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28 December 2006
Empire Online Limited
Proposed Sale of Business
Empire Online Limited ("Empire Online" or "the Company")
Proposed sale of business and approval of investing strategy
Highlights
| • | Sale of all of Empire Online's trade and gaming-related assets to PartyGaming for a net consideration receivable by the Company of approximately US$37.96 million | | • | Consideration in the form of PartyGaming shares | | • | Proceeds of the disposal to be used together with Company's existing cash of approximately US$250 million to invest opportunistically in both private and public businesses and across the small, mid and large-cap range of companies | | • | Shareholder approval to be sought at EGM to approve | | • | the Disposal | | • | the proposed investing strategy following Completion |
Enquiries:
| Empire Online Limited | +357 (2) 5 847 700 | | Andrew Burns, Chief Financial Officer | | | | Hudson Sandler | +44(0) 20 7796 4133 | | Michael Sandler / Jessica Rouleau |
Introduction:
The Company announces that it has entered into arrangements, subject to the approval of Shareholders, to sell Empire Online's trade and gaming-relatedassets to PartyGaming for a net consideration receivable by Empire Online ofapproximately $37.96 million. The consideration is to be satisfied wholly by theissue of new PartyGaming Shares to Empire Online.
The Proposals are, inter alia, conditional upon the approval of Shareholders byway of an ordinary resolution at the EGM.
On Completion, Empire Online would be treated as an investing company under theAIM Rules. Accordingly, as part of the Proposals, the Company will also seek theapproval by Shareholders at the EGM of the Proposed Investing Strategy, as setout below.
Background to the Proposals:
At an extraordinary general meeting of the Company, held on 14 February 2006,Shareholders approved the settlement of litigation with PartyGaming and theassignment of related "skin" activities to PartyGaming in return for a cashpayment of US$250 million to the Company.
Following this settlement, the Company continued to progress its businessthrough its principal brands and domain names, including Noble Poker, Club DiceCasino, Monaco Gold Casino, Carnival Casino, YouBingo, 888casino.com and 65.com.
On 29 September 2006, the US Congress passed the Unlawful Internet GamblingEnforcement Act of 2006 (the "Act"). Immediately following enactment of the Acton 13 October 2006, and having taken extensive advice on the matter, the Companyannounced the termination of its US business with immediate affect. At thattime, approximately 65 per cent. of Empire Online's revenues were beinggenerated from customers based in the US.
Since terminating its US business, the Company has focused on growing theremainder of its business in other territories. However, as a result of theAct's effect on the gaming industry as a whole, the Directors have continued toreview Empire Online's strategic options, including the potential sale of theCompany's remaining operating business.
Rationale for the Disposal:
The Directors believe that the Company's remaining operating business issub-critical in terms of size to thrive as a stand-alone business and would beable to grow better as part of a larger group. In particular, the business facesstrong competition from much larger players in its markets. The Directorsbelieve that the Disposal crystallises the value of the Business and will allowthe Company to focus on the investment of its remaining cash assets in order tomaximise shareholder value.
Principal terms of the Disposal:
Under the Sale Agreement, the Company has agreed to sell to PartyGaming theentire issued share capital of a newly incorporated wholly-owned subsidiary ofthe Company to which the Business will be transferred immediately prior toCompletion. The Company will remain responsible for settling all liabilities ofthe Business and will be entitled to all income receivable in respect of theperiod up to Completion.
As part of the structuring of the transaction, the Company has agreed toterminate its relationship with Uniplay in respect of the operation of certainof the Company's websites, including monacogoldcasino.com, clubdicecasion.comand youbingo.com. As consideration for this termination, the Company will pay toUniplay up to approximately US$11 million and the revenue sharing arrangementswith Uniplay will terminate. The agreement with Uniplay allows the Company tocontinue its existing relationship with Uniplay (and not to terminate theexisting arrangements) if the Sale Agreement is not completed by 31 January2007.
