Zoo Digital Regulatory News (ZOO)

30 Jul 2007 07:01

Zoo Digital Group PLC30 July 2007 CONFIDENTIAL Not for release, publication or distribution in or into the United States,Australia, Canada, the Republic of Ireland, the Republic of South Africa orJapan. This release is not an offer for sale of securities in the United States.Securities may not be offered or sold in the United States absent registrationor an exemption from registration under the U.S. Securities Act of 1933, asamended. The issuer of the shares has not registered, and does not intend toregister, any portion of the offering in the United States and does not intendto conduct a public offering of its securities in the United States. ZOO DIGITAL GROUP PLC ("ZOO" or the "Company") PLACING AND ACQUISITION OF CERTAIN ASSETS OF SCOPE SEVEN ZOO Digital Group plc (AIM:ZOO), the digital media technology company, todayannounces the proposed acquisition of certain assets of Scope Seven, theassociated equity fundraising by way of Placing and its preliminary results forthe 12 month period to 31 March 2007. Financial Highlights of Acquisition • Conditionally agreed to acquire certain assets and contracts ofScope Seven for a total consideration of up to £2.45 million, of which up to£1.4 million is payable at completion of the Acquisition, £0.3 million ispayable in quarterly instalments over 3 years and the remainder may becomepayable as Deferred Consideration • The Deferred Consideration may become payable, depending on theprofitability achieved by the Scope Seven Division over a three year period,and, capped at a maximum of £0.75 million, is to be satisfied in cash and/orOrdinary Shares entirely at ZOO's discretion Operational Highlights of Acquisition • Scope Seven is one of the key independent compression andauthoring service providers in the Hollywood digital media production market.It has developed an internet-accessible collaboration system, currently in useby Warner Brothers, that is compatible with ZOO's products and which will beincluded in the ZOO portfolio and offered to other customers to secureincremental revenues • The Acquisition will allow ZOO to resume sales discussions withstudios and publishers where ZOO's lack of service capability had previouslydelayed progress • The Board believes that following the Acquisition the Group willbe able to offer a unique proposition within the current market, consisting offirst class services based upon exclusive use of proprietary, innovativetechnology • This offering can then be marketed directly to the studios,rights holders and publishers and can be shown to have significant benefits whencompared to competing service providers Highlights of Preliminary Results • Group turnover for the year to 31 March 2007 of £3.75 million(2006: £9.16 million) • The loss before interest, tax, depreciation and amortisation wasreduced significantly to £1.42 million (2006: £3.61 million restated loss) • As at 31 March 2007 the Group had net current assets of £1.94million (2006: net current liabilities of £0.415 million) including a bankbalance of £2.03 million (2006: overdraft of £0.317 million) Details of the Placing • ZOO is seeking to raise £3 million through a placing of shareswith management and institutional investors Certain definitions apply throughout this announcement and your attention isdrawn to the table at the end of this announcement where such definitions areset out in full. Commenting on the Acquisition, Stuart Green, CEO of ZOO Digital Group plc, said: "The Board believes that the acquisition of the Scope Seven assets creates abroader offering that is unique within the current market and will enable theCompany to penetrate the market more effectively and to unlock a significantrevenue potential. By augmenting its current offering ZOO will be able todeliver directly to studios, rights holders and publishers a proposition andpricing model, based on utilisation as opposed to time and materials, unlike anyother that is currently available. "The Directors believe that the acquisition of Scope Seven has persuasivestrategic and financial logic and represents an attractive opportunity for theCompany to broaden its offering, acquire a second major Hollywood studio as acustomer and accelerate its growth." Enquiries Stuart Green Nick Dibden/Charlie HooperCEO, ZOO Digital Group plc Weber Shandwick Financial0114 241 3700 020 7067 0700 Richard Kauffer/James BryceKBC Peel Hunt Ltd020 7418 8900 Notes to Editors About ZOO Digital Group plc ZOO is an innovative software solutions company that helps video publishers andrights owners maximise revenues and profits by exploiting their content acrossmultiple platforms, languages and territories. ZOO has a portfolio of over 60patents (granted or pending) and a depth of knowledge in digital media processeswhich has few rivals. ZOO's key products include: Interactive DVD software - world leading tool for creating interactive DVDs.Most of the interactive titles played on any household DVD player are made withZOO's software. Notable titles include 'Who Wants to be a Millionaire?','Question of Sport' and 'Madagascar - Animal Trivia Game'. Linear DVD production software - technology to automate the production of linear(movies & TV shows) digital media. With this automation comes a significantreduction in time-to-value for the intellectual property, as well as radicallychanging the economies of publishing back catalogues. Multi-language production software - technology to 'localise' text that appearsin digital media. This software automates the localisation process for videopublishers. Previously, highly-skilled technicians were required to manipulategraphical data. Now, with ZOO's software, text that needs translation isextracted and replaced with corresponding translations - reducing time, errorsand labour costs. Template Authoring System (TAS) - TAS has been designed to accommodate currentand future video-based technologies. By defining templates for differentplatforms, alternative versions of the titles - such as HD DVD and Blu-ray Disccan be quickly and easily created using the same system but different assetdata. Introduction ZOO today announces that it has conditionally agreed to acquire certain assetsand contracts of Scope Seven for a total consideration of up to a maximum of£2.45 million, of which up to £1.4 million is payable at completion of theAcquisition, £0.3 million is payable in quarterly installments over three yearsand the remainder is payable as Deferred Consideration. The DeferredConsideration may become payable, depending on the profitability achieved by theScope Seven Division over a three year period, and, capped at a maximum of £0.75million, is to be satisfied in cash and/or Ordinary Shares entirely at ZOO'sdiscretion. Scope Seven is an independent