ENPRISE GROUP LIMITED NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

Transcription

1 ENPRISE GROUP LIMITED NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

2 1 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS Notice is hereby given that the Special Meeting of Shareholders of Enprise Group Limited (Company) will be held at Level 2, 16 Hugo Johnston Drive, Penrose, Auckland on Tuesday, 28 November 2017 at 3pm. The Explanatory Notes which accompany this Notice of Meeting set out the details of the transactions which are the subject of the resolutions and the approval required for each resolution by the shareholders of the Company pursuant to the NZAX Listing Rules (Listing Rules), the Companies Act 1993 (Act) and the constitution of the Company (Constitution). BUSINESS OF THE MEETING 1. Ratification of the Grant of Put Option to the Kilimanjaro shareholders Ordinary Resolution To consider, and if thought fit, pass the following resolution as an ordinary resolution of the Company: "Shareholders ratify the entry of the Company into the Put Option Deed (Deed) with the shareholders (Kilimanjaro Shareholders) of Kilimanjaro Consulting Pty Limited, (Kilimanjaro) pursuant to which Deed: (a) the Company has agreed to grant in favour of the Kilimanjaro Shareholders an irrevocable put option (Put Option) to require the Company to purchase 6,154 ordinary fully paid shares in Kilimanjaro (Put Option Shares) for a consideration of $3,967,962 if the Put Option is exercised; and (b) the purchase consideration shall be satisfied by the issue of 2,854,649 ordinary fully paid shares in the Company to the Kilimanjaro Shareholders, at an issue price of $1.39 per share, and the transactions described in the Deed are approved, and that the Directors be authorised to take all actions, do all things and execute all documents and agreements necessary or considered by them to be expedient to give effect to such transactions." 2. Approval of the issue of up to 852,664 new ordinary fully paid shares in the Company pursuant to a non-renounceable rights issue Ordinary Resolution Listing Rule "The Directors of the Company are authorised to: (a) (b) issue up to 852,664 ordinary fully paid shares to shareholders of the Company with a registered address in New Zealand, and to certain wholesale shareholders of the Company with a registered address in Australia, at an issue price of $1.39 per Share pursuant to a non-renounceable rights issue ( Rights Issue Shares ); and take all actions, do all things and execute all documents and agreements necessary or considered by them to be necessary or expedient to issue the Rights Issue Shares, such Rights Issue Shares when issued, shall rank pari passu (equally) with all existing ordinary shares of the Company."

3 2 3. Ratification of the previous issue of 1,560,000 ordinary shares Ordinary Resolution - Listing Rule 7.3.5(c) NOTES To consider and, if thought fit, pass the following resolution as an ordinary resolution of the Company: "The previous allotment of 1,560,000 ordinary fully paid shares, issued at an issue price of $1.39 per share, to the shareholders of Kilimanjaro Consulting Pty Limited on 29 September 2017, are hereby ratified and approved 1. EXPLANATORY NOTES Explanatory Notes for Resolutions 1 to 3 are set out in the following pages. 2. PROXIES All shareholders of the Company entitled to attend and vote at the meeting are entitled to appoint a proxy to attend and vote for them instead. A proxy need not be a shareholder of the Company. The Chairperson of the Board is willing to act as a discretionary proxy for any shareholder of the Company. The Chairperson cannot act as a discretionary proxy on Resolution 2 however, given he is restricted from voting on that resolution by virtue of the Listing Rules. A proxy form is enclosed and to be effective must be lodged at least 48 hours before the meeting is due to begin (i.e. before 3 pm on Sunday, 26 November 2017) with the Company s Share Registrar in accordance with the instructions in the Notes to the proxy form accompanying this Notice. 3. VOTING RESTRICTIONS Any shareholders of the Company, and their Associated Persons (as that term is defined in the Listing Rules), who received any of the 1,560,000 shares issued by the Company referred to in the Explanatory Notes to Resolution 3 are not entitled to vote in respect of resolutions 1 and 3. Those persons who are prohibited from voting on a resolution may not act as a discretionary proxy in respect of a resolution, but may vote in accordance with express instructions. All persons registered on the Company s register of shareholders as the holders of shares as at 5pm on Monday 27 November 2017 shall, subject only to the preceding restrictions, be entitled to vote at the Meeting in person or by proxy. By Order of the Board of Directors Lindsay Phillips Chairman

