TIDMULE
RNS Number : 4197K
Ultra Electronics Holdings PLC
07 July 2017
7 July 2017
THIS ANNOUNCEMENT, INCLUDING THE APPICES AND THE INFORMATION IN
THEM, IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR
DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR
INTO THE UNITED STATES, AUSTRALIA, NEW ZEALAND, CANADA, THE
REPUBLIC OF SOUTH AFRICA, HONG KONG, SINGAPORE OR JAPAN OR ANY
OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR
DISTRIBUTION WOULD BE UNLAWFUL. FURTHER, THIS ANNOUNCEMENT IS FOR
INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY
JURISDICTION.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.
Ultra Electronics Holdings plc ("Ultra")
Proposed Acquisition of Sparton Corporation ("Sparton")
And
Placing of New Ordinary Shares to raise GBP133.7m (net)
Ultra, the international defence, security, transport and energy
company, is pleased to announce that it has entered into a
conditional merger agreement to acquire New York Stock
Exchange-listed Sparton for $23.50 per Sparton share in cash,
valuing Sparton's total equity(1) at approximately $234.8m
(GBP180.6m(2) ) (the "Acquisition"). As part of the Acquisition,
Ultra will assume Sparton's net debt at Completion. Adjusting for
the targeted cost savings, this equates to a pro forma FY2016
EV/EBITDA multiple of 7.6 times.
Sparton is a provider of design, development and manufacturing
services for complex electromechanical devices, as well as
sophisticated engineered products. Sparton has two reportable
business segments: Engineered Components & Products ("ECP") and
Manufacturing & Design Services ("MDS"). ECP is Ultra's 50/50
partner in the long-standing ERAPSCO joint venture, which develops,
manufactures and supports all US sonobuoys supplied to the US
Department of Defense ("US DoD"). Ultra's intention is to dispose
of the MDS division by the end of Q1 2018 as it considers it to be
non-core to the Combined Group going forward and is in advanced
discussions with several interested parties in relation to this
disposal.
Highlights of the Acquisition:
-- The ECP Division of Sparton is an excellent strategic fit
with Ultra's existing activities in a segment in which the Ultra
Group has extensive experience and well established customers
-- Enhances Ultra's continuing relationship with a major customer
-- Increases exposure to the growing sonobuoy segment
-- Attractive financial returns for Ultra
-- Allows Ultra to secure an important revenue and earnings stream
Ultra also announces today the launch of a placing with
institutional investors of 7,047,168 new ordinary shares of 5 pence
each in the capital of Ultra (the "Placing Shares") at a price of
1,950 pence per Placing Share (the "Placing Price"), representing
approximately 9.9% of Ultra's existing issued share capital (the
"Placing"). The net proceeds of the Placing will be used to
part-fund the Acquisition, with the remaining Acquisition
consideration being funded through drawdown under the Ultra Group's
existing bank facilities. The Placing is not conditional upon
Completion. The Placing is subject to the terms and conditions set
out in Appendix 1 (which forms part of this Announcement).
Rakesh Sharma, Chief Executive of Ultra, commented:
"I am pleased to announce today the proposed acquisition of
Sparton and associated equity placing. The acquisition of Sparton
brings strategic and financial benefits to Ultra and the Ultra
Board recommends this Acquisition to our investors.
Ultra has worked with the ECP Division of Sparton, in a joint
venture, for over 10 years. This close relationship has benefitted
our major customer, the US DoD, through more effective use of the
available engineering budget. Ultra's acquisition of Sparton
"preserves the status quo" for the US Navy and ensures continuity
and reliability of supply to it and our other international
customers. The unified management structure and increased focus are
expected, over time, to bring benefits beyond those that we have
been able to achieve through the JV. On the completion of our
acquisition of Sparton, I look forward to working with the people
in Sparton to deliver these benefits and further our combined
position as a leading supplier in the Underwater Warfare segment
and as a supplier to the US DoD."
Joseph Hartnett, Interim Chief Executive of Sparton,
commented:
"The combination of these two enterprises represents a unique
opportunity to create a more robust supplier to the US DoD while
simultaneously positioning the combined businesses to utilize
assets in a much more efficient manner."
The Acquisition is subject to relevant anti-trust, regulatory
and shareholder approvals, as described further in this
Announcement. Since the Acquisition constitutes a Class 1
transaction for the purposes of the Listing Rules, these approvals
include the approval of the Acquisition by Ultra Shareholders.
Completion is targeted by 1 January 2018.
Ultra will in due course send a circular to Ultra Shareholders
convening a general meeting to approve the Acquisition. The Ultra
Board considers the Acquisition to be in the best interests of
Ultra and the Ultra Shareholders as a whole. Accordingly, the Ultra
Board intends to recommend that Ultra Shareholders vote in favour
the resolution in respect of the Acquisition to be proposed at the
Ultra General Meeting, as the Ultra Directors intend to do in
respect of their own beneficial holdings of 351,409 Ultra Shares,
representing, in aggregate, approximately 0.50% of the total issued
share capital of Ultra as at 6 July 2017, being the Last
Practicable Date.
A conference call for analysts and investors will be held today
at 8:00a.m. For further details please call Susan McErlain (Ultra)
or James White (MHP).
This summary should be read in conjunction with the full text of
the following Announcement and its Appendices including, in
particular, the risks and other factors that should be considered
which are set out in Appendix 3. Capitalised terms used in this
Announcement have the meanings given to them in Appendix 2.
Appendix 1 to this Announcement (which forms part of this
Announcement) sets out the terms and conditions of the Placing.
Persons who choose to participate in the Placing, by making an oral
or written offer to acquire Placing Shares, will be deemed to have
read and understood this Announcement in its entirety (including
Appendix 1) and to be making such offer on the terms and subject to
the conditions herein, and to be providing the representations,
warranties, agreements, acknowledgements and undertakings contained
in Appendix 1.
Notes:
(1) Valuation of Sparton's total equity is calculated on a fully-diluted basis
(2) Conversion of $ figures to GBP in this Announcement are at an exchange rate of $1.30: GBP1.00
For further information contact:
Ultra Electronics Holdings
plc +44 (0) 20 8813 4300
Rakesh Sharma, Chief Executive
Amitabh Sharma, Group Finance
Director
Susan McErlain, Corporate
Affairs Director
Investec Bank plc (Sole Bookrunner
and Broker) +44 (0) 20 7597 5970
Christopher Baird / Keith
Anderson / Carlton Nelson
RBC (Financial Adviser) +44 (0) 20 7489 1188
Mark Preston / Paul Betts
/ Louise Melikian
Guggenheim Securities (Financial
Adviser) +1 212 739 0700
Jon Huerta / Drew Heimlich
MHP Communications +44 (0) 20 3128 8756
James White
The information contained within this Announcement is deemed by
Ultra to constitute inside information as stipulated under the
Market Abuse Regulation (EU) No.596/2014. By the publication of
this Announcement via a Regulatory Information Service, this inside
information is now considered to be in the public domain. The
person responsible for arranging for the release of this
Announcement on behalf of Ultra is Sharon Harris (Company Secretary
and General Counsel).
About Ultra
Ultra Electronics is an internationally successful defence,
security, transport and energy company with a long track record of
development and growth. The Ultra Group manages a portfolio of
specialist capabilities generating innovative solutions to customer
needs. Ultra applies electronic and software technologies in
demanding and critical environments ranging from military
applications, through safety-critical devices in aircraft, to
nuclear controls and sensor measurement. These capabilities have
seen the Ultra Group's highly-differentiated products contributing
to a large number of platforms and programmes.
Ultra has world-leading positions in many of its specialist
capabilities and, as an independent, non-threatening partner, is
able to support all of the main prime contractors in its sectors.
As a result of such positioning, Ultra's systems, equipment or
services are often mission or safety-critical to the successful
operation of the platform to which they contribute. In turn, this
mission-criticality secures Ultra's positions for the long-term
which underpins the superior financial performance of the Ultra
Group.
Ultra offers support to its customers through the design,
delivery and support phases of a programme. Ultra businesses have a
high degree of operational autonomy where the local management
teams are empowered to devise and implement competitive strategies
that reflect their expertise in their specific niches. The Ultra
Group has a small head office and executive team that provide to
the individual businesses the same agile, responsive support that
they provide to customers, as well as formulating Ultra's
overarching, corporate strategy.
Across the Ultra Group's three divisions, Ultra operates in the
following eight market segments:
-- Aerospace -- C2ISR
-- Land -- Nuclear
-- Communications -- Infrastructure
-- Maritime -- Underwater
Warfare
IMPORTANT NOTICES
No action has been taken by Ultra or Investec or any of their
respective affiliates, agents, directors, officers or employees
that would permit an offer of the Placing Shares or possession or
distribution of this Announcement or any other offering or
publicity material relating to such Placing Shares in any
jurisdiction where action for that purpose is required.
No prospectus will be made available in connection with the
matters contained in this Announcement and no such prospectus is
required (in accordance with the Prospectus Directive) to be
published. Persons needing advice should consult an independent
financial adviser.
THIS ANNOUNCEMENT, INCLUDING THE APPICES AND THE INFORMATION
CONTAINED IN THEM, IS RESTRICTED AND IS NOT FOR PUBLICATION,
RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN
PART, IN OR INTO THE UNITED STATES, AUSTRALIA, NEW ZEALAND, CANADA,
THE REPUBLIC OF SOUTH AFRICA, HONG KONG, SINGAPORE OR JAPAN OR ANY
OTHER JURISDICTION IN WHICH SUCH PUBLICATION, RELEASE OR
DISTRIBUTION WOULD BE UNLAWFUL. FURTHER, THIS ANNOUNCEMENT IS FOR
INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY
JURISDICTION.THIS ANNOUNCEMENT HAS NOT BEEN APPROVED BY THE LONDON
STOCK EXCHANGE, NOR IS IT INTED THAT IT WILL BE SO APPROVED.
The securities referred to herein have not been and will not be
registered under the US Securities Act 1933, as amended (the
"Securities Act") or under the securities laws of any state or
other jurisdiction of the United States, and may not be offered or
sold directly or indirectly in or into the United States except
pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act and in
compliance with the securities laws of any state or any other
jurisdiction of the United States. Any offering of the Placing
Shares in the United States will be made to a limited number of
"qualified institutional buyers" as defined in Rule 144A under the
Securities Act, pursuant to an exemption from registration under
the Securities Act in a transaction not involving any public
offering. The Placing Shares are being offered and sold outside the
United States in accordance with Regulation S under the Securities
Act. No public offering of securities is being made in the United
States. No money, securities or other consideration from any person
inside the United States is being solicited and, if sent in
response to the information contained in this Announcement, will
not be accepted.
The relevant clearances have not been, nor will they be,
obtained from the securities commission of any province or
territory of Canada, no prospectus has been lodged with, or
registered by, the Australian Securities and Investments Commission
or the Japanese Ministry of Finance; the relevant clearances have
not been, and will not be, obtained for the South Africa Reserve
Bank or any other applicable body in the Republic of South Africa
in relation to the Placing Shares and the Placing Shares have not
been, nor will they be, registered under or offering in compliance
with the securities laws of any state, province or territory of
Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or the
Republic of South Africa. Accordingly, the Placing Shares may not
(unless an exemption under the relevant securities laws is
applicable) be offered, sold, resold or delivered, directly or
indirectly, in or into Australia, Canada, Hong Kong, Japan, New
Zealand, Singapore or the Republic of South Africa.
Certain statements contained in this Announcement, including
those in Appendix 3, constitute "forward-looking statements" with
respect to the financial condition, performance, strategic
initiatives, objectives, results of operations and business of the
Ultra Group, the Sparton Group and the Combined Group.
All statements other than statements of historical facts
included in this Announcement are, or may be deemed to be,
forward-looking statements. Without limitation, any statements
preceded or followed by or that include the words "targets",
"plans", "believes", "expects", "aims", "intends", "anticipates",
"estimates", "projects", "will", "may", "would", "could" or
"should", or words or terms of similar substance or the negative
thereof, are forward-looking statements. Forward-looking statements
include statements relating to the following: (i) future capital
expenditures, expenses, revenues, earnings, synergies, economic
performance, indebtedness, financial condition, dividend policy,
losses and future prospects; (ii) business and management
strategies and the expansion and growth of the Ultra Group's, the
Sparton Group's or the Combined Group's operations and potential
synergies resulting from the Acquisition; and (iii) the effects of
government regulation on the Ultra Group's, the Sparton Group's or
the Combined Group's business.
Such forward-looking statements involve risks and uncertainties
that could significantly affect expected results and are based on
certain key assumptions. Many factors could cause actual results,
performance or achievements to differ materially from those
projected or implied in any forward-looking statements. The
important factors that could cause the Ultra Group's, the Sparton
Group's or the Combined Group's actual results, performance or
achievements to differ materially from those in the forward-looking
statements include, among others, economic and business cycles, the
terms and conditions of the Ultra Group's, the Sparton Group's or
the Combined Group's financing arrangements, foreign currency rate
fluctuations, competition in the Ultra Group's, the Sparton Group's
or the Combined Group's principal markets, acquisitions or
disposals of businesses or assets and trends in the Ultra Group's,
the Sparton Group's or the Combined Group's principal industries.
Due to such uncertainties and risks, readers are cautioned not to
place undue reliance on such forward-looking statements, which
speak only as of the date hereof.
Readers of this Announcement are advised to refer, in
particular, to Appendix 3 of this Announcement for a more complete
discussion of the factors that could affect the Ultra Group's, the
Sparton Group's or the Combined Group's future performance and the
industry in which the Ultra Group and the Sparton Group operate or
the Combined Group would operate. In light of these risks,
uncertainties and assumptions, the events described in the
forward-looking statements in this Announcement may not occur.
The forward-looking statements contained in this Announcement
speak only as of the date of this Announcement. Ultra, the Ultra
Directors, Investec, RBC and Guggenheim Securities each expressly
disclaim any obligation or undertaking to update or revise publicly
any forward-looking statements, whether as a result of new
information, future events or otherwise, unless required to do so
by applicable law or regulation, the Listing Rules, the DTRs, the
rules of the London Stock Exchange or the FCA.
Investec Bank plc ("Investec") and RBC Europe Limited ("RBC")
are each authorised by the Prudential Regulatory Authority and
regulated in the United Kingdom by the Prudential Regulation
Authority and the Financial Conduct Authority and are each acting
exclusively for Ultra and no one else in connection with the
Acquisition, the Placing, the content of this Announcement and
other matters described in this Announcement. Investec and RBC will
not regard any other person as their respective clients in relation
to the Acquisition, the Placing, the content of this Announcement
and other matters described in this Announcement and will not be
responsible to anyone (including any Placees) other than Ultra for
providing the protections afforded to their respective clients or
for providing advice to any other person in relation to the
Acquisition, the Placing, the content of this Announcement or any
other matters referred to in this Announcement.
Guggenheim Securities, LLC ("Guggenheim Securities"), a broker
dealer registered with the United States Securities and Exchange
Commission and a member of the U.S. Financial Industry Regulatory
Authority, has been engaged by Ultra as its financial advisor in
connection with the Acquisition. Guggenheim Securities is not
acting for Ultra or anyone else in connection with the Placing or
any other matter described in this Announcement. Guggenheim
Securities will not regard any person other than Ultra as its
client in relation to the Acquisition, will not regard any person
(including any Placees) as its client in relation to the Placing or
any other matter described in this Announcement and will not be
responsible for providing advice or any of the protections afforded
to its clients to any person other than Ultra in relation to the
Acquisition or to any person in relation to the Placing or any
other matter described in this Announcement.