company providing compression and authoring (i.e.DVD production) services to a number of video publishers including certainHollywood studios, most notably Warner Brothers. Scope Seven is affiliated to aWarner Brothers subsidiary - GDMX - that operates as an internal facility fordigital media production, and through this relationship Scope Seven enjoyssignificant work on behalf of the Warner Brothers studios. Scope Seven's othercustomers include 20th Century Fox, New Line Cinema, the BBC, DIRECTV, Hasbroand Mattel. The Board believes that the Acquisition will benefit the Group as it willdirectly align the Group with the interests of ZOO's underlying clients - thestudios - offering them reduced costs, improved efficiencies and a shortening ofthe time it takes for the studios to prepare their products for the market. Thisis distinct from other DVD production companies that are remunerated on a timeand materials basis. ZOO also announces today proposals for a capital raising by way of the Placingto provide it with the funds, inter alia, to further enhance the development ofits business. The Placing will raise approximately £3 million which will be usedto fund the cash element of the initial consideration of up to £1.4 million dueunder the terms of the Asset Purchase Agreement, with the balance being used toaugment the Company's working capital and defray the costs of the Placing andthe Acquisition. The Company has also announced today its preliminary results for the year ended31 March 2007. A copy of the Annual Report and Accounts will be sent toShareholders as soon as possible. KBC Peel Hunt has agreed, as agent for the Company, to use its reasonableendeavours to procure subscribers for all the Placing Shares at the PlacingPrice under the terms of the Placing. The Placing is not being underwritten. The Placing Shares are not being offered to Shareholders on a pre-emptive basisbecause the Board has concluded, having taken appropriate advice, that it is notin the best interests of the Company to make such a pre-emptive offer due to thetime and cost involved and the necessity to complete the Acquisitionsuccessfully in a timely manner. This announcement sets out the background to and reasons for the Acquisition andthe Placing and explains why the Directors believe that the proposals are in thebest interests of the Company and its Shareholders. The Acquisition and thePlacing are conditional upon the passing of certain Resolutions by theShareholders at the AGM. A notice convening the AGM, which includes resolutionsto dis-apply Shareholders' statutory pre-emption rights, required in order toeffect the Placing, is included within the Circular. The Acquisition and thePlacing are also conditional on Admission of the Placing Shares to trading onAIM. The Company has received irrevocable undertakings from all of the Directors,holding a total of 1,493,680 Ordinary Shares, to vote in favour of theResolutions, representing approximately 25.26 per cent. of the Existing OrdinaryShares. Information on ZOO and background to the Acquisition ZOO has operated as a software developer and licensor and has created a numberof professional software products that are targeted at the digital mediaproduction industry. These products are innovative in the market, being basedaround a number of proprietary algorithms for which ZOO holds several grantedand pending patents in the UK, United States and other territories. Theproducts provide clear advantages and benefits to the production process sincethey automate and centralise functions that are otherwise performed by highlyskilled manual labour, thereby substantially reducing the time and cost it takesto prepare consumer products for market. In the past, ZOO has sought to license its software products to productionfacilities that in turn provide services to studios and video publishers. TheCompany has begun to broaden its offering to include certain production servicesso that it can contract directly with studios, rights holders and videopublishers. ZOO has for some time been in communication directly with studios, rightsholders and publishers to better educate the market on the benefit of itsproducts. These organisations are the ultimate beneficiaries of ZOO'stechnology and have much to gain by its adoption by way of reduced costs,improved efficiencies and a shortening of the time it takes to prepare productsfor the market. Faced with the resistance of its suppliers to adopt ZOO'sproducts, one major Hollywood studio was convinced enough to embrace thetechnology directly rather than via intermediaries. That studio now operatesthe tools internally where they are used in the creation of its worldwide DVDtitle releases and have been demonstrated to deliver substantial savings of timeand cost. The Board believes that the Group's broadened offering consisting of digitalmedia production services based around ZOO's software tools is unique within thecurrent market and will enable the Company to penetrate the market moreeffectively and to unlock a significant revenue potential. By augmenting itscurrent offering ZOO will be able to deliver directly to studios, rights holdersand publishers a proposition and pricing model, based on utilisation as opposedto time and materials, unlike any other that is currently available. The Board believes that the Acquisition is key to building critical mass inservice delivery, because it provides established facilities and resources andstrong customer relationships in Hollywood, which represents a significant shareof the available market for digital media production. Information on Scope Seven Scope Seven is one of the key independent compression and authoring serviceproviders in the Hollywood digital media production market. Both the company andits President, Duncan Wain, are highly respected within the market. In the year ended 28 February 2007, the assets of Scope Seven being acquired areestimated to have generated revenues of approximately £3.78 million and to havemade a profit before tax of £0.23 million. As at 28 February 2007, Scope Sevenhad net assets of £2.12 million of which ZOO is acquiring assets with a net bookvalue of £1.07 million. Scope Seven is based in Los Angeles; 65 staff willtransfer to the Group as part of the Acquisition. Reasons for the Acquisition The Directors believe that the Acquisition has persuasive strategic andfinancial logic and represents an attractive opportunity for ZOO to broaden itsoffering, acquire a second major Hollywood studio as a customer and accelerateits growth. • New Service Offerings The Board believes the Acquisition will allow ZOO to offer a unique propositionwithin the current market consisting of first class services based uponexclusive use of proprietary, innovative technology. This offering can bemarketed