Last checked at 23 Dec 2008 17:12
Energy Asset Management Plc
23 December 2008
Energy Asset Management Plc
(the 'Company')
Proposed Disposal of the entire issued share capital of Energy Assets Limited
(the 'Disposal' or 'Transaction')
Investing Strategy
Notice of General Meeting
1. Introduction
The Company announces that it has entered into an agreement (the 'Sale Agreement') with Macquarie Energy Assets Holdings Limited ('MEAH'), a wholly-owned subsidiary of Macquarie Group Limited ('MGL') for the sale by the Company of the entire issued share capital of Energy Assets Limited ('EAL'), a wholly owned subsidiary of the Company and its principal trading entity (the 'Disposal' or 'Transaction').
Completion of the Disposal, whereupon the Company will have no operating business, constitutes a fundamental change of business of the Company under Rule 15 of the AIM Rules. Accordingly, completion of the Disposal is conditional on the approval of Shareholders at a general meeting of the Company (the 'General Meeting' or 'GM').
Following the Disposal the Company will be classified under the AIM Rules as an investing company and will no longer qualify for EIS Relief. Accordingly, the investing strategy of the Company going forward, details of which are set out below, is also subject to the approval of Shareholders at the General Meeting.
A circular setting out further details of the Disposal and including the notice of the General Meeting (the 'Document') has today been sent to shareholders and will shortly be available at the Company's website (www.energyassets.co.uk)
2. Reasons for the Transaction
As set out in the announcement made by the Company on 4 December 2008, the Company's current provider of finance, with whom the Company has an agreement to finance meter installations, has indicated to the Company that it has experienced issues with its parent companies such that it cannot provide any indication of the availability of funds to continue to support the meter business of the Company despite their best endeavours to secure funding for this purpose.
As a result of the Company's loss of funding, the Company and EAL are experiencing short term funding difficulties. In this respect, the Board recently secured an agreement with Pulse 24, a wholly-owned subsidiary of MGL, pursuant to which Pulse 24 purchased meter assets from EAL for £217,000 in cash (and certain other consideration), which was sufficient to allow EAL to meet its immediate funding requirements.
EAL has, however, further funding requirements to meet in the near future and which (as a result of the Company's loss of funding referred to above) it is not in the position of meeting unless radical action is taken.
This turn of events has resulted in an offer being made by MEAH, a wholly-owned subsidiary of MGL to purchase the entire issued share capital of EAL. MEAH has indicated that it intends to acquire EAL as a going concern thereby creating a comprehensive energy metering and asset management business through the combination of EAL's existing technology and capability with Pulse 24, a siteworks, AMR and energy consultancy services company.
A sale by the Company of EAL to MEAH will ensure that EAL is able to meet its commitments, that the business of EAL is saved from administration and that the Company receives some value from the investment that it has made in EAL. Without completion of this Transaction, the future of the Company would be uncertain.
3. Proposed Disposal
Pursuant to the terms of the Sale Agreement the Company has agreed to sell the entire issued share capital of EAL to MEAH for an aggregate consideration of up to £1,848,572 payable in three tranches:
(1) £590,953 of the consideration is to be paid to the Company at Completion. Of this amount, £75,714 is conditional upon Alan McKeating and Philip Bellamy-Lee entering into new service agreements with EAL at Completion;
(2) £590,953 of the consideration is to be paid to the Company on 31 December 2009. Of this amount, £75,714 is conditional upon Alan McKeating and Philip Bellamy-Lee remaining in employment with EAL at 31 December 2009; and
(3) up to £666,666 of additional consideration is payable to the Company on or about 30 June 2010 (the "Earnings Based Payment"), conditional upon the net profit attributable to the activities of EAL and Pulse 24 for the financial year ended 31 March 2010 (calculated in accordance with a mechanism set out in the Sale Agreement) ("Relevant Profit") being equal to or exceeding £3,000,000. Of this amount, £151,428 is conditional upon Alan McKeating and Philip Bellamy-Lee remaining in employment with EAL at 30 June 2010 and to the extent that Relevant Profit is less than £3,000,000, the Earnings Based Payment will be scaled down proportionately.
The obligations of MEAH are guaranteed by Macquarie Investments 2 Limited.
EAL is the trading subsidiary of the Company and produces all of the income for the Group and is subject to almost all of the liabilities of the Group.
The annual report and financial statements for EAL for the financial year ending 31 December 2007 state that the loss after taxation was £767,431 and that the loss for the year to 31 December 2006 was £762,431.
Further information on the principal terms of the Sale Agreement are set out below.