No representation or warranty, express or implied, is or will be
made as to, or in relation to, and no responsibility or liability
is or will be accepted by Investec or by any of its respective
affiliates or agents as to, or in relation to, the accuracy or
completeness of this Announcement or any other written or oral
information made available to or publicly available to any
interested party or its advisers, and any liability therefore is
expressly disclaimed.
This Announcement contains certain financial measures that are
not defined or recognised under IFRS (International Financial
Reporting Standards), including EBITDA (being earnings before
interest, tax, depreciation, amortisation). Information regarding
these measures are sometimes used by investors to evaluate the
efficiency of a company's operation and its ability to employ its
earnings toward repayment of debt, capital expenditures and working
capital requirements. There are no generally accepted principles
governing the calculation of these measures and the criteria upon
which these measures are based can vary from company to company.
These measures, by themselves, do not provide a sufficient basis to
compare Ultra's performance with that of other companies and should
not be considered in isolation or as a substitute for operating
profit or any other measure as an indicator of operating
performance, or as an alternative to cash generated from operating
activities as a measure of liquidity.
No statement in this Announcement is intended as a profit
forecast or estimate for any period and no statement in this
Announcement should be interpreted to mean that earnings, earnings
per share or income, cash flow from operations or free cash flow
for the Ultra Group, the Sparton Group or the Combined Group, as
appropriate, for the current or future years would necessarily
match or exceed the historical published earnings, earnings per
share or income, cash flow from operations or free cash flow for
the Ultra Group, the Sparton Group or the Combined Group, as
appropriate.
Neither the content of Ultra's website (or any other website)
nor the content of any website accessible from hyperlinks on
Ultra's website (or any other website) is incorporated into or
forms part of this Announcement.
Proposed Acquisition of Sparton Corporation ("Sparton")
And
Placing of New Ordinary Shares to raise GBP133.7m (net)
1. Introduction
Ultra announces that it has entered into a Merger Agreement with
Sparton, pursuant to which Ultra will acquire Sparton (the
"Acquisition"). Sparton is a provider of design, development and
manufacturing services for complex electromechanical devices, as
well as sophisticated engineered products. Sparton operates through
two business segments: Engineered Components & Products ("ECP")
and Manufacturing & Design Services ("MDS"). Under the terms of
the Acquisition, Sparton Shareholders will receive $23.50 in cash
for each Sparton Share, valuing the total equity of Sparton at
$234.8m (GBP180.6m). As part of the Acquisition, Ultra will assume
Sparton's net debt at Completion. Adjusting for the targeted cost
savings, this equates to a pro forma FY2016 EV/EBITDA multiple of
7.6 times. The Acquisition is to be implemented by way of a merger,
on the terms and subject to the conditions of the Merger Agreement,
the principal terms of which are described in more detail in
paragraph 6 (Principal Terms of the Acquisition) of this
Announcement. Ultra's intention is to dispose of the MDS division
of Sparton by the end of Q1 2018 as it considers it to be non-core
to the Combined Group going forward.
Ultra also announces the launch of a placing with institutional
investors of 7,047,168 new ordinary shares of 5 pence each in the
capital of Ultra (the "Placing Shares") at a price of 1,950 pence
per Placing Share (the "Placing Price"), representing approximately
9.9% of Ultra's existing issued share capital (the "Placing"). The
Acquisition will be part-funded by the net proceeds of the Placing,
with the remaining Acquisition consideration being funded through
drawdown under the Ultra Group's existing bank facilities. The
Placing is subject to the terms and conditions set out in Appendix
1 (which forms part of this Announcement).
The Acquisition is subject to relevant anti-trust, regulatory
and shareholder approvals, as described further in paragraph 6
(Principal Terms of the Acquisition) of this Announcement. Since
the Acquisition constitutes a Class 1 transaction for the purposes
of the Listing Rules, these approvals include the approval of the
Acquisition by Ultra Shareholders.
Completion is targeted by 1 January 2018.
2. Background to and reasons for the Acquisition
2.1 Background to sonobuoys
Sonobuoys, amongst other technologies, are a long established
element of underwater warfare within the world defence market and
are a critical part of the Anti-Submarine Warfare ("ASW") mission
for the US Navy and foreign militaries. A sonobuoy is an expendable
device that is used to detect, identify, localise and track objects
of interest that operate underwater, typically submarines. ASW may
be performed covertly by using passive sonobuoys that listen for
the sounds emanating from the submarine (propellers, pumps,
hydraulic and electrical machinery) or more overtly by using
sonobuoys that actively transmit acoustic signals into the water
known as active sonar "pings". The returned echoes from these
"pings" enable ASW personnel to localise the submarine's position.
Sonobuoys are typically air-launched from ASW aircraft and
helicopters and can be deployed to different water depths. Once
activated, the sonobuoy continuously uplinks its information to the
ASW platform where detailed analysis occurs enabling an estimate of
submarine position, speed, direction of advance, depth and type to
be determined.
The capability of modern submarines in the hands of traditional
and emerging adversaries poses a formidable and growing worldwide
threat. The US Navy's sonobuoy budget has steadily increased over
the past several years. This growth is forecast by the US DoD's
five-year plan to continue into the future. The recently released
US Navy budget request reflects a compound annual growth rate of
3.4% over the government fiscal years 2018-2022. Most US allied
nations prefer to use US sonobuoys. These international sales have
historically been approximately 25% of US domestic sonobuoy
revenues and are forecast to increase over the next five years.
Ultra is a frontrunner in the sonobuoy business and has held a
leading position in the UK, US and Canadian sonobuoy segment for
decades. Ultra has grown its presence in the sonobuoy business both
organically and by acquisition. Sonobuoys represent one of the
Ultra Group's largest capabilities and sit within the Underwater
Warfare segment, which accounted for 25% of the Ultra Group's 2016
revenue.
Ultra has had a long-standing interest (held through a wholly
owned subsidiary) in a 50/50 joint venture with ECP, known as
ERAPSCO. This US Navy-encouraged business relationship was
originally formed in 1987 with Ultra subsequently acquiring its
original interest in the ERAPSCO joint venture from Raytheon in
1998. Since that time, the business of ERAPSCO has expanded and
today ERAPSCO develops, manufactures and supports all current
production sonobuoys supplied to the US DoD.
Sonobuoys are complex electro-mechanical devices that are
required to deploy and function reliably in harsh maritime
operating environments after being launched from an ASW platform at
altitude and speed. As they are expendable devices, there is
considerable focus on delivering the necessary capabilities at the
lowest unit cost. The Ultra Directors believe its USSI operation is
pre-eminent in knowing how to build the various sonobuoy products
and at a low unit cost. Ultra and Sparton produce tens of thousands
of sonobuoys each year and they are two of the very few defence
manufacturers of these large volume, high tech products. This has
required a culture of working together with the co-operation of the
US Navy to value engineer sonobuoy designs, a relationship not
easily replicated. Current production sonobuoys are expected to be
supplied by ERAPSCO for the next six years. In the future, the US
Navy may choose for any new devices to be supplied by more than
just ERAPSCO. Nevertheless, the Ultra Directors believe new
entrants will require a period of time to design and produce
sonobuoys under the rigorous performance standards of the customer.
Sonobuoys are typically purchased pursuant to multi-year contract
awards. A new entrant will likely have to wait for the next
contracting cycle to compete for an award.
Ultra's existing US sonobuoy activities have delivered material
annual revenue growth over the three years to 31 December 2016
driven primarily by an increase in the US government's sonobuoy
budget and robust international sales.
2.2 Reasons for the acquisition of ECP
Excellent strategic fit with Ultra's existing activities in a
segment in which the Ultra Group has extensive experience and well
established customers:
Ultra is a frontrunner in the sonobuoy segment. The designing,
manufacturing and selling of sonobuoys is a core capability of the
Ultra Group and the acquisition of ECP will enhance this core
capability. Through the ERAPSCO joint venture, Ultra knows ECP's
business very well and given this long-standing working
relationship and the similarity of Ultra's and ECP's operations,
the Ultra Board is confident in the Ultra Group's ability to
integrate ECP's business. ECP's sonobuoy manufacturing sites will
remain in place to ensure security of supply for the US Navy. It is
expected that new product development will be consolidated into one
location creating a centre of design excellence following the
Acquisition.
Enhances Ultra's continuing relationship with a major
customer:
Ultra's participation in the ERAPSCO joint venture has brought
extensive knowledge, experience and proven performance to a major
customer, the US DoD. The US Congress has expressed concerns that
the long-running Sparton sale process could impact the continued
supply of sonobuoys to the US fleet and require the US DoD to rely
on a non-allied nation for the continuing supply of sonobuoys.
Ultra is in a unique position to preserve the relationship with a
major customer, with the Acquisition "preserving the status quo"
for the US Navy and helping to ensure that the delivery of critical
assets is not interrupted. The Ultra Board therefore expects the
Acquisition not only to maintain ERAPSCO's long standing position
as a leading provider of sonobuoy systems to the US Navy, but also
to enhance Ultra's continuing relationship with the US DoD.
Increases exposure to the growing sonobuoy segment:
Internationally there is growing demand for sonobuoys as
advanced ASW capabilities are required to address rising global
tensions, mostly in the Asia Pacific region. The US Navy P-8
Maritime Patrol Aircraft is being sold in increasing numbers to US
allies, and is only compatible with US Navy high altitude
sonobuoys. While some international suppliers, such as those based
in Japan and South Korea, have shown interest in supplying to their
domestic sonobuoy segment, they lack the economies of scale, US
Navy qualification, proven quality track record, and compatibility
with US Navy platforms to be able to supply to the US. These
factors present significant barriers to entry.
The US Navy sonobuoy requirement represents more than 50% of the
total world sonobuoy budget and the latest budget released by the
US President forecasts steady increases in US Navy sonobuoy
acquisitions. Ultra's current US operations (i.e. excluding
Sparton) have an addressable budget that is estimated at
approximately $80m which has shown steady and consistent growth in
recent years and is expected to grow modestly each year over the
period 2018-2022.
Attractive financial returns for Ultra:
The Acquisition is expected to be earnings enhancing and to
deliver returns in excess of Ultra's cost of capital in a timely
manner.
Allows Ultra to secure an important revenue and earnings
stream:
The revenue and earnings that Ultra generates from the ERAPSCO
joint venture are an important part of the Ultra Group's financial
performance. Acquiring Sparton secures this existing revenue and
earnings and helps support Ultra's position in the underwater
warfare segment.
2.3 The Integration of ECP
Following Completion, Ultra would report ECP's results as part
of the Maritime & Land Division, under the leadership of its
Divisional President. Ultra's Maritime & Land Division's
external revenues would increase from 41% to approximately 48% of
the Ultra Group total (based on the audited 2016 results of Ultra
and ECP).
In June 2015, Ultra announced the acquisition of the Electronics
Products Division (formerly Herley Industries Inc.) of Kratos
Defense & Security Solutions. Herley's results are now reported
under Ultra's C2ISR segment in the Communications and Security
Division, under the leadership of its Divisional President. The
cost savings included in the Herley acquisition case are currently
running ahead of schedule and the Ultra Group has the management
capacity for integrating ECP.
2.4 The proposed disposal of MDS
Sparton's business comprises two divisions - ECP and MDS. MDS,
which specialises in the manufacturing and refurbishing of printed
circuit card assemblies and integration of medical devices, is
considered non-core to Ultra. If the Acquisition Completes, Ultra
intends to sell MDS by the end of Q1 2018, leaving Ultra with ECP
only. Ultra is in advanced discussions with several interested
parties in relation to this disposal.
Discussions regarding a sale of MDS have been continuing for
some time. Sparton had considered a sale of MDS when exploring a
range of strategic alternatives, whilst Ultra has undertaken a
number of rounds of a process to dispose of MDS.
2.5 Equity funding
The Ultra Directors intend to maintain a prudent funding
structure for the Ultra Group and have a medium-term target range
for a net debt to EBITDA ratio of below 1.5 times.
The Acquisition and the disposal of MDS are not expected to
alter Ultra's objective of returning to a through-cycle target of
85% cash conversion in the medium term.
Had the Acquisition been financed entirely by debt and completed
as at 31 December 2016, the Ultra Group's net debt to EBITDA ratio
would have been 3.2 times. The Ultra Directors consider it is
therefore appropriate to issue equity to part fund the proposed
Acquisition and to raise equity funding at the time of the
Announcement of the Acquisition in order to provide certainty of
that equity funding.
In the event that the Acquisition does not Complete, the Ultra
Directors would consider, in light of circumstances at the time,
the appropriate use of the funds raised, including the extent to
which they should be retained for general purposes or used in
relation to other capital investments and the extent to which
return of them to Ultra Shareholders would be appropriate.
3. Information on Sparton
3.1 Overview of Sparton
Listed for many years on the New York Stock Exchange and
adhering to the SEC's disclosure requirements, Sparton is a company
with a market capitalisation of approximately $221.6m, as at the
Last Practicable Date. Sparton has two reportable business
segments, ECP and MDS.
On 16 March 2016, Sparton announced that the Sparton Board had
been exploring a range of strategic alternatives and on 27 April
2016 announced it had authorised Wells Fargo Securities LLC to
conduct a process to identify parties interested in acquiring
Sparton. That sale process has continued since then and Ultra has
participated in the process.
In the year-ended 3 July 2016, Sparton had revenues of $419m,
operating income (before $64m impairment of goodwill) of $12m,
profit before tax (before $64m impairment of goodwill) of $9m and
as at 3 July 2016, gross assets were $246m. At 3 July 2016, Sparton
employed 1,853 people, including 156 contractors.
3.2 ECP and ERAPSCO
ECP develops, designs and manufactures proprietary defence and
security products in three core business areas: Undersea Warfare
Solutions; Rugged Electronics; Precision Sensing and Measurement.
It serves the US DoD and allied foreign militaries, civil
government agencies, prime contractors and tier 1 suppliers with
key customers including the US Navy, the US Naval AWC, NUWC,
Raytheon, DARPA, General Dynamics, SNC, L3, DRS, BAESYSTEMS,
Northrup Grumman, Boeing, Rockwell Collins. Sales to the US Navy
accounted for 61% of ECP's fiscal 2016 revenues. In 2014, ERAPSCO
was awarded an indefinite delivery indefinite quantity contract by
the US Navy which runs until 2019. $644m of purchase orders have
been received in the first four years and a further $160m of
purchase orders are expected to be added in FY18. ECP operates
three facilities located across eastern North America and employs
approximately 600 people across the division. ECP's revenues in the
last three audited years ended 3 July 2016 were $109.1m, $136.3m
and $154.6m while operating income (prior to allocation of
corporate overheads) was $19.9m, $25.0m and $25.9m. Its long-term
contracts provide ECP with good forecast visibility and continuing
revenue streams supported by a backlog of $124.4m as at 2 April
2017. ECP has good order cover for its domestic sonobuoys with 94%
coverage of revenue for the year-ending June 2018.