4 EXPLANATORY NOTES Listing Rules and Companies Act The Company is listed on the NZAX Market and must comply with the Listing Rules. In addition, various provisions of the Listing Rules are included in the Constitution. The Act, the Constitution and the Listing Rules contain specific requirements which are relevant to the resolutions comprised in this Notice. The implications of the Listing Rules, the Act, and the Constitution, insofar as they relate to each resolution, are addressed in the Explanatory Notes to each resolution. Nature of Resolutions The resolutions which are to be considered at the Meeting comprise three ordinary resolutions. An ordinary resolution is a resolution passed by a simple majority of votes of shareholders of the Company, entitled to vote and voting. Set out below is further information on the resolutions to be proposed at this Meeting. RESOLUTION 1: GRANT OF PUT OPTION TO THE SHAREHOLDERS of KILIMANJARO CONSULTING PTY LIMITED ( KILIMANJARO ) ORDINARY RESOLUTION GENERAL The Company has previously acquired 5,479 ordinary fully paid shares in Kilimanjaro (Kilimanjaro Shares), which Kilimanjaro Shares represent 47% of the total number of ordinary fully paid shares on issue in Kilimanjaro. Separately from the acquisition of the Kilimanjaro Shares, the Company has conditionally agreed to enter into a Put Option Deed with the shareholders of Kilimanjaro (Deed), pursuant to which Deed the Company has agreed to grant in favour of the shareholders of Kilimanjaro an irrevocable put option (Put Option) to require the Company to purchase 6,154 ordinary fully paid shares in Kilimanjaro (Put Option Shares), which Put Option Shares comprise the balance of the shares on issue in Kilimanjaro that the Company does not already own. The principal terms of the Put Option are as follows: If the Put Option is exercised by the shareholders of Kilimanjaro, the purchase price payable by the Company to acquire those Put Option Shares shall be $3,967,962; The payment of the purchase price shall be satisfied by the Company issuing 2,854,649 ordinary fully paid shares in the Company, at an issue price of $1.39 per share (Consideration Shares), to the Kilimanjaro shareholders The Put Option may only be exercised by the shareholders of Kilimanjaro. The Company has no ability to exercise the Put Option and compel the shareholders of Kilimanjaro to sell the Put Option Shares to the Company; The Put Option may only be exercised during the period commencing on 1 September 2019 and ending on 31 August 2020; The Kilimanjaro shareholders may only exercise the Put Option in respect of all of the Put Option Shares, and not only in respect of a portion thereof. In the event that the Put Option is exercised, and the Company proceeds to acquire the Put Option Shares, the Company will own 100% of the total number of ordinary shares on issue in Kilimanjaro.

