Conditional disposal

RNS Number:4289K
Z Group PLC
20 December 2007

Z GROUP PLC

20 December 2007

                                  Z GROUP plc

                          ("Z GROUP" or the "Company")



Proposed disposal of CallPal Limited, Net2Roam Limited, Onshare Limited and
Turbodial Limited, proposed investing strategy and proposed authority to provide
documents to Shareholders electronically


Further to the announcement on 29 November 2007 of the Company's interim results
and the proposed disposal of the operating subsidiaries of the Company, the
board of Z GROUP announces that the Company today entered into an agreement,
conditional on Shareholder approval, for the sale of CallPal Limited, Net2Roam
Limited, Onshare Limited and Turbodial Limited, which comprise substantially all
of the trading assets of the Company, to Jack Bekhor and James True, who are
currently joint chief executive officers and directors of the Company (the "
Disposal").



An announcement confirming the posting of a circular to Shareholders that sets
out the background to the proposed Disposal and containing notice of a general
meeting of the Company to approve the Disposal and various other matters will be
made in due course (the "Circular"). The purpose of the Circular will be to set
out the background to the Disposal, to explain why the Board of Z GROUP
considers the Disposal to be in the best interests of the Company and its
Shareholders, to set out the Company's proposed Investing Strategy following
Completion and to seek the approval of Shareholders for the Proposals at a
general meeting of the Company, which is required to approve and implement the
Proposals.



For further information:



Z GROUP plc



John Standen                    Tel: [phone]
(Chairman)

Duncan Neale                    Tel: [phone]
(Finance Director)


Landsbanki Securities (UK) Limited (NOMAD)


Jeff Keating / Tom Hulme         Tel: [phone]
(Corporate Finance)



The following is taken from the Circular which will be posted to Shareholders in
due course. Defined terms used in this announcement are as will be used in the
Circular and set out below following the excerpts from the Circular.



            Proposed disposal of CallPal Limited, Net2Roam Limited,
                     Onshare Limited and Turbodial Limited



                          Proposed investing strategy



                   Proposed authority to provide documents to
                          Shareholders electronically



1.   Introduction



On 20 December 2007, the Company entered into an agreement, conditional on
Shareholder approval, for the sale of the Disposal Companies, which comprise
substantially all of the trading assets of the Company, to the Buyers, Jack
Bekhor and James True, who are currently joint chief executive officers and
Directors.



The cash consideration for the Disposal is £60,000, which will be payable upon
Completion.



In addition, further material commercial advantage accrues to the Company under
the terms of the SPA, the details of which are set out in paragraph 5 below, as
follows:



*         Jack Bekhor and James True, while remaining as part-time executive
directors of the Company following Completion, have agreed to waive any
remuneration due under their service agreements (other than their entitlement to
receive the statutory minimum wage, which cannot legally be waived) for a period
which will be the lesser of at least one year (the precise duration to be agreed
with the Board, dependent upon the performance of the Company in the future) or
the period until the completion by the Company of a reverse takeover under the
Aim Rules, in the event of which the Buyers shall enter into new service
contracts with the Company; and



*         The Company will be paid 100 per cent. of all research and development
tax credits received by Onshare and Net2Roam after Completion, by means of a
reduction in inter-company debt which would otherwise be written off, and by
dividend.



The Board estimates that the combined financial benefit to the Company of these
measures, including the Consideration, in the first year after Completion will
be between £264,000 (calculated on the basis that Jack Bekhor and James True
will only receive the statutory minimum wage for one year) and £688,000,
depending upon the level of tax credit recovery achieved.



The Board has also negotiated with the Buyers further potential payments in the
event of onward sale of shares and/or assets of the Disposal Companies, which
has the potential to yield further sums to the Company where any of the Disposal
Companies are sold, or any of the Disposal Companies sell any of their assets,
within 15 months from Completion.



All material liabilities of the Group, other than in relation to the Lease (an
obligation of Z Group of £200,000 plus VAT per annum), reside in the Disposal
Companies.  The Directors are actively seeking to assign the Lease.



