RNS Number:5718G
Capcon Holdings PLC
24 January 2003
CAPCON HOLDINGS PLC
ACQUISITION
Acquisition of Argen Limited ("Argen")
Placing to raise #600,000 through the issue of
1,200,000 new ordinary shares (the "Placing Shares")
at 50p per share (the "Placing")
Amendment to the Share Option Scheme
Notice of Extraordinary General Meeting
Capcon Holdings plc ("Capcon" or the "Company") has today announced that it has
conditionally agreed to acquire the entire issued share capital of Argen, a
corporate investigatory business operating principally in the UK, for a maximum
consideration of #3,265,250.
The acquisition of Argen (the "Acquisition") is being financed from bank
facilities and through a placing of 1,200,000 Placing Shares to raise #600,000
before expenses (the "Placing"). The Acquisition is conditional upon, inter
alia, approval by Shareholders at an extraordinary general meeting of the
Company ("EGM"), which has been convened for 10.00 a.m. on 19 February 2003.
The Company is also proposing to increase the current limit in the capacity for
the grant of options, under the Company's share option scheme (the "Share Option
Scheme"), to be approved at the EGM.
The Company has also issued a preliminary announcement of the Group's results
for the year ended 30 September 2002. In the year ended 30 September 2002, the
Group generated a pre-tax profit of #104,672 (2001: #36,758) on turnover of
#4,956,196 (2001: #4,045,819). As at 30 September 2002, net assets were
#3,085,262 (2001: #1,798,592).
Requirement for Shareholders' approval
As the Placing will involve the issue of 1,200,000 Placing Shares this
necessitates an extension of the Directors' current power to allot shares on a
non pre-emptive basis. Accordingly, the Directors have convened the EGM to be
held on 19 February 2003.
Reasons for and details of the Placing
The Placing proceeds will be used to provide the additional funds required to
acquire the entire issued share capital of Argen and to furnish working capital
for the enlarged Group. Details of Argen and of the terms agreed in relation to
the Acquisition are set out below.
The Company proposes to raise #600,000 (before expenses) by way of the issue of
the Placing Shares at a price of 50p per share. The Placing will raise
approximately #400,000 after the deduction of expenses. The Placing is not
being underwritten. The Directors have undertaken to subscribe, in aggregate,
for 203,000 of the Placing Shares. The Placing Price represents a discount of
approximately 13 per cent. to yesterday's closing middle market price of 57.5p
per issued Ordinary Share.
Pursuant to a placing agreement dated 24 January 2003 (the "Placing Agreement"),
Charles Stanley & Company Limited has agreed, as agent for the Company, to use
its reasonable endeavours to place all of the Placing Shares with institutional
and other investors. The Placing Agreement is conditional, inter alia, on
approval by the Shareholders at the EGM and on Admission of the Placing Shares.
Application has been made for the Placing Shares to be admitted to trading on
AIM ("Admission"). It is anticipated that such admission will become effective
and that dealings in the Placing Shares will commence on 20 February 2003.
The Placing Shares will rank pari passu in all respects with the Company's
existing ordinary shares.
The Group's bank facilities have been increased, partly to provide funding for
the Acquisition and, additionally, to satisfy the anticipated working capital
requirements of the Group following completion of the Acquisition. Conditional
upon Admission, the Group's bank has agreed to a #400,000 overdraft facility and
a loan of #600,000, repayable in quarterly instalments of #50,000 over a
three-year term, with interest payable at 2.25 per cent. over the bank's base
rate.
Information on Argen
On 23 January 2003, the Company entered into a conditional agreement to purchase
the entire issued share capital of Argen, a specialist investigation company
providing global services to large UK and overseas corporate clients, for an
initial consideration of #1.35 million, increasing to a potential maximum total
consideration of #3,265,250, subject to minimum profit performance over a
two-year period.
Argen is an investigation business, based in London, providing services to large
organisations worldwide. The services provided to clients by Argen cover a wide
range of investigative activities including due diligence, corporate fraud
investigations, intelligence gathering and parallel trading investigations.
Argen was founded in 1968 and, in the year ended 31 March 2002, Argen generated
a pre-tax loss of #160,819 on turnover of #1,368,424, after non-recurring
directors' remuneration of approximately #389,000 and the write-off of
exceptional bad debts of #151,570. As at 31 March 2002, Argen had net assets of
#407,201. In the six months ended 30 September 2002, Argen's management accounts
show pre-tax profits of #60,715 (after non-recurring directors' remuneration of
approximately #203,000), being generated from #733,225 of turnover.