5 In the event that the Put Option is ultimately exercised and the Company is required to issue the Consideration Shares to the Kilimanjaro shareholders, then the aggregate value of the Consideration Shares to be issued to the Kilimanjaro shareholders, together with the value of the consideration paid by the Company to acquire the 5,479 Kilimanjaro Shares on 29 September (which was $3,168,400) would be $7,136,362 in aggregate. The dilutionary impact of the issue of the Consideration Shares on the existing shareholders, assuming that no additional shares are issued by the Company, will be that shareholders will be diluted down by approximately 25.08%. The issue price of $1.39 per Consideration Share represents a discount of 30.5% to the current market value for the ordinary shares of the Company traded on the NZAX market. The issue price of $1.39 was however reflective of the current market value of the Company s ordinary shares as at the date of the announcement to the market of the entry into the Put Option Deed. REQUIREMENT FOR RESOLUTION The Put Option Deed is conditional upon the shareholders of the Company approving the entry into the Put Option Deed by way of an ordinary resolution. In the event that the shareholders of the Company do not approve the entry of the Company into the Put Option Deed, then the Put Option Deed shall terminate, and the Company shall have no contractual obligation to acquire the Put Option Shares. Listing Rule also provides that the Company may obtain the approval of shareholders to the issue of the Consideration Shares, provided that the information required to be disclosed in respect of the issue of those Consideration Shares is disclosed in this Notice of Meeting. BACKGROUND TO KILIMANJARO Operations Kilimanjaro is a Diamond MYOB Enterprise reseller that has offices in Sydney and Melbourne. Servicing approximately 500 customers throughout Australia. Kilimanjaro specialises in selling and supporting the MYOB EXO and MYOB Advanced range of business management and ERP software. It also sells and services a selection of companion products that integrate with MYOB products. Kilimanjaro has the competitive advantage of being the largest MYOB Exo and MYOB Advanced Australian reseller and one of only two Diamond partners. Kilimanjaro has been operating since Kilimanjaro's financial information The table below provides some key financial information about Kilimanjaro. The financial information has been extracted from unaudited financial statements prepared by Kilimanjaro. 2 Financial information FY ended 30 June 2016 AUD $000 s FY ended 30 June 2017 AUD $000 s Revenues 7,199 9,162 Recurring Revenue 2,496 3,228 Total assets 2,279 3,406

6 3 Cash and cash equivalents Total liabilities 1,697 2,608 COMMERCIAL RATIONALE FOR THE ENTRY INTO THE PUT OPTION The acquisition of the Put Option Shares by the company would enable the Company to gain complete control of Kilimanjaro Consulting Pty Limited, and would enable the Company to obtain further synergies not available as a minority shareholder. Those synergies include: Being able to cross sell and commercialise customisations and integrations to existing clients of both the Company and Kilimanjaro, and to be able to open new opportunities to offer those combined services to prospective clients that neither the company, nor Kilimanjaro would be able to service individually; Allow for more specialisation across both organisations, and therefore be able to access more addressable markets; Being able to target larger potential clients due to the broader depth of services that the Company could provide; Gaining operational efficiencies by elimination of duplication within the two businesses. THE VALUATION METHODOLOGY UTILISED BY THE BOARD The Board negotiated the purchase price for the Put Option Shares on an arms-length basis with the shareholders of Kilimanjaro. The purchase price attributable to the Put Option Shares was determined having regard to the following factors: Annualised recurring revenue; Profitability; Synergies that can be obtained with a fully combined business. KEY RISKS If the shareholders of Kilimanjaro exercise the Put Option, the Company will own 100% of the shares on issue in Kilimanjaro, and the Company will be directly exposed to the Kilimanjaro business operations. The Board has identified a number of risk factors associated with the Kilimanjaro business which may affect the Company s future operating performance and financial position and the value of the Company s shares post completion of the purchase of the Put Option Shares. Those risks include: - MYOB modifying the Partner Agreement with the Company: In the event that the Put Option is exercised and the Company increases its holding in Kilimanjaro, there is a risk that MYOB may seek to change the commercial terms comprised in the Partnership Agreement to the detriment of the Company. In particular, MYOB may seek to suppress the profit margins that the Company (and Kilimanjaro) receives in respect of the resale of MYOB products and services. Such an occurrence could negatively impact the profitability of the Enprise group of companies. The Company would seek to resist any such variations to the Partnership Agreement as far as practicable in the circumstances. The Board is in discussions with MYOB currently regarding this issue with a view to formalising a position. The Board is unable to provide any further comment on this issue at this stage until such time as those discussions are concluded.