ECP is Ultra's 50/50 partner in ERAPSCO which develops,
manufactures and supports all current US production sonobuoys
supplied to the US DoD. In concept and in practice, ERAPSCO serves
as a pass-through entity maintaining no funds or assets. While
ERAPSCO provides the opportunity to maximise efficiencies in the
design and development of sonobuoys, both of the joint venture
partners function independently as subcontractors; therefore there
is no separate entity to be accounted for or consolidated. In
response to any customer request for proposal ("RFP") that ERAPSCO
will bid on, the board of directors of ERAPSCO approves both the
composition of a response to the RFP and the corresponding bid to
be submitted to the customer. The board of directors of ERAPSCO
strives to divide the aggregate contract awards at a 50/50 ratio
between the joint venture partners, in accordance with their
respective technological expertise. Each joint venture partner is
responsible to ERAPSCO for the successful execution of its
respective scope of work under its subcontract and each joint
venture partner is individually accountable for the profit or
losses sustained in the execution of that subcontract.
Historically, the agreed-upon products included under the joint
venture were generally developmental sonobuoys. In 2007, ERAPSCO
expanded to include all future sonobuoy development and
substantially all US derivative sonobuoy products for customers
outside of the United States. ERAPSCO was further expanded three
years later to include all sonobuoy products for the US Navy,
beginning with the US Navy's 2010 fiscal year contracts.
3.3 MDS
MDS comprises contract design, manufacturing and aftermarket
repair and refurbishment of sophisticated printed circuit card
assemblies, sub-assemblies, full product assemblies and cable/wire
harnesses for customers seeking to bring their intellectual
property to market. Additionally, MDS is a developer of embedded
software quality assurance services in connection with medical
devices and diagnostic equipment. Customers of MDS include original
equipment manufacturers and emerging technology customers serving
the medical & biotechnology market, the military &
aerospace market and industrial & commercial markets. MDS
operates nine sites across the US and a facility in Vietnam. MDS
Division revenues in the last three audited years ended 3 July 2016
were $246.1m, $263.9m and $282.1m; operating income (prior to
allocation of corporate overheads) was $17.0m, $9.5m and $2.4m
(before $64m impairment of goodwill). Ultra's intention is to
dispose of the MDS division by the end of Q1 2018 as it considers
it to be non-core to the Combined Group going forward.
3.4 Sparton financial information
Summary of certain financial statements from 30
June 2014 to 2 April 2017 ($m)
Year Year Year 9 months
Summarised financial Ended ended ended ended
statements
30-Jun-14 30-Jun-15 03-Jul-16 02-Apr-17
Net Sales 336.5 382.1 419.4 293.2
Adjusted EBITDA 35.0 34.3 33.5 17.0
Adjusted Operating
income 25.0 21.8 16.3 11.7
Profit Before
Tax 19.6 15.0 -55.5 -0.2
Total assets 199.0 337.6 246.0 227.5
Net debt 33.0 139.6 97.1 86.6
Note: The above figures are taken from Sparton's US GAAP SEC
filings for the relevant periods and so are presented under
Sparton's US GAAP accounting policies.
4. Financial effects of the Acquisition
Ultra has entered into the Merger Agreement to acquire Sparton
for $23.50 per Sparton share in cash, valuing Sparton's total
equity at approximately $234.8m (GBP180.6m). As part of the
Acquisition, Ultra will assume Sparton's net debt at Completion.
The Acquisition will be part-funded by the proceeds of the Placing,
with the remaining Acquisition consideration being funded through
drawdown under the Ultra Group's existing bank facilities.
Cost savings and integration
The Ultra Directors believe there is the potential to achieve
cost savings within Sparton of $6m in the year-ending 31 December
2018, rising to $9m for the year-ending 31 December 2019.
Ultra has, together with its advisers, conducted due diligence
on the Sparton Group, including inter alia, certain site visits and
discussions with senior management, all of which has supplemented
Ultra's existing knowledge of ECP, obtained through Ultra's
involvement in the ERAPSCO joint venture. This diligence process,
coupled with Ultra's prior knowledge of ECP, has enabled Ultra's
executive team to prepare an integration plan for the two companies
which will be implemented once the Acquisition Completes. The Ultra
Directors believe that the cost savings identified below will be
delivered through the implementation of this integration plan. Over
time, there may be the potential to further optimise the cost
structure of ECP by including it within Ultra's standardisation and
shared services programme and achieve other cost savings.
The Ultra Directors believe that these cost savings out of
unallocated overheads will be achieved in the following broad
areas:
($m) Year-ending
31-Dec-19
Headcount 3.4
Legal/professional
fees 2.3
Facilities 0.8
Board related
costs 0.5
Other costs 2.0
Total 9.0
------------
Note: This assumes Ultra disposes of MDS by the end of Q1 2018.
Should the disposal of MDS not occur, or take materially longer
than expected, the level of anticipated costs savings will be lower
in the year-ending 31 December 2018. The date of disposal of MDS is
not expected to reduce the level of earnings accretion.
There will be a one-off cost to achieving these cost savings of
approximately $4m in the year-ending 31 December 2018. These cost
savings enable the Ultra Directors to target an operating margin
for ECP in 2019 that is above the Ultra Group's average. ECP's 2016
pro forma operating margin was below Ultra's USSI equivalent. These
estimated financial benefits set out above are contingent on the
Acquisition and could not be achieved independently. Such estimated
financial benefits reflect both the beneficial elements and
relevant costs.
Earnings per share and ROIC vs WACC
The Ultra Directors expect the combined impact of the
Acquisition and subsequent disposal of MDS to be accretive to
underlying earnings per share in the year-ending 31 December 2018.
If MDS is not disposed of in a timely manner, the Acquisition is
still expected to be accretive to underlying earnings per share in
the year-ending 31 December 2018. Prior to the estimated Completion
of the Acquisition on 1 January 2018, and pending their utilisation
to part fund the Acquisition, the net proceeds of the Placing will
be used to repay part of Ultra's current indebtedness; therefore,
during that period, the additional shares issued in the Placing
will be slightly dilutive to earnings per share.
The Ultra Directors expect the Acquisition (regardless of
whether the disposal of MDS Completes) to generate a post-tax
return on invested capital in excess of Ultra's weighted average
cost of capital in the year-ending 31 December 2019.
Following Completion and prior to the disposal of the MDS
Division and assuming the Placing had completed, the pro forma
leverage as at 31 December 2016 for the Combined Group would have
been 2.4x. The Ultra Directors are targeting a net debt to EBITDA
ratio of approximately 1.5x by the end of 2018 following Completion
and prior to the disposal of the MDS Division.
Ultra's next results after the Completion will include the
estimated net assets at the date of Completion at their provisional
fair value and will be subject to the finalisation of the fair
value exercise. Ultra's total transaction costs are expected to be
approximately GBP15m.
Other financial information
The Ultra Directors are targeting revenue growth in ECP of
approximately 3% p.a. for the medium term. Additionally, the Ultra
Directors consider that in the event of increased geo-political
tensions there is potential for sonobuoy revenue growth of
approximately 10% p.a. for a period of time.
In the nine month period through to the end of March 2017,
Sparton's intra quarter month end average net debt was
approximately $10m higher than at the 3 July 2016 period end date.
The Ultra Directors believe that ECP had a 52%:48% H1/H2 revenue
split and a 60%:40% H1/H2 operating profit split (prior to
allocation of central overheads) in calendar year 2016.
For the year-ending 31 December 2018 and assuming the
Acquisition and disposal of MDS complete as expected, the increases
in Ultra's capital expenditure, depreciation, research &
development, and finance charge are anticipated to be GBP2m, GBP2m,
GBP2m and GBP1m, respectively. The Combined Group's effective tax
rate is expected to increase from 21.5% to 22.8% given the
increased proportion of US earnings.
The Ultra Directors believe that, on average, Sparton has been
cash generative in recent years. The Acquisition of Sparton and the
disposal of MDS, if completed, are not expected to alter Ultra's
objective of returning to a through-cycle target of 85% cash
conversion in the medium term.
Dividend policy
Following Completion and subject to the Combined Group's trading
prospects being satisfactory, the Ultra Board will continue Ultra's
policy whereby dividends are covered by between 2.5 to 3.0 times
underlying earnings and paid in an approximate one third (interim
dividend) and two thirds (final dividend) split.
Debt Financing
Ultra is party to (i) a GBP100m multi-currency revolving credit
facility; and (ii) a GBP200m multi-currency revolving credit
facility, each with a syndicate of lenders. In accordance with the
terms of these facilities, neither of which prohibits Ultra from
drawing down funds to finance the Acquisition, Ultra will finance
the Acquisition in part by drawing down under these facilities. The
Ultra Group intends to enter into a $250m foreign exchange forward
contract with a maturity date of 31 October 2017. Assuming the
Acquisition has not completed prior to the date of maturity, this
forward contract will be extended as the Completion date of the
Acquisition becomes clearer. If the Acquisition does not Complete,
the forward contract could be used to repay part of Ultra's
dollar-denominated borrowings or, to the extent amounts acquired
under the forward contract are required or preferred to be
converted back to sterling, closed out.
5. Trading information
5.1 Ultra
Ultra released the following statement on 22 June 2017.
"The Group's half-year trading performance is in line with
management expectations. As previously indicated, 2017 will be more
heavily weighted to the second half than normal. As stated in the 6
March 2017 results Announcement and based on the same GBP/$
assumption, the Board remains confident of making further progress
in 2017; our expectations for the full year remain unchanged. Full
year cash conversion remains in-line with previous guidance.
Market conditions remain as noted on 6 March 2017. The US 2017
budget was approved in early May and prior to this the US
Government had been operating under a Continuing Resolution ("CR").
The delay in approving the budget has meant that US orders have
been deferred to the end of the first half and second half of this
year, resulting in the second half bias mentioned above. Despite
the CR there has been positive momentum in the order intake, with
the book-to-bill ratio reaching a pleasing 1.1 times as at the end
of May 2017."
Ultra's trading remains in line with the contents of that
announcement.
The Ultra Directors believe the Ultra Group has a good record of
taking out costs both within its existing operations and in an
acquired business. This continued focus on delivery of cost
efficiencies within its businesses has assisted the Ultra Group in
achieving profitability targets even when market conditions and/or
order delays have impacted near term revenues.
5.2 Sparton
Sparton published its third quarter results on 9 May 2017. The
following three paragraphs are derived from that announcement.
Sparton commented that for MDS while its Medical facilities
continued to perform well in the quarter ended 2 April 2017,
certain Mil/Aero and industrial facilities experienced delays in a
couple of customer programs. Conversely, ECP's performance during
the same period improved significantly over the prior quarter.
Trading in the ECP division in the third quarter saw the margin
benefits of increased foreign sonobuoy sales offset by a weaker
performance in rugged electronics. Production of the Q53G sonobuoy
has recovered following delays experienced in the second quarter of
the current financial year and remains the key driver for forecast
revenue growth in the short term. The MDS division is forecast to
partly mitigate the impact of certain customer losses affecting
both the Milpitas and Frederick facilities with increased revenues
driven by new Medical customer contracts.
As of 9 May 2017, Sparton expected revenues for the fourth
quarter of fiscal 2017 of between $97m and $101m at a gross margin
of approximately 18%. Appendix 4 in this announcement sets out the
basis for this statement.
Sparton expects revenue growth in 2018 at the ECP division and
the MDS division is expected to remain relatively flat on
revenues.
6. Principal terms of the Acquisition
6.1 Summary of the Acquisition
Ultra, Ultra Electronics Aneira Inc. (an indirect wholly-owned
subsidiary of Ultra) ("Ultra Aneira") and Sparton have today
entered into the Merger Agreement in respect of the Acquisition,
pursuant to which Ultra has agreed, on the terms and subject to the
conditions of the Merger Agreement, to acquire Sparton. The
Acquisition will be implemented by way of a merger, in accordance
with the relevant laws of the State of Ohio, whereby Ultra Aneira
will merge with and into Sparton, with Sparton continuing as the
surviving company and becoming an indirect wholly-owned subsidiary
of Ultra.
Under the terms of the Merger Agreement, which is governed by
the laws of the State of Ohio, Sparton Shareholders will receive,
subject to the Conditions and the other terms contained in the
Merger Agreement, $23.50 in cash for each Sparton Share held.
6.2 Conditions to Completion
Completion is conditional upon, among other things:
-- approval of the Acquisition as a "Class 1 transaction" for
the purposes of the Listing Rules by a simple majority of Ultra
Shareholders (the "Ultra Shareholder Approval");
-- a vote to adopt the Merger Agreement by at least two-thirds
of Sparton Shareholders (the "Sparton Shareholder Approval");
-- competition clearances from relevant anti-trust authorities,
including the US anti-trust authorities in accordance with the
requirements of the HSR Act;
-- completion of the CFIUS, DSS and Investment Canada Act review processes; and
-- expiry or waiver of any applicable prior notice period under
ITAR relating to the Acquisition.
If the Conditions to Completion have not been satisfied (or,
where applicable, waived) on or before 31 January 2018 (the
"Initial Long Stop Date"), either Ultra or Sparton may terminate
the Merger Agreement. The Initial Long Stop Date may, however, be
extended by either party in certain circumstances until 31 March
2018 (and further extended by Ultra until 31 July 2018) in the
event that the Conditions summarised above (other than the Ultra
Shareholder Approval and Sparton Shareholder Approval Conditions)
have not been satisfied by the Initial Long Stop Date (or by 31
March 2018 if either party has elected to extend the Initial Long
Stop Date) (the Initial Long Stop Date, if and as extended, being
the "Long Stop Date").
Under the terms of the Merger Agreement, Ultra and Sparton are
obliged to co-operate and use reasonable best efforts to Complete
the Acquisition as soon as practicable. No member of the Ultra
Group is, however, required to make divestments or to take any
action that limits the freedom of, or alters or restricts the
commercial practices of, members of the Combined Group, save that
Ultra has agreed that, if requested by a governmental authority or
regulator in order to obtain relevant anti-trust or regulatory
consents, Ultra will agree to dispose of MDS or assets of the
Sparton Group that (i) do not relate to the sonobuoy business of
the Sparton Group and (ii) are not material (individually or in
aggregate) in any respect to the Sparton Group. Further, while
Ultra retains the right to defend any proceedings brought by
governmental authorities, courts or tribunals in connection with
Completion, it is not obliged to defend (or initiate) those
proceedings.
6.3 Termination fees
The Merger Agreement contains certain termination rights and
associated fees.
Upon termination of the Merger Agreement, in certain
circumstances Sparton will be required to pay Ultra a fee of $7.5m
where:
-- Sparton terminates the Merger Agreement prior to obtaining
the Sparton Shareholder Approval in order to accept, and enter into
an acquisition agreement with respect to, an unsolicited proposal
from a third party to acquire more than 50% of Sparton (other than
by way of an acquisition of MDS) which the Sparton Board
determines, among other things, to result in a more favourable
transaction to Sparton Shareholders from a financial point of view
than the Acquisition (a "Superior Proposal"); or
-- The following conditions are satisfied:
o prior to the Sparton Shareholder Meeting, a third party
publicly announces or discloses (and does not withdraw) an offer or
proposal to acquire more than 50% of Sparton (other than by way of
an acquisition of MDS) (an "Acquisition Proposal");
o subsequently, either Sparton or Ultra terminates the Merger
Agreement on account of the Sparton Shareholder Approval having
been sought and not obtained; and
o either: (i) within 12 months of such termination, Sparton
enters into an agreement with respect to an Acquisition Proposal
which is subsequently completed; or (ii) an Acquisition Proposal is
otherwise completed within 12 months of such termination; or
-- The following conditions are satisfied:
o prior to the Long Stop Date, an Acquisition Proposal is
publicly announced or disclosed to the Sparton Board (and not
withdrawn) and, at the Long Stop Date, Ultra would have been
entitled to terminate the Merger Agreement on account of Sparton's
breach of its terms;
o either Sparton or Ultra terminates the Merger Agreement on
account of the Acquisition not having Completed on or before the
Long Stop Date; and
o either: (i) within 12 months of such termination, Sparton
enters into an agreement with respect to an Acquisition Proposal
which is subsequently completed; or (ii) an Acquisition Proposal is
otherwise completed within 12 months of such termination; or
-- Ultra terminates the Merger Agreement in circumstances where either:
o the Sparton Board has (i) withdrawn, failed to make or
modified (in a manner adverse to Ultra) its recommendation in
favour of the Acquisition; or (ii) approved, adopted or recommended
any Alternative Proposal (as defined below), unless, at the
relevant time, the Sparton Shareholder Approval has been obtained;
or
o the Sparton Group or its representatives have breached the
Non-solicitation Restriction (as defined below) in any material
respect unless, at the relevant time, the Sparton Shareholder
Approval has been obtained.
