shareholders decide not to support the resolutions set out in the notice of general meeting in relation to the Proposals (the "Resolutions") then they should be under no illusion as to the financial consequences for the Company. Should the Proposals not proceed to completion in their entirety ("Completion") then the Directors will have no alternative but to place the Company into administration because at that stage the Company would be unable to meet its debts as they are due.
Currently the Company does not own the core underlying IP used by the Company but owns a worldwide, perpetual license to use it for education and training proposals. This means that the Company does not own outright the single most important asset required for its business and if the Company were to go into administration the license would automatically terminate thus depriving the Company of this asset. The IP also has applications in business and areas other than education. The Directors therefore believe that it is in the interests of the Company's shareholders to own the IP.
In addition the Directors believe that the Proposals will greatly improve the prospects of the enlarged group following completion ("Enlarged Group") and will provide the following key strengths:
·; increased confidence in the Company from the Specialist Schools and Academies Trust ("SSAT") (see current trading and prospects below);
·; provide the necessary working capital to achieve the Company's targeted sales to the schools;
·; by acquiring JD Connect the Company will bring in-house the reseller rights in respect of the ImJack technology platform;
·; create further opportunities for the Company
Subject to the completion of the Proposals and the passing of the Resolutions, it is intended that application will be made to the London Stock Exchange to admit the new Ordinary Shares (the "New Ordinary Shares") to trading on AIM ("Admission") and that trading in the Company's securities on AIM will be restored following this, subject to publication of the Company's audited accounts for the year ended 30 September 2009. Admission is expected to be on 8 June 2010.
THE PLACING AND USE OF PROCEEDS
The Placing of 66,666,667 New Ordinary Shares at a placing price of 1.5 pence per Ordinary Share together with the issue of 4,666,667 New Ordinary Shares which have been pre-paid to the Company, are to be effected on behalf of the Company by Daniel Stewart. The net proceeds from the Placing will be used to provide working capital to assist organic growth, to pay creditors under the CVA, and to repay short term loans made to the company by Jeffrey Morris and connected parties for the purposes of funding the working capital needs of the Company in the weeks leading up to Admission. The amount of short term loans that are expected to be repaid by Jeffrey Morris and connected parties from the Placing proceeds are expected to be in the region of £50,000 (the "Outstanding Loans") depending on the exact working capital needs of the Company between the date of this announcement and receipt of the Placing proceeds.
Following repayment of the Outstanding Loans and the loan conversions set out below, the Company does not expect to have any significant debt other than the Convertible Loan Stock as set out below.
BACKGROUND INFORMATION ON THE JD CONNECT ACQUISITION
On 24th September 2008, the Company entered into a three year agreement with JD Connect under which JD Connect agreed to act as exclusive reseller of the ImJack technology platform in the UK and certain other regions, the effective result of which was that the revenue, net of costs, would be split on an agreed basis between JD Connect and the Company.
On 5th June 2009 the Company entered into a call option agreement under which the Company was granted the option to purchase the shares in JD Connect at any time within 9 months to be satisfied by the issue of 10,000,000 Ordinary Shares and certain additional payments in cash or further Ordinary Shares if the Company achieved certain challenging targets.
The Company proposes to purchase the entire issued share capital of JD Connect in consideration for the issue of 10,000,000 Ordinary Shares. To date, ImJack's platform has been donated to schools free of charge under the pilot PEER programme through JD Connect therefore, historically, JD Connect has had no material trading activity other than costs associated with sales people and it has no material assets and liabilities.
BACKGROUND INFORMATION ON THE TELLBROOK ACQUISITION
Tellbrook is a company which owns the Intellectual Property for which ImJack currently has an exclusive, perpetual worldwide royalty free license. On the terms of the licence agreement Tellbrook granted the Company an exclusive, perpetual, worldwide, royalty-free licence with regard to the development and use of ImJack collaborative communication software. The exclusive licence relates only to use of the software within the education and training sectors and the British Olympics Association website. Incorporated into the licence is a right granted to Tellbrook to develop modifications to the software. Simultaneously with the entry of the Company into the exclusive licence the trade mark IMJACK was assigned by Tellbrook to the Company.
