TIDMZTC
RNS Number : 6677P
ZTC Telecommunications plc
30 March 2009
ZTC Telecommunications Plc
("ZTC" or the "Company")
Circular to Shareholders and Notice of Annual General Meeting
The Company has posted to shareholders a circular and notice of annual general
meeting concerning fundamental change of business, investing strategy, share
capital reorganisation, change of name, change of website and other matters.
The annual general meeting of the Company is to be held at 10.00am on Tuesday 21
April 2009 at the offices of Pritchard Englefield, 14 New Street, London EC2M
4HE.
The Chairman's Letter to shareholders is set out below. The complete circular
and notice of annual general meeting is available on the Company's website
www.chinaevoline.com.
Contact:
ZTC Telecommunications plc
Frank Lewis, Chairman
+44 (0)7775 504 313
Fairfax I.S. PLC
Nominated Adviser and Broker
Adam Hart / Laura Littley
+44 (0)207 598 5368
Chairman's Letter to Shareholders
Introduction
As previously announced on 10 November 2008, the Directors became aware that
Charles Huang,
CEO, majority shareholder and major creditor of the Company's subsidiary Zhong
Tian and Mr Yang Ruqiang, the Group's General Manager and Charles Huang's
brother in law, had been absent from the Group's offices and factory in
Longgang, Shenzhen (China) and had been uncontactable since 5 November 2008.
The unexplained absence of key personnel, in the highly charged economic
environment of southern China, destabilised the Group's employees and creditors
and, the Board believes, resulted in the unauthorised removal of some of Zhong
Tian's assets from its factory site in Longgang, Shenzhen (China). The local
authorities subsequently moved to take control of the situation and the
People's Court sealed the factory and its buildings, sequestering all of the
assets. Up to the date of this document, none of the Directors or employees of
the Group have been able to gain access to the factory and its buildings which
remain sealed.
As a result of the management control issues arising and in order to ensure that
an orderly market in the Company's shares was maintained, the Directors
requested a suspension of trading in the Existing Ordinary Shares on AIM and
such suspension was granted by the London Stock Exchange on 7 November 2008.
Further investigations by the Directors revealed that on 14 November 2008, the
local government paid compensation to, and dismissed, a majority of the
employees of Zhong Tian. It is believed that the People's Court subsequently
auctioned the Group's remaining inventory and equipment for RMB1,220,765
(approximately GBP90,000) and this sum was, the Directors believe, credited
against the government payments to employees (although this has not been capable
of verification by the Directors).
The directors of Praise Ease, the Company's wholly-owned Hong Kong holding
company and the sole shareholder of Zhong Tian, appointed China legal counsel on
12 November 2008 and instructed them to conduct legal due diligence, interacting
with the local relevant authorities and other stakeholders including employees,
debtors and creditors, and to provide an opinion as to the prospects of
any economic recovery. Following the official authorisations and requisite
payments, China legal counsel commenced its investigations on 25 November 2008.
China legal counsel found that as of 19 December 2008, 29 creditor claims had
been lodged against Zhong Tian, totalling approximately RMB21m (approximately
GBP2.2m).
At the end of November 2008, it transpired that Tomorrow's Focus, the company
which then held 68,000,000 Existing Ordinary Shares beneficially owned by
Charles Huang, had, without the knowledge of the Company or the Directors and in
contravention of the AIM Rules, entered into loan agreements with Maiden
Undertaking. Documentation produced to the Company showed that
Maiden Undertaking had lent an aggregate amount of HK$27,390,000 (approximately
GBP2m) to Tomorrow's Focus and that the repayment of the loans was secured by
the Charges against the Existing Ordinary Shares held by Tomorrow's Focus
(representing approximately 62.57 per cent. of the Existing Ordinary Shares) and
by personal guarantees given by Charles Huang in favour of Maiden Undertaking.
It further transpired during the preparations for putting the Proposals to
Shareholders that Charles
Huang on 14 April 2008 had transferred his holding of shares in Pan Europe
Capital Limited, the legal entity which held 12,750,000 Existing Ordinary
Shares, amounting, at that time, to approximately 11.7 per cent. of the then
issued Existing Ordinary Share capital, to Ms. Cheung Yiu Shan. The Company has
tried to contact Ms. Cheung Yiu Shan to establish the basis for the transfer of
the shares in Pan Europe Capital Limited to her and whether that shareholding is
for the benefit of Ms. Cheung Yiu Shan or another person, but, as yet, has had
no response to its enquiries.
To date, the factory and all buildings remain under seal and all assets
sequestered by the People's Court. All key management of the Subsidiaries have
continued to take unexplained leave and all remaining employees have been
dismissed. The whereabouts of Charles Huang and Mr Yang Ruqiang remain unknown.
While the Company's investigations continue, it is the Board's unanimous view
that Zhong Tian is unlikely to be able to continue as a going concern. Following
the alleged looting at the factory and the auction conducted by the People's
Court, the quantity of remaining equipment and inventory is unknown and its
value is likely to be negligible.
Further legal opinion indicates that, in order for the Company to gain access to
the assets of Zhong
Tian, it would have to replace Charles Huang as legal representative of Zhong
Tian, a lengthy and expensive procedure, and then commence one of the following
processes:
(i) The settlement of existing claims and/or appointment of a liquidation team
(any voluntary liquidation process could take up to two years and would incur
considerable expense including the payment of uncalled capital, being
approximately RMB170m (GBP12.4m)); or
(ii) An involuntary winding up process initiated by the local relevant authority
of Shenzhen, which the Directors believe, could also be very time consuming and
the likely focus on tangible assets would mean that any proceeds are likely to
be minimal.