Separately, upon termination of the Merger Agreement, in certain
circumstances Ultra will be required to pay Sparton a fee of $7.5m
where:
-- the Merger Agreement is terminated by either party because
the Ultra Shareholders have voted upon, but have not approved, the
Acquisition; or
-- Sparton terminates the Merger Agreement in circumstances where either:
o the Ultra Board has withdrawn, failed to make or modified (in
a manner adverse to Sparton) its recommendation in favour of the
Acquisition, unless, at the relevant time, the Ultra Shareholder
Approval has been obtained; or
o prior to 24 January 2018, the Ultra General Meeting has not
been held or the Ultra General Meeting has been held but the Ultra
Shareholders have not voted upon the resolution to be proposed at
the Ultra General Meeting in respect of the Acquisition, and in
either scenario the Ultra Board has not withdrawn, failed to make
or modified (in a manner adverse to Sparton) its recommendation in
favour of the Acquisition prior to that date.
6.4 Non-solicitation
The Merger Agreement prohibits members of the Sparton Group and
their representatives from, subject to certain exceptions,
soliciting any offer or proposal to acquire MDS or more than 15% of
Sparton (an "Alternative Proposal"), engaging in discussions or
providing non-public information in connection with an Alternative
Proposal, or entering into any agreement relating to an Alternative
Proposal (the "Non-Solicitation Restriction").
If, prior to obtaining the Sparton Shareholder Approval, Sparton
receives an unsolicited Alternative Proposal which the Sparton
Board determines to be a Superior Proposal, Sparton may either (i)
withdraw, fail to make or modify its recommendation of the
Acquisition or approve, adopt or recommend the Superior Proposal,
or (ii) terminate the Merger Agreement in order to enter into an
agreement with respect to that Superior Proposal, provided that,
before doing so: (a) Sparton notifies Ultra and gives Ultra at
least 4 business days to propose amendments to the terms and
conditions of the Acquisition and (b) taking account of any
amendments proposed by Ultra, the Sparton Board determines that the
Alternative Proposal remains a Superior Proposal and that a failure
to take such action would be inconsistent with its fiduciary
duties.
7. The Placing
Under the terms of the Placing, Ultra will place 7,047,168
Placing Shares, representing approximately 9.9% of the current
issued ordinary share capital of Ultra, with existing institutional
shareholders and new institutional investors at the Placing Price
of 1,950 pence per Placing Share, raising approximately GBP137.4m
(gross) (approximately GBP133.7m (net)). The Placing is being
underwritten by Investec.
The Placing Price represents a discount of approximately 2.1% to
the closing mid-market price of 1,991 pence per ordinary share of 5
pence each in the capital of Ultra (the "Ordinary Shares") on 6
July 2017, being the Last Practicable Date.
The Placing Shares, when issued, will rank pari passu in all
respects with each other and with the Ordinary Shares, including
the right to receive all dividends and other distributions
declared, made or paid on the Ordinary Shares after the date of
issue.
Applications will be made to the FCA for admission of the
Placing Shares to the premium listing segment of the Official List
and to London Stock Exchange for admission to trading on its main
market for listed securities (together, "Admission"). It is
expected that Admission will become effective on or around 11 July
2017 and that dealings in the Placing Shares will commence at that
time. The Placing is conditional, among other things, upon
Admission becoming effective and the placing agreement between
Ultra and Investec (the "Placing Agreement") not being terminated
in accordance with its terms. Appendix 1 (which forms part of this
Announcement) sets out further information relating to the Placing
Agreement and the terms and conditions of the Placing.
The Placing is not conditional upon Completion of the
Acquisition. In the event that the Acquisition does not Complete,
the Ultra Directors would consider, in light of circumstances at
the time, the appropriate use of the funds raised, including the
extent to which they should be retained for general purposes or
used in relation to other capital investments and the extent to
which return of them to Ultra Shareholders would be
appropriate.
Investec is acting as sole bookrunner, broker and underwriter in
respect of the Placing. The book will open with immediate effect
following this Announcement. The timing of the closing of the book
and allocations are at the discretion of Investec and Ultra.
Your attention is drawn to the detailed terms and conditions of
the Placing set out in Appendix 1.
8. Placing Statistics
Number of Ordinary Shares in issue before the Placing 70,658,862
Number of Placing Shares to be issued pursuant to the Placing 7,047,168
Placing Price 1,950 pence
Gross proceeds of the Placing GBP137.4m
Estimated net proceeds of the Placing GBP133.7m
Number of Ordinary Shares in issue immediately following the Placing 77,706,030
Placing Shares as a percentage of the enlarged share capital 9.1%
9. Further information
Further details in relation to the Acquisition will be set out
in the Circular which is expected to be published in due
course.
10. Recommendation
The Ultra Board has received financial advice from Guggenheim
Securities, Investec and RBC in relation to the Acquisition. In
providing their financial advice to the Ultra Board, Guggenheim
Securities, Investec and RBC have taken into account the Ultra
Board's commercial assessment of the Acquisition.
The Ultra Board considers the Acquisition to be in the best
interests of Ultra and the Ultra Shareholders taken as a whole.
Accordingly, the Ultra Board intends to recommend that Ultra
Shareholders vote in favour of the resolution in respect of the
Acquisition to be proposed at the Ultra General Meeting, as the
Ultra Directors intend to do (or seek to procure to be done) in
respect of their own beneficial holdings of 351,409 Ultra Shares,
representing, in aggregate, approximately 0.50% of the total issued
share capital of Ultra as at the Last Practicable Date.
APPIX 1 - TERMS AND CONDITIONS OF THE PLACING
IMPORTANT INFORMATION FOR INVITED PLACEES (AS DEFINED BELOW)
ONLY REGARDING THE PLACING (AS DEFINED BELOW).
THIS ANNOUNCEMENT, INCLUDING THIS APPIX AND THE INFORMATION
CONTAINED HEREIN (TOGETHER THE "ANNOUNCEMENT") IS RESTRICTED AND IS
NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR
INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES,
AUSTRALIA, NEW ZEALAND, CANADA, THE REPUBLIC OF SOUTH AFRICA, HONG
KONG, SINGAPORE OR JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH
PUBLICATION, RELEASE OR DISTRIBUTION WOULD BE UNLAWFUL. FURTHER,
THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN
OFFER OF SECURITIES IN ANY JURISDICTION IN WHICH THE SAME WOULD BE
UNLAWFUL.THIS ANNOUNCEMENT HAS NOT BEEN APPROVED BY THE LONDON
STOCK EXCHANGE, NOR IS IT INTED THAT IT WILL BE SO APPROVED.
MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE
PLACING. SAVE FOR LIMITED EXCEPTIONS AND AT THE SOLE DISCRETION OF
ULTRA. THIS ANNOUNCEMENT AND THE TERMS AND CONDITIONS SET OUT IN
THIS APPIX ARE FOR INFORMATION PURPOSES ONLY AND ARE DIRECTED ONLY
AT: (A) PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA
("EEA") WHO ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE
2(1)(E) OF THE EU DIRECTIVE 2003/71/EC (AND AMMENTS THERETO,
INCLUDING THE 2010 PROSPECTUS DIRECTIVE AMING DIRECTIVE (DIRECTIVE
2010/73/EC) AND TO THE EXTENT IMPLEMENTED IN THE RELEVANT MEMBER
STATE (THE "PROSPECTUS DIRECTIVE") ("QUALIFIED INVESTORS"); (B) IF
IN THE UNITED KINGDOM, PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE
IN MATTERS RELATING TO INVESTMENTS WHO FALL WITHIN THE DEFINITION
OF "INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) (INVESTMENT
PROFESSIONALS) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000
(FINANCIAL PROMOTION) ORDER 2005, AS AMED (THE "ORDER"), OR ARE
HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS OR
PARTNERSHIPS OR TRUSTEES OF HIGH VALUE TRUSTS AS DESCRIBED IN
ARTICLE 49(2) OF THE ORDER AND (II) ARE "QUALIFIED INVESTORS" AS
DEFINED IN SECTION 86 OF THE FINANCIAL SERVICES AND MARKETS ACT
2000, AS AMED ("FSMA"), AND OTHERWISE (C) TO PERSONS TO WHOM IT MAY
OTHERWISE BE LAWFULLY COMMUNICATED (ALL SUCH PERSONS IN (A), (B) OR
(C) TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS").
THIS ANNOUNCEMENT, THIS APPIX AND THE TERMS AND CONDITIONS SET
OUT HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT
RELEVANT PERSONS. PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST
SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. ANY INVESTMENT OR
INVESTMENT ACTIVITY TO WHICH THIS APPIX AND THE TERMS AND
CONDITIONS SET OUT HEREIN RELATE IS AVAILABLE ONLY TO RELEVANT
PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THIS
ANNOUNCEMENT AND THIS APPIX DOES NOT ITSELF CONSTITUTE AN OFFER FOR
SALE OR SUBSCRIPTION OF ANY SECURITIES IN ULTRA.
THE SECURITIES REFERRED TO IN THIS ANNOUNCEMENT HAVE NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS
AMED (THE "SECURITIES ACT") OR UNDER THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE
OFFERED OR SOLD DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES
EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN COMPLIANCE WITH THE SECURITIES LAWS OF ANY STATE OR ANY OTHER
JURISDICTION OF THE UNITED STATES. ANY OFFERING OF THE PLACING
SHARES IN THE UNITED STATES WILL BE MADE TO A LIMITED NUMBER OF
QUALIFIED INSTITUTIONAL BUYERS (EACH A "QIB") AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT, PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT IN A TRANSACTION NOT
INVOLVING ANY PUBLIC OFFERING. THE PLACING SHARES ARE BEING OFFERED
AND SOLD OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S
UNDER THE SECURITIES ACT.
EACH PLACEE SHOULD CONSULT WITH ITS ADVISERS AS TO LEGAL, TAX,
BUSINESS AND RELATED ASPECTS OF AN ACQUISITION OF PLACING SHARES.
THE DISTRIBUTION OF THIS ANNOUNCEMENT, ANY PART OF IT OR ANY
INFORMATION CONTAINED IN IT MAY BE RESTRICTED BY LAW IN CERTAIN
JURISDICTIONS, AND ANY PERSON INTO WHOSE POSSESSION THIS
ANNOUNCEMENT, ANY PART OF IT OR ANY INFORMATION CONTAINED IN IT
COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, SUCH
RESTRICTIONS.
No action has been taken by Ultra or Investec or any of their
respective affiliates, agents, directors, officers or employees
that would permit an offer of the Placing Shares or possession or
distribution of this Announcement or any other offering or
publicity material relating to such Placing Shares in any
jurisdiction where action for that purpose is required.
This Announcement or any part of it does not constitute or form
part of any offer to issue or sell, or the solicitation of an offer
to acquire, purchase or subscribe for, any securities in the United
States (including its territories and possessions, any state of the
United States and the District of Columbia), Australia, New
Zealand, Canada, the Republic of South Africa, Hong Kong,
Singapore, Japan or any other jurisdiction in which the same would
be unlawful. No public offering of the Placing Shares is being made
in any such jurisdiction.
All offers of the Placing Shares will be made pursuant to an
exemption under the Prospectus Directive from the requirement to
produce a prospectus. In the United Kingdom, this Announcement is
being directed solely at persons in circumstances in which section
21(1) of the Financial Services and Markets Act 2000 (as amended)
("FSMA") does not apply.
The Placing Shares have not been approved or disapproved by the
US Securities and Exchange Commission, any State securities
commission or other regulatory authority in the United States, nor
have any of the foregoing authorities passed upon or endorsed the
merits of the Placing or the accuracy or adequacy of this
Announcement. Any representation to the contrary is a criminal
offence in the United States.
The Placing Shares are being offered and sold outside the United
States in accordance with Regulation S under the Securities Act.
Any offering to be made in the United States will be made to a
limited number of QIBs pursuant to an exemption from registration
under the Securities Act in a transaction not involving any public
offering.
The relevant clearances have not been, nor will they be,
obtained from the securities commission of any province or
territory of Canada, no prospectus has been lodged with, or
registered by, the Australian Securities and Investments Commission
or the Japanese Ministry of Finance; the relevant clearances have
not been, and will not be, obtained for the South Africa Reserve
Bank or any other applicable body in the Republic of South Africa
in relation to the Placing Shares and the Placing Shares have not
been, nor will they be, registered under or offering in compliance
with the securities laws of any state, province or territory of
Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or the
Republic of South Africa. Accordingly, the Placing Shares may not
(unless an exemption under the relevant securities laws is
applicable) be offered, sold, resold or delivered, directly or
indirectly, in or into Australia, Canada, Hong Kong, Japan, New
Zealand, Singapore or the Republic of South Africa.
Persons (including, without limitation, nominees and trustees)
who have a contractual right or other legal obligations to forward
a copy of this Announcement should seek appropriate advice before
taking any action.
This Announcement should be read in its entirety. In particular,
you should read and understand the information provided in this
Appendix.
By participating in the Placing, each person who is invited to
and who chooses to participate in the Placing, by making an oral or
written offer to acquire Placing Shares, including any individuals,
funds or others on whose behalf a commitment to acquire Placing
Shares is given (a "Placee"), will be deemed to have read and
understood this Announcement in its entirety and to be making such
offer on the terms and conditions, and to be providing the
representations, warranties, indemnities, acknowledgements and
undertakings contained in this Appendix.
