Proposed Disposal of Data Centre & Notice of GM
May 27 2009 - 11:22AM
UK Regulatory
TIDMCTNO
RNS Number : 9050S
Cantono PLC
27 May 2009
Cantono PLC ("Cantono" or the "Company")
27 May 2009
PROPOSED DISPOSAL OF THE DATA CENTRE BUSINESS, INVESTING STRATEGY AND NOTICE OF
GENERAL MEETING
A circular has today been sent to Shareholders convening a general meeting for
12 June. The following information has been extracted from the circular:
"Introduction
I am writing to you to advise you of a General Meeting which is being convened
on 12 June 2009 to seek your approval to the sale of the Data Centre Business.
Completion of the Disposal will result in the Company having no operating
business and accordingly, under the AIM Rules, the Disposal constitutes a
transaction which results in a fundamental change of business. For this reason
the Board is required to issue a circular setting out the reasons for the
Disposal and to seek your consent to the Disposal in a general meeting.
Following the Disposal the Company will be classified as an Investing Company
and the Investing Strategy of the Company is also subject to the approval of
Shareholders at the General Meeting.
The purpose of this document is to explain the reasons for the Disposal and why
the approval of the Disposal by Shareholders is required pursuant to the AIM
Rules. I will also summarise the principal documentation relating to the
Disposal, explain the background to and reasons for the Disposal and explain why
the Board seeks your support for, and approval of, the Disposal Resolution to be
proposed at the General Meeting.
Reasons for the Disposal
As I have previously mentioned, the Board believes that there is significant
value in the Data Centre Business. However, we recognise that in order to fully
realise this value significant investment is needed. Given the current economic
conditions, the Board is conscious that the funding necessary to grow the Data
Centre Business is not available at present and is unlikely to become available
in the near term.
Accordingly, the Board believes that the best way of realising value for the
Group's stakeholders is to dispose of the Data Centre Business.
Summary of the Disposal and of the Sale Agreement
The Company announced today that its subsidiary, CDCS, has entered into the Sale
Agreement with SSET in relation to the sale by CDCS of the Data Centre Business.
Pursuant to the terms of the Sale Agreement, CDCS has conditionally agreed to
sell the Data Centre Business to SSET for an aggregate consideration of GBP4.85
million payable in cash on Completion.
The Sale Agreement contains warranties for the benefit of SSET which are usual
for a transaction of this nature. The maximum aggregate amount of the liability
of CDCS and the Company under the Sale Agreement is limited to the total
consideration to be received thereunder.
Further information on the principal terms of the Sale Agreements is set out in
Part II of this document.
Use of proceeds
Shareholders will be aware that the Company secured funding through the issue of
the Loan Notes in December 2008 and May 2009 of which GBP2.34 million has been
drawn down to date. Completion of the Disposal will be an event that triggers
redemption of the Loan Notes and, accordingly, the proceeds of the Disposal will
be used to fund such redemption. However, the Noteholders have agreed to not
redeem in full the Loan Notes as they are keen for the Group to continue to have
all the financial resources required to pursue the dispute and potential
litigation with certain subsidiaries of Xploite plc arising out of the disposal
of the Group's managed services business at the end of last year.
As the Loan Notes will not have been redeemed in full, the security granted to
the Noteholders will remain in place following Completion. If the Group is
successful in the above litigation any damages recovered will need to be applied
first in redeeming the outstanding balance of the Loan Notes and any remaining
surplus will then be applied in paying off any creditors. Accordingly, there may
not be sufficient funds available to create any value for the Shareholders.The
Noteholders have indicated that in this situation, and where the sum payable to
Noteholders is substantially in excess of the cost of contesting the litigation,
they may be willing to make an ex gratia payment to Shareholders out of the
redemption monies received by them, the quantum and terms of such payment to be
at the discretion of the Noteholders.
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 would be treated as an Investing Company and must therefore provide
its 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 General Meeting.