After due investigations, taking into account the limited resources of the
Company, the Directors have concluded that the Company's business in China will
be unable to resume trading and, as such, the ability to realise any net assets
for the benefit of Shareholders will be extremely difficult and not
costeffective. Given the potentially long recovery procedures and the Company's
limited resources, the Directors have concluded that the Subsidiaries of the
Company have negligible or no recoverable value. In addition, the disposal of
Praise Ease is also a condition precedent of the party wishing to assist in the
refinancing of the Company (see below under the heading 'Fundamental Change of
Business').
Following discussions between the Company and Maiden Undertaking and on the
basis that there had been a breach of the terms of the two loan agreements dated
16 May 2008 and 3 June 2008 by
Tomorrow's Focus and Charles Huang, Maiden Undertaking is entitled, under the
Charges, to retain the Charged Shares and register itself as owner of the
Charged Shares or sell or dispose the Charge Shares in its absolute discretion.
It was subsequently agreed that Maiden Undertaking would assert its rights under
the Charges and assign the Charged Shares to Staybest and, subject to the
passing of the Resolutions, that Staybest and Wellhigh (a company introduced to
ZTC by the principals of Maiden Undertaking) would support the Company by making
the Investment to allow it to continue to operate and in due course, seek to
acquire new businesses.
The Board has been advised that despite the Company being registered in the
United Kingdom, it is not subject to the UK Takeover Code by virtue of the fact
that it is managed outside the United Kingdom. Accordingly, the acquisition of
shares carrying in excess of 30 per cent. of the voting rights in the Company by
Staybest will not trigger a mandatory requirement to make an offer for the
balance of the Company's Existing Ordinary Shares.
On the basis that the Board has no reason to believe that the Charges are not
enforceable and against appropriate indemnities received from Staybest, the
Directors, pursuant to the Investment Agreement, on 27 March 2009 agreed to
register Staybest as the holder of the Charged Shares. As a result of
the discussions with Maiden Undertaking and conditional upon the passing of the
Resolutions and Admission, Staybest and Wellhigh have agreed to make the
Investment which will provide the Company with sufficient working capital to
operate for at least the next 12 months so that, following the passing of the
Resolutions, the Company will be able to instruct Fairfax to apply to the
London Stock Exchange for the suspension of dealings in the Company's shares on
AIM to be lifted.
The Directors believe that Charles Huang's personal guarantee and the
indebtedness of his company to Maiden Undertaking may have been the reason for
his sudden disappearance. As at the date of this document, the Directors, having
made reasonable enquiries, are not aware of any other circumstances which may
relate to his disappearance.
Praise Ease must be disposed of as a condition of the Investment. Praise Ease is
the intermediate holding company of Zhong Tian, and since Zhong Tian is no
longer considered a going concern, the Directors have concluded to dispose of
Praise Ease for a nominal sum, on the terms that the Company will participate in
any economic recovery of Praise Ease.
The Directors believe, based on legal advice, that ZTC is not liable for any of
the liabilities within Praise Ease's subsidiary, Zhong Tian.
You will find below details of the Proposals and a notice convening an AGM at
which the Resolutions will be considered.
The Proposals
The Proposals have been formulated on the basis that at the subscription price
of 23 pence following the Share Capital Reorganisation, the Existing Ordinary
Shares will have an aggregate valuation of approximately GBP50,000. The
Directors consider this valuation as appropriate because it is the approximate
value of the Company's net cash assets (attributing no value to the Company's
holding in Praise Ease, as described below under the heading 'Fundamental Change
of Business') as at the date that its shares were suspended from trading on AIM.
Since that date, this cash has been expended, in large part, in putting together
the Proposals for consideration by Shareholders.
The Subscription Shares
As detailed below under the heading 'Share Capital Reorganisation', the Share
Capital Reorganisation would result in the Company's share capital being divided
into the New Ordinary Shares (which would have a nominal value of 1 pence each)
and deferred shares of GBP49.99 each (which, however, would for all practical
purposes be worthless as set out below).
Under the terms of the Investment Agreement, subject to the passing of the
Resolutions, Staybest will subscribe for the Subscription Shares at an issue
price of 23 pence per share, i.e. an aggregate
subscription amount of GBP21,363.55. The Subscription Shares represent
approximately 29.94 per cent. of the Enlarged Ordinary Share Capital.
By virtue of Staybest's substantial shareholding in the Company for the purpose
of the AIM Rules, the subscription for New Ordinary Shares by Staybest is a
transaction with a related party as defined in the AIM Rules. The Directors
consider, having consulted Fairfax, the Company's nominated adviser, that the
terms of the subscription are fair and reasonable insofar as the Shareholders
are concerned.
The Convertible Loan Notes
In addition, under the terms of the Investment Agreement, Wellhigh will advance
to the Company the principal amount of GBP258,636.45 and the Company will issue
to Wellhigh the Convertible Loan Note. The Convertible Loan Note will carry
interest at a rate of 2.5 per cent. per annum (only payable if the Convertible
Loan Note is not converted), is unsecured and will be repayable 24 months after
the date of issue unless prior to that time the Company successfully concludes a
reverse takeover in accordance with the AIM Rules, in which case the Convertible
Loan Note will be subject to compulsory conversion into an aggregate amount of
1,124,506 New Ordinary Shares at the exercise price of 23 pence per share.
In addition, the Convertible Loan Note holder shall have the right to convert
any amount of the convertible principal amount of the Convertible Loan Note at
any time within two years from the date of issue of the Convertible Loan Note
into the relevant number of New Ordinary Shares and at the exercise price set
out above.
The New Ordinary Shares to be issued on conversion of the Convertible Loan Note
(assuming full conversion) would amount to approximately 78.38 per cent. of the
Enlarged Ordinary Share Capital of the Company, as increased by the issue
thereof.