4. Management incentivisation, dividend waiver and lock-in agreements
Upon completion of the Disposal ('Completion'), it is proposed that Alan McKeating and Philip Bellamy-Lee (the "Resigning Directors") resign from the Board and that their employment be transferred from the Company to EAL.
Incentivisation
In order to incentivise the Resigning Directors to improve the performance of EAL following Completion (which would increase the likelihood of the Earnings Based Payment being made) the Resigning Directors will be awarded a performance related bonus to be paid by EAL of up to £151,428 between them, conditional on their being employed by EAL at 31 March 2011 and conditional upon the businesses carried on by EAL and Pulse 24 making a net profit of £4,800,000 or more in the financial year ending 31 March 2011. To the extent that the net profit attributable to EAL and Pulse 24 in the financial year ending 31 March 2011 is less than £4,800,000, then these payments will be reduced proportionately.
Distribution Waiver
The Resigning Directors have agreed to waive some of their entitlements to dividends and other distributions made by the Company to Shareholders following Completion until such time as the Company has distributed an amount equal to the total consideration received by the Company under the Transaction to Shareholders (each such dividend or other distribution, a "Relevant Distribution"). This waiver will apply to an aggregate of £151,428 to which the Resigning Directors would otherwise be entitled upon Relevant Distributions made by the Company.
In addition, the Resigning Directors have agreed to waive their entitlement to the following additional amounts in respect of the Relevant Distributions:
£44,035 (in the case of Alan McKeating) and £31,679 (in the case of Philip Bellamy-Lee) in the event that the relevant Resigning Director does not enter into a transfer of employment letter with EAL at Completion.
£44,035 (in the case of Alan McKeating) and £31,679 (in the case of Philip Bellamy-Lee) in the event that the relevant Resigning Director is not employed by EAL at 31 December 2009.
£88,071 (in the case of Alan McKeating) and £63,357 (in the case of Philip Bellamy-Lee) in the event that the relevant Resigning Director is not employed by EAL at 30 June 2010.
Lock-in agreements
The waiver letters also contain provisions pursuant to which the Resigning Directors agree not to sell or otherwise transfer their shares in the share capital of the Company prior to 30 June 2010. There are certain standard permitted transfers, such as transfers to family members or to trustees or in the event of a disposal of the entire issued share capital of the Company. The Resigning Directors may also dispose of their shares in circumstances where they can demonstrate that if they are not permitted to make such a disposal then they would suffer material personal financial hardship.
5. Board Changes
As mentioned above, immediately following Completion, the Resigning Directors will resign as directors of the Company and John Edwin Butler will resign as a director and secretary of the Company and in all cases will not receive any compensation for loss of office.
The Resigning Directors and John Butler have all been employed by the Company for the benefit of EAL. The Company has levied a management charge to EAL in respect of their salaries. Accordingly, immediately prior to Completion, the Resigning Directors and John Butler will each sign a compromise agreement with the Company, resigning their position and confirming that they have no claims against the Company, whether existing or threatened.
Conditional on Completion, Mr Martin Perrin has agreed to join the Board as a director of the Company and has also agreed to act as Company secretary. A brief summary of Martin's experience is set out below:
Martin Henry Withers Perrin (54) qualified as a chartered accountant with Peat Marwick Mitchell. He has extensive experience of operations and finance in industry, particularly technology and communications where directorships included Qualcomm Telecommunications Ltd. He was a partner in Grahams Rintoul & Co, a fund management company which was sold to Lazards where he gained further investment management and corporate finance experience. He has executed business in a large number of countries and cultures in corporate environments ranging from start-ups to major multi-nationals. He is a director of FSA authorised Chatsford Corporate Finance Limited, and a non-executive director of AIM-quoted stockbroking firm Fiske plc and a number of private companies.
| Current directorships: | Previous directorships: | |
| Salisbury Assets Limited | Advanced Renewable Energy Limited | |
| Advance Cornhill Limited | Aeroplatforms plc | |
| Fivar Limited | Lindstrand AeroPlatforms Limited | |
| Chatsford Corporate Finance Limited | Datafreeze Limited | |
| Fiske plc | Adjacent Technology plc | |
| Muir Finance Company Limited | China Tradepath Limited | |
| Fairfax Perrin Limited | Fenton Equities Limited | |
|
| Zakar Soft Drinks UK Ltd | |
|
| Lothbury Limited |
As an investment manager at Grahams Rintoul & Co Ltd, Martin was involved in Venture Capital situations. As such, in April 1989 he was appointed a non-executive director of Cavalier Plastics & Packaging Ltd and its subsidiary companies Anglopac Polythene Ltd and Anglopac Holdings Ltd. (Ralston Investment Trust plc, an investment trust managed by Grahams Rintoul & Co Ltd, was the owner of 15% of the equity of Cavalier Plastics and Packaging Ltd). The Company experienced trading difficulties and by early 1991 was in need of re-financing. Efforts to raise more equity were unsuccessful and in May 1991 the Bank of Scotland was asked to appoint a Receiver. By March 1992 it was clear that there was no longer a contribution to be made in helping the Receiver and Martin resigned the directorships.
