Disposal of Technology Division (2966A)

TIDMTQC

RNS Number : 2966A

Third Quad Capital PLC

28 January 2011

Third Quad Capital plc

("TQC" or the "Company")

Proposed disposal of the Technology Division, change of name to VSA Capital Group plc, disapplication of statutory pre-emption rights and Notice of General Meeting

Highlights

-- TQC has conditionally agreed the disposal of its Technology Division for GBP1.3 million in cash; GBP200,000 will be payable on Completion followed by eleven monthly payments of GBP100,000.

-- A General Meeting has been convened for 14 February 2011 to seek shareholders' approval as the Disposal would result in a fundamental change of business by the Group according to Rule 15 of the AIM Rules.

-- The Group's remaining business will be VSA Capital, which is continuing to recruit fee earners and now has eight full time employees and four consultants (split across institutional sales, corporate finance and research). TQC intends that VSA Capital should continue to develop as an institutional broking and investment banking business through organic growth and via acquisition.

-- On Completion it is proposed that the Company's name be changed to VSA Capital Group plc.

-- The Company has today published a circular to Shareholders setting out the reasons for, and principal terms of the Disposal along with resolutions to effect the change of name and to renew the Directors' authority to issue Ordinary Shares for cash without applying statutory pre-emption rights. The circular is available for viewing and downloading on the Company's website at www.thirdquad.co.uk

Board change

John McCartney, who is currently the director responsible for TQC's Technology Division, will leave the Group on Completion. Further information concerning arrangements with John McCartney are set out below.

Unless otherwise defined, terms used in this announcement have the defined meaning given to them in the circular.

The Chief Executive Andrew Monk commented:

"The Group's intention was to grow a Technology Division alongside a Financial Services Division but since the acquisition of Softline it has become clear that the Company's growth and future lay with VSA Capital where we have the management skills and reputation to attract the best people to help us grow a substantial business. With difficult trading across the entire Technology Division in the last few months, as previously reported to shareholders, the Board was pleased when Rivington Street Ventures approached it to acquire the entire Technology Division and we believe we have secured an attractive price under the circumstances. This disposal will enable the resultant group to focus on developing VSA Capital into an institutional broking and investment banking business. The Disposal will enhance the Group's financial position and we look forward to the future with considerable enthusiasm and optimism".

For further information please contact:

Third Quad Capital plc

Andrew Monk, CEO

0203 005 5000

Shore Capital and Corporate Limited

Andrew Raca or Edward Mansfield

020 7408 4090

Rivington Street Corporate Finance Jon Levinson 020 7562 3357

Proposed disposal of the Technology Division, change of name to VSA Capital Group plc, disapplication of statutory pre-emption rights and Notice of General Meeting

1. Introduction

The Company announces that the Board had reached an agreement for the sale of the Group's Technology Division to Rivington Street Ventures Limited, a subsidiary of Rivington Street Holdings plc for a consideration of GBP1.3 million in cash. The Disposal represents a "fundamental change of business" for the Company pursuant to Rule 15 of the AIM Rules, due to the size of the transaction relative to the size of the Group. As a result, the Disposal is conditional (among other conditions) on the approval of Shareholders at the General Meeting.

In addition to owning the Purchaser of the Technology Division, Rivington Street Holdings plc is the holding company of Rivington Street Corporate Finance Limited (which is the joint broker to the Company) and T1ps Investment Management Limited which manages funds which currently hold 8.6 per cent. of the Company's issued share capital.

A General Meeting has been convened on 14 February 2011 at 10 a.m. at 14 Austin Friars, London, EC2N 2HE at which a resolution will be proposed to approve the Disposal.

In addition, further resolutions will be proposed at the General Meeting to change the name of the Company to VSA Capital Group plc, and to renew the Directors' authority to issue Ordinary Shares for cash without applying statutory pre-emption rights.

2. Background to and reasons for the Disposal

The acquisitions of VSA and Softline made in August 2010 were undertaken to bolster the Group, providing critical mass for the Group's software businesses and diversification into financial services. At the time of acquisition VSA Capital was in a poor financial position and it was not certain how long it would take to turn this business around. Since its acquisition, market conditions have been favourable and its recovery has been more rapid than anticipated.

Integration of the pre-existing and new software businesses has not progressed as well as the Directors had expected it would. Budgets prepared by divisional management at the time of acquisition have not been met. Cash generation, which was needed to meet the Group's working capital requirements, including the cash consideration payments due to the seller of Softline, has not been forthcoming and Softline has required short term cash support from the Company.

The combination of these circumstances, together with the opportunity that presented itself to dispose of the Technology Division and focus fully on the Financial Services Division, has led the Directors to believe that the Disposal is in the best interests of the Company and Shareholders.

The Company announced on 19 January 2011 that the Company "is currently in discussions with a potential acquirer of its software businesses in order that it can fully focus on its Financial Services Division...it is the intention of TQC to focus on VSA Capital Limited, its Financial Services Division, where it has the management skills to run and successfully grow a valuable business for shareholders. Whilst this division is currently performing above expectations, VSA Capital Limited is investing for expansion which does risk constraining short term profitability as it seeks longer term value."