Following completion of the Proposals (including the Share Capital
Reorganisation), the shareholding structure of the Company going forward would
be as follows:
+----------------+----------------+----------+----------+----------+-----------+----------+
| Shareholder | Following the |Following the issue | Following the |
| Name | exercise of the |of the Subscription | conversion of the |
| | Charges | Shares | Convertible Loan |
| | | | Note (in due |
| | | | course) |
+ +---------------------------+---------------------+----------------------+
| | No of New |Percent. | No of |Percent. | No of |Percent. |
| | Ordinary | | New | | New | |
| | Shares | |Ordinary | | Ordinary | |
| | | | Shares | | Shares | |
+----------------+----------------+----------+----------+----------+-----------+----------+
| Pan Europe | 25,500 | 11.73 | 25,500 | 8.22 | 25,500 | 1.78 |
| Capital Ltd1 | | | | | | |
| | | | | | | |
+----------------+----------------+----------+----------+----------+-----------+----------+
| Albany Capital | 10,880 | 5.01 | 10,880 | 3.51 | 10,880 | 0.76 |
| Plc | | | | | | |
+----------------+----------------+----------+----------+----------+-----------+----------+
| Higher | 8,500 | 3.91 | 8,500 | 2.74 | 8,500 | 0.59 |
| Performance | | | | | | |
| Team Ltd2 | | | | | | |
| | | | | | | |
+----------------+----------------+----------+----------+----------+-----------+----------+
| Others | 36,500 | 16.79 | 36,500 | 11.76 | 36,500 | 2.54 |
+----------------+----------------+----------+----------+----------+-----------+----------+
| Staybest | 136,000 | 62.56 | 228,885 | 73.77 | 228,885 | 15.95 |
+----------------+----------------+----------+----------+----------+-----------+----------+
| Wellhigh | - | 0.00 | - | 0.00 |1,124,506 | 78.38 |
+----------------+----------------+----------+----------+----------+-----------+----------+
| | 217,380 | 100.00 | 310,265 | 100.00 |1,434,771 | 100.00 |
+----------------+----------------+----------+----------+----------+-----------+----------+
| | | | | | | |
+----------------+----------------+----------+----------+----------+-----------+----------+
| 1 The shares in Pan-Europe Capital Limited are registered in the name of Ms. |
| Cheung Yiu Shan (previously beneficially owned by Mr. Charles Huang) |
| |
+-----------------------------------------------------------------------------------------+
| 2 The shares in Higher Performance Team Limited are beneficially owned by |
| Michael Liu 80 per cent.. Mark Syropoulo 10 per cent. and James Guo 10 per cent. |
| |
+----------------+----------------+----------+----------+----------+-----------+----------+
Under the terms of the Investment Agreement, the Company has agreed to reimburse
Staybest and
Wellhigh for costs and expenses incurred in implementing the Investment up to a
maximum aggregate amount of GBP30,000 (inclusive of any VAT).
Fundamental Change of Business
The Investment Agreement is conditional, amongst other things, upon the
Company's disposal of
Praise Ease, its wholly owned Subsidiary (and thereby of Zhong Tian as the
wholly owned Subsidiary of Praise Ease). The business of Praise Ease is that of
a holding company, whereas Zhong Tian was, until November 2008, engaged in the
assembly of mobile phones. The Company has no other businesses.
The profits attributable to Praise Ease, are as follows:
+-------------------+---------------------+---------------------+---------------------+
| | Going concern value | Amounts written off | Written down value |
| | at | | at |
+-------------------+---------------------+---------------------+---------------------+
| | Year ended 30June | Year ended 30June | Year ended 30June |
| | 2008 | 2008 | 2008 |
+-------------------+---------------------+---------------------+---------------------+
| | RMB | RMB | RMB |
+-------------------+---------------------+---------------------+---------------------+
| Revenue | 387,865,398 | - | 387,865,398 |
+-------------------+---------------------+---------------------+---------------------+
| Gross profit | 81,019,467 | - | 81,019,467 |
+-------------------+---------------------+---------------------+---------------------+
| Profit before | 46,271,290 | (260,017,018) | (213,745,728) |
| income tax | | | |
+-------------------+---------------------+---------------------+---------------------+
| Profit for the | 42,763,052 | (260,017,018) | (217,253,966) |
| year | | | |
+-------------------+---------------------+---------------------+---------------------+
| Total assets | 323,412,999 | (260,017,018) | 63,395,981 |
+-------------------+---------------------+---------------------+---------------------+
| Total liabilities | 187,148,222 | - | 187,148,222 |
+-------------------+---------------------+---------------------+---------------------+
| Total net assets | 136,264,777 | (260,017,018) | (123,752,241) |
+-------------------+---------------------+---------------------+---------------------+
| Registered | 30,348,000 | - | 30,348,000 |
| capital | | | |
+-------------------+---------------------+---------------------+---------------------+
| Retained earnings | 95,322,669 | (260,017,018) | (164,694,349) |
+-------------------+---------------------+---------------------+---------------------+
As set out above under the heading 'Introduction', after due investigations,
taking into account the limited resources of the Company, the Directors have
concluded that the Company's business in China will be unable to resume trading.
In addition, the nature of the sudden shutdown of operations prevented the
prompt and orderly ability to realise net assets for the benefit of
Shareholders. Given potentially long, expensive and difficult recovery
procedures and the Company's limited resources, the Directors have concluded
that the Subsidiaries of the Company are likely to have negligible
recoverable value. Further, as a condition for making the Investment, Staybest
and Wellhigh have required the sale of Praise Ease.