Following Completion the Directors intend to take such other steps as they see
fit to deal with the position the Group having taken appropriate insolvency and
other professional advice. It is anticipated that an insolvency practitioner, if
appointed, would pursue the above mentioned litigation. Upon that litigation
being settled or determined, it is intended that the Group will be wound up and
that the proceeds of that winding up will be distributed amongst the Noteholders
and, if there are any surplus proceeds following redemption in full of the Loan
Notes, to creditors and Shareholders.
General Meeting
The Disposal constitutes a transaction by the Company resulting in a fundamental
change of business for the purpose of Rule 15 of the AIM Rules, and accordingly
completion of the Disposal is conditional on the consent of the Shareholders in
general meeting. The Disposal Resolution seeks this consent and gives the
Directors the requisite authority to complete the Disposal. The GM has been
convened for 11.30 a.m. on 12 June 2009 to be held at the offices of Halliwells
LLP, One Threadneedle Street, London, EC2R 8AY.
Pursuant to the AIM Rules, Shareholders are also requested to approve the
Investing Strategy. Resolution 2 in the notice of General Meeting seeks this
consent.
Shareholders should note that the Disposal is conditional on the passing of the
Disposal Resolution but not on the passing of Resolution 2 which seeks approval
of the Investing Strategy.
Recommendation
The Directors consider that the Disposal is in the best interests of the Company
and of Shareholders. Accordingly, the Directors unanimously recommend
Shareholders to vote in favour of the Resolutions at the General Meeting as they
intend to do in respect of their own beneficial holdings of 762,561 Ordinary
Shares representing 2.54 per cent. of the issued Ordinary Shares at the date of
this document.
In addition, certain Shareholders have irrevocably undertaken to vote in favour
of the Resolutions in respect of their own beneficially held shareholdings
totalling 10,878,021 Ordinary Shares, representing approximately 36.24 per cent
of the issued Ordinary Shares at the date of this document.
Yours faithfully
Michael Northall
Chairman
Summary of the Sale Agreement
Consideration
Subject to satisfying all of the conditions to Completion, the total purchase
price of GBP4.85 million in cash will be payable on Completion by SSET as
consideration for the transfer to it of the Data Centre Business. In addition,
SSET has agreed to assume responsibility for certain liabilities of the
Business.
Conditions to be satisfied ahead of Completion
The Disposal constitutes a disposal by the Company resulting in a fundamental
change of business for the purpose of Rule 15 of the AIM Rules and accordingly
Completion of the Sale Agreement is conditional, inter alia, on the consent of
Shareholders at the General Meeting.
Undertakings of the Company up to Completion
The Sale Agreement contains certain undertakings given by CDCS to
SSET restricting the conduct of the business and affairs of CDCS during the
period up to Completion ("Pre-Completion Undertakings"). Such restrictions are
customary for a transaction of this nature.
Rescission rights
In addition to the fact that the Sale Agreement will terminate if the conditions
are not satisfied by 30 June 2009 (or such later date as the parties agree) as
referred to above, SSET also has the right to rescind the Sale Agreement if at
any time prior to Completion (i) CDCS breaches any of the Pre-Completion
Undertakings and fails to remedy such breach within 7 days of being notified of
the same by SSET; and (ii) a matter or event occurs which has a material
adverse effect on the financial position or business prospects of CDCS (not
being an event affecting or likely to affect to a similar extent generally all
companies carrying on similar businesses in the United Kingdom).
Warranties and indemnities
Under the Sale Agreement, CDCS and the Company have given certain warranties to
SSET, including warranties concerning their ability to sell the Data Centre
Business, certain financial matters, regulatory matters, intellectual property,
trading and assets, commercial contracts, real estate, employees, pensions and
taxation. The warranties, which are customary for a transaction of this nature,
are given subject to the disclosures made by CDCS and the Company in the
disclosure letter delivered to SSET on the date of the Sale Agreement and are
subject to certain limitations as to time and quantum. The warranties will be
repeated at Completion and CDCS and the Company will be entitled to make further
disclosures at that time regarding matters that have arisen between exchange and
Completion.