In particular, each such Placee represents, warrants,
undertakes, agrees and acknowledges (amongst other things)
that:
1. it is a Relevant Person (as defined above) and undertakes
that it will acquire, hold, manage or dispose of any Placing Shares
that are allocated to it for the purposes of its business;
2. it is acquiring the Placing Shares for its own account or for
an account with respect to which it exercises sole investment
discretion and has the authority to make and does make the
representations, warranties, indemnities, acknowledgements,
undertakings and agreements contained in this Announcement
(including this Appendix); and
3. if it is in a member state of the EEA and/or if it is a
financial intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, that any Placing Shares acquired by it in the
Placing will not be acquired on a non-discretionary basis on behalf
of, nor will they be acquired with a view to their offer or resale
to, persons in circumstances which may give rise to an offer of
securities to the public other than an offer or resale in a member
state of the EEA which has implemented the Prospectus Directive to
Qualified Investors, or in circumstances in which the prior consent
of Ultra has been given to each such proposed offer or resale;
4. it understands (or if acting for the account of another
person, such person has confirmed that such person understands) the
resale and transfer restrictions set out in this Appendix;
5. it acknowledges that the Placing Shares have not been and
will not be registered under the Securities Act or with any
securities regulatory authority of any state or other jurisdiction
of the United States and may not be offered, sold or transferred,
directly or indirectly, within the United States except pursuant to
an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and in compliance
with any applicable securities laws of any state or other
jurisdiction of the United States;
6. except for a limited number of QIBs as defined in Rule 144A
under the Securities Act ("Rule 144A") who have executed and
delivered to Ultra and Investec a US investor letter substantially
in the form provided to it, (i) it and the person(s), if any, for
whose account or benefit it is acquiring the Placing Shares are
purchasing the Placing Shares in an "offshore transaction" as
defined in Regulation S under the Securities Act; (ii) it is aware
of the restrictions on the offer and sale of the Placing Shares
pursuant to Regulation S; and (iii) the Placing Shares have not
been offered to it by means of any "directed selling efforts" as
defined in Regulation S;
7. Ultra and Investec will rely on the truth and accuracy of the
foregoing representations, acknowledgements and agreements.
No prospectus
No offering document or prospectus has been or will be submitted
to be approved by the Financial Conduct Authority ("FCA") in
relation to the Placing.
Placees' commitments will be made solely on the basis of the
information contained in this Announcement. Each Placee, by
accepting a participation in the Placing, agrees that the content
of this Announcement and all other publicly available information
previously or simultaneously published by Ultra by notification to
a Regulatory Information Service or otherwise filed by Ultra is
exclusively the responsibility of Ultra and confirms that it has
neither received nor relied on any other information,
representation, warranty or statement made by or on behalf of Ultra
or Investec or any other person and none of Investec or Ultra nor
any other person will be liable for any Placee's decision to
participate in the Placing based on any other information,
representation, warranty or statement which the Placees may have
obtained or received. Each Placee acknowledges and agrees that it
has relied on its own investigation of the business, financial or
other position of Ultra in accepting a participation in the
Placing. Nothing in this paragraph shall exclude the liability of
any person for fraudulent misrepresentation.
Details of the Placing Agreement and the Placing Shares
Investec has today entered into a placing agreement (the
"Placing Agreement") with Ultra under which, on the terms and
subject to the conditions set out in the Placing Agreement,
Investec has agreed as agent for and on behalf of Ultra to use its
reasonable endeavours to procure Placees to take up the Placing
Shares at a price of 1,950 pence per share (the "Placing Price")
or, failing which, itself to subscribe for such Placing Shares at
the Placing Price on the date on which the transactions effected by
the Placing Agreement will be settled (the "Closing Date").
The Placing Shares will, when issued, be subject to the Articles
of Association and credited as fully paid and will rank pari passu
in all respects with the existing issued ordinary shares of Ultra
("Ordinary Shares"), including the right to receive all dividends
and other distributions declared, made or paid after the date of
issue.
As part of the Placing, Ultra has agreed that it will not offer,
issue, sell, contract to sell, grant options in respect of or
otherwise dispose of any Ordinary Shares (or any interest therein
or in respect thereof) or any other securities exchangeable for, or
convertible into, or substantially similar to, Ordinary Shares or
enter into any transaction having substantially the same effect or
agree to do any of the foregoing (i) for a period of 180 calendar
days from the date of Admission other than with the prior written
consent of Investec (acting in good faith) and (ii) for a period of
45 calendar days from the date of Completion without first having
consulted with Investec (to the extent practicable).
Application for admission to trading
Application will be made to the FCA for admission of the Placing
Shares to the premium listing segment of the Official List of the
UK Listing Authority and to the London Stock Exchange for admission
to trading of the Placing Shares on its main market for listed
securities ("Admission").
It is expected that Admission of the Placing Shares will become
effective at or around 8.00 a.m. on 11 July 2017 and that dealings
in the Placing Shares will commence at that time.
Participation in, and principal terms of, the Placing
1. Investec is acting as sole bookrunner and underwriter to the
Placing as agent for and on behalf of Ultra. Investec is authorised
in the United Kingdom by the Prudential Regulation Authority
("PRA") and regulated by the FCA and the PRA, is acting exclusively
for Ultra and no one else in connection with the matters referred
to in this Announcement and will not be responsible to anyone other
than Ultra for providing the protections afforded to the customers
of Investec or for providing advice in relation to the matters
described in this Announcement.
2. Participation in the Placing will only be available to
persons who may lawfully be, and are, invited to participate by
Investec. Investec and its affiliates are entitled to participate
in the Placing as principal.
3. The price per Placing Share (the "Placing Price") is fixed at
1,950 pence and is payable to Investec (as agent for Ultra) by all
Placees.
4. Each Placee's allocation is determined by Investec in its
discretion following consultation with Ultra and has been or will
be confirmed orally to such Placee by Investec, as agent for Ultra
("Oral Confirmation") and a contract note will be dispatched as
soon as possible thereafter. The Oral Confirmation will give rise
to an irrevocable, legally binding commitment by that person (who
at that point will become a Placee) in favour of Ultra and Investec
to acquire the number of Placing Shares allocated to it at the
Placing Price and on the terms and subject to the conditions set
out in this Appendix and in accordance with Ultra's articles of
association. Except with Investec's consent, such commitment will
not be capable of variation or revocation after the time at which
it is submitted.
5. Each Placee's allocation and commitment will be evidenced by
a contract note issued to such Placee by Investec which will
confirm the number of Placing Shares allocated, the Placing Price
and the aggregate amount owed by such Placee to Investec. The terms
of this Appendix will be deemed incorporated in that contract
note.
6. Each Placee will also have an immediate, separate,
irrevocable and binding obligation, owed to Investec (as agent for
Ultra), to pay on Admission to Investec (or as it may direct) in
cleared funds an amount equal to the product of the Placing Price
and the number of Placing Shares such Placee has agreed to acquire
and Ultra has agreed to allot and issue to that Placee.
7. Irrespective of the time at which a Placee's allocation(s)
pursuant to the Placing is/are confirmed, settlement for all
Placing Shares to be acquired pursuant to the Placing will be
required to be made at the same time, on the basis explained below
under "Registration and Settlement".
8. All obligations under the Placing will be subject to
fulfilment or (where applicable) waiver of the conditions referred
to below under "Conditions of the Placing" and to the Placing not
being terminated on the basis referred to below under "Right to
terminate under the Placing Agreement".
9. By participating in the Placing, each Placee will agree that
its rights and obligations in respect of the Placing will terminate
only in the circumstances described below and will not be capable
of rescission or termination by the Placee after confirmation (oral
or otherwise) by Investec.
10. To the fullest extent permissible by law and applicable FCA
rules, neither Ultra, Investec nor any of their respective
affiliates, agents, directors, officers, consultants nor in respect
of Investec only, any other person connected with Investec as
defined in FSMA, shall have any responsibility or liability
(whether in contract, tort or otherwise and including to the extent
permissible by law, any fiduciary duties) to Placees (or to any
other person whether acting on behalf of a Placee or otherwise). In
particular, neither Ultra, Investec nor any of their respective
affiliates shall have any responsibility or liability (whether in
contract, tort or otherwise and including, to the extent
permissible by law, any fiduciary duties) in respect of Investec's
conduct of the Placing or of such alternative method of effecting
the Placing as Investec and Ultra may agree.
Registration and Settlement
Settlement of transactions in the Placing Shares (ISIN:
GB0009123323) following Admission will take place within the CREST
system. Subject to certain exceptions, Investec and Ultra reserve
the right to require settlement for and delivery of the Placing
Shares to Placees by such other means that they deem necessary if
delivery or settlement to Placees is not practicable within the
CREST system within the timetable set out in this Announcement or
would not be consistent with regulatory requirements in a Placee's
jurisdiction.
Following close of the Placing, each Placee allocated Placing
Shares will be sent a contract note in accordance with the standing
arrangements in place with Investec, stating the number of Placing
Shares allocated to it at the Placing Price, the aggregate amount
owed by such Placee to Investec and settlement instructions.
Each Placee will be deemed to agree that it will do all things
necessary to ensure that delivery and payment is completed as
directed by Investec in accordance with either the standing CREST
or certificated settlement instructions in respect of the Placing
Shares that it has in place with Investec.
Interest is chargeable daily on payments not received from
Placees on the due date in accordance with the arrangements set out
above, in respect of either CREST or certificated deliveries, at
the rate of 2 percentage points above prevailing LIBOR as
determined by Investec.
Each Placee is deemed to agree that, if it does not comply with
these obligations, Investec may sell any or all of the Placing
Shares allocated to that Placee on such Placee's behalf and retain
from the proceeds, for the account and benefit of Investec, an
amount equal to the aggregate amount owed by the Placee plus any
interest due. The relevant Placee will, however, remain liable for
any shortfall below the aggregate amount owed by it and may be
required to bear any stamp duty or stamp duty reserve tax (together
with any interest or penalties) which may arise upon the sale of
their Placing Shares on such Placee's behalf.
If Placing Shares are to be delivered to a custodian or
settlement agent, Placees must ensure that, upon receipt, the
conditional contract note is copied and delivered immediately to
the relevant person within that organisation.
Insofar as Placing Shares are registered in a Placee's name or
that of its nominee or in the name of any person for whom a Placee
is contracting as agent or that of a nominee for such person, such
Placing Shares should, subject as provided below, be so registered
free from any liability to United Kingdom stamp duty or stamp duty
reserve tax.
Placees will not be entitled to receive any fee or commission in
connection with the Placing.
Conditions of the Placing
The Placing is conditional upon the Placing Agreement becoming
unconditional and not having been terminated in accordance with its
terms.
The obligations of Investec under the Placing Agreement are, and
the Placing is, conditional on customary terms and conditions,
including among others:
(a) in the opinion of Investec (acting in good faith), no
Material Adverse Effect having occurred or having been made public
since the execution of the Placing Agreement as a result of which
Investec considers (acting in good faith) it to be impracticable,
inappropriate or inadvisable to proceed with the Placing;
(b) Ultra allotting, subject to Admission, the Placing Shares in
accordance with the Placing Agreement;
(c) the execution of the Merger Agreement by the parties thereto
and the Merger Agreement not having lapsed or been terminated or
rescinded, no condition thereto having become incapable of
satisfaction and no event having arisen which gives any party to
the Merger Agreement a right to terminate it, in each case prior to
Admission;
(d) publication by Ultra of the Placing Results Announcement
through a Regulatory Information Service by 7.30 a.m. (London time)
on the Business Day following the date of the Placing
Agreement;
(e) Admission having occurred by 8.00 a.m. (London time) on 11
July 2017 (or such later date as Investec and Ultra may agree).
If (i) any of the conditions set out in the Placing Agreement
are not fulfilled or (where applicable) waived by Investec by the
required time(s) (or such later time and/or date as Ultra and
Investec may agree) or (ii) any such condition becomes incapable of
being satisfied or (iii) the Placing Agreement is terminated in the
circumstances specified below under "Right to terminate under the
Placing Agreement", the Placing will lapse and the Placee's rights
and obligations shall cease and terminate at such time and each
Placee agrees that no claim can be made by or on behalf of the
Placee (or any person on whose behalf the Placee is acting) in
respect thereof.
By participating in the Placing, each Placee agrees that its
rights and obligations cease and terminate only in the
circumstances described above and under "Right to terminate under
the Placing Agreement below" below and will not be capable of
rescission or termination by it.
Certain conditions may be waived in whole or in part by
Investec, in its absolute discretion and upon such terms as it
considers appropriate by notice in writing to Ultra and Investec
may also agree in writing with Ultra to extend the time for
satisfaction of any condition save that conditions (b), (c), (d)
and (e) above may not be waived. Any such extension or waiver will
not affect Placees' commitments as set out in this
Announcement.
None of Investec, Ultra nor any of their respective affiliates,
agents, directors, officers or employees shall have any liability
to any Placee (or to any other person whether acting on behalf of a
Placee or otherwise) in respect of any decision any of them may
make as to whether or not to waive or to extend the time and/or
date for the satisfaction of any condition to the Placing nor for
any decision any of them may make as to the satisfaction of any
condition or in respect of the Placing generally and by
participating in the Placing each Placee agrees that any such
decision is within the absolute discretion of Investec.
Right to terminate under the Placing Agreement
Investec may terminate the Placing Agreement, in accordance with
its terms, at any time prior to Admission if, among other
things:
(a) any of the conditions in the Placing Agreement have not been
satisfied or (to the extent capable of being waived) waived in
accordance with the terms of the Placing Agreement by the required
time(s) (if any) or have become incapable of satisfaction;
(b) any of the warranties given by Ultra contained in the
Placing Agreement are not true, accurate and not misleading in any
respect at the date of the Placing Agreement and at Admission, in
each case by reference to the facts and circumstances then
existing;
(c) in the opinion of Investec, any matter has arisen which may
adversely affect its ability to perform its functions under Chapter
8 of the Listing Rules;
(d) there has been any failure by Ultra to perform any of the
undertakings or agreements in the Placing Agreement (save in any
respect that Investec (acting in good faith) determines not to be
material in the context of the Placing);
(e) any statement contained in any document or announcement
issued or published by or on behalf of Ultra in connection with the
Placing (the "Placing Documents") is or has become untrue,
incorrect or misleading in any respect, or any matter has arisen,
which would, if the Placing were made at that time, constitute an
omission from the Placing Documents or an omission from or
inaccuracy in certain publicly available information of Ultra (as
specified in the Placing Agreement), or any of them, and which (in
each case) Investec (acting in good faith) considers to be material
in the context of the Placing or the underwriting of the Placing
Shares, Admission or any of the transactions contemplated by the
Placing Agreement;
(f) there has occurred (a) any material adverse change in the
financial markets in the United States or the United Kingdom or in
the international financial markets, (b) any outbreak or escalation
of hostilities, act of terrorism or other calamity or crisis, which
(in each case) is material, or (c) any change or development
involving a prospective material adverse change in US, UK or
international political, financial or economic conditions, or
relevant currency exchange rates, in each case the effect of which
is such as to make it, in the judgement of Investec (acting in good
faith), impracticable or inadvisable to proceed with the
Placing
(g) if admission to listing or trading of the Ordinary Shares on
the London Stock Exchange has been withdrawn, or the listing or
trading in any Ordinary Shares has been suspended or materially
limited by the UK Listing Authority or the London Stock Exchange,
or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the regulatory
authorities of the United Kingdom or any other governmental or
self-regulatory authority with jurisdiction, or a material
disruption has occurred in commercial banking or share settlement
or clearance services in the United Kingdom or the United States;
or
(h) if a banking moratorium has been declared by the authorities
of any of the United States or the United Kingdom.
If the Placing Agreement is terminated in accordance with its
terms, the rights and obligations of each Placee in respect of the
Placing as described in this Announcement shall cease and terminate
at such time and no claim can be made by any Placee in respect
thereof.
By participating in the Placing, each Placee agrees with Ultra
and Investec that the exercise by Ultra or Investec of any right of
termination or any other right or other discretion under the
Placing Agreement shall be within the absolute discretion of Ultra
or Investec and that neither of Ultra nor Investec need make any
reference to such Placee and that none of Investec, Ultra, or any
of their respective affiliates, agents, directors, officers or
employees shall have any liability to such Placee (or to any other
person whether acting on behalf of a Placee or otherwise)
whatsoever in connection with any such exercise.
