Livermore Regulatory News (LIV)

14 Feb 2006 18:15

Empire Online Limited14 February 2006 Proposed settlement of litigation with PartyGaming Plc ("PartyGaming") andassignment of related "skin" activities subject to Shareholder approval Highlights • Settlement of litigation with PartyGaming • Assignment of Empire Online's PartyGaming related "skin" operations to PartyGaming • $250 million cash payment • Company reaffirms expectation that its continuing businesses will contribute $37 million of net profit in the year ended 31 December 2006. • Proposals conditional upon shareholder approval - voting authorities in favour of the proposals have been obtained from shareholders holding in aggregate 56.0% of the ordinary shares in the Company Noam Lanir, Chief Executive of Empire Online, said today: "This transaction removes the uncertainty of litigation between Empire Onlineand PartyGaming. It puts the Company on a stronger footing and will enablemanagement to focus on growing its continuing businesses. We will considercarefully how to use the net proceeds from this sale to the maximum benefit ofshareholders." Enquiries: Empire Online Limited +357 (2) 5 847 700Noam Lanir, Chief Executive OfficerAndrew Burnett Numis Securities Limited +44 (0) 207 776 1500Jag Mundi, Head of Corporate FinanceLee Aston, Director, Corporate Finance Citigate Dewe Rogerson +44 (0) 20 7638 9571Simon RigbySarah Gestetner Proposed settlement of litigation with PartyGaming and assignment of related "skin" activities subject to Shareholder approval Introduction The Company announces that it has today entered into an agreement withPartyGaming to settle all outstanding litigation between them and effectively tosell the business and assets of its PartyGaming "skin" activities (i.e.operations designed to direct players to one of PartyGaming's gaming platforms)to PartyGaming in return for a cash payment of US$250 million, payable oncompletion. Under the terms of this agreement the existing contractual arrangements withPartyGaming will be terminated and Empire Online will assign to PartyGaming itsinterests in certain domain names related to the PartyGaming "skin" activitiesincluding "empirepoker.com" and "aceclub.com". The agreement is conditional upon the approval of Empire Online shareholders byway of an ordinary resolution. There is no requirement either under BVI law or under the AIM Rules to obtainshareholder approval for a disposal of this size, but the Directors considerthat, given the significance of the transaction and settlement and for the sakeof good governance and practice, shareholders should be appraised of theProposals and be given the opportunity to vote on the Proposals. Background to the Proposals Empire Online had a close working relationship with PartyGaming from 2002, whenit commenced marketing PartyGaming's online casino brands. In 2003, EmpirePoker was launched under a white label or "skin" agreement with PartyGaming andover time became PartyGaming's most important poker skin, providingapproximately 70 per cent. of all players provided under its skin agreements. Following the acquisition of ClubDice and Noble Poker in August 2005, anincreasing proportion of new player sign ups and revenue has been derived fromactivities not related to PartyGaming and the Directors confirm that in the yearended 31 December 2006 such activities should contribute approximately $37m ofnet profit. Activities related to PartyGaming have remained a source of revenue for EmpireOnline although revenues have declined materially following the launch byPartyGaming of a new operating platform on 8 October 2005 which movedPartyGaming poker players to a different platform from that of PartyGaming'sskins. Following the launch of this new platform, Empire Online was approached byPartyGaming in relation to an offer by PartyGaming for the entire issued and tobe issued share capital of Empire Online. Following a breakdown of these talks,Empire Online announced that the Directors intended to institute and vigorouslypursue legal proceedings against PartyGaming in relation to the launch ofPartyGaming's new platform. During this process, the directors of PartyGaming and the Directors entered intomediation, from which the Proposals described below have resulted. The Proposals The principal terms of the Proposals are as follows: • Both sides to terminate the various "skin" agreements between them. • Empire Online to assign to PartyGaming all rights, title and interest in certain domain names and trade marks associated with those "skin" agreements (e.g. empirepoker.com and aceclub.com). • All litigation and other related proceedings brought by the Company against PartyGaming are to be stayed and all claims waived. • PartyGaming to pay to Empire Online $250 million in cash on completion in consideration for the settlement of the litigation and the assignment of these assets. • PartyGaming also to pay outstanding commissions owing to the Group under the relevant "skin" agreements. This agreement is subject to approval of Empire Online Shareholders at aShareholders' meeting. It is not subject to any other conditions. Fromexecution of the Sale