MXCP.L Regulatory News (MXCP)

16 Feb 2007 07:01

2 ergo Group plc16 February 2007 Strictly Embargoed until 07.00, 16 February 2007 2ergo Group plc ("2ergo" or "the Company") Proposed Demerger of Broca Plc (formerly known as 2Safeguard) and Notice of Extraordinary General Meeting 2ergo, the AIM listed provider of convergent mobile communication solutions,announces that the Board has today confirmed the full details of the proposedDemerger and admission of Broca Plc ("Broca"), formerly known as 2Safeguard, totrading on AIM. The Demerger is subject to the approval of Shareholders at an ExtraordinaryGeneral Meeting ("EGM") to be held on 5th March 2007, at 10.00 a.m at St Mary'sChambers, Haslingden Road, Rawtenstall, Lancashire BB4 6QX. Subject to suchapproval being obtained, the Demerger is expected to become effective on 6thMarch 2007. Expected timetable of principal events Latest time and date for transfers of 2ergo Shares to be 2 p.m. on 2ndreceived in order for transferee to be received at the Demerger March 2007Record Time Demerger Record Time 6 p.m. on 2nd March 2007 Latest time and date for receipt of forms of proxy for the EGM 10 a.m. on 3rdof 2ergo Group Plc March 2007 Extraordinary General Meeting of 2ergo Group Plc and date of 10 a.m on 5thdeclaration of Demerger Dividend March 2007 Ex Dividend Date 6th March 2007 Crediting of Broca Shares to CREST accounts for Broca Shares 6th March 2007held in uncertificated form Expected date of despatch of share certificates for Broca by 13th MarchShares held in certificated form 2007 Key statistics* Number of Broca Shares in issue immediately following Admission 30,142,154and the Demerger becoming effective Estimated total number of Broca Shares which will be in issue 37,629,696following the cash subscription by 2ergo and the completion ofarrangements put in place following the Demerger for thepotential capitalisation by 2ergo of the indebtedness owed by theBroca Group to the 2ergo Group Estimated effective price per Broca Share for each of the cash £0.52subscription and capitalisation by 2ergo referred to above Estimated market capitalisation of Broca Plc following the £19,567,441Demerger becoming effective and the subsequent cash subscriptionand potential capitalisation by 2ergo of the indebtedness owed bythe Broca Group to the 2ergo Group (based on a price per OrdinaryShare of £0.52) * The figures set out above are estimates only, based on the maximum number of2ergo Shares which could be in issue on the Demerger Record Date presuming thatall options over 2ergo Shares which may be exercised prior to the DemergerRecord Date are exercised in full. Keith Seeley, Chairman of 2ergo Group, said: "M-commerce is a rapidly developingmarket and Broca's security protocol, which has significant competitiveadvantages, is well placed to capitalise on this opportunity. The proposedDemerger will unlock value for shareholders, allowing the respective managementteams to focus on their core activities while generating complementary revenuestreams. The Directors consider that the proposed Demerger is in the bestinterests of Shareholders and recommend that they vote in favour of the DemergerResolution at the EGM as they intend to do in respect of their own beneficialholdings." For further information, please contact: Neale Graham / Barry Sharples Matt Ridsdale/Andrew Dunn David Poutney/Stuart Skinner2ergo Group plc Tavistock Communications Numis Securities LimitedTel: 01706 221 777 Tel: 020 7920 3150 Tel: 020 7776 1500 Full details of the proposed Demerger and EGM are contained in a circular toshareholders which has been posted today ("circular") and this announcementshould be read in conjunction with that circular. This announcement should also be read in conjunction with the Broca PlcAdmission Document ("Admission Document"), which has also been published todayand sent to Shareholders. Copies of the document will be available free ofcharge during normal business hours on any day (except Saturdays, Sundays andpublic holidays) at the offices of Pannone LLP, 123 Deansgate, Manchester M3 2BUfrom the date of this document for the period of one month from Admission.Copies can also be downloaded from www.2ergo.com. Shareholders should read the whole of the document and circular and not relysolely upon the information summarised below. Background to and reasons for the Demerger The development of the Company's communications protocol (''Protocol''),operated by the Broca Business, has progressed significantly in recent months.Once fully developed, the platform established using the Protocol is intended toprovide the mobile telecommunications industry with a secure method of deliveryof payments and communications such that data cannot be extracted either fromthe mobile telephone or ''over-the-air'' other than by the intended recipient.For the reasons set out below the Board believes that it would benefitShareholders and the respective businesses to demerge the Broca Business fromthe 2ergo Group. The Board has established a separate management and technical development teamfor the Broca Business and the Board proposes to put in place, prior to theDemerger becoming effective, formal commercial arrangements between the 2ergoGroup and the demerged Broca Business which aim to develop complimentary revenuestreams. Full details of these arrangements are set out