By participating in the Placing, each Placee agrees that its
rights and obligations terminate only in the circumstances referred
to above and under the "Conditions of the Placing" section above
and will not be capable of rescission or termination by it after
the issue by Investec of a contract note confirming each Placee's
allocation and commitment in the Placing.
Representations, warranties and further terms
By participating in the Placing, each Placee (and any person
acting on such Placee's behalf) irrevocably acknowledges, confirms,
undertakes, represents, warrants and agrees (for itself and for any
such prospective Placee and in each case as a fundamental term of
their application for Placing as set out below) that:
1. it has read and understood this Announcement (including the
Appendix) in its entirety and that its acquisition of the Placing
Shares is subject to and based upon all the terms, conditions,
representations, warranties, indemnities, acknowledgements,
agreements and undertakings and other information contained herein
and that it has not relied on, and will not rely on, any
information given or any representations, warranties or statements
made at any time by any person in connection with Admission, the
Placing, Ultra, the Placing Shares or otherwise, other than the
information contained in this Announcement or any information
publicly announced to a Regulatory Information Service by or on
behalf of Ultra prior to the date of this Announcement (the
"Publicly Available Information");
2. no offering document or prospectus has been prepared in
connection with the Placing and represents and warrants that it has
not received a prospectus or other offering document in connection
herewith;
3. the Ordinary Shares are listed on the premium listing segment
of the Official List of the UK Listing Authority and admitted to
trading on the main market of the London Stock Exchange, and that
Ultra is therefore required to publish certain business and
financial information in accordance with the rules and practices of
the FCA Rules, which includes a description of the nature of
Ultra's business and Ultra's most recent balance sheet and profit
and loss account and that it is able to obtain or access such
information without undue difficulty, and is able to obtain access
to such information or comparable information concerning any other
publicly traded company, without undue difficulty;
4. it has made its own assessment of the Placing Shares and has
relied on its own investigation of the business, financial or other
position of Ultra in accepting a participation in the Placing and
none of Investec, Ultra or any of their respective affiliates,
agents, directors, officers or employees or any person acting on
behalf of any of them has provided, and will not provide, it with
any material regarding the Placing Shares or Ultra or any other
person other than the information in this Announcement, or any
Publicly Available Information; nor has it requested Investec,
Ultra, any of their respective affiliates, agents, directors,
officers or employees or any person acting on behalf of any of them
to provide it with any such information;
5. none of Investec, Ultra or any of their respective
affiliates, agents, directors, officers or employees or any person
acting on behalf of any of them has provided, nor will provide it,
with any material regarding the Placing Shares or Ultra other than
this Announcement; nor has it requested Investec, Ultra, any of
their respective affiliates, agents, directors, officers or
employees or any person acting on behalf of any of them to provide
it with any such information;
6. (a) the only information on which it is entitled to rely on
and on which such Placee has relied in committing itself to acquire
Placing Shares is contained in this Announcement and in any
Publicly Available Information, such information being all that
such Placee deems necessary to make an investment decision in
respect of the Placing Shares (b) none of Investec, Ultra or any of
their respective affiliates, agents, directors, officers or
employees has made any representation or warranty to it, express or
implied, with respect to Ultra, the Placing or the Placing Shares
or the accuracy, completeness or adequacy of any Publicly Available
Information; (c) it has conducted its own investigation of Ultra,
the Placing and the Placing Shares, satisfied itself that the
information is still current and relied on that investigation for
the purposes of its decision to participate in the Placing; and (d)
has not relied on any investigation that Investec or any person
acting on its behalf may have conducted with respect to Ultra, the
Placing or the Placing Shares;
7. the content of this Announcement is exclusively the
responsibility of Ultra and that neither Investec nor any persons
acting on its behalf is responsible for or has or shall have any
liability for any information, representation, warranty or
statement relating to Ultra contained in this Announcement or any
Publicly Available Information nor will they be liable for any
Placee's decision to participate in the Placing based on any
information, representation, warranty or statement contained in
this Announcement or otherwise. None of Investec, Ultra or any of
their respective affiliates, agents, directors, officers or
employees has made any representation or warranty to it, express or
implied, with respect to Ultra, the Placing Shares or the accuracy,
completeness or adequacy of any Publicly Available Information or
any other information. Nothing in this Appendix shall exclude any
liability of any person for fraudulent misrepresentation;
8. it and/or each person on whose behalf it is participating:
a) is entitled to acquire the Placing Shares under the laws and regulations of all relevant jurisdictions;
b) has fully observed such laws and regulations;
c) has capacity and authority and is entitled to enter into and
perform its obligations as an acquirer of Placing Shares and will
honour such obligations; and
d) has obtained all necessary consents and authorities
(including, without limitation, in the case of a person acting on
behalf of a Placee, all necessary consents and authorities to agree
to the terms set out or referred to in this Appendix) under those
laws or otherwise and complied with all necessary formalities to
enable it to enter into the transactions contemplated hereby and to
perform its obligations in relation thereto and, in particular, if
it is a pension fund or investment company it is aware of and
acknowledges it is required to comply with all applicable laws and
regulations with respect to its subscription for Placing
Shares;
9. with respect to any Placing Shares offered to or purchased by
it in the United States or for and on behalf of persons in the
United States, it understands and agrees: (1) that it is a QIB
within the meaning of Rule 144A under the U.S. Securities Act of
1933, as amended (the "Securities Act"); (2) that the Placing
Shares are being offered and sold to it in accordance with the
exemption from registration under the Securities Act for
transactions by an issuer not involving a public offering of
securities in the United States and that the Placing Shares have
not been, and will not be, registered under the Securities Act or
with any State or other jurisdiction of the United States; (3) that
the Placing Shares may not be reoffered, resold, pledged or
otherwise transferred by it except (a) outside the United States in
an offshore transaction pursuant to Rule 903 or Rule 904 of
Regulation S under the Securities Act ("Regulation S"), (b) in the
United States to a person whom the seller reasonably believes is a
QIB to whom notice is given that the offer, sale or transfer is
being made in reliance on Rule 144A, pursuant to Rule 144A under
the Securities Act, (c) pursuant to Rule 144 under the Securities
Act (if available), (d) to Ultra, (e) pursuant to an effective
registration statement under the Securities Act, or (f) pursuant to
another available exemption, if any, from registration under the
Securities Act, in each case in compliance with all applicable
laws; (4) that the Placing Shares are "restricted securities" as
defined in Rule 144(a)(3) under the Securities Act; (5) to notify
any transferee to whom it subsequently reoffers, resells, pledges
or otherwise transfers the Placing Shares of the foregoing
restrictions on transfer; (6) for so long as the Placing Shares are
"restricted securities" (within the meaning of Rule 144(a)(3) under
the Securities Act), it will segregate such Placing Shares from any
other shares that it holds that are not restricted securities,
shall not deposit such shares in any depositary facility
established or maintained by a depositary bank and will only
transfer such Placing Shares in accordance with this paragraph; (7)
if it is acquiring the Placing Shares as a fiduciary or agent for
one or more investor accounts, each such account is a QIB, it has
sole investment discretion with respect to each such account and it
has full power and authority to make the acknowledgements,
representations, warranties and agreements herein on behalf of each
such account; (8) it is acquiring such Placing Shares for its own
account (or the account of a QIB as to which it has sole investment
discretion) for investment purposes and (subject to the disposition
of its property being at all times within its control) not with a
view to any distribution of the Placing Shares; and (9) that no
representation has been made as to the availability of the
exemption provided by Rule 144 or any other exemption under the
Securities Act for the reoffer, resale, pledge or transfer of the
Placing Shares;
10. it understands, and each account it represents has been
advised that, (i) the Placing Shares have not been and will not be
registered under the Securities Act or under the applicable
securities laws of any state or other jurisdiction of the United
States; (ii) the Placing Shares are being offered and sold only (a)
to persons reasonably believed to be QIBs in transactions exempt
from, the registration requirements of the Securities Act or (b) in
"offshore transactions" within the meaning of and pursuant to
Regulation S under the Securities Act; and (iii) no representation
has been made as to the availability of any exemption under the
Securities Act or any relevant state or other jurisdiction's
securities laws for the reoffer, resale, pledge or transfer of the
Placing Shares;
11. it (and any account for which it is purchasing) is not
acquiring the Placing Shares with a view to any offer, sale or
distribution thereof within the meaning of the Securities Act;
12. if it is a person in a member state of the EEA, it is a
"qualified investor" (as defined in the Prospectus Directive in a
member state of the EEA (each, a "Relevant Member State") that has
implemented the Prospectus Directive and, to the extent applicable,
any funds on behalf of which it is acquiring the Placing Shares
that are located in a Relevant Member State are each such a
qualified investor. For these purposes, the expression "Prospectus
Directive" means Directive 2003/71/EC (and amendments thereto,
including the 2010 PD Amending Directive, to the extent implemented
in the Relevant Member State), and includes any relevant
implementing measure in the Relevant Member State and the
expression "2010 PD Amending Directive" means Directive
2010/73/EU;
13. it is not, and any person who it is acting on behalf of is
not, and at the time the Placing Shares are acquired will not be, a
resident of, or with an address in, or subject to the laws of,
Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or the
Republic of South Africa, and it acknowledges and agrees that the
Placing Shares have not been and will not be registered or
otherwise qualified under the securities legislation of Australia,
Canada, Hong Kong, Japan, New Zealand, Singapore or the Republic of
South Africa and may not be offered, sold, or acquired, directly or
indirectly, within those jurisdictions;
14. it will not distribute, forward, transfer or otherwise
transmit this Announcement or any part of it, or any other
presentational or other materials concerning the Placing in or into
or from the United States (including electronic copies thereof) to
any person, and it has not distributed, forwarded, transferred or
otherwise transmitted any such materials to any person;
15. neither Investec, nor its affiliates, agents, directors,
officers or employees and any person acting on behalf of any of
them is making any recommendations to it, advising it regarding the
suitability of any transactions it may enter into in connection
with the Placing and that participation in the Placing is on the
basis that it is not and will not be a client of Investec and
Investec has no duties or responsibilities to it for providing the
protections afforded to its clients or for providing advice in
relation to the Placing nor in respect of any representations,
warranties, undertakings or indemnities contained in the Placing
Agreement nor for the exercise or performance of any of its rights
and obligations thereunder including any rights to waive or vary
any conditions or exercise any termination right;
16. it (and any person acting on its behalf) will make payment
to Investec in respect of the Placing Shares allocated to it in
accordance with this Appendix on the due time and date set out
herein, failing which the relevant Placing Shares may be placed
with others on such terms as Investec may, in its absolute
discretion, determine without liability to such Placee, who will
remain liable for any amount by which the net proceeds of such sale
falls short of the product of the Placing Price and the number of
Placing Shares allocated to it and may be required to bear any
stamp duty, stamp duty reserve tax or other similar taxes (together
with any interest or penalties) which may arise upon the sale of
such Placee's Placing Shares;
17. no action has been or will be taken by any of Ultra,
Investec or any person acting on their behalf that would, or is
intended to, permit a public offer of the Placing Shares in the
United States or in any country or jurisdiction where any such
action for that purpose is required;
18. the person whom it specifies for registration as holder of
the Placing Shares will be: (a) itself; or (b) its nominee, as the
case may be. Neither Investec nor Ultra will be responsible for any
liability to stamp duty or stamp duty reserve tax resulting from a
failure to observe this requirement ("Indemnified Taxes"). Each
Placee and any person acting on behalf of such Placee agrees to
participate in the Placing and it agrees to indemnify Ultra and
Investec on an after-tax basis in respect of any Indemnified
Taxes;
19. it is acting as principal only in respect of the Placing or,
if it is acting for any other person, (a) it is duly authorised to
do so and has full power to make the acknowledgments,
representations and agreements herein on behalf of each such person
and (b) it is and will remain liable to Ultra and Investec for the
performance of all its obligations as a Placee in respect of the
Placing (regardless of the fact that it is acting for another
person);
20. the allocation, allotment, issue and delivery to it, or the
person specified by it for registration as holder, of Placing
Shares will not give rise to a liability under any of sections 67,
70, 93 or 96 of the Finance Act 1986 (depository receipts and
clearance services) and that it is not participating in the Placing
as nominee or agent for any person or persons to whom the
allocation, allotment, issue or delivery of Placing Shares would
give rise to such a liability and that the Placing Shares are not
being acquired in connection with arrangements to issue depositary
receipts or to issue or transfer Placing Shares into a clearance
service;
21. it and any person acting on its behalf (if within the United
Kingdom) falls within Article 19(5) and/or 49(2) of the Order and
undertakes that it will acquire, hold, manage and (if applicable)
dispose of any Placing Shares that are allocated to it for the
purposes of its business only;
22. it has not offered or sold and will not offer or sell any
Placing Shares to persons in the United Kingdom prior to the expiry
of a period of six months from Admission except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes
of their business or otherwise in circumstances which have not
resulted and which will not result in an offer to the public in the
United Kingdom within the meaning of section 85(1) of FSMA;
23. if in the United Kingdom, that it is a person (i) who has
professional experience in matters relating to investments falling
within Article 19(5) of the Order, (ii) falling within Article
49(2)(A) to (D) ("High Net Worth Companies, Unincorporated
Associations, etc") of the Order, or (iii) to whom this
Announcement may otherwise be lawfully communicated;
24. it has not offered or sold and will not offer or sell any
Placing Shares to persons in the EEA prior to the expiry of a
period of six months from Admission except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes
of their business or otherwise in circumstances which have not
resulted and which will not result in an offer to the public in the
EEA within the meaning of the Prospectus Directive;
25. it has only communicated or caused to be communicated and it
will only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of FSMA) relating to Placing Shares in circumstances in
which section 21(1) of FSMA does not require approval of the
communication by an authorised person and it acknowledges and
agrees that Investec has not approved this Announcement in its
capacity as authorised person under section 21 of FSMA and it may
not therefore be subject to the controls which would apply if it
were made or approved as financial promotion by an authorised
person;
26. it has complied and it will comply with all applicable laws
with respect to anything done by it or on its behalf in relation to
the Placing Shares (including all relevant provisions of FSMA in
respect of anything done by it in, from or otherwise involving, the
United Kingdom);
27. if it is a financial intermediary, as that term is used in
Article 3(2) of the Prospectus Directive (including any relevant
implementing measure in any member state), the Placing Shares
acquired by it in the Placing will not be acquired on a
non-discretionary basis on behalf of, nor will they be acquired
with a view to their offer or resale to, persons in a member state
of the EEA which has implemented the Prospectus Directive other
than Qualified Investors, or in circumstances in which the express
prior written consent of Investec has been given to the offer or
resale;
28. it has neither received nor relied on any confidential price
sensitive information concerning Ultra in accepting this invitation
to participate in the Placing and it is not purchasing Placing
Shares on the basis of such information ;
29. none of Investec, its affiliates, or any person acting on
behalf of any of them has or shall have any liability for any
information, representation or statement contained in this
Announcement or for any information previously published by or on
behalf of Ultra or any other written or oral information made
available to or filed information or any representation, warranty
or undertaking relating to Ultra, and will not be liable for its
decision to participate in the Placing based on any information,
representation, warranty or statement contained in this
Announcement or elsewhere, provided that nothing in this paragraph
shall exclude any liability of any person for fraud;
30. none of (i) Investec, its affiliates, or any person acting
on behalf of any of them, or (ii) Ultra, its affiliates or any