As a result, the Praise Ease Sale Agreement provides for the sale of the entire
issued share capital of Praise Ease for a nominal consideration of HK$1.00,
payable in cash upon the completion of the transaction. The purchaser of Praise
Ease is Mr. Li Xin, a person unconnected with the Company or any of its
Directors, Proposed Directors, Shareholders, Staybest or Wellhigh.
There is outstanding an intercompany loan owed by Praise Ease to the Company in
the principal
amount of GBP2,079,751 which the Company has agreed will only be repayable to
the extent that Praise Ease is able to recover any debts or assets owed to or
held by Zhong Tian (and in which case the Company will be entitled to
participate to 50 per cent. in such proceeds, to be set off against
said intercompany loan).
The Praise Ease Sale Agreement is governed by the laws of Hong Kong and subject
to the nonexclusive jurisdiction of the courts of Hong Kong.
The effect of the disposal of Praise Ease would be to divest the Company of all
its business and would result in a fundamental change of business for the
purpose of the AIM Rules and as such requires the consent of Shareholders at a
general meeting. Resolution 5 is therefore proposed as an ordinary resolution to
approve the sale of the entire issued share capital of Praise Ease pursuant to
the terms of the Praise Ease Sale Agreement and the disposal of Praise Ease is
not conditional on other aspects of the Proposals being approved by
Shareholders.
Change of Name and Website
Following the sale of Praise Ease, the Directors believe that it is appropriate
to change the name of the Company and a resolution to change the name to China
Evoline plc is being proposed at the AGM.
The Company has established a new website containing information in compliance
with Rule 26 of the AIM Rules at www.chinaevoline.com.
Investing Strategy of the Company following the Proposals
Assuming the Proposals are implemented, the strategy of the Directors and
Proposed Directors will be for the Company to invest in one or more companies
established in the Asia Pacific region, but which have a significant focus on
the PRC (assets, customers or suppliers) and have the need for capital prior to
them achieving a flotation on the public markets, either within or outside the
PRC, or achieving a trade sale in due course. Such companies will be sourced
largely through the contacts of the Directors and the Proposed Directors, and
any funding required by the Company to make such an investment will be raised
prior thereto. While the Company is not currently able to identify the specific
types of businesses which it might invest in, it is more likely than not that
the sectors which will be targeted will be resources, technology and property -
all areas where the Board and the Proposed Directors have existing knowledge and
contacts.
The Board believes that the Directors and Proposed Directors have relevant
experience in identifying, assessing, and negotiating such acquisitions. The
Directors and Proposed Directors believe that their broad collective experience
in acquisitions, accounting, corporate and financial management together with
their wide industry contacts will enable the Company to achieve its objectives.
Investment propositions will be considered when the Directors and Proposed
Directors consider that enhanced values may be achieved. A particular
consideration will be to identify investments where the Directors and Proposed
Directors believe that their expertise and experience can be deployed
to facilitate growth or unlock value. There is no limit to the number of
projects in which the Company may invest.
The Directors and Proposed Directors will conduct initial due diligence
appraisals of potential projects and where they believe further investigation is
warranted they will appoint suitably qualified, and where appropriate
independent persons to conduct further due diligence.
The Company, as currently proposed, is unlikely to have sufficient cash
resources to expend in undertaking due diligence on any potential projects. In
the event that a suitable project is identified, the Company would either seek
to raise further funds in order to finance any due diligence and
acquisition costs or seek to pass on the costs to a third party, possibly in
return for a success-related fee payable in shares or in cash. Staybest and
Wellhigh have indicated that they would be willing to participate in the funding
of such costs.
The Proposed Directors intend to take an active role in assessing and management
of any investment that the Company may make. Accordingly, the Company is likely
to seek participation in the board of directors of any company which the Company
acquires with a view to improving its performance and using of its assets in
such ways as should result in an increase in the value of such a company.
The Directors and Proposed Directors hope that the resulting benefit would
provide a satisfactory return to the Company's Shareholders.
In the event no substantial acquisition is made within 12 months of the date of
the 2009 AGM, namely 21 April 2010, in accordance with the AIM Rules for
Companies, trading in the Company's shares will be suspended and if no reverse
transaction is achieved in the following 6 months, the London Stock Exchange
will cancel the admission of the shares.
Under the AIM Rules, the Investing Strategy requires shareholder approval and
the Directors therefore propose that Resolution 6 be passed at the AGM.
Directors and Proposed Directors
Following the AGM, Frank Lewis will remain in his position as non-executive
Chairman of the
Company, Mark Syropoulo and Michael Liu (subject to being re-elected at the AGM
following his retirement by rotation in accordance with the Existing Articles)
will remain Directors but in a nonexecutive capacity.
It is proposed that Yumao Zheng, Jian (aka Jeffery) Xin and Xuedong (aka Louge)
Lou are appointed as new non-executive directors of the Company following the
conclusion of the AGM.
Yumao Zheng, Proposed non-executive director of the Company (Age: 53)
Mr. Zheng holds a bachelor's degree in surveying from the Institution of
Telecommunication
Engineering of Chengdu (now called University of Electronic Science and
Technology of China) which was obtained in 1980. Mr. Zheng is currently a senior
economist and the general manager of Shenzhen Zhenhua Telecommunication
Equipment Limited. Mr. Zheng has over 27 years of experience in the electronics
industry and is experienced in corporate management, production and
financial management and investment appraisals for electronic projects. Mr.