3. Information on the Technology Division

TQC's Technology Division comprises Softline Ltd ("SL"), Softline Distribution Limited ("SDL") and Softline UK Limited ("SLUK") (collectively "Softline") and Formjet Innovations Limited ("FJI"), Ability Software International Limited ("ASI") and South Coast Distributions Limited ("SCD") (collectively "Formjet").

FJI and ASI were founded in 2001 and 2004 respectively and are UK based companies that acquired territorial rights to alternative software products, and market, sell, distribute and support these products in place of the vendor in worldwide markets. ASI and FJI market their software to information technology distributors, retailers and hardware manufacturers.

Softline UK Limited was founded in 1989 and is an approved supplier to Apple Computer International. Recently, SLUK has expanded its business to include a number of Microsoft Windows products as well as hardware items for both Macintosh and personal computer ("PC") including accessories such as iPhone cases and laptop sleeves. As a distributor SLUK does not supply directly to the public. SLUK's products are made available via a network of resellers, online stores, mail order houses and high street retailers.

SL and SDL are non-trading intermediate holding companies, and SCD is a dormant company.

TQC acquired Softline on 20 August 2010 for consideration of GBP1.3 million, payable in cash and shares over a period of two years. Of the consideration payable, the seller, John McCartney, lent TQC GBP550,000 for a period of five years, secured on a property owned by the Company; Innovation House, Windsor Place, Crawley (the "Vendor Loan").

For the year to 31 December 2010, Formjet achieved an unaudited turnover of GBP635,011 and a loss of GBP107,119. In the six months ended 31 December 2010, Softline achieved an unaudited turnover of GBP1,702,522 and a profit of GBP46,937, of which GBP1,295,763 and GBP29,570 respectively related to the period since it was acquired by TQC (20 August 2010). To date the turnover of the Technology Division has represented substantially all of the turnover of the Group.

Whilst SLUK has been a profitable business since acquisition it has failed to meet the turnover forecasts provided to the Company and its profitability has been correspondingly below the Company's expectations. In part this can be attributed to December's poor weather conditions which impacted retail sales for the important pre-Christmas market but SLUK has also felt the impact of a tougher retail environment generally and the introduction of alternative methods of distributing its products to the retail market.

Formjet continues to offer the promise of profit by way of gaining market share in the office software market, which remains dominated by Microsoft. Although Formjet continues to enjoy regular income from a contractual relationship in which Formjet provides its Ability product on a 'white label' basis, underlying sales of the Ability products have continued to disappoint and, as a result, Formjet has struggled to generate sustainable profits.

FJI, ASI and SCD are held in TQC's consolidated balance sheet at their net asset value.

Group financial information, including annual Report & Accounts in pdf format and RNS announcements relating to the Interim Results for the Group for six months to 30 June 2010, together with previous financial years, can be found on the Group's website at www.thirdquadcapital.com

4. Terms of the Disposal

The Company will receive consideration of GBP1.3 million in cash; GBP200 000 will be payable on Completion followed by eleven monthly payments of GBP100,000. Payment of the instalments will be guaranteed by Rivington Street Holdings plc.

Under the terms of the Sale Agreement, Completion will take place on the basis that the net liabilities of FJI, ASI and SCD, taken together, will not exceed the value of their combined net assets, and that SLUK will be transferred with net current assets of at least GBP75,000 including cash of at least GBP125,000. To the extent that the net asset undertakings noted above are not met, an adjustment will be made to the cash consideration for the amount of any shortfall on a GBP1:GBP1 basis.

The Company's leasehold warehouse premises, used by the Technology Division, at 24 The Bell Centre, Newton Road, Crawley will be sublet to the Purchaser until the expiry of the Company's lease on 30 April 2012.

5. Board change

As a consequence of terms of the Softline acquisition which was completed in August 2010, TQC has certain obligations to pay consideration outstanding to the seller, John McCartney.

John McCartney, who is currently the director responsible for TQC's Technology Division, will leave the Group on Completion. He will receive the following sums on Completion:

-- payment of twelve months' notice due to him under the terms of his Director's Service Contract: GBP25,000 plus GBP2,022 in respect of health insurance for a corresponding period;

-- settlement of the outstanding cash consideration due to him under the terms of the Softline purchase: GBP300,000;

-- payment of the additional contingent consideration of GBP200,000 provided under the acquisition terms to be satisfied by (a) the issue of 20,000,000 ordinary shares in TQC at a price of 0.5p; (b) the issue of 5 million ordinary shares in TQC with a value of GBP50,000 based on the closing mid-market price of 1p on the 27 January 2011; and (c) a payment of GBP50,000 in cash, which Mr McCartney has agreed to add to the Vendor Loan to the Company.

Mr McCartney's total loan to the Company will then amount to GBP600,000 and is secured against the Group's former headquarters in Crawley and will become repayable in 60 monthly instalments, commencing on Completion, or on earlier completion of a sale of the property.

6. Summary of the effects of the Disposal

TQC's consolidated balance sheet will be materially reduced in size. The Technology Division consists of Softline, a profitable sub-group, and Formjet, a loss making sub-group.