DEFINITIONS
+------------------------------+-------------------------------------------------+
| "AIM Rules" | the AIM Rules for Companies published by the |
| | London Stock Exchange from time to time |
| | (including, without limitation, any guidance |
| | notes or statements of practice) which govern |
| | the rules and responsibilities of companies |
| | whose shares are admitted to trading on AIM; |
| | |
+------------------------------+-------------------------------------------------+
| "AIM" | a market operated by London Stock Exchange plc; |
| | |
+------------------------------+-------------------------------------------------+
| "Board" | the board of directors of the Company; |
| | |
+------------------------------+-------------------------------------------------+
| "CDCS" | Cantono Data Centre Services Limited, a wholly |
| | owned subsidiary of the Company; |
| | |
+------------------------------+-------------------------------------------------+
| "Company" or "Cantono" | Cantono plc; |
| | |
+------------------------------+-------------------------------------------------+
| "Completion" | completion of the Disposal, expected to be on |
| | 12 June 2009, following the passing of the |
| | Disposal Resolution at the General Meeting; |
| | |
+------------------------------+-------------------------------------------------+
| "Data Centre Business" | the provision of co-location data centre |
| | services carried on by CDCS; |
| | |
+------------------------------+-------------------------------------------------+
| "Directors" | the directors of the Company ; |
| | |
+------------------------------+-------------------------------------------------+
| "Disposal Resolution" | the resolution to be proposed at the General |
| | Meeting to approve the Disposal; |
| | |
+------------------------------+-------------------------------------------------+
| "Disposal" | the proposed disposal to SSET, pursuant to the |
| | terms and conditions of the Sale Agreement, of |
| | the Data Centre Business, further details of |
| | which are set out in this document; |
| | |
+------------------------------+-------------------------------------------------+
| "Form of Proxy" | the form of proxy for use by Shareholders in |
| | connection with the GM; |
+------------------------------+-------------------------------------------------+
| "General Meeting" or "GM" | the general meeting of the Company, convened |
| | for 11.30 a.m. on 12 June 2009, and any |
| | adjournment thereof, which will consider the |
| | Resolutions; |
| | |
+------------------------------+-------------------------------------------------+
| "Group" | Cantono and its subsidiaries; |
| | |
+------------------------------+-------------------------------------------------+
| "Investing Company" | has the meaning given in the glossary to the |
| | AIM Rules; |
| | |
+------------------------------+-------------------------------------------------+
| "Investing Strategy" | the proposed investing strategy of the Company |
| | to be undertaken following Completion; |
| | |
+------------------------------+-------------------------------------------------+
| "Loan Notes" | together, the GBP2,000,000 A and B convertible |
| | secured loan notes issued by the Company in |
| | December 2008 and the GBP1,250,000 secured loan |
| | notes issued by the Company in May 2009; |
| | |
+------------------------------+-------------------------------------------------+
| "Noteholders" | holders of the Loan Notes; |
| | |
+------------------------------+-------------------------------------------------+
| "Ordinary Shares" | ordinary shares of 1p each in the capital of |
| | the Company; |
| | |
+------------------------------+-------------------------------------------------+
| "Resolutions" | together the Disposal Resolution and the |
| | resolution to approve the Investing Strategy; |
| | |
+------------------------------+-------------------------------------------------+
| "Sale Agreement" | the agreement dated 27 May 2009 and made |
| | between CDCS (1), the Company (2) and SSET (3) |
| | relating to the disposal by CDCS of the Data |
| | Centre Business; |
| | |
+------------------------------+-------------------------------------------------+
| "Shareholders" | holders of Ordinary Shares; |
| | |
+------------------------------+-------------------------------------------------+
| "SSET" | SSE Telecommunications Limited; |
| | |
+------------------------------+-------------------------------------------------+
| "subsidiary" | has the meaning given in section 1159 of the |
| | Companies Act 2006;" |
| | |
+------------------------------+-------------------------------------------------+
For further information please contact:
Cantono PLC
Eamus Halpin, Chief Executive
01895 444 420
Brewin Dolphin Investment Banking
Neil Baldwin, Director
0845 270 8612
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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