Argen currently has two executive directors, Gwenneth Fairer-Smith (chairman)
and Jonathan Edwards (managing director), and one non-executive director, Robert
Fairer-Smith. Argen employs seven further full time staff. It is proposed that,
subject to the Acquisition being completed, Gwenneth Fairer-Smith will be
appointed as a consultant to Argen to oversee the successful transfer of the
business of Argen to Capcon, and Jonathan Edwards will continue in his role as
managing director of Argen and it is intended that he will become a director of
Capcon Limited.
The UK market represented 51 per cent. of total sales for Argen in the year
ended 31 March 2002. Argen uses external consultants for servicing much of its
investigation work, especially with regard to overseas assignments. Argen has a
50 per cent. shareholding in a German company, Argen GmbH, which is also a
provider of such services to Argen.
Your Board considers the Acquisition to be a good fit for Capcon and one that
will strengthen the growing core investigative business of the Group. The
benefits of integrating Argen are expected to add value for shareholders with
immediate effect from completion of the Acquisition.
Terms of the Acquisition
Under the terms of the conditional agreement dated 23 January 2003 relating to
the Acquisition, between the shareholders of Argen ("the Vendors"), the Company
and Mrs G Fairer-Smith (the "Acquisition Agreement") to acquire the entire
issued share capital of Argen, the Company has conditionally agreed to purchase
the entire issued share capital of Argen for a maximum consideration of
#3,265,250.
Completion of the Acquisition is conditional upon, inter alia, the passing at
the EGM of the relevant resolution, to completion of the Placing and Admission
of the Placing Shares.
Upon completion, an initial consideration to a value of #1.35 million (the "
Initial Consideration'') will be paid by the Company to the Vendors. The Initial
Consideration will be satisfied, as to #1.1 million, in cash and, as to
#250,000, by the issue and allotment among the Vendors, credited as fully paid,
of 473,912 Placing Shares. Of these 473,912 Placing Shares, 300,000 will be
issued to the Vendors at 50p per share and the remaining 173,912 will be issued
at a price of 57.5p per share.
Additionally, up to #1,915,250 (the "Further Consideration'') will be payable by
the Company as follows:
(a) the sum of #200,000 will be payable by eight quarterly instalments
of #25,000, the first such payment to be made on 31 March 2003; and
(b) up to #1,715,250 will be payable, subject to the audited profit
before tax derived from Argen's business for the years ending 31 December 2003
and 31 December 2004 exceeding specified targets.
Of the amounts payable pursuant to paragraph (b) above up to a maximum of
#341,500 will be satisfied by the issue and allotment amongst the Vendors of new
ordinary shares (to a maximum of 1,726,088 new ordinary shares) and the balance
will be satisfied in cash. New ordinary shares for this purpose will be valued
on the basis of the average closing mid-market prices of an issued ordinary
share for three consecutive business days immediately prior to the date of
agreement, or independent determination, of the value of the relevant instalment
of the Further Consideration.
Interest is payable to the Vendors on the amount referred to in paragraph (a)
above and on up to #400,000 of the cash element of the Further Consideration
referred to in paragraph (b) above at a rate equal to the base rate of Lloyds
TSB Bank plc from the date of completion of the Acquisition to the date of
payment.
The consideration will be reduced on a # for # basis to the extent that the net
assets of Argen as at 31 December 2002 shall be less than #565,000, subject to
agreed adjustments. The amount of any such reduction will be repaid by the
Vendors either forthwith following agreement or a determination of the amount of
such net assets or on or before 31 December 2004, with the Company being
entitled to deduct from instalments of the Further Consideration that fall due
up to that date together, in either case, with interest at a rate equal to the
base rate of Lloyds TSB Bank plc from six months from the date of completion of
the Acquisition to the date of actual repayment.
The Acquisition Agreement provides that in the event that Mr Edwards resigns
from and ceases to be employed by Argen, or otherwise in relation to its
business, the consideration may also be reduced and Mr Edwards may be required
to repay from instalments of the consideration paid to that time:
(a) if such event takes effect within two years from completion of the
Acquisition, the sum of #100,000; and
(b) if such event takes effect at any time during the third year from
completion of the Acquisition the sum of #50,000
together in each case with interest payable at the base rate of Lloyds TSB Bank
plc from the date of completion of the Acquisition to the date of actual
repayment.
The Acquisition Agreement contains certain guarantees from Mr Jonathan Edwards
and Mrs Gwenneth Fairer-Smith ("Warrantors") as to the amount of dividends to be
received by the Group from Argen's German associated company, Argen GmbH, during
the three years following completion of the Acquisition, with a # for #
indemnity for the amount of any shortfall.