Zheng has worked with the Zhenhua Group which is principally engaged in the
electronics production business, since 1980. Mr. Zheng holds or has held the
following directorships or has been a partner in the following partnerships
within the five years prior to the date of this document:
Current Directorships:
Shenzhen Zhenhua Telecommunication Equipment Limited
Guizhou Zhenhua Digital Science & Technology Limited
Guizhou Zhenhua Tiantong Telecommunications Equipment Limited
Previous Directorships:
None
Jian (aka Jeffery) Xin, Proposed non-executive director of the Company (Age: 49)
Mr. Xin was educated as an electrical engineer at Tsinghua University, one of
China's most renowned universities. Mr. Xin also gained an MBA from the same
institution.His career to date has been primarily focused on research and
development in wireless communications.
Mr. Xin is currently General Manager at Zhu Zhou Shi Jun Investments & Sponsion
Co. Limited, a guarantee company which is 40 per cent. state-owned.
In 2005 Mr. Xin founded Jiu Ding Tech Co. Ltd, a company specialising in R&D for
cellphone design which partnered with the Cellon Group in Canada. In late 2007
Mr Xin sold the company to Nasdaqlisted, Qiao Xing Universal Telephone Inc. From
2000 to 2005 Mr. Xin was Vice President at CEC Wireless R&D Centre Ltd (CECW), a
company funded by the government that had Microsoft, Philips, Motorola and
Siemens as partners. CECW was successful in introducing new wireless
technologies to the Chinese market. Mr. Xin holds or has held the following
directorships or has been a partner in the following partnerships within the
five years prior to the date of this document:
Current Directorships:
Jiu Ding Tech Limited
China Milestone Limited
Zhu Zhou Shi Jun Investments & Sponsion Co. Ltd.
Previous Directorships:
None
Xuedong (aka Louge) Lou, Proposed non-executive director of the Company (Age:
41)
Mr. Lou holds a Bachelor's degree in Process Equipment Design from
Zhejiang University, a university regarded highly in China. In his early career
(1989-1993) Mr. Lou worked with state owned companies, mainly in plastics,
where he held positions as an engineer and in management.
In 1994 Mr. Lou established his own business, Hangzhou Guangsha Plastic Product
Co. Ltd. Which manufactured plastic components for phones. He also founded
Hangzhou Tianyin Electronic Co. Ltd. in 1996, which is primarily involved in the
distribution of mobile phones. In addition, Mr. Lou owns the mobile phone brand
name GML. To date he estimates that his group has RMB200m in total assets. The
group has 30 stores and approximately 1200 employees and total registered
capital of RMB30m. Mr. Lou has substantial commercial experience, having built
up these businesses in a challenging industry over the past ten years. Mr. Lou
holds or has held the following directorships or has been a partner in the
following partnerships within the five years prior to the date of this document:
Current Directorships:
Hangzhou Changjiang Tianyin Electronic Co. Ltd.
Germany Sixq International Technology Limited
France Reyn International Holding Limited
Previous Directorships:
Hangzhou Changjiang Tianyin Trade Co. Ltd.
Save as disclosed above none of the Proposed Directors has:
(i) any unspent convictions in relation to indictable offences;
(ii) had any bankruptcy order made against him or entered into any voluntary
arrangements;
(iii) been a director of a company which has been placed in receivership,
compulsory liquidation, administration, been subject to a voluntary arrangement
or any composition or arrangement with its creditors generally or any class of
its creditors whilst he was a director of that company or within the 12 months
after he ceased to be a director of that company;
(iv) been a partner in any partnership which has been placed in compulsory
liquidation, administration or been the subject of a partnership voluntary
arrangement whilst he was a
partner in that partnership or within the 12 months after he ceased to be a
partner in that partnership;
(v) been the owner of any assets or a partner in any partnership which has been
placed in receivership whilst he was a partner in that partnership or within the
12 months after he ceased to be a partner in that partnership;
(vi) been publicly criticised by any statutory or regulatory authority
(including recognised professional bodies); or
(vii) been disqualified by a court from acting as a director of any company or
from acting in the management or conduct of the affairs of a company.
Directors' Remuneration
Due to the limited resources available to the Company, Frank Lewis has agreed
that following the
AGM, his annual remuneration in respect of services to the Company shall be
reduced to GBP25,000 per annum until the first reverse takeover by the Company.
It is intended that Mark Syropoulo, Michael Liu and the Proposed Directors will
each be paid a minimal annual remuneration of GBP5,000 per annum on the
anniversary of their appointment until the first reverse takeover by the
Company, payable in New Ordinary Shares (at a subscription price of 23 pence per
New Ordinary Share) or cash at their individual discretion and subject to the
availability of cash in the Company at the time payment is to be made. It is
proposed that all Directors' remuneration will be reconsidered following the
first reverse takeover of the Company.
Waiver of Warrants and Options
Further to the Proposals, certain holders of outstanding warrants and options to
subscribe for Existing
Ordinary Shares in the Company, as set out in the table below, have waived their
rights thereto.
+---------------------+--------------------+--------------------+
| Name | Number of | Exercise price per |
| | warrants/options | Existing Ordinary |
| | held | Share |
+---------------------+--------------------+--------------------+
| Oliver Vaughan | 1,406,250 | 20 pence |
+---------------------+--------------------+--------------------+
| Edward Vandyk | 1,406,250 | 20 pence |
+---------------------+--------------------+--------------------+
| Blue Oar Securities | 2,810,475 | 20 pence |
| Plc | | |
+---------------------+--------------------+--------------------+
| Frank Lewis | 100,000 | 20 pence |
+---------------------+--------------------+--------------------+
| Mark Syropoulo | 500,000 | 20 pence |
+---------------------+--------------------+--------------------+
| Michael Liu | 500,000 | 20 pence |
+---------------------+--------------------+--------------------+
In addition, a total of 1,272,500 warrants and options to subscribe for Existing
Ordinary Shares at an exercise price of 20 pence per share have not been waived.