The Company proposes to purchase Tellbrook in consideration for the issue of 33,333,333 Ordinary Shares in order to bring the ownership of the Intellectual Property into the Enlarged Group. Tellbrook has no material assets and liabilities other than the IP.
The Tellbrook acquisition constitutes a Related Party Transaction as defined by the AIM Rules for Companies. The Independent Director considers, having consulted with the Company's nominated adviser, Daniel Stewart, that the terms of the Tellbrook Acquisition are fair and reasonable so far as the Shareholders are concerned.
DIRECTORS' LOANS AND DIRECTORS DEALING
Jeffrey Morris, Interim Chief Executive Officer of the Company, and connected parties; Michael Abrahams, Chairman of the Company; and Sygal Limited, a consultant to the Company; have agreed to capitalise loans and fees owed to them amounting to, in aggregate £1,126,113 (the "Loan Conversions"). The Loan Conversions will be effected at the Placing Price. The Directors believe it is in the interests of the Company to convert these loan into equity in order to reduce the liabilities of the Company.
|
| Number of new Ordinary Shares issued pursuant to the Loan Conversion |
| Jeffrey Morris | 17,000,000 |
| Deborah Morris | 30,000,000 |
| Leah Morris | 10,000,000 |
| Joshua Morris | 10,000,000 |
| Sygal Limited | 4,000,000 |
| Michael Abrahams | 4,074,176 |
|
|
|
| Total | 75,074,176 |
The Loan Conversions above also satisfy any amounts owed to Wamey Limited, a company owned by Leah Morris, Joshua Morris and Sygal Limited, by the Company such that following the Loan Conversions and the Placing, the Company does not expect to have any significant debt outstanding.
The New Ordinary Shares to be issued pursuant to the Loan Conversions constitute Related Party Transactions as defined by the AIM Rules for Companies. The Directors consider, having consulted with the Company's nominated adviser, Daniel Stewart, that the terms of the Loan Conversions are fair and reasonable so far as the Shareholders are concerned.
Furthermore, pursuant to the Placing, Jeffrey Morris will subscribe for 13,333,333 New Ordinary Shares at the Placing Price ("the Subscription") and Michael Abrahams will subscribe for 1,333,333 New Ordinary Shares at the Placing Price. Subject to demand for the Ordinary Shares, Jeffrey Morris may consider selling a proportion of the Subscription to satisfy investor demand and assist with the liquidity of the Ordinary Shares. In this event, a further announcement will be made in compliance with the AIM Rules for Companies. Any Ordinary Shares sold by Jeffrey Morris in the next 12 months will be placed by Daniel Stewart.
Immediately following Completion, the Directors will be beneficially interested in the following shareholdings in the Company;
|
| Number of Ordinary Shares | Per cent. of the Enlarged Share Capital on Admission |
| Michael Abrahams1 | 7,547,672 | 2.49% |
| Jeffrey Morris1 | 79,182,525 | 26.12% |
1 This includes Ordinary Shares held directly by each Director and their respective wives but does not include any Ordinary Shares held by each Director's adult children. In the case of Jeffrey Morris, the shareholding includes 173,000 Ordinary Shares held in a pension trust.
CREDITORS TO BE CAPITALISED
The Company announces that it has agreed that approximately £30,000 due to certain third party creditors of the Company will be settled by the issue and allotment to them of (in aggregate) of 2,000,000 New Ordinary Shares.