On Completion, Z GROUP will hold no material assets other than the Company's
cash balance, which is expected to be in the region of £1,000,000.



As detailed in paragraph 3 below, the Disposal will also materially reduce the
Company's cash burn rate.



Further details of the terms of the SPA appear in paragraph 5 below.



It is proposed that after Completion the Ordinary Shares continue to trade on
AIM and that Z GROUP pursue new investment opportunities in accordance with the
Investing Strategy.



Under the AIM Rules, the Disposal is classified as a disposal resulting in a
fundamental change of business and under section 190 of the Companies Act 2006
the Disposal is a substantial property transaction with Directors.  The Disposal
is, therefore, conditional on the consent of Shareholders given in general
meeting.  The Disposal is also deemed a related party transaction under the AIM
Rules as Jack Bekhor and James True are Directors.  It is also a requirement,
under the AIM Rules, that following a disposal resulting in a fundamental change
of business which results in a company holding only cash, as will be the case
with the Company should the Disposal complete, it must adopt an investing
strategy which outlines, inter alia, the nature of the investments it intends to
make over the next twelve months.  A failure to make such an investment within
12 months of Completion would result in the London Stock Exchange suspending the
trading of the Company's Ordinary Shares on AIM and, if the Company still failed
to comply with the Investing Strategy, the London Stock Exchange would cancel
the admission of the Company's Ordinary Shares to trading on AIM.  This
investing strategy must also be approved by Shareholders.



The purpose of the Circular is to provide you with details of the Disposal, to
explain why your Board considers the Disposal to be in the best interests of the
Company and its Shareholders, to set out the Company's proposed Investing
Strategy following Completion and to seek your approval for the Proposals at the
General Meeting, which is required to approve and implement the Proposals.



The Board believes the Disposal is in the best interests of the Company and is
therefore asking Z GROUP Shareholders to approve it by voting in favour of
Resolution 1 at the General Meeting.



2.   Information on Z GROUP



Jack Bekhor and James True founded Net2Roam in 2002 and the business was
admitted to trading on AIM as Z GROUP on 16 June 2005.  Z GROUP is a
London-based technology company which acquires, licences and develops
technologies and commercialises them.

Z GROUP currently has five software business lines, all of which are owned by the 
Disposal Companies:

*         ShrinkMyTunes - MP3 compression software;

*         OnShare - file sharing software;

*         ONSPEED Mobile - mobile phone Internet browser acceleration software;

*         ONSPEED - Internet acceleration software; and

*         Net2Roam - pre-paid worldwide Internet access.



3.    Background to and reasons for the Proposals



On 12 September 2007 the Board announced a trading update and indicated that,
whilst trading was in line with management expectations for the six months to 31
August 2007, the results for the year would be adversely affected both by the
lack of take-up by consumers for Onshare and the anticipated declining
performance of ONSPEED.  Consequently, a write-off of the Company's investment
in Onshare was likely to take place this financial year ending 28 February 2008
as a prudent measure.  Also, the Board indicated that it was looking at
alternative ways to generate revenue from the Onshare technology, which was
withdrawn from the market in November 2007.



The Company subsequently reported its interim results for the six months ended
31 August 2007 on 29 November 2007.  Turnover was £1,000,000 and the trading
loss, including the proposed write-off of the Company's investment in Onshare,
which totals £6,900,000, amounted to £7,100,000.  The Company's cash balance at
31 August 2007 was £1,600,000, which reduced to £1,300,000 at 31 October 2007,
representing an average monthly cash burn since 1 March 2007 of £110,000.



When Z GROUP was admitted to trading on AIM in June 2005, the intention was to
grow the Company by developing and commercialising a product portfolio for users
of the web.  ONSPEED was already established in its marketplace and Onshare was
under development.  Onshare has taken much longer to come to market than
originally anticipated and its future is now uncertain; consumer uptake has been
slow and it is not considered economically viable in its current form.