The total consideration for the Disposal will be satisfied by the issue to theCompany of 83,325,934 new PartyGaming Shares, valued at approximately US$47.96million, based on the average middle market closing price of PartyGaming Sharesfor the 15 dealing days prior to the date of the Sale Agreement, of which65,951,297 new PartyGaming Shares (valued at approximately US$37.96 million onthe basis outlined above) will be retained by and/or disposed of in an orderlymanner by the Company in due course.
Under the Sale Agreement, the Company will, on Completion, transfer theremaining 17,374,637 new PartyGaming Shares (valued at approximately US$10million on the basis outlined above) to Udi Knaani, Adv. to be held by UdiKnaani, Adv. as a trustee on behalf of certain of the employees of the Company,including Avner Yassur, whose employment is transferring to PartyGamingfollowing Completion and otherwise as directed by PartyGaming. Such newPartyGaming Shares will be released to the relevant employees subject tosatisfaction of certain conditions as between them and PartyGaming, includingtheir continued engagement with PartyGaming. The Company will have no rights inrespect of such Shares in any circumstances following their transfer to UdiKnaani, Adv..
At the same time as completing the Disposal, PartyGaming intends to complete thepurchase of certain online gaming business and assets from IOG. Although thereis no relationship between the Company and its directors and IOG and itsdirectors, PartyGaming requires that the two transactions occur at the sametime. The IOG Agreement is conditional on completion of the Sale Agreement.Accordingly, the Sale Agreement is conditional on, amongst other things, (a)approval of the Proposals by Shareholders at the EGM; (b) the transfer of theBusiness and assignment of certain contracts to Newco; and (c) completion of theIOG Agreement. Each of the Company and PartyGaming are entitled to terminate theSale Agreement prior to Completion in certain circumstances, including a changeor development in government regulation or legislation which has or mightreasonably be expected to have a material adverse effect on the condition orresults of PartyGaming or the Business respectively.
As part of the Disposal, the Company has given customary warranties toPartyGaming and has undertaken to PartyGaming not to compete with the Businessfor a period of 30 months after Completion, provided that this restriction willnot apply in respect of passive investments where the Company is not involved inthe management of the investee of up to 25 per cent equity interests in privatecompanies and up to 10 per cent. equity interests in listed companies.
In the year ended 31 December 2005, the gross profit before administrativeexpenses attributable to the Business was approximately US$16.1 million. The netbook value of the Business as at 30 June 2006 was approximately US$221.9million.
Proposed Investing Strategy:
Subject to approval of the Proposals by Shareholders at the EGM, the Companyintends to invest opportunistically in both private and public businesses andacross the small, mid and large-cap range of companies. The Company's strategywill not be focused on any particular industry sector but the Company will becareful in managing its exposure to any one sector. Investments will beprincipally funded out of the Company's cash resources, but the Company may alsoelect to issue Shares as consideration for any acquisitions. The Companyanticipates investing on an international basis with no territories orjurisdictions specifically excluded. The Directors intend to formally review theinvestment strategy at least once a year. An investment committee will beestablished to review on a quarterly basis the overall asset allocation in lightof the economic environment and approve specific investments.
The initial investment strategy will be broad and it is intended that it will beundertaken within the following parameters;
| • | Cash deposits - no less than 20% of total invested capital; | | • | Fixed Income securities (i.e. bonds) - up to 50% of total invested capital including floating rate bonds; | | • | Absolute return funds - up to 20% of total invested capital; | | • | Derivatives - up to 10% of total invested capital; | | • | Equities - up to 30% of total invested capital (this will include both minority passive positions and majority active positions); and | | • | Real Estate - up to 30% of total invested capital (this will include direct investment and indirect via mutual of collective funds managed through third parties). |
The Directors reserve the right to vary these ratios where they consider it inthe best interests of the Company.
The Directors intend to adopt diversification rules in line with what theybelieve to be industry best practice. The investments are expected to includepublic and private equities and shall not be restricted in terms ofjurisdiction. The Company's focus will be on seeking what the Directors believeto be value added opportunities, in particular in emerging markets' economies,with a view to delivering superior financial returns.
The Directors intend that no single investment will represent more than 20 percent. of the Company's net assets at the time such investment is made.