directly to the studios, rights holders and publishers and can be shownto have significant benefits when compared to competing service providers.ZOO's combined service and technology proposition is aligned with the interestsof the studios, offering services at better value, flexibility to use internalresources where appropriate to reduce costs, and shorten the time it takes toprepare products for the market. This is clearly differentiated from theofferings of competing companies which are unable to apply ZOO's technology toreduce their cost of sale. The Board believes that ZOO will be seen as a moretrusted vendor since its interests are aligned with those of the studios, andthis can be expected to lead to closer and more productive workingrelationships. The Board believes the control of Scope Seven's production services which arebeing acquired and the associated use of ZOO's tools will enable ZOO toaccelerate its penetration of the Hollywood digital media production market. • Relationship with Warner Brothers Scope Seven's affiliation with GDMX will provide ZOO with the opportunity tosupply its technologies for use in conjunction with the production of videotitles for Warner Brothers. Scope Seven's relationship with Warner Brothers asthe sole US affiliate of GDMX means it receives a significant number of projectscommissioned by Warner Brothers. In 2006 Warner Brothers was the single largest publisher of DVD-Video titlesinto North America with a 4 per cent. market share by number of new titles(source: www.hometheaterinfo.com). The Board believes that it should bepossible to secure significant technology licensing business with WarnerBrothers through the Scope Seven Division. • Sales Opportunities The Acquisition will enable ZOO to resume sales discussions with several majorHollywood studios and other publishers where ZOO's lack of service capabilityhas previously delayed progress. ZOO has already approached these potentialcustomers to explore the reception of a combined proposition from ZOO and ScopeSeven through the Scope Seven Division and this has been received favourably bya number of studios. • Incremental Revenue from Existing Customers It is believed that incremental revenue can be secured from some of ZOO'sexisting customers who are currently outsourcing certain production work (suchas video and audio compression) to third parties and who would be prepared toreallocate such work to the enlarged ZOO business. • Interactive DVD Development Scope Seven provides interactive DVD ("iDVD") development services for anumber of companies in the United States including Mattel and Warner Brothers.These services are provided based on ZOO's DVD-EXTRA STUDIO product; Scope Sevenwas one of the first companies to license this system for iDVD production.Through its use of ZOO's technology Scope Seven has established itself as one ofthe leading iDVD developers in the United States, and has undertaken projectsfor Mattel, Hasbro, Warner Brothers, SnapTV and bEqual. The inclusion of such iDVD development services in conjunction with ZOO'scurrent technology licensing proposition will enhance the Company's ability tosecure high margin royalty income in the United States. • Collaboration Software Scope Seven has developed an internet-accessible collaboration system,currently in use by Warner Brothers, that is compatible with ZOO's products andwhich will be included in the ZOO portfolio and offered to other customers tosecure incremental revenues. Terms of the Asset Purchase Agreement Under the terms of the Asset Purchase Agreement ZOO (through certain Groupundertakings) will acquire the assets and properties used by Scope Seven in bothits "Entertainment Group" (which includes the compression and authoringbusiness) and its "Interactive Media Group" (which includes the iDVD gamesdevelopment business). These assets (which are subject to the assumption ofcertain liabilities) include certain employees, contracts and commitments andproprietary rights over the names "Scope Seven", "Comchoice", "ChoiceProjects"and "ChoiceUpdates". Assets used exclusively in Scope Seven's "Education Group"are not being acquired. The Acquisition is conditional, inter alia, on Admissionoccurring. The maximum consideration payable under the terms of the Asset PurchaseAgreement will not exceed £2.45 million. On completion of the Acquisition ZOOshall pay the sum of up to £1.4 million to Scope Seven, which comprises thefollowing sums: a consideration payment of £0.3 million; up to £0.85 millionowed by Scope Seven under the terms of a credit facility entered into with FirstRegional Bank; and the repayment of up to £0.25 million of Officers' Loans owedto certain individuals and officers by Scope Seven. In addition ZOO will issue asubordinated promissory note for a principal amount of £0.3 million bearing arate of interest of ten per cent. per annum, in respect of the balance of theOfficers' Loans. Further Deferred Consideration may become payable subsequently, depending on theprofitability achieved by the Scope Seven Division over a three year period,capped at a maximum of £0.75 million. The amount of Deferred Consideration will be calculated at 20 per cent. ofearnings before interest, tax, depreciation and amortisation, subject to a total£0.75 million cap, for each of the periods ending 29 February 2008, 28 February2009 and 28 February 2010 and will be payable within 60 days of the end of therelevant period. At least 50 per cent. of any Deferred Consideration that becomes payable shallbe satisfied in cash and the remainder, at the sole discretion of ZOO, either incash and/or by the issue of Consideration Shares. In the event that any amountof the Deferred Consideration is to be satisfied by the issue of ConsiderationShares then the Company will issue sufficient number of Consideration Shares asare equivalent to the value of that proportion of the Deferred Consideration,based on the average closing price of the Ordinary Shares during the 20 tradingdays immediately preceding the date of issue of the Consideration Shares (afterhaving deducted the three highest and three lowest of such 20 sample closingprices from the calculation), but in any event the Consideration Shares shallnot be issued at less than 15 pence per share (being the par value of theOrdinary Shares). Under the terms of the Asset Purchase Agreement, it has been agreed that theConsideration Shares shall only be sold or disposed of prior to or on 30September 2008, in limited circumstances; and, at any time, only on a bestexecution basis through such stockbroker as may from time to time act as thebroker to the Company, so long as the number of shares sold in any calendarquarter shall not exceed the greater of (i) 1 per cent. of all outstandingOrdinary Shares in issue at such time, or (ii) 1 per cent. of the average weeklyvolume of Ordinary Shares traded during the 4 weeks immediately preceding suchdisposal. Statement of Preliminary Results The preliminary results of the Group announced today show that, following thereorganisation of the Group, turnover for the year to 31 March 2007 fell to£3.75 million (2006: £9.16 million). The loss before interest, tax,depreciation and amortisation was reduced significantly to £1.42 million (2006:£3.61 million restated loss). As at 31 March 2007 the Group had net currentassets of £1.94 million (2006: net current liabilities of £0.415 million)including a bank balance of £2.03 million (2006: overdraft of £0.317 million). The Board anticipates substantial growth in revenues due to the licensing of newand existing digital media technologies and services, and further growth in theinteractive DVD market. The Board anticipates that ZOO's technologies will playan increasingly significant role in the digital media production market. Reasons for and details of the Placing and use of proceeds The Placing, assuming that it completes, will raise approximately £3 million(before expenses). Of these proceeds, up to £1.4 million will be used to fundthe cash element of the consideration due under the terms of the Acquisition,with the balance being used to defray the costs of the Placing and theAcquisition and to add to the Company's cash reserves for working capitalpurposes. Under the terms of the Placing Agreement, KBC Peel Hunt, as agent for ZOO, hasagreed conditionally to use its reasonable endeavours to procure subscribers forthe Placing Shares at 25 pence per share. The complete terms and conditions ofthe Placing are set out at the Appendix to this announcement. The PlacingAgreement is conditional, inter alia, upon Admission occurring and completion ofthe Acquisition. The Placing Price of 25 pence per Placing Share is at a discount of 28.6 percent. to the closing middle market price of 35 pence per Ordinary Share on 27July 2007, being the last business day before the date of this announcement,which the Directors consider to be fair and reasonable given, inter alia, thesize of the Placing. The Placing Shares are not being offered to Shareholders on a pre-emptive basisbecause the Board has concluded, having taken appropriate advice, that it is notin the best interests of the Company to make such a pre-emptive offer due to thetime and cost involved and the need to complete the Acquisition successfully ina timely manner. Since certain of the Directors and their related parties will be issued with atotal of 6,340,000 Placing Shares, representing 107 per cent. of the Company'sExisting Ordinary Shares, this issue is a "Related Party Transaction" under rule13 of the AIM Rules. The Directors (with the exception of Stuart Green inrespect of his subscription for 2,540,000 Placing Shares, Ian Stewart in respectof his subscription for 800,000 Placing Shares and Matt Taylor in respect of thesubscription for 3,000,000 Placing Shares by associated parties), havingconsulted with KBC Peel Hunt, the Company's Nominated Adviser, consider that theterms of the transaction are fair and reasonable insofar as the Company'sShareholders are concerned. In providing advice to the Board, KBC Peel Hunt hastaken into account the Board's commercial assessments. Enterprise Investment Scheme and Venture Capital Trusts The Directors believe that the Company will continue to be a qualifying companyfor the purposes of the EIS and VCT legislation, however they can offer nocertainty in this regard. On 20 June 2007, confirmation was sought from Her Majesty's Revenue and Customs("HMRC") that: • the Company is a qualifying company for the purposes of the EIS andfor investment by a VCT; and • the Ordinary Shares of the Company are eligible shares. On 6 July 2007, the Company received confirmation of both of the above pointsfrom HMRC. This authorises the Company to issue certificates under Section 204(1) Income Tax Act 2007 in respect of the shares to be issued, confirming theeligibility of the Ordinary Shares for the purposes of the EIS scheme. The continuing availability of EIS relief and the status of the relevant PlacingShares as a qualifying holding for VCT purposes will be conditional, inter alia,on the Company continuing to satisfy the requirements for a qualifying companythroughout the period of three years from the date of the investor making hisinvestment (under EIS), and, for VCT purposes, throughout the period theOrdinary Shares are held as a "qualifying holding". Neither the Company nor theDirectors make any warranty or give any undertaking that relief will beavailable in respect of any investment in the Placing Shares, nor do theywarrant or undertake that the Company will keep its qualifying status throughoutthe relevant period or that, once given, such relief will not be withdrawn. Investors considering taking advantage of any of the relief under the EIS orrelief available to VCTs should seek their own professional advice in order thatthey may fully understand how the rules apply in their individual circumstances. Settlement and dealings Application will be made to London Stock Exchange plc for the Placing Shares tobe admitted to trading on AIM. It is expected that, subject to the passing ofthe relevant Resolutions at the AGM, Admission will become effective on 28thAugust 2007. The Placing Shares will, when issued, rank pari passu in all respects with theExisting Ordinary Shares including the right to receive dividends and otherdistributions declared following Admission. Interests of Directors following the Placing Immediately following the Placing, the Directors' interests in the Company willbe as follows: Director Number of Number of Nominal Number of Percentage existing Placing Shares amount of shares held interest in shares subscribed CULS held (£) following the Enlarged the Placing Share Capital Dr Christopher Honeyborne 1,333 Nil 4,0001 1,333 0.01(Chairman) Dr Stuart Green (Chief 206,502 2,540,000 342,000 2,746,502 15.33Executive Officer) Helen Gilder (Group Finance 226 Nil Nil 226 0.01Director) Matt Taylor (Non-Executive 410,254 3,000,000 1,800,000 3,410,254 19.04Director) 2 (subscription by funds managed and advised by Foresight Venture Partners)Ian Stewart (Non-Executive 875,365 800,000 270,000 1,675,365 9.35Director) 1 Christopher Honeyborne's interest in CULS is held by virtue of him being adirector of Brockhill Ltd. 2 By virtue of Matt Taylor being a partner at VCF LLP (trading as ForesightVenture Partners), he is deemed to be interested in Ordinary Shares and CULSheld by funds managed and advised by Foresight Venture Partners Circular The Circular containing information, inter alia, in relation to the Acquisitionand the Placing and a notice of AGM is expected to be posted