The Board now believe that the sale of software products to consumers for web
enhancing purposes has become increasingly difficult as such products are now
increasingly being provided free.  Consequently, with our principal product
ONSPEED declining in turnover, Onshare being considered an uncommercial
technology, and regard being had to the Company's ongoing cash burn, the Board
has considered the various available options to the Company in order to preserve
shareholder value and in particular the cash resources of the Company.



In this context, the Buyers approached the Board to buy the Disposal Companies
for the Consideration and negotiations have concluded on the other terms
identified in paragraph 1 above.  The Disposal will reduce the Company's cash
burn considerably and is expected to leave the Company with cash resources at
Completion of in the region of £1,000,000.  Z GROUP will remain liable under the
terms of the Lease, which costs the Company £200,000 plus VAT per annum.  The
Directors are actively seeking to assign the Lease.



In view of the continued trading losses and the erosion of the Company's cash
resources, the Directors believe that Shareholders' interests would be best
served by securing a speedy solution to the current problems of Z GROUP.  In the
opinion of the Board, the Disposal and the adoption of the Investing Strategy
represent the best available option for the Company and its Shareholders given
the poor future prospects for the Company in its current form.



4.   Financial Information on the Disposal Companies



The following consolidated financial information on the Disposal Companies has
been extracted, without material adjustment, from the underlying supporting
schedules to the audited accounts of the Company for the 12 months ended 28
February 2006 and 28 February 2007 and the unaudited interim results of the
Company for the six months ended 31 August 2007.


                                 FY06                 FY07              H1 FY08
                                    £                    £                    £
Turnover                    4,960,922            2,620,969              965,667
Gross Profit                3,883,697            1,972,046              707,540
Operating profit            1,130,882            (442,992)          (2,927,793)
PBT                         1,033,125            (442,992)          (2,927,587)
Net assets                  2,882,882            2,504,198            (423,390)



5.   Principal terms of the SPA



On 20 December 2007, Z GROUP entered into the SPA with the Buyers for the sale
of the entire issued share capital of the Disposal Companies.  Under the SPA,
completion of which is conditional upon the passing of the Resolutions at the
General Meeting, the Buyers agreed to pay Z GROUP the Consideration.



The SPA includes warranties given by Z GROUP as to its title to sell the
Disposal Companies and its capacity to enter into the SPA and related documents,
but not as to any other matter.



The SPA also contains covenants by the Buyers that, in the event that they sell
the shares and/or assets of the Disposal Companies, whether in whole or in part,
within 15 months from Completion ("Subsequent Sale"), the Buyers will:



5.1  in relation to the sale of the shares in, or all or substantially all of
the assets comprising the business of, Onshare, pay to Z GROUP 80 per cent. of
the net consideration received by the Buyers or Onshare on the Subsequent Sale;



5.2 in relation to the sale of any shares in, or all or substantially all of the
assets comprising the business of, any Disposal Company other than Onshare, pay
to Z GROUP 20 per cent. of the net consideration received by the Buyers or that
other Disposal Company on a Subsequent Sale; and



5.3  in relation to the simultaneous sale to the same buyer(s) of all of the
shares in, or all or substantially all of the assets comprising the business of
the Disposal Companies, pay to Z GROUP 35 per cent. of the net consideration
received by the Buyers or the relevant Disposal Company on a Subsequent Sale.



For the purposes of paragraph 5, "net consideration" means the consideration
(including any deferred consideration) received, net of professional fees and
any withholding tax or other tax legally due and retained, up to a maximum of 5
per cent. of the relevant consideration, incurred by the Buyers or relevant
Disposal Company in relation to the Subsequent Sale.



However nothing shall be payable to Z GROUP on a Subsequent Sale if the
aggregate consideration received by the Buyers or relevant Disposal Company from
such Subsequent Sale is less than £40,000.



The SPA further provides that Z GROUP agrees to surrender any available tax
losses accruing up to the date of Completion and that it will sign a consent (as
required by HMRC) to that effect at the time the 2008 returns for the Disposal
Companies are submitted.