Following the Share Capital Reorganisation, this equates to a total of 2,545
warrants and options to subscribe for New Ordinary Shares and the Directors
consider an adjusted exercise price of GBP100.00 per share to be fair and
reasonable. The adjusted exercise price is, however, subject to auditors'
certification.
The latest date that the warrants have to be exercised by is 31 March 2010 and
the latest date by which the options may be exercised is 14 May 2009 (save in
respect of 500,000 options held by Charles Huang which have to be exercised by
21 July 2009).
Share Capital Reorganisation
Under the Companies Act 1985, a company may not issue shares below its par
value. The Existing
Ordinary Shares have a par value of 10 pence and therefore no new Existing
Ordinary Shares can be issued at a price below 10 pence. The Proposals provide
for an issue of new shares at a substantial discount to 10 pence. Further, due
to the fundamental change of business of the Company and the limited resources
available to fund the administrative costs of the Company in dealing with
its members, the Company is proposing to reorganise its share capital. This will
have the effect of reducing the number of Shareholders by eliminating all those
Shareholders with a shareholding of less than 10,000 Existing Ordinary Shares
and reducing the par value per share, allowing for new shares to be issued, as
follows:
Consolidation
It is proposed that as a first step every 10,000 issued and unissued Existing
Ordinary Shares are
consolidated into 1 ordinary share of GBP1,000 (each a "Consolidated Ordinary
Share") so that holders of Existing Ordinary Shares will then hold one ordinary
share of GBP1,000 for every 10,000 Existing Ordinary Shares (the
"Consolidation").
As part of the Share Capital Reorganisation the Company intends to reduce the
number of
Shareholders of the Company. Therefore, any holding of less than 1 Consolidated
Ordinary Share will, following the Consolidation, be aggregated and sold in the
market for the benefit of the Company in accordance with article 54 of the
Existing Articles. This will in particular affect Shareholders holding less than
10,000 Existing Ordinary Shares who will, following the Consolidation, cease to
be Shareholders. On the basis of an estimated value of 23 pence per New Ordinary
Share, the maximum capital loss which a shareholder holding fewer than 10,000
Existing Ordinary Shares may incur is GBP4.60.
In considering this capital loss to Shareholders of less than 10,000 Existing
Ordinary Shares, the
Directors considered the fact that following the Share Capital Reorganisation,
many Shareholders
would be left with a shareholding that would be so small it would be unlikely to
be worth selling in the market and that the share price would have to appreciate
very significantly in order for such
Shareholders to be able to sell without dealing costs absorbing a very large
proportion of any consideration due. Also, the Directors believe that such
Shareholders may be better served by the
Company if they are able to realise their losses for tax purposes. The Directors
are satisfied that the savings in administrative costs to the Company in dealing
with its members will benefit the Company in the long term.
The costs of distribution of small sums to Shareholders are significant and
therefore, having considered the situation carefully and having made enquiries
of the registrars to the Company as to the cost of producing and distributing
cheques, Fairfax, as the Company's nominated adviser, has given permission, in
accordance with Article 54 of the Existing Articles that an amount greater than
GBP3, which would otherwise be distributable to a member as a result of the
Consolidation, may be retained by the Company for its benefit.
The Consolidation will also reduce the number of Shareholders in the Company,
thus reducing its administrative costs.
In order to ensure that the number of authorised but unissued Existing Ordinary
Shares prior to the
Share Capital Reorganisation is divisible by a factor of 10,000, it is proposed
to initially increase the authorised share capital of the Company from
GBP17,980,850 to GBP17,981,000 by the creation of 1,500 Existing Ordinary
Shares.
In addition, Higher Performance Team Limited, a company beneficially owned by
Michael Liu 80 per cent. Mark Syropoulo 10 per cent. and James Guo 10 per cent.,
has agreed to subscribe for 4,990 Existing Ordinary Shares and Frank Lewis has
agreed to subscribe for 2,494 Existing Ordinary Shares in order to ensure that
the number of Existing Ordinary Shares in issue prior to the Share
Capital Reorganisation is divisible by a factor of 10,000. Higher Performance
Team Limited and Frank Lewis have agreed to subscribe for those shares at a
subscription price of 10 pence per Existing Ordinary Share, despite the fact
that they will be "lost" following the consolidation as described above.
The Board is authorised to issue shares to Higher Performance Team Limited and
Frank Lewis for the purpose of sections 80 and 95 of the Companies Act 1985
pursuant to resolutions passed by the Company on 17 January 2008 (and which
authorities will expire on 17 April 2009).
First Sub-Division
It is further proposed that as a second step following the Consolidation every
issued and unissued
Consolidated Ordinary Share is sub-divided and converted into 20 ordinary shares
of GBP50.00 each, credited as fully paid up (the "First Sub-Division").
The combined outcome of the Consolidation and the First Sub-Division of the
Existing Ordinary Shares is an effective one for 500 share consolidation.
Second Sub-Division
As a third step, it is proposed that every ordinary share of GBP50.00 each (both
issued and unissued) following the Consolidation and the First Sub-Division be
sub-divided and converted into 1 ordinary share of 1 pence and 1 deferred share
of GBP49.99 each, credited as fully paid up (the "Second Sub- Division").
Accordingly, as a result, for each ordinary share of GBP50.00 held by
Shareholders following the
Consolidation and First Sub-Division, they will, following the Second
Sub-Division, hold 1 ordinary share of 1 pence and 1 deferred share of GBP49.99
in the capital of the Company.
The reason behind the proposed Second Sub-Division is that section 100 of the
Companies Act 1985 provides that a company may not allot shares at a discount to
their nominal value and in the event of a contravention the allottee will remain
liable to pay the company an amount equal to the amount of the discount, with
interest at the appropriate rate.