person, or any person acting on behalf of any of them is making any
recommendations to it, advising it regarding the suitability of any
transactions it may enter into in connection with the Placing nor
providing advice in relation to the Placing nor in respect of any
representations, warranties, acknowledgements, agreements,
undertakings, or indemnities contained in the Placing Agreement nor
the exercise or performance of Investec's rights and obligations
thereunder including any rights to waive or vary any conditions or
exercise any termination right;
31. Investec may, in accordance with applicable legal and
regulatory provisions, engage in transactions in relation to the
Placing Shares and/or related instruments for their own account for
the purpose of hedging their underwriting exposure or otherwise
and, except as required by applicable law or regulation, Investec
will not make any public disclosure in relation to such
transactions;
32. Investec and each of its respective affiliates, each acting
as an investor for its or their own account(s), may bid or
subscribe for and/or purchase Placing Shares and, in that capacity,
may retain, purchase, offer to sell or otherwise deal for its or
their own account(s) in the Placing Shares, any other securities of
Ultra or other related investments in connection with the Placing
or otherwise. Accordingly, references in this Announcement to the
Placing Shares being offered, subscribed, acquired or otherwise
dealt with should be read as including any offer to, or
subscription, acquisition or dealing by Investec and/or any of its
respective affiliates, acting as an investor for its or their own
account(s). Neither Investec nor Ultra intend to disclose the
extent of any such investment or transaction otherwise than in
accordance with any legal or regulatory obligation to do so;
33. it has complied with its obligations in connection with
money laundering and terrorist financing under the Proceeds of
Crime Act 2002, the Terrorism Act 2000, the Terrorism Act 2006 and
the Money Laundering Regulations 2007 (together, the "Regulations")
and, if making payment on behalf of a third party, that
satisfactory evidence has been obtained and recorded by it to
verify the identity of the third party as required by the
Regulations;
34. it is aware of the obligations regarding insider dealing in
the Criminal Justice Act 1993, section 118 of FSMA, and in
connection with money laundering and terrorist financing under the
Proceeds of Crime Act 2002 (as amended), the Terrorism Act 2000,
the Terrorism Act 2006, the Money Laundering Regulations 2007 (the
"Regulations") and the Money Laundering Sourcebook of the FCA and
confirms that it has and will continue to comply with those
obligations and, if making payment on behalf of a third party, that
satisfactory evidence has been obtained and recorded by it to
verify the identity of the third party as required by the
Regulations;
35. in order to ensure compliance with the Money Laundering
Regulations 2007, Investec (for itself and as agent on behalf of
Ultra) or Ultra's registrars may, in their absolute discretion,
require verification of its identity. Pending the provision to
Investec or Ultra's registrars, as applicable, of evidence of
identity, definitive certificates in respect of the Placing Shares
may be retained at Investec's absolute discretion or, where
appropriate, delivery of the Placing Shares to it in uncertificated
form may be delayed at Investec or Ultra's registrars', as the case
may be, absolute discretion. If, within a reasonable time after a
request for verification of identity, Investec (each for itself and
as agent on behalf of Ultra) or Ultra's registrars have not
received evidence satisfactory to them, Investec and/or Ultra may,
at its absolute discretion, terminate its commitment in respect of
the Placing, in which event the monies payable on acceptance of
allotment will, if already paid, be returned without interest to
the account of the drawee's bank from which they were originally
debited;
36. acknowledges that its commitment to acquire Placing Shares
on the terms set out in this Announcement and in the contract note
will continue notwithstanding any amendment that may in future be
made to the terms and conditions of the Placing and that Placees
will have no right to be consulted or require that their consent be
obtained with respect to Ultra's or Investec's conduct of the
Placing;
37. it has knowledge and experience in financial, business and
international investment matters as is required to evaluate the
merits and risks of subscribing for the Placing Shares. It further
acknowledges that it is experienced in investing in securities of
this nature and is aware that it may be required to bear, and is
able to bear, the economic risk of, and is able to sustain, a
complete loss in connection with the Placing. It has relied upon
its own examination and due diligence of Ultra and its affiliates
taken as a whole, and the terms of the Placing, including the
merits and risks involved;
38. it irrevocably appoints any duly authorised officer of
Investec as its agent for the purpose of executing and delivering
to Ultra and/or its registrars any documents on its behalf
necessary to enable it to be registered as the holder of any of the
Placing Shares agreed to be taken up by it under the Placing;
39. Ultra, Investec and others (including each of their
respective affiliates, agents, directors, officers or employees)
will rely upon the truth and accuracy of the foregoing
representations, warranties, acknowledgements, agreements and
undertakings, which are given to Ultra and Investec on its own
behalf and on behalf of Ultra and are irrevocable;
40. if it is acquiring the Placing Shares as a fiduciary or
agent for one or more investor accounts, it has full power and
authority to make, and does make, the foregoing representations,
warranties, acknowledgements, agreements and undertakings on behalf
of each such accounts;
41. time is of the essence as regards its obligations under this Appendix;
42. any document that is to be sent to it in connection with the
Placing will be sent at its risk and may be sent to it at any
address provided by it to Investec;
43. the Placing Shares will be issued subject to the terms and
conditions of this Appendix; and
44. that any agreements entered into by it pursuant to these terms and conditions, and all non-contractual or other obligations arising out or in connection with them, shall be governed by and construed in accordance with English law and it submits (on behalf of itself and on behalf of any person on whose behalf it is acting) to the exclusive jurisdiction of the English courts in relation to any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest chargeable thereon) may be taken by Ultra or Investec in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognised stock exchange.
By participating in the Placing, each Placee (and any person
acting on such Placee's behalf) agrees to indemnify and hold Ultra,
Investec and each of their respective affiliates, agents,
directors, officers and employees harmless from any and all costs,
claims, liabilities and expenses (including legal fees and
expenses) arising out of or in connection with any breach of the
representations, warranties, acknowledgements, agreements and
undertakings given by the Placee (and any person acting on such
Placee's behalf) in this Appendix or incurred by Investec, Ultra or
each of their respective affiliates, agents, directors, officers or
employees arising from the performance of the Placee's obligations
as set out in this Announcement, and further agrees that the
provisions of this Appendix shall survive after the completion of
the Placing.
The agreement to allot and issue Placing Shares to Placees (or
the persons for whom Placees are contracting as agent) free of
stamp duty and stamp duty reserve tax in the United Kingdom relates
only to their allotment and issue to Placees, or such persons as
they nominate as their agents, direct from Ultra. Such agreement is
subject to the representations, warranties and further terms above
and assumes that the Placing Shares are not being acquired in
connection with arrangements to issue depositary receipts or to
transfer the Placing Shares into a clearance service. If there are
any such arrangements, or the settlement related to any other
dealings in the Placing Shares, stamp duty or stamp duty reserve
tax may be payable. In that event, the Placee agrees that it shall
be responsible for such stamp duty or stamp duty reserve tax and
neither Ultra nor Investec shall be responsible for such stamp duty
or stamp duty reserve tax (including any interest and penalties
relating thereto). If this is the case, each Placee should seek its
own advice and they should notify Investec accordingly. In
addition, Placees should note that they will be liable for any
capital duty, stamp duty and all other stamp, issue, securities,
transfer, registration, documentary or other duties or taxes
(including any interest, fines or penalties relating thereto)
payable outside the United Kingdom by them or any other person on
the acquisition by them of any Placing Shares or the agreement by
them to acquire any Placing Shares and each Placee, or the Placee's
nominee, in respect of whom (or in respect of the person for whom
it is participating in the Placing as an agent or nominee) the
allocation, allotment, issue or delivery of Placing Shares has
given rise to such non-United Kingdom stamp, registration,
documentary, transfer or similar taxes or duties undertakes to pay
such taxes and duties, including any interest and penalties (if
applicable), forthwith and to indemnify on an after-tax basis and
to hold harmless Ultra and Investec in the event that either Ultra
and/or Investec has incurred any such liability to such taxes or
duties.
The acknowledgments, representations, warranties,
acknowledgements undertakings and confirmations contained in this
Appendix are given for the benefit of each of Ultra and Investec
(for their own benefit and, where relevant, the benefit of their
respective affiliates and any person acting on their behalf) and
are irrevocable.
Each Placee and any person acting on behalf of the Placee
acknowledges that Investec does not owe any fiduciary or other
duties to any Placee in respect of any representations, warranties,
undertakings, acknowledgements, agreements or indemnities in the
Placing Agreement.
Each Placee and any person acting on behalf of the Placee
acknowledges and agrees that Investec may (at its absolute
discretion) satisfy its obligations to procure Placees by itself
agreeing to become a Placee in respect of some or all of the
Placing Shares or by nominating any connected or associated person
to do so.
When a Placee or any person acting on behalf of the Placee is
dealing with Investec, any money held in an account with Investec
on behalf of the Placee and/or any person acting on behalf of the
Placee will not be treated as client money within the meaning of
the relevant rules and regulations of the FCA made under FSMA. Each
Placee acknowledges that the money will not be subject to the
protections conferred by the client money rules: as a consequence
this money will not be segregated from Investec's money (as
applicable) in accordance with the client money rules and will be
held by it under a banking relationship and not as trustee.
References to time in this Announcement are to London time,
unless otherwise stated.
All times and dates in this Announcement may be subject to
amendment.
No statement in this Announcement is intended to be a profit
forecast, and no statement in this Announcement should be
interpreted to mean that earnings per share of Ultra for the
current or future financial years would necessarily match or exceed
the historical published earnings per share of Ultra.
The price of shares and any income expected from them may go
down as well as up and investors may not get back the full amount
invested upon disposal of the shares. Past performance is no guide
to future performance, and persons needing advice should consult an
independent financial adviser.
The Placing Shares to be issued or sold pursuant to the Placing
will not be admitted to trading on any stock exchange other than
the London Stock Exchange.
The rights and remedies of Ultra and Investec under these Terms
and Conditions are in addition to any rights and remedies which
would otherwise be available to each of them and the exercise or
partial exercise of one will not prevent the exercise of
others.
Neither the content of Ultra's website nor any website
accessible by hyperlinks on Ultra's website is incorporated in, or
forms part of, this Announcement.
APPIX 2 - DEFINITIONS
The following definitions apply throughout this Announcement
unless the context otherwise requires:
Acquisition means the proposed
acquisition of Sparton
by Ultra, as described
in this Announcement;
Admission means admission of
the Placing Shares
to the premium listing
segment of the Official
List and to the London
Stock Exchange for
admission to trading
on its main market
for listed securities;
Announcement means this announcement
(including its appendices);
Articles of means the articles
Association of association of
Ultra, as amended
from time to time;
Break Fee means any of the circumstances
Trigger described in paragraph
6.3 of this Announcement
pursuant to which
Ultra would be obliged
to disburse a termination
fee of $7.5m to Sparton;
CFIUS means the Committee
on Foreign Investment
in the United States;
Circular means the circular
to be published by
Ultra for the purposes
of convening the Ultra
General Meeting to
consider and, if thought
fit, approve the Acquisition;
Combined Group means the combined
group, comprising
the Ultra Group and
the Sparton Group;
Completion means the completion
of the Acquisition
in accordance with
the terms of the Merger
Agreement (and "Complete"
shall be construed
accordingly);
Conditions means the conditions
to Completion as set
out in the Merger
Agreement, including
those summarised at
paragraph 6.2 of this
Announcement;
CREST means the relevant
system (as defined
in the Uncertificated
Securities Regulations
2001 (SI 2001 No.
3755)) in respect
of which Euroclear
is the Operator (as
defined in such Regulations)
in accordance with
which securities may
be held and transferred
in uncertificated
form;
DSS means the Defense
Security Service of
the US DoD;
DTRs means the Disclosure
Guidance and Transparency
Rules made by the
FCA pursuant to Part
VI of FSMA;
EBITDA means earnings before
interest tax, depreciation
and amortization;
ECP or ECP means the Engineered
Division Components & Products
Division of the Sparton
Group;
ERAPSCO means the Indiana
general partnership
between USSI and SDS,
governed by the terms
of the ERAPSCO JVA;
ERAPSCO JVA means the joint venture
agreement between
USSI and SDS for the
supply of anti-submarine
warfare products,
dated 31 January 2007
(as amended and restated
as at 25 May 2016);
Euroclear means Euroclear UK
& Ireland Limited,
a company incorporated
under the laws of
England and Wales;
FCA or Financial means the UK Financial
Conduct Authority Conduct Authority;
FSMA means the Financial
Services and Markets
Act 2000 (as amended);
Guggenheim means Guggenheim Securities,
Securities LLC;
HSR Act means the Hart-Scott-Rodino
Antitrust Improvements
Act;
Investec means Investec Bank
plc;
ITAR means the US Department
of State's International
Traffic in Arms Regulations;
Last Practicable 6 July 2017 (being
Date the latest practicable
date prior to the
date of this Announcement);
Listing Rules means the rules and
regulations made by
the Financial Conduct
Authority in its capacity
as the UKLA under
FSMA, and contained
in the UKLA's publication
of the same name;
LSE or London means London Stock
Stock Exchange Exchange plc;
Material Adverse means a material adverse
Effect change in, or any
development reasonably
likely to result in
a material adverse
change in the condition
(financial, operational
or otherwise), earnings,
management, business
affairs or financial
prospects of Ultra
or the Ultra Group,
taken as a whole,
whether or not arising
in the ordinary course
of business;
MDS or MDS means the Manufacturing
Division & Design Services
Division of the Sparton
Group;
Merger Agreement means the agreement
and plan of merger
dated the same date
as this Announcement
and entered into between
Ultra, Ultra Aneira
and Sparton;
Placing means the placing
of the Placing Shares
by Investec for the
purposes of financing
the Acquisition in
part, as more particularly
described in paragraph
7 of this Announcement;
Placing Agreement has the meaning given
in paragraph 7 of
this Announcement;
Placing Results means the announcement
Announcement in the agreed form
giving details of
the results of the
Placing;
Placing Shares has the meaning given
in this Announcement;
PRA or Prudential means the UK Prudential
Regulation Regulation Authority;
Authority
RBC means RBC Europe Limited;
Regulatory means any of the services
Information set out in Appendix
Service 3 of the Listing Rules;
SDS means Sparton Deleon
Springs, LLC, a member
of the Sparton Group;
SEC means the United States
Securities and Exchange
Commission;
Sparton means Sparton Corporation,
a company incorporated
under the laws of
Ohio;
Sparton Board means the board of
Directors of Sparton;
Sparton Directors means the directors
of Sparton;
Sparton Group means Sparton and
Sparton's subsidiaries
and subsidiary undertakings;
Sparton Shareholder means the meeting
Meeting of Sparton Shareholders
to be convened for
the purposes of considering
and, if thought fit,
adopting the Merger
Agreement;
Sparton Shareholders means holders of Sparton
Shares (any such holder
being a "Sparton Shareholder");
Sparton Shares means the shares of
common stock, with
a par value of US$1.25
per share, of Sparton
(any such share being
a "Sparton Share");
subsidiary has the meaning given
to that term in the
Companies Act 2006;
subsidiary has the meaning given
undertaking to that term in the
Companies Act 2006;
UK or United means the United Kingdom
Kingdom of Great Britain and
Northern Ireland;
UK Listing means the UK Listing
Authority Authority, being the
or UKLA Financial Conduct
Authority acting in
its capacity as the
competent authority
for the purposes of
Part VI of FSMA;
Ultra means Ultra Electronics
Holdings plc, a company
registered in England
and Wales with the
number 02830397 whose
registered office
is at 417 Bridport
Road, Greenford, Middlesex
UB6 8UA;
Ultra Aneira means Ultra Electronics
Aneira Inc., an Ohio
corporation and an
indirect wholly-owned
subsidiary of Ultra;
Ultra Board the board of Directors
of Ultra;
Ultra Directors the directors of Ultra;
Ultra General means the general
Meeting meeting of Ultra to
be convened for the
purposes of considering
and, if thought fit,
approving the Acquisition;
Ultra Group means Ultra and Ultra's
subsidiaries and subsidiary
undertakings;
Ultra Shareholder means a holder of
Ultra Shares;
Ultra Shares means ordinary shares
with a nominal value
of 5 pence each in
the capital of Ultra;
uncertificated means in respect of
or in uncertificated a share or other security,
form where that share or
other security is
recorded on the relevant
register of the share
or security concerned
as being held in uncertificated
form in CREST and
title to which may
be transferred by
means of CREST;
United States means the United States
or US of America, its territories
and possessions, any
state of the United
States of America,
the District of Columbia
and all other areas
subject to its jurisdiction
and any political
sub-division thereof;
US DoD means the United States
Department of Defense;
and
USSI means UnderSea Sensor
Systems, Inc., a member
of the Ultra Group.