in paragraphs 8.1(e) and(f) of Part IV of the Admission Document referred to above. The name 2Safeguard(under which the Broca Business was previously carried on) is being retained bythe 2ergo Group in line with its trading name and the demerged Broca Businesswill trade under the name of Broca. The Board believes that the Demerger will benefit Shareholders as the separatebusinesses will be able to: (i) focus on their own strategic objectives and develop appropriate organisations, structures and procedures to achieve these objectives; (ii) retain, motivate and recruit key personnel more effectively; (iii) develop appropriate capital structures and dividend policies; (iv) develop their own focused investor bases and access capital markets independently; (v) maximise the use of each other's complimentary technologies through ongoing trading agreements. The Board believes that shareholder value will be created through the Demergerand that 2ergo and Broca will have the opportunity to be strong businesses intheir own right and to prosper as companies the shares of which are separatelyadmitted to trading on AIM. Information on Broca The Broca Business is the development and exploitation of technology with theintention of enabling M-commerce (as defined in the Admission Document) to becarried out securely via digital services, principally by extending conventionalSMS messaging from mobile telecommunications equipment. The technology is basedupon the Protocol in respect of which Broca has applied for a number of patents,one of which has been granted to date. In addition to the security benefitmentioned above, the Protocol is intended to deliver confirmation of messagereceipt by the recipient, something which the Board believes is not currentlyavailable to mobile device users in connection with M-payments. Whilst theinitial application is for use with SMS, the Board believes that this technologyshould ultimately be applicable to other forms of digital messaging. The Board believes that, once developed, the Protocol should introduce a newsecure messaging standard for the protection of users of mobile phone channels,including network operators, financial institutions or other serviceenterprises, and the mobile phone user. On 22nd June 2005 2ergo completed the purchase of certain patent applicationsrelating to the intellectual property rights in the Protocol and used in theBroca Business from Sure on Sight Limited, the company which originally ownedsuch rights. One of these patents has since been granted and further patentsrelating to the intellectual property rights in the Protocol have been appliedfor by the Broca Group, in each case, covering the United Kingdom and Europeanjurisdictions. Further details of the relevant intellectual property rights areset out in paragraph 2 of Part II to the Admission Document. Mike Hawkes, theinventor of the Protocol and intellectual property rights used in the BrocaBusiness, became an employee of the Company on 13th February 2006 to work on thecommercial development of the Protocol and intellectual property rights used inthe Broca Business. Since joining the Company, Mike Hawkes has put together adedicated development team and completed the initial work for the implementationof the Protocol. The team started work on this development on 18th April 2006and the first SMS messages were sent through the platform established using theProtocol and intellectual property rights used in the Broca Business on 14thAugust 2006. Development continued on the technology to support billing and administrativeservices for the Broca Business and further work is being carried out on theform-based presentation of messages which use the Protocol, which the Boardbelieve is a key feature of the Protocol and which is further described in PartI of the Admission Document. Pre-sales activities commenced in April 2006,including entering into a letter of intent with Vodafone with a view toestablishing a reseller relationship. Since April 2006, Broca has continuedinformal marketing of the technology to government agencies, handset developersand high-priority commercial prospects. In September 2006, Broca commenced comprehensive end-to-end tests of theProtocol including handset compatibility, user acceptance, functionality andperformance testing. The platform established using the Protocol, which remainssubject to ongoing development, provides a method of message delivery which isintended to ensure that data cannot be extracted either from the mobiletelephone or ''over-the-air'' other than by the intended recipient. Thedirectors of Broca have started negotiations with independent securitypenetration testing companies with a view to verifying the security of theinternal and external security frameworks and data management models of theplatform. This period also saw the appointment of key members of the managementteam of the Broca Group including the managing director, operations director andsales director. Work on specific developments for Broca's first clients started at the beginningof October 2006 and the first contract with a customer of Broca was signed aheadof the first service trials in early 2007. A further two contracts have beenentered into by 2ergo Limited and services will be provided by 2ergo Limited to2ergo Limited's customers using Broca Communications Limited's