As a result, the Company would only be able to raise further funds by issuing
shares at or above their nominal value of GBP50.00 per share (which would not be
realistic given that the Directors consider a market value of 23 pence per share
to be appropriate as described above).
It is therefore proposed that every ordinary share of GBP50.00 following the
first Sub-Division be subdivided and converted into 1 New Ordinary Share of 1
pence and 1 deferred share of GBP49.99.
The New Ordinary Shares
The New Ordinary Shares will have the same rights as those currently accruing to
the existing ordinary shares under the Existing Articles, including those
relating to voting dividends and return of capital and the way in which
Shareholders buy or sell ordinary shares will not be affected by the approval
of the Share Capital Reorganisation. The deferred shares of GBP49.99 each will
have no real rights as to dividends, voting or capital and will for all
practical purposes be worthless. The deferred shares will not be listed or
quoted on any recognised investment exchange and it is the Company's intent in
due course to make arrangements for the cancellation of the deferred shares.
As all Existing Ordinary Shares will be consolidated and converted, the
percentage interest of each shareholder in the entire issued share capital of
the Company immediately before and after the Share Capital Reorganisation will
be unchanged, save for any entitlement of Shareholders to fractions
of Consolidated Ordinary Shares which will be sold for the benefit of the
Company.
The existing share certificates relating to the Existing Ordinary Shares will
cease to be valid following the Share Capital Reorganisation. New share
certificates representing the New Ordinary Shares will be issued to Shareholders
following the Share Capital Reorganisation. In the case of uncertificated
holders of ordinary shares, Euroclear (as the operator of CREST) will be
instructed to credit the Shareholders' CREST accounts with the New Ordinary
Shares. No share certificates will be sent to Shareholders in respect of the
deferred shares.
It is further proposed that, following the Share Capital Reorganisation, that
the authorised share capital of the Company is to be further increased by
GBP30,000 by the creation of 3,000,000 New Ordinary Shares.
Adoption of New Articles
It is proposed that New Articles are adopted to replace the Existing Articles in
order to reflect the provisions of the Companies Act 2006 and the Share Capital
Reorganisation.
Loss of Capital
The losses incurred in the period and subsequent to 30 June 2008 have resulted
in the net assets of the Company, as at the date of this document, being less
than half of the Company's paid-up share capital. Section 142 of the Companies
Act 1985 requires the Directors to convene a general meeting of the Company for
the purpose of considering whether any, and if so what, measures should be taken
to deal with the situation.
While there can be no certainty that the Company will be successful in achieving
its aims, the Board has no alternative proposals to place before Shareholders at
the present time other than the Proposals and believes that its plans as set out
in this document represent the best available strategy to deal with the loss of
capital. Accordingly, the Directors do not consider that any further steps need
to be taken at present to deal with the Company's net asset situation, although
Shareholders will nonetheless have an opportunity at the Annual General Meeting
to raise any matters relevant to the loss of capital.
Annual General Meeting
There is attached to this document the Notice convening an Annual General
Meeting of the Company to be held on 21 April 2009 at which the Resolutions will
be proposed to, amongst other things, approve the Praise Ease Sale Agreement,
the Investing Strategy, to increase the authorised share capital, to restructure
the share capital, to give the Directors authority to issue the New Ordinary
Shares, to adopt the New Articles and to change the name of the Company.
The Resolutions that are to be proposed at the AGM can be summarised as follows:
Resolutions 1 to 4 - Ordinary business
Resolutions 1 to 4 will be proposed to transact the ordinary business of the
Company in accordance with article 61 of the Existing Articles.
Resolution 5 - To approve the Praise Ease Sale Agreement
This resolution is to be proposed at the AGM as an ordinary resolution for the
Shareholders to approve the disposal of Praise Ease pursuant to the Praise Ease
Sale Agreement.
Resolution 6 - To approve the Company's Investing Strategy
This resolution is to be proposed at the AGM as an ordinary resolution for the
Shareholders to approve the Company's Investing Strategy.
Resolution 7 - Share Capital Reorganisation
This resolution is to be proposed at the AGM as an ordinary resolution to
implement the Share Capital Reorganisation.
Resolution 8 - To further increase the authorised share capital
This resolution to be proposed at the AGM is an ordinary resolution to increase
the Company's authorised share capital by GBP30,000 by the creation of 3,000,000
New Ordinary Shares.
If Resolution 7 is not passed and, as a result, the Share Capital Reorganisation
does not take place, the Chairman of the AGM will propose to the meeting that
the authorised share capital of the Company be increased by the issue of the
relevant amount of Existing Ordinary Shares to reflect the fact that the nominal
amount of each ordinary share remains 10 pence.
Resolution 9 - Authority to allot shares
Under the Companies Act 1985, the directors of a company may only allot unissued
shares if authorised to do so by the shareholders in general meeting. Resolution
9 renews the Directors' existing authority by authorising the Directors to allot
shares up to an aggregate nominal amount of GBP29,956.52.
The authority will expire on whichever is the earlier of the date of the next
annual general meeting of the Company or the date falling 15 months after the
passing of the resolution. This represents 2,995,652 ordinary shares of 1 pence
each (following the Share Capital Reorganisation) in the capital of the Company
and is equivalent to approximately 33.12 per cent. of the Company's current
issued ordinary share capital as enlarged by the allotment of ordinary shares
following the satisfaction of all of the Company's outstanding contractual
commitments to allot shares, the exercise of all outstanding employee and
external share options (and following the Share Capital Reorganisation).
If Resolution 7 is not passed and, as a result, the Share Capital Reorganisation
does not take place, the Chairman of the AGM will propose to the meeting that
the aggregate nominal amount of the authority be proportionally increased by way
of amendment to the Resolution proposed to reflect the fact that the nominal
amount of each ordinary share remains 10 pence.