The Acquisition Agreement contains certain warranties and indemnities in favour
of the Company given by the Warrantors, subject to an aggregate limit on
liability equal to the value of the consideration payable under the Acquisition
Agreement and subject to a number of other limitations. These warranties and
indemnities are not being given by certain of the Vendors who together hold
approximately 95.5 per cent. of the issued share capital of Argen and are to
receive in aggregate amongst them approximately 82.57 per cent. of the maximum
consideration payable under the Acquisition Agreement.
Pursuant to the Acquisition Agreement, the Vendors have entered into agreements
with the Company pursuant to which certain undertakings will be given in respect
of the new ordinary shares to be issued and allotted to them upon completion of
the Acquisition and to be issued and allotted to them in respect of any
instalment of the Further Consideration. These agreements provide, inter alia,
that, except in exceptional circumstances, the Vendors will not sell or
otherwise deal with such ordinary shares for a period of one year following
their relevant dates of allotment.
In addition, the Acquisition Agreement contains certain restrictions entered
into by the Warrantors for the benefit of Argen and the Company prohibiting the
Warrantors from soliciting the business or dealing with customers, suppliers and
employees of Argen or engaging in activity competing with the business of Argen
for the period from completion of the Acquisition up to 31 March 2006.
The Acquisition Agreement further prescribes that, as a condition of completion
of the Acquisition:
(a) Mrs Fairer-Smith will cease to be employed by Argen from completion but
that she will continue as a consultant to Argen to assist, inter alia, in the
orderly integration of Argen within the Group. Mrs Fairer-Smith will be entitled
to receive a fee of #10,000 per annum for such services. This arrangement will
be terminable on notice by either party of not less than six months to expire at
the end of any calendar month;
(b) Mr Edwards will enter into a new service agreement with Argen under the
terms of which he will be entitled to receive a basic salary of #150,000 per
annum together with pension contributions equivalent to 10 per cent. of such
salary. In addition he will be entitled to certain benefits, consistent with his
position within the Group and will be entitled to participate in any bonus
scheme established by the Company. This service agreement will be terminable by
not less than twelve months' notice in writing given by either party.
Proposed amendment to the Share Option Scheme
The Share Option Scheme was established in May 2001, shortly prior to the
Company's flotation on AIM. The terms of the Share Option Scheme currently limit
the number of unissued ordinary shares that may be made subject to the grant of
options to employees of the Group under that scheme to 650,000 new ordinary
shares (representing approximately 8.72 per cent. of the current issued share
capital of the Company).
The Directors believe that this limit should be increased as it unnecessarily
restricts their ability to use share options as a means of ensuring that the
Group has the ability to attract, motivate and retain personnel of a suitable
calibre within the Group. The opportunity is accordingly being taken at the EGM
to put forward a resolution to approve an increase in the limit on the number of
unissued ordinary shares that may be made subject to the grant of options under
the Share Option Scheme to 10 per cent. of the issued share capital of the
Company at any date of grant of an option. This proposed increased limit is in
line with the applicable guidelines approved by the Investor Protection
Committees, including the Association of British Insurers. On the basis of the
issued share capital of the Company immediately following completion of the
Acquisition and the Placing, this would increase the limit from 650,000 new
ordinary shares to 912,657 new ordinary shares.
Extraordinary General Meeting
The EGM to approve the Acquisition, the Placing and the amendment to the Share
Option Scheme will be held at 10.00 a.m. on 19 February 2003.
Recommendation
The Directors consider that the terms of the Acquisition and the Placing and the
increase in the limit applying for the grant of options under the Share Option
Scheme are in the best interests of the Company and shareholders as a whole.
Accordingly, the Directors unanimously recommend to shareholders that they vote
in favour of the resolutions to be proposed at the EGM as they have undertaken
to do in respect of their own holdings amounting in aggregate to 2,896,000
ordinary shares representing approximately 38.85 per cent. of the Company's
issued ordinary share capital.
Copies of the circular containing details of the Placing, the Acquisition,
together with notice of the EGM, have today been posted to shareholders and are
available from the Company's registered office at 80 Fleet Street, London, EC1Y
1NA.
Enquiries:
Cliff Cavender 01372 869 706
Managing Director, Capcon Holdings plc
Russell Cook 020 7739 8200
Charles Stanley & Company Limited
This information is provided by RNS
The company news service from the London Stock Exchange
END
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