The Company intends to invest only in opportunities where there is a highquality, well proven management team in place or where a management team hasbeen identified that will drive the investee company going forward and deliverthe levels of performance required.
In line with this new strategy for the Company, the Directors expect to recruitnew employees with experience in similar businesses to that proposed for theCompany.
The Directors intend to ensure that due diligence of potential investments iscarried out to ascertain that target businesses and assets are acceptable to theCompany. It is the Directors' intention that such due diligence will be carriedout by the Company's professional advisers as well as by the Directors and theCompany's employees.
The Directors anticipate that the Company will have made substantial investmentsby 31 December 2007. If the Company has been unable to make substantialinvestments by this date, the Directors intend to seek Shareholder approval forthe Company to continue as an investing company.
Use of Proceeds:
The proceeds from the Disposal would be used, together with the Company'sexisting cash of approximately US$250 million, to implement the ProposedInvesting Strategy outlined above.
Dividend Policy:
The Directors will consider returning cash to Shareholders on an ongoing basis,taking into account the Company's financial position and the investmentopportunities available to it.
Extraordinary General Meeting:
A circular convening an EGM to approve the Proposals will be issued shortly.
The Resolution to approve the Proposals will be an ordinary resolution, whichmeans that it will require approval by a simple majority of those Shareholderswho are present and vote (in person or by proxy) at the EGM.
Irrevocable undertakings:
Shareholders (including the Directors who hold Ordinary Shares) have undertakento the Company to vote in favour of the Resolution in respect of, in aggregate,169,720,837 Ordinary Shares representing in aggregate approximately 57.97 percent. of the issued share capital of the Company.
DEFINITIONS:
In this announcement expressions have the following meanings unless the contextrequires otherwise:
"AIM" the AIM market operated by London Stock Exchange plc"AIM Rules" the "AIM Rules" published by London Stock Exchange plc"Business" the remote gaming business and remote gaming assets of the Company and Poltroon which are to be transferred to Newco immediately prior to Completion"BVI" the British Virgin Islands"Company" or "Empire Empire Online Limited, a company incorporated in Online" the BVI with registered number 475668"Completion" completion of the Disposal"Depository Interests" the depository interests issued by Capita IRG Trustees Limited representing Ordinary Shares which may be held in and transferred through the CREST system"Directors" or the "Board" the directors of Empire Online"Disposal" the sale by the Company of the entire issued share capital of Newco pursuant to the Sale Agreement"EGM" or "Extraordinary the Extraordinary General Meeting of the CompanyGeneral Meeting" expected to be convened on 17 January 2007 to approve the Proposals"Group" Empire Online and its subsidiaries and subsidiary undertakings"IOG" Intercontinental Online Gaming Ltd., a company incorporated in the State of Antigua and Barbuda with company number 13553"IOG Agreement" the agreement dated 29 December 2006 between inter alia IOG and PartyGaming under which IOG has agreed to sell to PartyGaming certain of online gaming business and assets"Newco" Winner Summit Limited, a company incorporated in the BVI"Ordinary Shares" or ordinary shares in the share capital of the Company,"Shares" each having no par value"PartyGaming" PartyGaming Plc, a company incorporated in Gibraltar with registered number 91225 including, where appropriate, its subsidiaries"PartyGaming Shares" ordinary shares of US$0.0001 each in the capital of PartyGaming"Poltroon" Poltroon Limited, a wholly owned subsidiary of the company incorporated in Cyprus with registered number HE154577"Proposals" together the Disposal and the adoption of the Proposed Investing Strategy"Proposed Investing the proposed investing strategy of the Company as Strategy" summarised in this announcement"Resolution" the resolution to be set out in the notice of EGM approving the Proposals"Sale Agreement" the sale agreement dated 29 December 2006 between the Company and PartyGaming in connection with the Disposal"Shareholders" holders of Ordinary Shares or (where the context permits) Depository Interests"Uniplay" Uniplay International Limited, a company incorporated in the BVI"United States" or "US" the United States of America, its territories and possessions, any state of the United States and the District of Columbia
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