Martin Perrin has an interest in 4,808,376 Ordinary Shares.
There is no further information to be disclosed in relation to Schedule 2(g) of the AIM Rules.
6. Use of proceeds
The consideration monies received from the Transaction will be applied first to eliminate any indebtedness of the Company. It is estimated that the total amount owed by the Company at the date of this announcement is approximately £114,000.
Following Completion and after repayment of all indebtedness of the Company, there will be a residue of approximately £475,000 (assuming the Resigning Directors enter into new service agreements with EAL), with further consideration to be received by the Company on 31 December 2009 and (as described above) in the event that certain performance obligations are achieved by EAL pursuant to the Sale Agreement a final payment on 30 June 2010.
The residue that remains after the repayment of all of the indebtedness of the Company will be held by the Company on deposit for the purposes of the investing strategy described in paragraph 8 below.
7. Information on the Macquarie Group
MEAH is a subsidiary of MGL and will act as a holding company for EAL following Completion. Macquarie Group is a global provider of banking, financial, advisory, investment and funds management services. MGL is listed in Australia on the Australian Stock Exchange (ASX:MQG) and as the owner of Macquarie Bank Limited (an authorised deposit taker) is regulated by APRA, the Australian banking regulator and Macquarie Bank Limited (London Branch) is authorised and regulated by the Financial Services Authority. Macquarie Group also owns a bank in the UK, Macquarie Bank International Limited, which is regulated by the Financial Services Authority.
Pulse 24, which is a subsidiary of MGL, is a siteworks, AMR and energy consultation services company. Pulse 24 collects metering data by installing an AMR unit which continually measures a customer's energy consumption by recording the pulses emitted by customers' energy meter(s). Pulse 24 then converts the data into information that can help customers monitor and manage their energy usage efficiently. The information generated is made available online in a range of management reports designed to guide and improve energy efficiency.
8. The Investing Strategy
AIM Rule 15 states that where the effect of a proposed disposal is to divest an AIM company of all, or substantially all, of its trading business activities, that company will be treated as an investing company and must therefore provide Shareholders with details of its Investing Strategy.
The Company's Investing Strategy to be implemented following the Disposal is set out below and will require the approval of Shareholders at the GM.
The Company will seek to acquire assets, companies or businesses in the United Kingdom and Europe in the energy or natural resources sector and in the service sector.
The Company may be either an active investor and acquire control of a single company or it may be a passive investor and acquire non-controlling shares or other assets or businesses as is considered to be in the best interests of the Company.
John Shaw and Martin Perrin (the 'New Board') anticipate that the management of any acquired company will have the expertise required to manage and develop that business though they may consider retaining board positions. The New Board believe that their collective experience in corporate finance and general involvement in small companies, both public and private, together with their extensive contacts base will assist them in the seeking, evaluation and funding of target companies. If required, the New Board will consult with external specialists in respect of the analysis and due diligence on a target company. In tandem with an acquisition the New Board will consider recruiting additional directors with specialist knowledge of the target.
The Company has undertaken that it will not, for a period of two years following Completion, compete in respect of any business carried on within the United Kingdom or the Republic of Ireland which wholly or partly competes or proposes to compete with the business carried on at Completion by EAL or with any business which at Completion EAL proposes to carry on in the immediate or foreseeable future.
The Company will have to make an acquisition or acquisitions which constitute a Reverse Takeover under AIM Rule 14 or otherwise implement the Investing Strategy within twelve months of having received such consent from Shareholders. If the Company fails either to complete a Reverse Takeover or implement the Investing Strategy within this period, its shares will be suspended from trading on AIM. After a further 6 months, if no acquisition is made or the Investing Strategy has not been implemented, the suspended trading facility on AIM of the Company's Ordinary Shares would be cancelled.
If the Company has not identified a suitable acquisition approved by Shareholders following receipt of all of the consideration funds due to the Company pursuant to the Disposal (the date of which is anticipated to be 30 June 2010), the Company will hold a general meeting to decide whether the Company should be wound up with funds returned to Shareholders or continue to seek to identify a suitable acquisition.