to shareholderstoday. A copy of the Circular can be downloaded from http://www.zoodigitalgroup.com and copies are available for at least one month from thedate of this announcement at the offices of DLA Piper UK LLP at 1 St.Paul'sPlace, Sheffield S1 2JX. Statistics • Placing Price per Placing Share : 25 pence• Number of Placing Shares being placed on behalf of the Company : 12,000,000• Number of Placing Shares as a percentage of the Existing Ordinary Shares : 202.94%• Number of Placing Shares as a percentage of the Enlarged Share Capital : 66.99%• Number of Ordinary Shares in issue following Admission of the Placing Shares : 17,913,088• Proceeds of the Placing available to the Company : £3,000,000 Expected Timetable • Latest time and date for receipt of Forms of Proxy 10.00 a.m. on 22 August 2007• Annual General Meeting : 10.00 a.m. on 24 August 2007• Admission and commencement of dealings in the Placing Shares : 8 a.m. on 28 August 2007 Exchange Rate The exchange rate used for the purposes of this announcement is (unlessotherwise stated): £1.00 : US$2.00. FORWARD LOOKING STATEMENTS This announcement may contain forward-looking statements, including, withoutlimitation, statements containing the words "believes", "anticipates", "expects", and similar expressions. Such forward-looking statements involve unknownrisks, uncertainties and other factors which may cause the actual results,financial condition, performance or achievements of the Company, or industryresults, to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements. Giventhese uncertainties, prospective investors are cautioned not to place any unduereliance on such forward-looking statements. Save as required by law or by theAIM Rules or by the Disclosure Rules, the Company disclaims any obligation toupdate any such forward-looking statements in this announcement to reflectfuture events or developments. APPENDIX TERMS AND CONDITIONS OF THE PLACING For invited Placees only - Important Information This Appendix gives details of the terms and conditions of, and the mechanics ofparticipation in, the Placing. 1. Eligible Participants This Appendix, including the terms and conditions of the Placing set out below,is directed only at persons who are FSMA Qualified Investors and who fall withinthe category of persons set out in Article 19 of the Financial Services andMarkets Act 2000 (Financial Promotion) Order 2005 (the "Order") or are high networth companies within the meaning set out in Article 49 of the Order or areotherwise permitted to receive it. In this Appendix "you" or "Placee" means any person who is or becomes committedto subscribe for Placing Shares under the Placing. Members of the public are not eligible to take part in the Placing. 2. Overseas jurisdictions The distribution of this announcement and the Placing and/or issue of OrdinaryShares in certain other jurisdictions may be restricted by law. No action hasbeen taken by the Company or KBC Peel Hunt that would permit an offer ofOrdinary Shares or possession or distribution of this announcement or any otheroffering or publicity material relating to such Ordinary Shares in anyjurisdiction where action for that purpose is required. FSMA Qualified Investorswho seek to participate in the Placing must inform themselves about and observeany such restrictions. In particular, this announcement does not constitute anoffer to sell or issue or the solicitation of an offer to buy or subscribe forOrdinary Shares in the United States, Canada, Japan, the Republic of SouthAfrica, the Republic of Ireland or Australia or in any other jurisdiction inwhich such offer or solicitation is or would be unlawful. The Placing Shareshave not been and will not be registered under the US Securities Act or underthe securities laws of any state or other jurisdiction of the United States,and, subject to certain exceptions, may not be offered or sold, resold ordelivered, directly or indirectly in or into the United States, or to, or forthe account or benefit of, any US persons (as defined in Regulation S under theUS Securities Act). No public offering of the Placing Shares is being made inthe United States. No money, securities or other consideration from any personinside the United States is being solicited pursuant to this announcement or thePlacing. 3. Placing KBC Peel Hunt will arrange the Placing as agent for and on behalf of theCompany. KBC Peel Hunt will determine in its absolute discretion the extent ofeach Placee's participation in the Placing, which will not necessarily be thesame for each Placee. No commissions will be paid to or by Placees in respect oftheir agreement to subscribe for any Placing Shares. Each Placee will be required to pay to KBC Peel Hunt, on the Company's behalf,the Placing Price as the subscription sum for each Placing Share agreed to besubscribed by it under the Placing in accordance with the terms set out in thisAppendix. Each Placee's obligation to subscribe and pay for Placing Shares underthe Placing will be owed to each of the Company and KBC Peel Hunt. Each Placeewill be deemed to have read this announcement in its entirety. To the fullestextent permitted by law and applicable FSA rules, neither KBC Peel Hunt nor anyother KBC Person shall have any liability to Placees or to any person other thanthe Company in respect of the Placing. 4. Participation and settlement Participation in the Placing is only available to persons who are invited toparticipate in it by KBC Peel Hunt. A Placee's commitment to subscribe for a fixed number of Placing Shares underthe Placing will be agreed orally with KBC Peel Hunt. Such agreement willconstitute a legally binding commitment on your part to subscribe for thatnumber of Placing Shares at the Placing Price on the terms and conditions setout or referred to in this Appendix and subject to the Company's memorandum andarticles of association. After such agreement is entered into a writtenconfirmation will be dispatched to you by KBC Peel Hunt confirming the number ofPlacing Shares that you have agreed to subscribe for, the aggregate amount youwill be required to pay for those Placing Shares and settlement instructions. Itis expected that such written confirmations will be despatched on the date ofthis announcement, that the "trade date" for settlement purposes for the PlacingShares will be 2 August 2007. A form of confirmation will accompany each written confirmation and, on receipt,should be completed and returned to Jamie Reynolds at KBC Peel Hunt by fax on020 7972 0112 by 3.00 p.m. on 1 August 2007. Settlement of transactions in the Placing Shares (ISIN:GB00B1FQDL10) will takeplace within the CREST system, subject to certain exceptions, on a "deliveryversus payment" (or "DVP") basis. You should settle against CREST ID: 546. KBCPeel Hunt reserves the right to require settlement for and delivery of anyPlacing Shares to any Placees by such other means that it deems appropriate ifdelivery or settlement is not possible or practicable within the CREST systemwithin the timetable set out in this announcement or would not be consistentwith the regulatory requirements in any Placee's jurisdiction. If Placing Shares are to be delivered to a custodian or settlement agent, pleaseensure that the written confirmation is copied and delivered immediately to theappropriate person within that organisation. 