7 - Consent of MYOB to change of control of Kilimanjaro: In terms of the Partner Agreement with MYOB, the Company is required to obtain the consent to MYOB to the Company increasing its shareholding in Kilimanjaro above 50%. The Partner Agreement provides that MYOB cannot unreasonably withhold its consent. The Company does not consider that MYOB would have any reasonable grounds upon which it could withhold its consent to the Company increasing its shareholding in Kilimanjaro. - Staff retention: As with any business acquisition, there is a risk that certain members of the Kilimanjaro staff may not assimilate well into the post-acquisition organisation and could ultimately leave the business. This could result in Kilimanjaro being understaffed, and could impact upon the ability of Kilimanjaro to continue to deliver services to the requisite standards to its customers, until such time as replacement staff are recruited. BOARD RECOMMENDATION Having regard to the business opportunity afforded to the Company with the proposed investment in Kilimanjaro, the Board believes that the granting of the Put Option, and the potential to acquire the balance of the shares on issue in Kilimanjaro presents an exciting opportunity for the Company and its shareholders. The Directors unanimously recommend that shareholders support the resolutions being tabled at the Special Meeting to approve the investment into Kilimanjaro. VOTING RESTRICTIONS Shareholders of the Company who were issued the New Shares referred to in resolution 3 are prohibited from voting on this resolution. RESOLUTION 2: APPROVAL OF THE ISSUE OF UP TO 852,664 NEW ORDINARY FULLY PAID SHARES IN THE COMPANY PURSUANT TO A NON-RENOUNCEABLE RIGHTS ISSUE ORDINARY RESOLUTION LISTING RULE As previously announced to the market, the Company is proposing to undertake an offer of new shares to eligible shareholders under a pro rata entitlement issue (Offer). OFFER OVERVIEW The Company is offering eligible shareholders the opportunity to subscribe for 1 new share (New Share) for every 10 existing shares held as at nominated record date (Record Date), at an application price of $1.39 per New Share. The issue price of $1.39 per New Share represents a discount of 30.5% to the current market value for the ordinary shares of the Company traded on the NZAX market as at the date of the preparation of this Notice of Meeting. The New Shares will be the same class as, and will rank equally with, existing shares that are quoted on the NZAX Market. It is a term of the Offer that the Company will take any necessary steps to ensure that the New Shares are, immediately after issue, quoted on the NZAX Market. The maximum number of New Shares being offered under the Offer is 852,664. The Company will raise a total of approximately $1,185,203 through the Offer if the Offer is fully subscribed. 4

8 Asssuming that approximately 852,664 New Shares are issued pursuant to the Offer, the dilutionary impact of the issue of the New Shares on the existing shareholders, assuming that no additional shares are issued by the Company, will be that shareholders will be diluted down by approximately 9.09%. In the event that both the New Shares, and the Put Option Shares referred to in resolution 1 are issued, the dilutionary impact on the existing shareholders of those two share issues will be, assuming that no additional shares are issued by the Company, that existing shareholders will be diluted down by approximately 30.3% in aggregate. ELIGIBILITY UNDER THE OFFER The Offer is only open to eligible shareholders. Eligible shareholders are those persons who: 5 are registered as shareholders of the Company at 5.00pm (NZ time) on the Record Date and have a registered address in New Zealand; or are wholesale shareholders at 5.00pm (NZ time) on the Record Date and have a registered address in Australia. A wholesale shareholder is a shareholder in the Company who has a registered address in Australia, and who the Company considers is a person to whom an offer of shares for issue may lawfully be made without disclosure under Part 6D.2 of the Corporations Act 2001 (Australia). NON RENOUNCEABLE OFFER The Offer will not be renounceable which means that an eligible shareholder will not be able to trade in, or transfer their entitlement under the Offer. Entitlements under the Offer will not be listed on the NZAX Market. PURPOSE OF THE OFFER Enprise Group intends that the net proceeds of the Offer will be used to repay debt incurred for the acquisition of 47% of Kilimanjaro Consulting Pty Limited and provide for future growth. ISSUE PRICE The Board believes that the issue price of $1.39 for each of the New Shares under the Offer represents fair value to the Company. The Board has set the issue price for the New Shares at $1.39, given that issue price was the same price at which the Company issued the Company s shares to the Kilimanjaro shareholders to acquire the Kilimanjaro Shares, and the same issue price at which the Company proposes to issue the Consideration Shares to the Kilimanjaro shareholders should the Put Option be exercised. The Board believes that existing shareholders of the Company should be able to participate in the Offer at the same issue price as those aforementioned securities were also issued. REQUIREMENT FOR THE RESOLUTION The Company s constitution and Listing Rule require that the issue of the New Shares be approved by an ordinary resolution of the existing shareholders of the Company. VOTING RESTRICTIONS The Directors of the Company are prohibited from voting on this resolution.