technology. Thesecontracts do not relate exclusively to services provided by the Broca Group butalso relate seperately to the provision of sevices by the 2ergo Group. As such,these contracts are being retained by 2ergo Limited and the basis on which 2ergoLimited will provide the Broca Group's technology to its customers will begoverned by and carried out in accordance with the terms of the tradingagreement between Broca Communications Limited and 2ergo Limited, referred to inparagraph 11 of Part 1 of the Admission Document and paragraph 8.1(e) of Part IVof the Admission Document. On 13th February 2007, the Broca Business and assets were acquired by BrocaCommunications a dormant subsidiary of the Company. The consideration for thisacquisition was £2,000,000, which sum was left outstanding as the Inter-CompanyIndebtedness. Terms of the Demerger The Demerger is to be effected by the Company declaring a special dividend. Thisspecial dividend will be satisfied by the allotment and issue by Broca Plc ofBroca Shares to 2ergo Shareholders on the 2ergo Share Register at the DemergerRecord Time on the basis of one Broca Share for each 2ergo Share held. Thisrequires, among other things, the Demerger Resolution to be approved by 2ergoShareholders as an ordinary resolution at the Extraordinary General Meeting. Basis of the Demerger and Demerger Resolution The Demerger is conditional upon, inter alia, the passing of the DemergerResolution to be proposed as an ordinary resolution at the Extraordinary GeneralMeeting and the approval of the payment of the Demerger Dividend by the Board.The Demerger will become effective immediately upon Admission. Dividend Demerger The Demerger will be effected by the Company declaring a special dividend on the2ergo Shares in the amount of £301,421.54 which will be satisfied by theallotment and issue by Broca Plc of Broca Shares, credited as fully paid up, tothe holders of 2ergo Shares on the 2ergo Share Register at the Demerger RecordTime on the basis of: one Broca Share for each 2ergo Share held at the Demerger Record Time, save that the number of Broca Shares to beallotted and issued to each of Barry Sharples and Neale Graham will be reducedby the number of Broca Shares already held by each of them so that, upon theDemerger becoming effective, all 2ergo Shareholders (including Barry Sharplesand Neale Graham) will hold one Broca Share for each 2ergo Share held at theDemerger Record Time. In consideration for the allotment and issue of the Broca Shares to satisfy theDemerger Dividend, the Company will transfer to Broca Plc the entire issuedshare capital of Broca Communications, the company which, immediately prior tothe Demerger becoming effective, owns and carries on the Broca Business. 2ergo Shareholders are being asked to approve the Demerger Dividend inaccordance with the Articles of Association. The resolution approving theDemerger Dividend is set out at resolution 1 in the notice of ExtraordinaryGeneral Meeting which has been posted to shareholders today. Based on the number of 2ergo Shares in issue on 14th February 2007 (the latestpracticable date prior to the publication of this document) plus the Directors'estimate of the maximum number of additional 2ergo Shares that may be issuedprior to the Demerger Record Time (as a result of the exercise of options whichhave been granted in respect of 2ergo Shares) the number of Broca Shares inissue immediately following the Demerger will be 30,142,154. If implemented, the Demerger will establish Broca Plc as a company, the sharesof which are separately admitted to and traded on AIM. The 2ergo Shares willcontinue to be admitted to and traded on AIM. The Broca Shares are expected to commence trading on AIM on 6th March 2007. Post-Demerger The Company and Broca Plc are proposing that, following Admission and theDemerger becoming effective, Broca repays the Inter-Company Indebtedness and theCompany applies the monies so repaid in the subscription for Broca Shares. Noarrangements have been, or will be prior to Admission and the Demerger becomingeffective, put in place with regard to this potential subscription. Separatelyto that, the Company has today entered into an agreement pursuant to which theCompany will, conditionally on Admission, subscribe £1,900,000 in cash for BrocaShares at a price per share of £0.52. A description of this subscriptionagreement is set out in paragraph 8.1(k) of Part IV of the Admission Document. Following the Demerger, the Company and Broca Plc will be separate companies,the shares of which are separately admitted to and traded on AIM. Futurerelations between them will be at arms' length and on normal commercial termsand be subject to services and trading agreements, further details of which areset out in the circular and paragraphs 8.1(e) and (f) of Part IV of theAdmission Document. Following Admission and the Demerger becoming effective, and following theallotment and issue of Ordinary Shares pursuant to the cash subscription by2ergo, 2ergo will hold approximately 10 per cent of the enlarged issued sharecapital of Broca (assuming, for this purpose, that the number of Broca Sharesissued to 2ergo Shareholders pursuant to the Demerger (based on the Directors'estimate of the maximum number of 2ergo Shares that may be in issue on theDemerger Record Time) is 30,142,154). If, following the Demerger