6.   The Board



It is intended that following the conclusion of the General Meeting, assuming
the Resolutions are passed, Polly Williams, Jonathan Slater and I will resign as
Directors with immediate effect and Jon Claydon will become the Company's
Chairman.



Jack Bekhor, James True and Duncan Neale shall continue as executive directors
of Z Group following Completion.



7.   Employees of the Company



The only employees of Z GROUP are Jack Bekhor, James True, Duncan Neale and
Jonathan Slater.  Jonathan Slater is being made redundant with effect from and
conditional on Completion.



Jack Bekhor and James True have agreed to limit the time spent by them on the
Company's business to 10 hours each week and their remuneration is to be reduced
accordingly and will be based on the minimum wage hourly rate.



8.   Research and Development Tax Credits



Z GROUP has agreed with the Buyers that Z GROUP shall receive 100 per cent. of
all research and development tax credits received by Onshare and Net2Roam for
the years ending 28 February 2006 and 2007 and 29 February 2008 (less any
professional fees incurred in claiming them) on the following terms:



8.1  those credits will be used so far as possible to repay those companies'
debts to Z GROUP (which will otherwise be written off); and



8.2  to the extent that credits in excess of those debts are received by those
companies, Turbodial Limited will pay an equal amount in discharge of final
dividend of £215,000 declared by it on 20 December 2007 in favour of Z GROUP,
which dividend will otherwise be waived by Z GROUP.



9.   Current Trading



The current trading position of the Company is set out in the Company's
unaudited interim results for the six months ended 31 August 2007 as announced
on 29 November 2007.



10.  Investing Strategy following Completion and use of proceeds



It is a requirement, under the AIM Rules that, following a disposal resulting in
a fundamental change of business which results in a company holding only cash,
as will be the case with the Company should the Disposal complete, it must adopt
an investing strategy which outlines, inter alia, the nature of the investments
it intends to make over the next twelve months.  A failure to make such an
investment within 12 months of Completion would result in the London Stock
Exchange suspending the trading of the Company's Ordinary Shares on AIM and if
the Company still failed to comply with the Investing Strategy, the London Stock
Exchange would cancel the admission of the Company's Ordinary Shares to trading
on AIM.  This investing strategy must also be approved by Shareholders.



Following Completion, the Company is expected to have cash resources of in the
region of £1,000,000.  This amount, less the Company's anticipated operating
costs over the next 12 months of approximately £200,000, will be invested by the
Remaining Directors in accordance with the proposed Investing Strategy, whereby
the Company will seek to make an investment or acquisition within 12 months of
the date of the General Meeting.



Following Completion, the Investing Strategy will be to seek high growth,
profitable, cash generative businesses in three sectors:



*         technology;

*         media; and

*         sciences.



The Remaining Directors intend to examine, inter alia, the following matters in
assessing whether or not a potential target company or business is suitable as
an acquisition for the Company:



*         the experience of the company's management team;

*         the size of the projected market for the company's products and/or
          services;

*         the potential for growth of that market;

*         the stage of development of the company;

*         the company's intellectual property rights;

*         the company's competitive position within its market; and

*         the ease of market entry for the company's products and/or services.



Potential investments will be reviewed and initial screening and due diligence
will be carried out by the Remaining Directors.  Any decision on whether to
proceed will be made by the unanimous decision of the Board.  Outside
consultants and professional advisers will be used where appropriate but the
Company will endeavour to keep this to a minimum in order to control expenses.
The Board will use professional advisers in their due diligence processes.



If the Board has not found a suitable transaction within 12 months of the
General Meeting, the Remaining Directors intend to return any remaining cash to
Shareholders.



The Consideration will be retained by the Company and used for its Investing
Strategy.



The Board believes it is in the best interests of the Company to adopt the
Investing Strategy and is therefore asking Z GROUP Shareholders to approve it by
voting in favour of Resolution 2 at the General Meeting.



11.  Authority to send or supply documents and information via the Website and
in electronic form



Under Resolution 3 set out in the Notice, the Company is seeking Shareholders'
consent to send and supply documents and information to them in electronic form
or via the Website.