CONVERTIBLE LOAN STOCK AND LOAN FACILITY
The Company has agreed with Jeffrey Morris that up to £200,000 of the outstanding indebtedness that will be due to him on Admission be constituted as convertible unsecured loan stock (the "Convertible Loan Stock") to Jeffrey Morris to provide additional funding to the Company. The Convertible Loan Stock is convertible at the Placing Price into 13,333,333 Ordinary Shares. Under the terms of the Convertible Loan Stock, repayment in cash will only be made prior to the first anniversary of Admission in the event that the Board considers the Company to have sufficient working capital. A coupon of 3 per cent. per annum will be payable on the outstanding Convertible Loan Stock.
In addition, Jeffrey Morris has agreed to provide up to an additional £500,000 drawdown facility (the "Facility") for the purposes of working capital if required by the Company in the future. The Company will be required to give one month's notice of its intention to drawdown sums under the Facility. Interest will be charged on any sums drawn down on the facility at the Bank of England base rate plus 3 per cent.
The Convertible Loan Stock and the provision of the Facility constitutes a Related Party Transaction as defined by the Aim Rules for Companies. The Independent Director considers, having consulted with the Company's nominated adviser, Daniel Stewart, that the terms of the Convertible Loan Stock and the Facility Agreement are fair and reasonable so far as the Shareholders are concerned.
WARRANTS TO BE GRANTED
The Directors have agreed that warrants over Ordinary Shares ("Warrants") will be granted to various advisers of the Company and also to Sygal Limited, a consultant to the Company and Leah Morris and Joshua Morris, who are all members of the Concert Party. Leah Morris and Joshua Morris will each be granted 5,000,000 Warrants (the "Morris Warrants"). Sygal Limited will be granted 2,000,000 Warrants (the "Sygal Warrants").
DETAILS OF THE CVA OF IMJACK SECURE COMMUNICATIONS LIMITED
ImJack Secure Communications Limited, the main trading subsidiary of the Company has significant liabilities which are greater than its assets and is therefore insolvent. In order to facilitate the Proposals, it is necessary for ImJack Secure Communications Limited to enter in to a CVA. It is expected that, subject to the approval of the creditors of ImJack Secure Communications Limited being granted to the CVA, its debts will be extinguished. Should creditors not agree to this arrangement, then the directors of ImJack Secure Communications Limited will have no alternative but to place ImJack Secure Communications Limited into liquidation. The Directors believe that the CVA is in the best interests of the Shareholders and creditors. It is expected that a meeting of ImJack Secures creditors will be held on 27 May 2010.
Under the CVA the creditors of ImJack Secure Communications Limited will, in aggregate, be offered a total of £100,000 which will be divided amongst creditors of ImJack Secure Communications Limited who make a claim within three months of the date of the CVA being approved. Although by far the most significant creditor, on the terms of the CVA, the Company's debt owed by ImJack Secure Communications Limited will be capitalised into shares in ImJack Secure Communications Limited. Therefore the Company will not participate in the proposed cash distribution.
The funds to be divided amongst creditors of ImJack Secure Communications Limited on the terms of the CVA will be funded out of the proceeds from the Placing.
CURRENT TRADING AND PROSPECTS
The Company has secured approval from the Department for Children, Schools and Families ("DCSF") for all schools applying for redesignation through the SSAT to be offered the ImJack platform. Each re-designating school taking up this platform will be entitled to a £15,000 credit towards £25,000 of matched funding from the DCSF. The remaining £10,000 required from the school can be raised through the use of various modules on the ImJack platform such as careers' advice or mentoring. Through the JD Connect Acquisition, the Company will have agreed a Memorandum of Understanding (an "MOU") with SSAT to start promoting this programme as soon as possible. The Directors believe there are 1,000 schools applying for redesignation through the SSAT in 2010.
The participating schools installing the ImJack platform are expected to pay ImJack £7200 per year for a three year service level agreement which includes storage and support and maintenance thus creating recurring revenues for the Company.
The Company is anticipating that revenues from this programme will start during the current schools' summer term. In addition the Company has installed the platform in 436 schools free of charge and has started discussions with those schools with a view to them paying for a three year service agreement.