9. Capitalisation of intercompany loan
There is an inter-company debt between the Company and EAL in the sum of £1,552,326 which the Company has capitalised by way of the issue of 1,552,326 ordinary shares of £1.00 each in EAL to the Company, credited as fully paid, on 22 December 2008. Shareholder approval was not required and is not being sought in respect of this capitalisation.
10. General Meeting
A circular containing the Notice of General Meeting has today been posted to shareholders.
The Company is convening the GM to be held at 1 Threadneedle Street, London, EC2R 8AY on 9 January 2009 for the purpose of approving the Disposal and approving the investing strategy.
As explained above, the Disposal constitutes a transaction by the Company resulting in a fundamental change of business for the purposes of Rule 15 of the AIM Rules, and accordingly completion of the Disposal is conditional on the consent of the Shareholders in general meeting. Resolution 1 in the Notice of GM seeks this consent and gives the Directors the requisite authority to complete the Disposal.
Pursuant to the AIM Rules, the Shareholders are requested to approve the Investing Strategy. Resolution 2 in the Notice of GM seeks this consent.
Shareholders should note that the Disposal is conditional on the passing of Resolution 1 but not Resolution 2 in the Notice of GM.
11. Board Recommendation
The Board believes that the Transaction is in the best interests of the Company and the shareholders. Accordingly, the Directors unanimously recommend that you vote in favour of the Resolutions to be proposed at the General Meeting. The Directors and certain shareholders have irrevocably undertaken to vote in favour of Resolution 1 in respect of their own beneficially held shareholdings totalling 121,910,406 Ordinary Shares, representing approximately 36.64% of the Company's issued share capital.
SUMMARY OF THE SALE AGREEMENT
1. Consideration
The consideration to be paid to the Company pursuant to the Sale Agreement is to be paid in three tranches:
(1) up to £590,953 of the consideration is to be paid to the Company at Completion. Of this amount, £75,714 is conditional upon Alan McKeating and Philip Bellamy-Lee entering into new service agreements with EAL at Completion;
(2) £590,953 of the consideration is to be paid to the Company on or before 31 December 2009. Of this amount, £75,714 is conditional upon Alan McKeating and Philip Bellamy-Lee remaining in employment with EAL at 31 December 2009; and
(3) up to £666,666 of additional consideration is payable to the Company on or about 30 June 2010 (the "Earnings Based Payment"), conditional upon the net profit attributable to the activities of the Company and Pulse 24 for the financial year ended 31 March 2010 (calculated in accordance with a mechanism set out in the Sale Agreement) ("Relevant Profit") being equal to or exceeding £3,000,000. Of this amount, £151,428 is conditional upon Alan McKeating and Philip Bellamy-Lee remaining in employment with EAL at 30 June 2010 and to the extent that Relevant Profit is less than £3,000,000, the Earnings Based Payment will be scaled down proportionately.
2. Condition
The sole condition of the Sale Agreement will be the passing of Resolution 1 set out in the Notice of GM.
3. Warranties
General warranties and standard tax deed related indemnities are to be provided by the Company, Philip Bellamy-Lee and Alan McKeating (together the "Warrantors") on a several (not joint) basis. Recourse under such warranties and indemnities is to be limited to a maximum of the amount payable in connection with the acquisition on or before 31 December 2009 and 30 June 2010 and which:
in respect of the Company amounts to £1,030,477;
in respect of Alan McKeating amounts to £220,177; and
in respect of Philip Bellamy-Lee amounts to £158,393.
For the avoidance of doubt no warranty claim can be made against the first tranche of £590,953 received by the Company at Completion.
All claims are subject to certain limitations in favour of the Warrantors including, inter alia, no claims are to be made which are not notified within 2 years from completion (for general warranty claims) and 7 years from completion (for tax claims). In addition there are certain de-minimis amounts below which a claim cannot be made and there can be no claim for matters fairly disclosed to MEAH prior to the date of the Sale Agreement.
The Warrantors will also provide reasonably standard non-compete and non-solicitation undertakings for a transaction of this type. In particular, these undertakings will prevent the Company from, for a period of 2 years following Completion, competing in respect of any business carried on within the United Kingdom or the Republic of Ireland which wholly or partly competes or proposes to compete with the business carried on at Completion by EAL or with any business which at Completion EAL proposes to carry on in the immediate or foreseeable future.
Enquiries:
Energy Asset Management Plc
John Shaw, Director
Tel: 07767 444114
Alan McKeating, Managing Director
Tel: 07843 231372
Ruegg & Co Limited
Brett Miller / Gavin Burnell
Tel: 0207 584 3663
Macquarie
Karen SmithTel: 0203 037 2420
ENDS