9 6 RESOLUTION 3: RATIFICATION OF THE PREVIOUS ISSUES OF 1,654,397 ORDINARY SHARES ORDINARY RESOLUTION LISTING TRULE 7.3.5(C) GENERAL NZSX Listing Rule (the 25% Rule ) permits the Company to issue ordinary shares without approval from the Company s shareholders in certain limited circumstances. During the last 12 months, the Company has issued the following new shares in accordance with the 25% Rule: 1,560,000 ordinary fully paid shares, issued at an issue price of $1.39 per share, to the shareholders of Kilimanjaro Consulting Pty Limited on 29 September 2017 ( Kilimanjaro Shares ). NZSX Listing Rule 7.3.5(c) allows the Company to renew its capacity to issue ordinary shares within the 25% Rule, when it has been used, by obtaining subsequent ratification of the issue from shareholders of the Company. The Board is seeking the ratification by shareholders of the previous issue of the shares referred to above. KILIMANJARO SHARES On 29 September 2017 the Company acquired 5,479 ordinary fully paid shares in Kilimanjaro Consulting Pty Limited (Kilimanjaro Shares), which Kilimanjaro Shares represented 47% of the total number of ordinary fully paid shares on issue in Kilimanjaro. The purchase price for the acquisition of the Kilimanjaro Shares was partly satisfied by the issue of 1,560,000 fully paid ordinary shares in the Company (New Shares) to the following parties (Allottees): 717,978 ordinary fully paid shares to Red Cow Investments Pty Limited; 92,822 ordinary fully paid shares to Deanand Pty Limited; 92,943 ordinary fully paid shares to Savgas Pty Limited; 181,767 ordinary fully paid shares to Bernard Israel Fridman; 92,943 ordinary fully paid shares to Carjon Investments Pty Limited; 220,865 ordinary fully paid shares to Anjelco Investments Pty Limited; 160,682 ordinary fully paid shares to Jason Patrick Fegan. The New Shares were issued at an issue price of $1.39 per share. The issue price of $1.39 per New Share was determined having regard to the current market value of the Company s shares on the NZAX Market, which was $1.39 as at the date of the entry into the transaction with the Allottees. BOARD RECOMMENDATION Given the Board s ability to issue additional new shares pursuant to the 25% Rule has almost been exhausted, the ratification of the aforementioned share issue will provide the Board with the flexibility to issue new shares in the Company to fund acquisitions, and to raise new capital, within the 25% Rule, in an expeditious timeframe without the need to revert to shareholders, and to undertake the time consuming process of calling a meeting of shareholders to approve the share issue. The Board often requires the flexibility to move quickly to utilise the Company s shares to fund

10 acquisitions and/or the Company s ongoing working capital requirements, without reverting to shareholders on each occasion. The Directors unanimously recommend that shareholders support resolution 3. VOTING RESTRICTIONS Those Allottees who were issued the New Shares are prohibited from voting on this resolution. 7