The Directors are confident that after a number of false starts that the Company has now reached a point where it has visibility of revenues and a clear understanding of the opportunities available to it.
THE TAKEOVER CODE
Ordinarily, the issue and allotment of new Ordinary Shares under the Proposals would give rise to certain considerations in relation to those deemed to be acting in concert (the "Concert Party") under the Takeover Code and would trigger an obligation on the Concert Party to make a general offer to shareholders for the entire issued share capital of the Company pursuant to Rule 9 of the Takeover Code.
Under Rule 9 of the Code, when a person acquires an interest in shares which (when taken together with shares in which he and persons acting in concert with him are interested) carry 30 per cent. or more of the voting rights of a company subject to the Code, such person (or persons acting in concert) would usually be required to make a general offer to shareholders. The Takeover Panel has agreed, however, to waive the obligation of the Concert Party to make a general offer ("Waiver"), subject to the shareholders (excluding the Concert Party) ("Independent Shareholders") voting in favour of a resolution (the "Waiver Resolution") to approve the Waiver by the Takeover Panel.
Jeffrey Morris together with his wife Debra Morris, his adult children Joshua Morris and Leah Morris, Sygal Limited a Tellbrook Vendor and Wamey Limited, a company which is owned by Joshua Morris and Leah Morris, are deemed to be acting in concert for the purpose of the Code. Pursuant to the acquisition of Tellbrook and JD Connect, the Loan Conversions, the Creditors Conversion and the Placing, the Concert Party will upon completion of the Proposals be interested in 144,456,376 Ordinary Shares, representing 47.64 per cent of the enlarged share capital of the Company. Assuming full exercise of the Sygal Warrants, the Morris Warrants and the conversion of the Convertible Loan Stock into Ordinary Shares, the maximum number of Ordinary Shares held by the Concert Party will be 169,789,710 representing 54.37% per cent of the fully diluted enlarged share capital of the Company.
Shareholders should be aware that, following Completion and exercise of the Morris Warrants, the Sygal Warrants and conversion of the Convertible Loan Stock into Ordinary Shares, members of the Concert Party will hold more than 50 per cent. of the Company's voting share capital and may accordingly increase the Concert Party's interests in Ordinary Shares without incurring any further obligation under Rule 9 to make a general offer. However, any individual member of the Concert Party who acquires additional Ordinary Shares and, as a result of such acquisition, holds 30 per cent. or more of the Ordinary Shares will (without the Takeover Panel's consent) incur an obligation under Rule 9 of the City Code to make a general offer for the Company.
RECOMMENDATION
The Independent Director, who has been so advised by Daniel Stewart, considers the Proposals including the waivers of obligations on the Concert Party under Rule 9 of the Code to be fair and reasonable and in the best interests of the Independent Shareholders and the Company as a whole and therefore recommend the Shareholders to vote in favour of the Resolutions to be proposed at the GM, as he and his family intend to do so and have given irrevocable undertakings to do so in respect of their own legal and beneficial shareholding, amounting in aggregate to 2,706,863 Ordinary Shares, representing 2.43 per cent. of the Existing Ordinary Shares. In giving its advice, Daniel Stewart has taken into account the Directors' commercial assessments.
The Company has not sought irrevocable commitments from other Shareholders to vote in favour of the Proposals. On the basis that members of the Concert Party will not be entitled to vote on these resolutions, the Company has received irrevocable commitments in respect of 2.43 per cent. of the Ordinary Shares entitled to vote on the Waiver Resolutions.
In accordance with the provisions of the Takeover Code, the Concert Party is considered to be interested in the outcome of the Waiver Resolutions and, accordingly, none of its members will vote on the Waiver Resolutions, and they have so confirmed this to the Company.
CIRCULAR AND NOTICE OF GENERAL MEETING
The Proposals are subject to the satisfaction of certain conditions and to shareholder approval which will be sought at a General Meeting ("GM") on 7 June 2010. A circular regarding the Proposals set out above and notice of general have today been sent to shareholders and is available on the Company's website.