Following the Disposal, the Group's remaining business will be its Financial Services Division, which comprises the business of VSA Capital. Since acquiring VSA Capital, TQC has resolved that business's immediate cashflow issues and undertaken a recruitment drive to bring it back to 'critical mass' in terms of its ability to conduct broking business. VSA Capital is continuing to recruit fee earners and now has eight full time employees and four consultants (split across institutional sales, corporate finance and research). TQC intends that VSA Capital should continue to develop as an institutional broking and investment banking business through organic growth and, should suitable opportunities present themselves, via acquisition. This business operates from premises at 14 Austin Friars, London EC2N 2HE.

The Company will still own the freehold of Innovation House, Crawley RH10 9TF, which is in the balance sheet of the Group at a value of GBP646,848. As noted above, this property is held as security for the Vendor Loan due to John McCartney, an amount which will increase to GBP600,000 following the Disposal.

The Company has received confirmation from HM Revenue & Customs that the current activities of VSA Capital are considered a qualifying trade for EIS purposes. Accordingly the Directors believe that the proposed Disposal will not jeopardise the current or past EIS status of the Company, its shareholders or shareholders to be. However, the Directors are aware that their plans to develop VSA Capital into a less narrowly focussed financial services business may compromise the Company's EIS status as those plans unfold.

The Directors intend to focus their attention on the organic growth of VSA Capital but remain mindful that opportunities for growth and development of this business by acquisition may present themselves over time.

As outlined above, TQC will retain certain outstanding financial obligations to John McCartney.

7. Application of Proceeds

The net proceeds of the Disposal will be used towards the discharge of the immediate cash payment due to John McCartney.

The balance of the disposal proceeds, which will be received over the following 12 months, will be used for general working capital purposes by the Group as it seeks to grow the business of VSA Capital. As noted above, the Company will retain a liability to repay the Vendor Loan over the next five years.

8. Proposed change of name of the Company

The Board intends to develop an institutional broking and investment banking business based upon the Group's existing FSA regulated subsidiary, VSA Capital. As a consequence, the Board believes that it would be appropriate to change the name of the Company. Accordingly, a resolution will be proposed at the General Meeting to change the name of the Company to VSA Capital Group Plc.

9. Authority to issue shares

At the Annual General Meeting of the Company held on 4 March 2010, Shareholders gave the Directors authority to issue up to 350,000,000 Ordinary Shares for cash without applying statutory pre-emption rights. Under this authority, the Board has since issued 216,000,000 Ordinary Shares for cash, to raise additional working capital for the Company. As the Company's 2011 Annual General Meeting will not be held until later this year, the Directors believe it is prudent for them to ask Shareholders to renew the authority given at the 2010 Annual General Meeting.

Whilst the Directors have no current intention to exercise the power to raise additional equity which would be given to them if this resolution is passed, the Board believes that it is in the interests of the Company and all its Shareholders that the Directors have power to raise additional equity finance in a cost-effective manner, if and whenever this proves necessary or desirable, for acquisition costs or otherwise to meet the Group's working capital requirements.

10. Current trading and prospects

Following Completion, the Company will generate its income solely from the Financial Services Division. As at 4 January 2011 the Company made the following statement in relation to the performance of VSA Capital Limited:

"VSA Capital Limited ("VSA"), our financial services business, has performed better than expected. Despite the situation VSA was in when it was acquired, we have succeeded in recruiting some excellent people and we are seeing good quality deal flow, which is very encouraging for the long term growth of this business. Our intention is to continue to invest in VSA as, with the proven track record of the management team, we believe we can build a very valuable business. Whilst investment in people and growth does risk constraining short term profitability we remain convinced that it will provide substantial longer term value."

The net proceeds of the Disposal will be used to invest in the expansion of VSA Capital Limited. This may risk constraining short term profitability as the Board seeks longer term value.

Apart from the proposed Disposal, there has been no change to the expectations of the Board in relation to the operations of the Group since the trading update announced on 4 January 2011. The Company will publish second interim results for the six months to 31 December 2010 in late March 2011.

11. General Meeting

Completion of the Disposal and the change of name of the Company are conditional upon Shareholders' approval of the Resolutions being obtained at the General Meeting to be held at 14 Austin Friars, London EC2N 2HE on 14 February 2011 at 10 a.m.

At the General Meeting three resolutions will be proposed to Shareholders:

(1) to approve the disposal of the Technology Division pursuant to the terms and subject to the conditions of the Sale Agreement;

(2) to approve the change of the Company's name to VSA Capital Group plc; and

(3) to authorise the Directors to issue up to 600,000,000 Ordinary Shares for cash without applying statutory pre-emption rights for Shareholders.

Resolution (1) will be proposed as an ordinary resolution and resolutions (2) and (3) will be proposed as special resolutions.

12. Directors intentions

The Directors consider the Disposal to be in the best interests of the Company and intend to vote in favour of the resolutions in respect of their own beneficial holdings amounting to, in aggregate, 148,000,000 Ordinary Shares representing approximately 24.02 per cent. of the issued ordinary share capital of the Company.

This information is provided by RNS

The company news service from the London Stock Exchange

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