Increased use of electronic communications will deliver savings to the Company
in terms of administration, printing and postage costs, as well as speeding up
the provision of information to Shareholders.  The reduced use of paper will
also have environmental benefits.



Under the provisions of the Act, the Company is also required to ask you
individually to confirm your agreement to the Company sending or supplying
documents and information to you as a member of the Company via the Website or
by other electronic means.



Provision of information via the Website



Assuming that the Resolution to send and supply documents and information to the
members in electronic form and via a website is passed by Shareholders, if the
Company does not receive a response from you within 28 days of the date of the
Circular, you will be taken to have agreed (under paragraph 10 of Schedule 5 to
the Act) that the Company may send or supply documents and information to you
via the Website.  Therefore, if you agree to the Company sending or supplying
documents or information to you via the Website, you need take no further action
in relation to this part of the Circular.  If you would prefer to receive
documents and information in paper form rather than via the Website, you will
need to complete the form of authority enclosed with the Circular and return it
to the Company at the address appearing on it.



In order to access documents and information on the Website and by email, you
will need a web browser, a connection to the Internet and Adobe Reader (if you
do not have Adobe Reader you can download it from www.adobe.com/products/acrobat
/readstep2.html). Alternative pdf viewers are also available.



The Company will notify you when documents and information are available to
access on the Website and we will provide you with:



*                   the address of the Website;

*                   the place on the Website where the documents and information
                    may be accessed; and

*                   details of how to access the documents or information.



Provision of information by email



Assuming that the Resolution to send and supply documents and information to the
members in electronic form and via a website is passed by Shareholders, if you
agree to the Company sending or supplying documents or information to you by
email (in accordance with paragraph 6 of Schedule 5 to the Act), you will need
to complete the form of authority enclosed with the Circular (and provide
details of your email address) and return it to the Company at the address
appearing on it.



If the Company is required to restrict the sending of any documents or
information to any Shareholders within the European Economic Area (EEA), for
example due to the local laws of the EEA country in which the particular
shareholders are resident or otherwise located, the Company will not be
permitted to use electronic means to communicate with any Shareholders holding
shares of the same class as those Shareholders within the EEA.  In any such
case, the Company will send you hard copies of the documents or information.



12.  General Meeting



The General Meeting will be convened for 11 a.m. on 7 January 2008 at the
offices of Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN.  The Notice will be
set out at the end of the Circular.



At the General Meeting, the following resolutions will be proposed:



1.   That the proposed sale by the Company of the Disposal Companies in
     accordance with the SPA be approved and entered into;



2.   That the Investing Strategy be approved; and



3.   That the Company be permitted to send or supply documents or information to
     members by making them available on a website or by other electronic means.



13.  Irrevocable Undertakings



The Company has received irrevocable undertakings from the holders of, in
aggregate 9,649,968 Ordinary Shares (representing approximately 40.64 per cent.
of the Company's issued share capital) to vote in favour of the Resolutions.
Under English law and pursuant to the AIM Rules, a majority vote is required to
approve the Resolutions.



14.  Action to be taken by Shareholders



You will find enclosed with the Circular a Form of Proxy for use at the General
Meeting or any adjournment thereof.  Whether or not you wish to attend the
General Meeting, you are urged to complete and return the enclosed Form of Proxy
in accordance with the instructions set out thereon, as soon as possible but in
any event by no later than 11 a.m. on 5 January 2008.  Completed Forms of Proxy
should be returned to the Company's registrars, Capita Registrars, The Registry,
34 Beckenham Road, Beckenham, Kent, BR3 4TU.  The completion and return of the
Form of Proxy will not preclude you from attending and voting in person at the
General Meeting if you so wish.



15.  Recommendation



The Independent Directors, having consulted with Landsbanki, the Company's
nominated adviser, consider that the terms of the Disposal are fair and
reasonable in so far as Shareholders are concerned.  In providing its advice,
Landsbanki has taken into account the commercial assessment of the Directors.



Furthermore, the Board considers the Proposals to be in the best interests of
the Shareholders as a whole.