BOARD CHANGES
The Company announces that Len Sanderson, Richard Addis and David Lynde have resigned from the Board. The Company thanks them all for their services and wishes them well for the future.
The Company is pleased to announce that Jeffrey Morris (aged 51) has been appointed as interim Chief Executive Officer. Mr Morris, a substantial shareholder of the Company, is a Leeds-based entrepreneur who founded imJack and determined the nature of its product offering. Prior to this, Mr Morris was Chief Executive Officer of Minorplanet Systems plc having established that company in 1997.
Mr Morris has been a key provider of continued financial support to the Company over the years and further to the Company's announcement on 11 January 2010, the Company is pleased to announce that the dispute with Mr Morris, regarding the provision of funds under the terms of a loan facility agreement entered into with him in May 2009 has been amicably resolved. It is anticipated that the Company will benefit from the significant sales expertise of Mr Morris in relation to the roll out of the ImJack platform and that the board of Directors and the management team will be strengthened at the appropriate time once the Company has begun to generate significant revenues.
The following information in respect of Jeffrey Morris is disclosed pursuant to Rule 17, Schedule Two (g) of the AIM Rules:
Current Appointments:
Morco Retail Limited
Morco Group Limited
Morris & Lewis (Leeds) Limited
Autogain Limited
HAK Property Limited
HAK Direct Limited
Eye Candy (UK) Limited
Diamond Shape Limited
Lettar Limited
Wamey Limited
Previous Appointments:
imJack Secure Communications Limited
Dogs B Limited
imJack plc
HAK Services Limited (see below)
HAK Developments Limited (see below)
Countrylarge Limited (see below)
On 7 April 2009, HAK Services Limited, a company which provided property management services of which Mr Morris was a director was placed into creditors voluntary liquidation. The estimated deficiency to creditors was £1.2 million.
On 7 April 2009, Countrylarge Limited, a wholesaler of designer accessories of which Mr Morris was a director was placed into creditors voluntary liquidation. The estimated deficiency to creditors was £0.9 million.
On 7 April 2009, HAK Developments Limited, a property development company, of which Mr Morris was a director was placed into creditors voluntary liquidation. The estimated deficiency to creditors was £0.8 million.
In 1978 Mr Morris was adjudged bankrupt by Leeds County Court. In 1983 he was granted an unconditional discharge.
As disclosed in the Admission Document published by the Company (which was previously called Amteus plc) in January 2006, in 1994 the Securities and Exchange Commission ("SEC") made allegations against Mr Morris relating to an investment made by Mr Morris. Mr Morris co-operated fully with the SEC from the outset of their investigation; however, he was unable to sustain the continuing escalation in costs as a result of being involved in such an action against an agency of the US Government and Mr Morris agreed a full and final settlement with the SEC in 1995 without admitting or denying allegations made by the SEC. There was no finding of fact against Mr Morris and the SEC accepted this.
As at the date of this announcement, Mr Morris is beneficially interested in 18,849,192 Ordinary Shares, (including those held by his wife Debra Morris but not those holdings of Mr Morris' adult children) representing approximately 16.91 per cent. of the Company's issued share capital following the Placing. Following completion of the Proposals, at Admission, Mr Morris is expected to be beneficially interested in 79,182,525 Ordinary Shares representing approximately 26.12 per cent. of the enlarged share capital.
CHANGE OF ADVISER
The Board is pleased to announce that it has appointed Daniel Stewart & Company plc as Nominated Adviser to the Company with immediate effect.
For further information, please contact:
imJack Plc Tel: 01653 618 016
Michael Abrahams, Chairman
Daniel Stewart & Company plc Tel: 020 7776 6550
Emma Earl
Simon Leathers
Rawlings Financial PR Limited Tel: 01653 618 016
Catriona Valentine