Resolution 10 - Limited authority to allot shares for cash
The Directors may only allot shares for cash otherwise than on a non pre-emptive
basis to existing Shareholders in the Company if authorised to do so by the
Shareholders in general meeting.
This resolution renews power for the Directors to allot New Ordinary Shares for
cash and/or sell or transfer shares held by the Company in treasury without
first offering them to existing members up to an aggregate nominal amount of
GBP24,372.10. This will allow the Company to issue 2,437,210 New Ordinary Shares
to be subscribed for by Staybest under the terms of the Investment Agreement
and issue shares to Wellhigh in the event of conversion of the Convertible Loan
Note and to issue further shares to fund the costs of investigating and
acquiring potential targets in order to implement the Investing Strategy.
This authority will represent 2,437,210 ordinary shares of 1 pence each
(following the Share Capital Reorganisation), being equivalent to approximately
10 per cent. of the Company's current issued ordinary share capital as enlarged
by the allotment of ordinary shares following the satisfaction of all of the
Company's outstanding contractual commitments to allot shares, the exercise of
all outstanding employee and external share options (and following the Share
Capital Reorganisation). The Directors will use such authority in the
circumstances where it is in the best interest of the Company to issue small
amounts of shares other than to existing Shareholders.
The resolution also enables the Directors to modify the strict requirements for
a rights issue in circumstances where they consider it necessary or expedient.
The authority will expire on whichever is the earlier of the date of the next
Annual General Meeting of the Company or the date following 15 months after the
passing of the resolution.
If Resolution 7 is not passed and, as a result, the Share Capital Reorganisation
does not take place, the Chairman of the AGM will propose to the meeting that
the aggregate nominal amount of the authority be proportionally increased by way
of amendment to the Resolution proposed to reflect the fact that the nominal
amount of each ordinary share remains 10 pence.
Resolution 11 - Purchase of the Company's own shares
This resolution renews and extends authority from Shareholders for the Company
to purchase up to 32,585 ordinary shares of 1 pence each (following the Share
Capital Reorganisation), an aggregate nominal amount of GBP325.85, which is
equivalent to approximately 14.99 per cent. of the Company's current issued
ordinary share capital (following the Share Capital Reorganisation).
The authority will expire at the end of the next Annual General Meeting and the
resolution specifies the maximum and minimum prices at which the ordinary shares
may be bought. Other investment opportunities, appropriate gearing levels and
the overall financial position of the Company will be taken into account before
deciding upon this course of action. Any ordinary shares purchased in this way
will be held by the Company in treasury and may then be sold for cash,
transferred to an employee share scheme or cancelled. The Board has no immediate
intention of exercising the proposed authority when it becomes effective, but
believes that the ability of the Company to buy its own ordinary shares when, in
the Board's opinion, market prices do not reflect the Company's worth, will be
in the best interests of the Company and its Shareholders.
If Resolution 7 is not passed and, as a result, the Share Capital Reorganisation
does not take place, the Chairman of the AGM will propose to the meeting that
the reference to the nominal amount of the ordinary shares subject to the
authority, the maximum number of ordinary shares and the minimum price which may
be paid for an ordinary share be amended to reflect the fact that the nominal
amount of each ordinary share remains 10 pence.
Resolution 12 - Change of name
It is proposed that the name of the Company is to be changed to China Evoline
Plc.
Resolution 13 - Adoption of New Articles
It is proposed in Resolution 13 to adopt the New Articles in order to update the
Existing Articles primarily to take account of changes in English company law
brought about by the Companies Act
2006. The principal changes introduced in the New Articles are summarised in the
Explanatory Notes to Resolution 13 on page 39 of the circular. Other changes,
which are of a minor, technical or clarifying nature and also some more minor
changes which merely reflect changes made by the Companies Act 2006 have not
been noted in the Appendix. The New Articles showing all the changes to the
Existing Articles and a copy of the New Articles will be available for
inspection between the hours of 10 a.m. and 12 noon on any weekday (Saturdays,
Sundays and public holidays excepted) at the Company's registered office at 14
New Street, London EC2M 4HE from the date of this notice until the date of the
AGM and at the AGM itself.
ACTION TO BE TAKEN
The Form of Proxy for use by Shareholders at the Annual General Meeting is
enclosed. If you are
unable to be present at the Annual General Meeting, please complete and sign the
Form of Proxy and return it to the Company's registrars, Capita Registrars, The
Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU, to be received as soon as possible and, in any event,
by no later than 10.00 a.m. 19 April 2009.
You are entitled to appoint a proxy to attend and to exercise all or any of your
rights to vote and to speak at the Annual General Meeting instead of you.
However, the completion and return of the Form of Proxy will not prevent you
from attending the Annual General Meeting and voting in person if you wish to do
so. Your attention is drawn to the notes to the Form of Proxy.
The Directors consider that the proposals outlined in this letter are in the
interests of Shareholders and recommend that Shareholders vote in favour of the
Resolutions as those of the directors who hold Existing Ordinary Shares propose
to do in respect of all of their holdings of Existing Ordinary Shares, amounting
in total to 4,257,494 Existing Ordinary Shares which represents to 3.91 per
cent. of the issued Existing Ordinary Shares.
Staybest has irrevocably undertaken to vote the Charged Shares in favour of the
Resolutions (representing approximately 62.57 per cent. of the Existing Ordinary
Shares). In addition, Albany Capital plc has given a similar undertaking to vote
in favour of the Resolutions (representing approximately 5.01 per cent. of the
Existing Ordinary Shares).
Yours sincerely
Frank Lewis
Chairman
This information is provided by RNS
The company news service from the London Stock Exchange
END
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