Accordingly, the Board unanimously recommends that all Shareholders vote in
favour of the Resolutions to be proposed at the General Meeting, as the
Directors (other than Duncan Neale, Jonathan Slater and Polly Williams who are
not Shareholders) have undertaken to do in respect of their own beneficial
shareholdings (amounting in aggregate to 9,649,968 Ordinary Shares, representing
approximately 40.64 per cent. of the existing issued share capital of Z GROUP).



Definitions:



Act                 means the Companies Act 1985 (as amended) and shall
                    include, so far as it is in force and applicable, the Companies Act 2006;

AIM                 means the market of that name operated by the London Stock Exchange;

AIM Rules           means the AIM Rules for Companies of the London Stock Exchange governing 
                    admission to trading on and the operation of AIM;

Buyers              means Jack Bekhor and James True;

Board or Directors  means the directors of Z GROUP, whose names appear on page
                    5 of the Circular;

CallPal             means CallPal Limited, a company registered in England and
                    Wales, Company No. 4651754;

Capita Registrars   means Capita Registrars, the Company's registrars;

Company or Z GROUP  means Z GROUP plc;

Completion          means completion of the Disposal pursuant to the SPA;

Consideration       means the consideration payable to the Company by the
                    Buyers for the Disposal Companies, being £60,000 (sixty thousand pounds);

Disposal            means the proposed disposal of the Disposal Companies pursuant to the SPA;

Disposal Companies  means Callpal, Net2Roam, Onshare and Turbodial, each of 31
                    Vernon Street, London W14 0RN;

Form of Proxy       means the form of proxy attached at the end of the Circular
                    for use at the General Meeting;

General Meeting     means the General Meeting of the Company to be held on 7 January 2008 
                    at 11 a.m. at the offices of Beachcroft LLP, 100 Fetter Lane, London EC4A 1BN, 
                    or any adjournment thereof, notice of which is set out at the end of the Circular;

Group               means the Company and the Disposal Companies;

HMRC                means Her Majesty's Revenue & Customs;

Independent Directors means John Standen, Polly Williams and Duncan Neale;

Investing Strategy  means the proposed investing strategy of the Company following Completion, 
                    prepared in accordance with the AIM Rules, the details of which are set out in 
                    paragraph 10 of the Circular;

Landsbanki          means Landsbanki Securities (UK) Limited;

Lease               means the ten year lease of the premises occupied by the Company at 31 Vernon Street, 
                    London W14 0RN, entered into on 18 July 2006, at a cost of £200,000 plus VAT per annum 
                    and which has a break clause exercisable on its fifth anniversary;

London Stock Exchange means London Stock Exchange plc;

Net2Roam            means Net2Roam Limited, a company registered in England and Wales, Company No. 4397528;

Notice              means the notice of the General Meeting set out at the end of the Circular;

Onshare             means Onshare Limited, a company registered in England and Wales, Company No. 5135560;

Ordinary Shares     means the 5p par value ordinary shares of the Company;

Proposals           means together the Disposal, the Investing Strategy and the giving of authority to the Company      
                    pursuant to Schedule 5 of the Act;

Remaining Directors means Jon Claydon, Jack Bekhor, James True and Duncan Neale;

Resolutions         means the resolutions to be proposed to Shareholders at the General Meeting and which are 
                    set out in the Notice;

Shareholder         means a holder of Ordinary Shares of the Company from time to time;

SPA                 means the conditional share purchase agreement entered into between (1) the Company and (2) the     
                    Buyers on 20 December 2007 pursuant to which the Buyers have agreed to buy and the Company has      
                    agreed to sell the entire issued share capital of the Disposal Companies;

Turbodial           means Turbodial Limited, a company registered in England and Wales, Company No. 4892997;

UK Listing Authority means the Financial Services Authority acting in its capacity as the competent authority for the   
                     purposes of Part VI of the Financial Services and Markets Act 2000, as amended; and

Website             means www.zgroupplc.com or such other website as may be operated by the Company from time to time.



                      This information is provided by RNS
            The company news service from the London Stock Exchange
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