5. No Prospectus No prospectus (in accordance with FSMA or the UK Prospectus Rules) has been orwill be submitted for approval by the FSA in relation to the Placing or thePlacing Shares. Placees' commitments in respect of Placing Shares will be madesolely on the basis of the information contained in this announcement and on theterms contained in it. 6. Placing Shares The Placing Shares will, when issued, be fully paid and will rank pari passu inall respects with the Existing Ordinary Shares. Applications will be made for the admission of the Placing Shares to trading onAIM. It is expected that Admission will take place, and dealings in the PlacingShares will commence, on 28 August 2007. 7. Placing Agreement KBC Peel Hunt has today entered into the Placing Agreement with the Companyunder which KBC Peel Hunt has, on the terms and subject to the conditions setout in the Placing Agreement, agreed to use its reasonable endeavours as agentof the Company to procure subscribers for Placing Shares at the Placing Price.The Placing is not being underwritten by KBC Peel Hunt or any other person. 8. Placing conditions The Placing is conditional, inter alia, on (a) the passing of the Resolutions,(b) the Placing Agreement not being terminated in accordance with its termsprior Admission and (c) Admission taking place not later than 8.00 a.m. on 30September 2007 (or such later date and time as the Company and KBC Peel Hunt mayagree). KBC Peel Hunt reserves the right (with the agreement of the Company) to waive orextend the time and or date for the fulfilment of any of the conditions in thePlacing Agreement applicable to the Placing to a time no later than 8.00 am onthe Long Stop Date. If any condition in the Placing Agreement is not fulfilled or waived by KBC PeelHunt by the relevant time, the Placing will lapse and your rights andobligations pursuant to the Placing shall cease and terminate at such time. The Placing Agreement may be terminated by KBC Peel Hunt at any time prior toAdmission in certain circumstances including, inter alia, following a materialbreach of the Placing Agreement by the Company or the occurrence of certainforce majeure events. The exercise of any right of termination pursuant to thePlacing Agreement, any waiver of any condition in the Placing Agreement and anydecision by KBC Peel Hunt whether or not to extend the time for satisfaction ofany condition to the Placing Agreement or otherwise in respect of the Placingshall be within KBC Peel Hunt's absolute discretion. KBC Peel Hunt shall have noliability to you in the event of any such termination, waiver or extension or inrespect of any decision whether to exercise any such right of termination,waiver or extension. 9. Payment default Your entitlement to receive any Placing Shares will be conditional on KBC PeelHunt's receipt of payment by the relevant time(s) to be stated in the writtenconfirmation referred to above, or by such later time and date as KBC Peel Huntmay in its absolute discretion determine. KBC Peel Hunt may, in its absolutediscretion, waive such condition, and shall not be liable to you in the event ofit deciding whether to waive or not to waive such condition. If you fail to make such payment by the required time for any Placing Shares (1)the Company may release itself (if it decides, at its absolute discretion, to doso) and will be released from all obligations it may have to allot and/or issueany such Placing Shares to you or at your direction which are then unallottedand/or unissued, (2) the Company may exercise all rights of lien, forfeiture andset-off over and in respect of any such Placing Shares to the fullest extentpermitted under its articles of association or otherwise by law and to theextent that you then have any interest in or rights in respect of any suchshares, (3) the Company or, as applicable, KBC Peel Hunt may sell (and each ofthem is irrevocably authorised by you to do so) all or any of such shares onyour behalf and then retain from the proceeds, for the account and benefit ofthe Company or, where applicable, KBC Peel Hunt (i) any amount up to the totalamount due to it as, or in respect of, subscription monies, or as interest onsuch monies, for any Placing Shares, (ii) any amount required to cover any stampduty or stamp duty reserve tax arising on the sale, and (iii) any amountrequired to cover dealing costs and/or commissions necessarily or reasonablyincurred by it in respect of such sale, and (4) you shall remain liable to theCompany and to KBC Peel Hunt for any loss which either of them may suffer as aresult of (i) it not receiving payment in full for such Placing Shares by therequired time, and/or (ii) the amount received (net of any costs and expenses asare referred to in (3)(ii) and (3)(iii) above) from the sale of any such PlacingShares to any other person at whatever price and on whatever terms are actuallyobtained for such sale by or for it being less than receiving payment in fullfor such Placing Shares by the required time. Interest may be charged in respectof payments not received by KBC Peel Hunt for value by the required timereferred to above at the rate of two percentage points above the base rate ofBarclays Bank plc. 10. Placees' warranties and undertakings to the Company and KBC PeelHunt By agreeing with KBC Peel Hunt to subscribe for Placing Shares under the Placingyou irrevocably acknowledge and confirm and warrant and undertake to, and agreewith, each of the Company and KBC Peel Hunt (in its capacity as placing agent),in each case as a fundamental term of your application for Placing Shares and ofthe Company's obligation to allot and/or issue any Placing Shares to you or atyour direction, that: (a) you agree to and accept all the terms set out in thisannouncement; (b) your rights and obligations in respect of the Placing willterminate only in the circumstances described in this announcement and will notbe capable of rescission or termination by you in any circumstances; (c) this announcement, which has been issued by the Company, is thesole responsibility of the Company; (d) you have not been, and will not be, given any warranty orrepresentation in relation to any Placing Shares or to the Company or to anyother member of its Group in