Proposed sale of majority interest in the Streaming Division and issue of a $1.5 million convertible Note
January 27, 2006
On the 2nd December 2005 the board advised the shareholders of continuing discussions aimed towards resolving its differences and today announces the outcome of those discussions.
The Streaming Division continues to incur losses and requires further funding to support its current trading activities and future business plans. The Board has carefully considered whether it is in the best interests of shareholders to bear the entire risk of the necessary additional investment, given the uncertainty of the timing and value of potential rewards. The Board has concluded that the Company, as a small UK plc with limited financial resources, is not the most appropriate vehicle to lead this investment role. Accordingly, the Board has decided to sell a majority interest in the Streaming Division and has in principle, subject to certain conditions, agreed to a three stage proposal with DivestCap Management Corporation ("the Investor"), a New York - based private equity firm that specialises in funding and growing software divestitures. If all three stages are consummated Tadpole will have divested 80% of its Streaming Division (comprising StreamTheory, Inc. and Endeavors Technology, Inc.) for a cash consideration of $12.0 million, before expenses, retaining an equity investment of 20%.
For the financial year ended September 2005 the Streaming Division incurred an operating loss of £8.9m (a loss of £1.1m before goodwill amortisation and impairment). The assets attributable to this division at the year end were £1.4m gross and net liabilities (including deferred revenues) of £1.0m net.
The Company has signed, on 26 January 2006, definitive legal documents for Stage 1 and non-binding term sheets for Stages 2 and 3. Stages 2 and 3 are subject to conditions including Investor approval, satisfactory additional due diligence, definitive legal documentation and Tadpole shareholder approval. Under the Stage 1 agreement, described further below, the Company has issued a convertible note ("the Note") for $1.5 million which is convertible at the option of the Investor into 49% of the share capital of StreamTheory, Inc. and a call right to purchase 21% of the share capital of Endeavors Technology Inc upon the occurrence of certain events including consummation of Stage 3. The Stage 2 term sheet proposes that the Investor would acquire 31% of the fully diluted share capital of StreamTheory, Inc. for $3.5 million in cash and conditioned upon completing the Stage 3 transaction. The Stage 3 term sheet proposes that the Investor would acquire 59% of the fully diluted share capital of Endeavors Technology, Inc. for $7.0 million in cash.
Following completion of Stages 2 and 3, and the exercise of the conversion options referred to in Stage 1 above, the Investor would own 80% of the Streaming Division.
The Note, which is secured against all the assets of the Company, has detachable warrants ("the Warrants") and carries interest at Wall Street Journal Prime plus 2% per annum set and payable on a calendar quarter basis. The Note is repayable 12 months after issue with the option, if the Investor elects, to extend the maturity by an additional 12 months. The principal amount of the Note is convertible as described above, in whole or in part, at the option of the Investor.
The Warrants entitle the Investor to purchase up to 17 million ordinary shares ("the Warrant Shares") of the Company at a price of £0.01 per share. The Warrants are subject to full anti-dilution protection and are exercisable at any time, in whole or in part, for a period of 5 years from the 26th January 2006.
Further updates on the progress of the transactions will be provided as appropriate.