becomingeffective, the Inter-Company Indebtedness is repaid and and the monies so repaidare applied by 2ergo in the subscription for Broca Shares, 2ergo would holdapproximately 19.9% of the enlarged issued share capital of Broca following suchsubscription and the cash subscription (on the basis of the same assumptions asto the issued share capital of 2ergo referred to above). Effect of Transaction The audited accounts of 2ergo for the financial period ended 31st August 2006included capitalised costs incurred in relation to the development of theintellectual property rights owned by the Broca Group. Since that date,additional costs have been capitalised in the accounts of 2ergo in respect ofsuch intellectual property rights. On 13th February 2007 the intellectual property rights and other business andassets of Broca Group were transferred to Broca Communications at a value of andfor a consideration of £2 million, which consideration was left outstanding asthe Inter-Company Indebtedness. As described above, upon the Demerger becoming effective, the entire issuedshare capital of Broca Communications will be transferred to Broca Plc. TheInter-Company Indebtedness will remain in place following the Demerger and it isproposed that, following the Demeger becoming effective, the Inter-CompanyIndebtedness will be repaid and the monies so repaid will be applied by 2ergo inthe subscription for Broca Shares. The Directors' view is that the net assets of the 2ergo Group immediatelyfollowing the Demerger will not be significantly reduced from the net assetposition of the 2ergo Group as shown in the accounts for the year ended 31stAugust 2006. Recommendation The Directors consider the terms of the proposed Demerger to be fair andreasonable so far as the Shareholders taken as a whole are concerned. The Directors consider that the proposed Demerger is in the best interests ofShareholders taken as a whole and recommend that Shareholders vote in favour ofthe Demerger Resolution to be proposed at the Extraordinary General Meeting, asthey intend to do in respect of their own beneficial holdings, amounting inaggregate to 12,353,249 2ergo Shares, which represent approximately 41% of theCompany's issued share capital. Definitions ''2ergo'' 2ergo Group plc or, where the context so requires, the 2ergo Group; ''2ergo Group'' (a) in relation to the period prior to the Demergerbecoming effective, the Company together with its subsidiary undertakingsimmediately following the Demerger; and (b) in relation to the period after the Demerger becoming effective, the Companytogether with its subsidiary undertakings; ''2ergo Share Register'' the register of members of the Company; ''2ergo Shareholders'' or ''Shareholders'' holders of 2ergo Shares; ''2ergo Shares'' the ordinary shares of £0.01 each in the capital of theCompany; ''Admission'' the admission of the ordinary share capital of Broca Plc issuedand to be issued, to trading on AIM; ''AIM'' AIM, the market operated by the London Stock Exchange; ''Articles of Association'' the articles of association of the Company; ''Board'' the board of directors of the Company; ''Broca'' Broca Plc or, where the context so requires, Broca Communications orthe Broca Business or the Broca Group; ''Broca Business'' the SMS secure payment business carried on by the Broca Groupat the date of this announcement; ''Broca Communications'' Broca Communications Limited (formally 2SafeguardLimited) or where the context so requires, the Broca Business; ''Broca Group'' (a) in relation to the period prior to the Demerger becomingeffective, the SMS secure payment business which, following the reorganisationreferred to in paragraph 8.1(b) of Part IV of the Admission Document, is carriedon by Broca Communications; and (b) in relation to the period after the Demergerbecoming effective, Broca plc and its subsidiary undertakings; ''Broca Shares'' the ordinary shares of £0.01 each in the capital of Broca; ''Demerger'' the proposed separation of Broca Communications from the 2ergoGroup by way of demerger as described in this announcement; ''Demerger Dividend'' the dividend of £301,421.54 proposed to be declared on the2ergo Shares as set out in the Demerger Resolution; ''Demerger Record Time'' 6 p.m. on 2nd March 2007 or such other time or date asthe Directors may determine, being the time and date for participation in theDemerger; ''Demerger Resolution'' the resolution numbered 1 as set out in the notice ofExtraordinary General Meeting sent to shareholders today; ''Directors'' the directors of the Company; ''Extraordinary General Meeting'' or ''EGM'' the extraordinary general meetingof the Company to be held at 9 a.m. on 5th March 2007, or any adjournmentthereof, notice of which is contained in the Circular; ''Inter-Company Indebtedness'' the loan in the amount of £2,000,000 which isowed to 2ergo Limited by Broca Communications in respect of the considerationfor the transfer by 2ergo Limited to Broca Communications of the Broca Businessand assets on 13th February 2007, details of which are set out in paragraphs 8.1(b) and (d) of Part IV of the Admission Document; ''M-payments'' mobile payments - transactions in which the handset is used toauthorise payment ''SMS'' Short Message Service or text message; This information is provided by RNS The company news service from the London Stock Exchange