connection with the Placing, other than by theCompany as included in this announcement; (e) you have not relied on any representation or warranty in reachingyour decision to subscribe for Placing Shares under the Placing, save as givenor made by the Company as referred to in the previous paragraph; (f) you are not a customer of KBC Peel Hunt in relation to thePlacing and KBC Peel Hunt is not acting for you in connection with the Placingand will not be responsible to you in respect of the Placing for providingprotections afforded to its customers; (g) you will pay the full subscription amount as and when required inrespect of all Placing Shares allocated to you in accordance with such terms andwill do all things necessary on your part to ensure that payment for such sharesand their delivery to you or at your direction is completed in accordance withthe standing CREST instructions (or, where applicable, standing certificatedsettlement instructions) that you have in place with KBC Peel Hunt or put inplace with KBC Peel Hunt with its agreement; (h) you are entitled to subscribe for Placing Shares under the laws ofall relevant jurisdictions which apply to you and you have complied, and willfully comply, with all such laws (including where applicable, theAnti-Terrorism, Crime and Security Act 2001, the Proceeds of Crime Act 2002, andthe Money Laundering Regulations 2003) and have obtained all governmental andother consents (if any) which may be required for the purpose of, or as aconsequence of, such subscription, and you will provide promptly to KBC PeelHunt such evidence, if any, as to the identity of any person which it mayrequest from you (for the purpose of its complying with such Regulations orotherwise in connection with your participation in the Placing) in the form andmanner requested by KBC Peel Hunt on the basis that any failure by you to do somay result in the number of Placing Shares that are to be allotted and issued toyou or at your direction pursuant to the Placing being reduced to such number,or to nil, as KBC Peel Hunt may decide at its sole discretion; (i) you have complied and will comply with all applicable provisionsof the FSMA with respect to anything done or to be done by you in relation toany Placing Shares in, from or otherwise involving the United Kingdom and youhave not made or communicated or caused to be made or communicated, and you willnot make or communicate or cause to be made or communicated, any "financialpromotion" in relation to Placing Shares in contravention of section 21 of FSMA; (j) you are a FSMA Qualified Investor and you are a person at or towhom any communication relating to the Company that is a "financial promotion",as referred to in FSMA, may lawfully be issued, directed or otherwisecommunicated without the need for such communication to be approved, made ordirected by an "authorised person" as referred to in FSMA; (k) you are acting as principal only in respect of the Placing or, ifyou are acting for any other person in respect of the Placing (1) you are bothan "authorised person" for the purposes of FSMA and a "qualified investor" asdefined at Article 2.1(e)(i) of Directive 2003/71/EC (known as the ProspectusDirective) acting as agent for such person, and (2) such person is either (i) aFSMA Qualified Investor or (ii) a "client" (as defined in section 86(2) of FSMA)of yours that has engaged you to act as his agent on terms which enable you tomake decisions concerning the Placing or any other offers of transferablesecurities on his behalf without reference to him; (l) nothing has been done or will be done by you in relation to thePlacing or to any Placing Shares that has resulted or will result in any personbeing required to publish a prospectus in relation to the Company or to anyOrdinary Shares in accordance with FSMA or the UK Prospectus Rules or inaccordance with any other laws applicable in any part of the European Union orthe European Economic Area; (m) you are not, and are not acting in relation to the Placing asnominee or agent for, a person who is or may be liable to stamp duty or stampduty reserve tax in respect of any agreement to acquire (or any acquisition of)shares or other securities at a rate in excess of 0.5 per cent. (including,without limitation, under sections 67, 70, 93 or 96 of the Finance Act 1986concerning depositary receipts and clearance services), and the allocation,allotment, issue and/or delivery to you, or any person specified by you forregistration as holder, of Placing Shares will not give rise to a liabilityunder any such section; (n) you will not treat any Placing Shares in any manner that wouldcontravene any legislation applicable in any territory or jurisdiction and noaspect of your participation in the Placing will contravene any legislationapplicable in any territory or jurisdiction in any respect or cause the Companyor KBC Peel Hunt to contravene any such legislation in any respect; (o) (applicable terms and expressions used in this paragraph have themeanings that they have in Regulation S made under the US Securities Act) (1)none of the Placing Shares has been or will be registered under the USSecurities Act, (2) none of the Placing Shares may be offered, sold, taken up ordelivered, directly or indirectly, into or within the United States exceptpursuant to an exemption from, or in transactions not subject to, theregistration requirements of the US Securities Act, (3) you are not within theUnited States and (unless you will be subscribing Placing Shares pursuant to anexemption referred to above in this paragraph) you are not a US person, (4) youhave not offered, sold or delivered and will not offer sell or deliver any ofthe Placing Shares to persons within the United States, directly or indirectly,(5) neither you, your affiliates, nor any persons acting on your behalf, haveengaged or will engage in any directed selling efforts with respect to thePlacing Shares, (6) you will not be subscribing Placing Shares with a view toresale in or into the United States, and (7) you will not distribute anyoffering material relating to Placing Shares, directly or indirectly, in or intothe United States or to any persons resident in the United States; (p) KBC Peel Hunt may (at its absolute discretion) satisfy itsobligations to procure Placees by itself agreeing to become a Placee in respectof some or all of the Placing Shares or by nominating any other KBC Person orany person associated with any KBC Person to do so or by allowing officers ofthe Company and/or employees of Group companies to subscribe Placing Sharesunder the Placing at the Placing Price; (q) time is of the essence as regards your obligations under thisAppendix; (r) you shall indemnify and hold each of the Company and KBC Peel Huntharmless, on an after tax basis, from