Agreement, it has been agreed that PartyGaming shalleffectively operate these skin agreements on behalf of the Group pendingcompletion of the transaction. Any commissions earned during the period shallbe for PartyGaming's account when completion occurs. Assets included in the Disposal are the domain names empirepoker.com andaceclub.com, and the brand names "Empire Poker" and "Ace Club". These brandnames and domain names are used by Empire Online to direct online poker andcasino players to PartyGaming's websites, creating net gaming revenue for theCompany. In the year ended 31 December 2005, the gross profit before administrativeexpenses attributable to the assets being sold was approximately $38.7 million.In the quarter ended 31 December 2005 the assets contributed gross profit beforeadministrative expenses of $5.0 million. The balance sheet value of the netassets pursuant to the Proposals was less than $0.1 million as at 31 December2005. Rationale for the Proposals The Directors believe that approval of the Proposals will crystallise the valueof the assets being assigned for Shareholders whilst also removing theuncertainty of litigation between Empire Online and PartyGaming. The EmpireOnline Board considers that, whilst it has always been confident of a successfuloutcome, the litigation process was likely to have been protracted. TheProposals will, in the view of the Directors, put the Company on a strongerfooting and also enable management to focus on growing the continuing business,and to make suitable acquisitions should such opportunities occur. Principal brand/domain names continuing with the Group include Noble Poker, ClubDice Casino, Monaco Gold Casino, Carnival Casino, YouBingo, 888casino.com and65.com. Use of Proceeds The Directors will consider the most appropriate ways in which to use the netproceeds of the US$250 million generated through the Proposals to maximise valuefor Shareholders. Options available to the Directors include distributions toShareholders as well as potential complementary acquisitions. Assumingcompletion of the Disposal, the Directors will inform Shareholders of anydecision or proposal in relation to use of these proceeds as and whenappropriate. Extraordinary General Meeting An EGM to approve the Proposals will be convened, and notice of this meetingwill be set out in a circular expected to be posted to shareholders, latertoday. The resolution to approve the Proposals will be an ordinary resolution, whichmeans that it will require a simple majority of those persons who, beingeligible to do so, vote (in person or by proxy) at the EGM in favour of theresolution. Authorities to vote in favour of the Proposals Shareholders (including Directors) have given authorities to PartyGaming to votein favour of the Proposals in respect of, in aggregate, 163,999,358 OrdinaryShares, representing approximately 56.0 per cent. of the issued share capital ofthe Company. Recommendation The Directors believe that the Proposals are in the best interests ofShareholders as a whole and unanimously recommend that Shareholders vote infavour of the Proposals at the EGM, as those Directors who hold Ordinary Shares(either directly or through depositary interests) intend to do in respect oftheir own beneficial holdings which amount, in aggregate, to 62,971,837 OrdinaryShares, representing approximately 21.5 per cent. of the issued share capital ofthe Company. DEFINITIONS In this announcement expressions have the following meanings unless the contextrequires otherwise: "AIM" the AIM market operated by the London Stock Exchange plc "AIM Rules" the rules of AIM companies and their directors, nominated advisers and brokers contained in the document entitled the "AIM Rules" published by the London Stock Exchange plc "BVI" the British Virgin Islands "Company" or "Empire Online" Empire Online Limited, a company incorporated in the BVI with registered number 475668 "Directors" or the "Board" the directors of Empire Online "Disposal" the proposed assignment of certain assets currently owned by the Group pursuant to the Sale Agreement "EGM" or "Extraordinary General the Extraordinary General Meeting of theMeeting" Company to be held on 6 March 2006, convened to approve the Proposals "Group" Empire Online and its subsidiaries and subsidiary undertakings "Ordinary Shares" or "Shares" ordinary shares in the share capital of the Company, each having no par value "PartyGaming" PartyGaming Plc, a company incorporated in Gibraltar with registered number 91225 including, where appropriate, its subsidiaries "Proposals" together the proposed assignment of certain of the Group's assets to, and the termination of the skin agreements with, PartyGaming pursuant to the Sale Agreement and the settlement of the litigation with PartyGaming "Sale Agreement" the conditional agreement dated 14 February 2006 between (1) WPC Productions Limited (2) PartyGaming (3) Electraworks Limited and (4) the Company "Shareholders" holders of Ordinary Shares or (where the context permits) depositary interests representing Ordinary Shares This information is provided by RNS The company news service from the London Stock Exchange