any and all costs, claims, liabilities andexpenses (including legal fees and expenses) arising out of or in connectionwith any breach by you of the terms in this Appendix; (s) none of your rights or obligations in respect of the Placing isconditional on any other person agreeing to subscribe any Placing Shares underthe Placing and no failure by any other Placee to meet any of its obligations inrespect of the Placing shall effect any of your obligations in respect of thePlacing; (t) this Appendix and any contract which may be entered into betweenyou and KBC Peel Hunt and/or the Company pursuant to it or the Placing shall begoverned by and construed in accordance with the laws of England, for whichpurpose you submit to the exclusive jurisdiction of the courts of England andWales as regards any claim, dispute, or matter arising out of or relating tothis Appendix or such contract, except that each of the Company and KBC PeelHunt shall have the right to bring enforcement proceedings in respect of anyjudgement obtained against you in the courts of England and Wales in the courtsof any other relevant jurisdiction; and (u) nothing in this Appendix shall exclude any liability of any personfor fraud on its part. All times and dates in this announcement are subject toamendment at the discretion of KBC Peel Hunt, except that in no circumstanceswill the date scheduled for Admission be later than the Long Stop Date. Definitions The following definitions apply throughout this announcement and the Appendixunless the context requires otherwise: "Acquisition" the proposed acquisition of certain assets and contracts of Scope Seven (subject to the assumption of certain liabilities) pursuant to the Asset Purchase Agreement"Admission" the admission of the Placing Shares to trading on AIM and such admission becoming effective in accordance with rule 6 of the AIM Rules"AGM" or "Annual General the seventh annual general meeting of the Company to be held at theMeeting" offices of DLA Piper UK LLP at 1 St.Paul's Place, Sheffield S1 2JX convened for 10.00 a.m. on 24 August 2007, notice of which is set out at the end of the Circular"AIM" AIM, a market operated by London Stock Exchange plc"AIM Rules" the current version of the London Stock Exchange plc's rules for companies relating to AIM, entitled "AIM Rules for Companies""Annual Report and Accounts" the annual report and accounts in respect of the Company for the financial year ended 31 March 2007"Asset Purchase Agreement" the conditional agreement entered into between Scope Seven, LLC, the Company, ZOO Interactive Video Limited and Scope Seven relating to the Acquisition"Board" the board of directors of the Company"Circular" a circular expected to be sent to Shareholders on the date of this announcement"Company" or "ZOO" Zoo Digital Group plc, a company registered in England and Wales under company number 03858881, whose registered office is at 20 Furnival Street, Sheffield, South Yorkshire S1 4QT"Consideration Shares" the new Ordinary Shares which may be issued in accordance with the terms of the Asset Purchase Agreement in connection with the Acquisition"CREST" the system for paperless settlement of trades and holdings of uncertificated shares administered and operated by Euroclear UK & Ireland Limited"CULS" the £3,541,000 6 per cent. unsecured convertible redeemable loan stock 2011 issued by the Company on 27 September 2006"Deferred Consideration" the conditional consideration which may be payable pursuant to the Asset Purchase Agreement"Directors" the directors of the Company"Disclosure Rules" the Disclosure Rules and Transparency Rules of the FSA"EIS" Enterprise Investment Scheme"EIS Placing Shares" those new Ordinary Shares which are the subject of the Placing which qualify for EIS tax relief "Enlarged Share Capital" the Company's issued share capital immediately after Admission"Existing Ordinary Shares" the Ordinary Shares in issue on the date of this announcement"FSA" the Financial Services Authority"FSMA" the Financial Services and Markets Act 2000"FSMA Qualified Investor" a person who is a "qualified investor" as referred to at section 86(7) of FSMA and at or to whom any private communication relating to the Company that is a "financial promotion" (as such term is used in relation to FSMA) may lawfully be issued, directed or otherwise communicated without the need for it to be approved, made or directed by an "authorised person" as referred to in FSMA"Group" the Company and its subsidiaries"KBC Peel Hunt" KBC Peel Hunt Ltd"KBC Person" any person being (i) KBC Peel Hunt, (ii) an undertaking which is a subsidiary undertaking of KBC Peel Hunt, (iii) a parent undertaking of KBC Peel Hunt or (other than KBC Peel Hunt) a subsidiary undertaking of any such parent undertaking, or (iv) a director, officer, agent or employee of any such person"Long Stop Date" 30 September 2007"Nominated Adviser" a nominated adviser pursuant to the AIM Rules"Non-Qualifying Placing those new Ordinary Shares which are the subject of the Placing which areShares" not EIS Placing Shares or VCT Placing Shares"Officers' Loans" loans made to Scope Seven by its officers and certain other individuals totalling £0.55 million"Ordinary Shares" ordinary shares of 15 pence each in the capital of the Company"Placee" any person who is or becomes committed to subscribe for Placing Shares under the Placing"Placing" the placing by KBC Peel Hunt of the Placing Shares pursuant to the Placing Agreement"Placing Agreement" the conditional agreement dated 30 July 2007 entered into between the Company and KBC Peel Hunt relating to the Placing"Placing Price" 25 pence per Placing Share"Placing Shares" the EIS Placing Shares, the VCT Placing Shares and the Non-Qualifying Placing Shares"Resolutions" the resolutions set out in the notice of AGM dated 31 July 2007"Scope Seven" Scope Seven, Inc., a Californian corporation"Scope Seven Division" a new operating division of the Group to be formed following the Acquisition consisting of the acquired assets and contracts, and employees of Scope Seven"Shareholders" the persons who are registered as holders of Ordinary Shares from time to time"UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland"UK Prospectus Rules" the prospectus rules made under Part VI of FSMA"United States" the United States of America, its territories and possessions, any State of the United States and the District of Columbia"US Securities Act" the US Securities Act of 1933"VCT" venture capital trust"VCT Placing Shares" those new Ordinary Shares which are the subject of the Placing and qualify for VCT tax relief and which are to be allotted to Placees who qualify for VCT status under the pre-March 2006 VCT rules This information is provided by RNS The company news service from the London Stock Exchange