Unless otherwise indicated in this Announcement, all references
to "GBP", "GBP", "pounds", "pound sterling", "sterling", "p",
"penny" or "pence" are to the lawful currency of the UK.
Unless otherwise indicated in this Announcement, all references
to "$", "US$", "USD", "US Dollars", "US dollar" or "cents" are to
the lawful currency of the United States.
APPIX 3 - RISK FACTORS
PART A: MATERIAL RISKS RELATING TO THE ACQUISITION
Completion is subject to a number of Conditions which may not be
satisfied or waived and may result in Completion of the Acquisition
being delayed or in the Acquisition not Completing
The implementation of the Acquisition is subject to the
satisfaction (or waiver, if applicable) of the Conditions,
including, among others:
-- approval of the transactions contemplated by the Merger
Agreement by Ultra Shareholders at the Ultra General Meeting;
-- adoption of the Merger Agreement by Sparton Shareholders at the Sparton Shareholder Meeting;
-- applicable antitrust clearances and approvals having been
obtained, including from the US authorities in accordance with the
requirements of the HSR Act;
-- completion of the CFIUS, DSS and Investment Canada Act review processes; and
-- expiry or waiver of any applicable prior notice period under
ITAR relating to the Acquisition.
There is no guarantee that the Conditions will be satisfied in
the necessary time frame (or waived, if applicable) and the
Acquisition may, therefore, be delayed or not Complete. Delay in
Completing the Acquisition will prolong the period of uncertainty
for the Ultra Group and the Sparton Group and both delay and
failure to Complete may result in the accrual of additional costs
to their businesses (for example, there may be an increase in costs
in relation to the preparation and issue of documentation or other
elements of the planning and implementation of the Acquisition
and/or, in the event of a failure to Complete the Acquisition, the
Ultra Group may be exposed to adverse foreign exchange fluctuations
to the extent US Dollar-denominated amounts acquired in order to
settle the Acquisition consideration are subsequently required to
be converted back to pound sterling) without any of the potential
benefits of the Acquisition having been achieved. In addition,
Ultra's and Sparton's management would have spent time in
connection with the Acquisition, which could otherwise have been
spent more productively in connection with the other activities of
the Ultra Group and the Sparton Group, as applicable. Therefore,
the aggregate consequences of a material delay in Completing or
failure to Complete the Acquisition may have a material adverse
effect on the business, results of operations and financial
condition of the Ultra Group, the Sparton Group and, in the case of
a material delay only, the Combined Group. Ultra would also, to the
extent that a Break Fee Trigger occurs, be required to disburse a
termination fee of $7.5m to Sparton.
Furthermore, if any of the Conditions are not satisfied and
Completion does not occur or is delayed, Ultra's ability to improve
shareholder value and to implement the Board's strategic objectives
may be adversely affected and this may, in turn, have an adverse
impact on Ultra's prospects. In particular, if the Acquisition
fails to Complete:
-- one or more third parties may acquire control of Sparton or
acquire the Sparton Group's existing interest in the ERAPSCO joint
venture (in respect of which Ultra is the sole co-joint venture
party). ERAPSCO is a leading provider of sonobuoy systems to the US
Navy and the revenue and earnings that Ultra generates from the
ERAPSCO joint venture are an important part of the Ultra Group's
financial performance. If one or more third parties acquires
control of Sparton or acquires the Sparton Group's existing
interest in the ERAPSCO joint venture, there is no guarantee that
ERAPSCO's position as a leading provider of sonobuoy systems to the
US Navy will continue, and this may have a material adverse effect
on the business, financial condition and/or results of operations
of the Ultra Group. It is also possible that, if a third party were
to acquire the Sparton Group's interest in ERAPSCO, Ultra or the
relevant third party may consider invoking its termination rights
under the ERAPSCO JVA. Any such termination may also have a
material adverse effect on the business, financial condition and/or
results of operations of the Ultra Group; and
-- the ability of the Ultra Group to utilise amounts raised
pursuant to the Placing (the "Placing Proceeds") may not be
unrestricted. This is because, among other things, 3,523,584
Placing Shares, representing 4.9% of the existing issued ordinary
share capital of Ultra immediately prior to completion of the
Placing, were issued by Ultra as part of the Placing on a non
pre-emptive basis pursuant to a power granted to the Ultra Board at
the most recent annual general meeting of Ultra. The terms of that
power provide that any such issuance of new Ultra Shares must be
made only for the purposes of financing a transaction which the
Ultra Board determines to be an acquisition or other permitted
capital investment. Accordingly, if the Acquisition fails to
Complete, the Ultra Directors will be required to consider, in
light of the circumstances at the time, the appropriate use of the
Placing Proceeds, including the extent to which they should be
retained for general purposes or used in relation to other capital
investments and the extent to which return of them to Ultra
Shareholders would be appropriate. To the extent the Placing
Proceeds are retained by the Ultra Group but their utilisation is
restricted, this could introduce capital inefficiency into the
Ultra Group, potentially impacting metrics such as earnings per
share and, by extension, the market price of Ultra Shares.
The Placing may not complete
Completion of the Placing is conditional, among other things,
upon Admission becoming effective and the Placing Agreement not
being terminated in accordance with its terms. The Placing
Agreement provides that the obligations of Investec (including its
obligation to use its reasonable endeavours to procure placees for
the Placing Shares or, to the extent that it fails to do so, itself
subscribe for the relevant Placing Shares) will cease, and that
Investec may terminate the Placing Agreement, in the event that,
among other things, Investec considers that there has been a
material adverse change concerning Ultra or the Ultra Group. In the
event that the Placing does not complete, Ultra would not have
raised equity funding pursuant to the Placing but would
nevertheless remain obliged to Complete the Acquisition. In such
circumstances, Ultra would be reliant on one or more alternative
sources of funding to Complete the Acquisition, which might not be
available at all or not available on terms which the Ultra
Directors consider to be satisfactory. If Ultra fails to procure
alternative funding, Ultra may be unable to satisfy its obligation
to pay the consideration amount under the Merger Agreement
(constituting a breach by Ultra of the Merger Agreement) which
could have a material adverse effect on the business, financial
condition, results of operations and/or prospects of the Ultra
Group. If Ultra secures alternative funding, but on terms which the
Ultra Directors do not consider to be satisfactory and the
Acquisition Completes, this could have a material adverse effect on
the business, financial condition, results of operations and/or
prospects of the Combined Group.
The Ultra Group must obtain governmental, antitrust and
regulatory consents, including from US authorities, to complete the
Acquisition which, if delayed, not granted or granted on terms not
satisfactory to Ultra, may jeopardise the Acquisition, result in
additional expenditures of money and resources and/or reduce the
anticipated benefits of the Acquisition
The Acquisition is conditional upon, among other things, the
receipt of governmental, antitrust and regulatory clearances from
authorities with jurisdiction over the operations of the Ultra
Group and/or the Sparton Group, including the U.S. anti-trust
authorities, CFIUS and the DSS. The authorities from which Ultra is
seeking these clearances have discretion in administering the
governing statutes and regulations. As a condition to their
clearance of the transactions contemplated by the Acquisition,
these authorities may propose requirements, limitations, require
divestitures or compulsory licensing of tangible or intangible
assets or place other restrictions on the conduct of the Combined
Group's business. Any such requirements, limitations, divestitures,
licences or restrictions could jeopardise or delay Completion or
may reduce the anticipated benefits of the Acquisition.
Under the terms of the Merger Agreement, Ultra and Sparton are
obliged to co-operate and use reasonable best efforts to Complete
the Acquisition as soon as practicable. No member of the Ultra
Group is, however, required to make divestments or to take any
action that limits the freedom of, or alters or restricts the
commercial practices of, members of the Combined Group, save that
Ultra has agreed that, if requested by a governmental authority or
regulator in order to obtain relevant anti-trust or regulatory
consents, Ultra will agree to dispose of MDS or assets of the
Sparton Group that (i) do not relate to the sonobuoy business of
the Sparton Group and (ii) are not material (individually or in
aggregate) in any respect to the Sparton Group. Further, while
Ultra retains the right to defend any proceedings brought by
governmental authorities, courts or tribunals in connection with
Completion, it is not obliged to defend (or initiate) those
proceedings.
The outcome of the various governmental, antitrust and
regulatory consent applications is not yet known and is not within
the control of the Ultra Group or the Sparton Group. As a result,
there can be no assurance that the corresponding Conditions will be
satisfied or, if applicable, waived or that any termination rights
will not be exercised, and therefore there can be no assurance that
the Acquisition will be Completed as contemplated or at all.
Potential risks arising from a failure to Complete are set out in
the immediately preceding risk factor (Completion is subject to a
number of Conditions which may not be satisfied or waived and may
result in Completion of the Acquisition being delayed or in the
Acquisition not Completing).
Ultra or Sparton may waive one or more of the Conditions without
resoliciting shareholder approval for the Acquisition
Certain Conditions may be waived, in whole or in part, to the
extent legally allowed, either unilaterally or by agreement of
Ultra and Sparton. In the event that any such waiver does not
require resolicitation of shareholders, the parties will have the
discretion to Complete the Acquisition without seeking further
shareholder approval. Those Conditions requiring Sparton
Shareholder and/or Ultra Shareholder approval cannot be waived.
Appraisal Rights under Ohio law
Under Ohio law, Sparton Shareholders who do not vote in favour
of adopting the Merger Agreement will have the right to seek
appraisal of the fair value of their shares if they have submitted
a written demand for appraisal prior to the vote being taken at the
Sparton Shareholder Meeting. The appraised value could be more
than, the same as, or less than the consideration under the Merger
Agreement of $23.50 per Sparton Share. Should a material number of
Sparton Shareholders exercise appraisal rights and should it be
determined that the fair value of each Sparton Share as to which
appraisal rights have been exercised is materially greater than the
Acquisition consideration of US$23.50 per Sparton Share, it could
have a material adverse effect on the financial condition and
results of operations of the Combined Group.
Strategic benefits and financial returns achieved from the
Acquisition may differ from those anticipated
There is no assurance that the Acquisition will achieve the
strategic benefits (including, through the enhancement of Ultra's
continuing relationship with a major customer, the securing of an
important revenue and earnings stream for the Ultra Group and
increased exposure to the growing sonobuoy segment and/or financial
returns (including through potential cost savings within the
Sparton Group) that Ultra anticipates. Ultra believes that the
consideration for the Acquisition is justified in part by the
strategic benefits and financial returns it expects to achieve by
acquiring Sparton. However, these expected strategic benefits and
financial returns may not develop and other assumptions upon which
Ultra determined to pursue the Acquisition may prove to be
incorrect. In particular, the statements contained in this
Announcement relating to the expected enhancement of Ultra's
continuing relationship with a major customer, increased exposure
to the growing sonobuoy segment, securing an important revenue and
earnings stream and potential cost savings within the Sparton Group
relate to future actions and circumstances which, by their nature,
involve assumptions, uncertainties and contingencies. As a result,
these anticipated benefits may not be achieved, or those achieved
could be materially different from those anticipated.
While the Ultra Directors believe that the benefits of the
Acquisition have been reasonably estimated, unanticipated events,
liabilities, tax impacts or unknown pre-existing issues may arise
or become apparent which could result in the costs of the
Acquisition being higher and the realisable benefits being lower
than expected, resulting in a material adverse effect on the
business, financial condition and results of operations of the
Combined Group. No assurance can be given that the Acquisition will
deliver all or substantially all of the anticipated benefits.
Ultra and Sparton may not successfully integrate
If the Acquisition Completes, achieving the anticipated benefits
of the Acquisition will depend in part upon whether Ultra and
Sparton integrate their businesses in an effective and efficient
manner. While the Ultra Board is confident in its ability to
integrate ECP's business (given the long-standing working
relationship between the Ultra Group and the Sparton Group through
ERAPSCO and the similarity of Ultra's and ECP's operations), there
is nevertheless a material risk that Ultra and Sparton may not be
able to accomplish this integration process successfully, either in
full or in part, which could have a material adverse effect on the
Combined Group's results of operations, financial condition and/or
prospects. The integration of businesses is complex and
time-consuming. The difficulties that could be encountered include
the following:
-- integrating personnel, operations and systems, while
maintaining focus on selling and promoting existing and newly
acquired or produced products;
-- co-ordinating a greater number of geographically dispersed organisations;
-- distraction of management and employees from operations,
including, in the case of Ultra, from the implementation of its
standardisation and shared services programme;
-- changes or conflicts in corporate culture;
-- management's inability to manage a significant increase in the number of employees;
-- management's inability to train and integrate personnel, who
may have limited experience with the respective companies' business
lines and products;
-- retaining existing customers and attracting new customers;
-- retaining existing employees and attracting new employees;
-- maintaining business relationships; and
-- inefficiencies associated with the integration and management
of the operations of the Combined Group.
In addition, there will be integration costs and non-recurring
transaction costs (such as fees paid to legal, financial,
accounting and other advisers and other fees paid in connection
with the Acquisition and the proposed disposal of MDS), including
costs associated with combining the operations of the Ultra Group
and the Sparton Group and achieving the potential cost savings
within the Sparton Group that have been identified by Ultra, and
such costs may be significant.
An inability to realise the full extent of the anticipated
benefits of the Acquisition, including potential cost savings
within the Sparton Group that have been identified by Ultra, as
well as any delays encountered in the integration process and
realising such benefits, could have an adverse effect upon the
revenues, level of expenses and operating results of the Combined
Group, which may materially adversely affect the value of the Ultra
Shares after Completion.
Certain of the Sparton Group agreements contain change of
control provisions which, if not waived and the Acquisition
Completes, could have material adverse effects on the Combined
Group
Members of the Sparton Group are party to various agreements
with third parties, including the ERAPSCO JVA, a credit and
guarantee agreement with certain lenders, certain commercial
agreements and employee arrangements that contain change of control
provisions that may be triggered upon Completion. Agreements with
change of control provisions typically provide for or permit the
termination of the agreement upon the occurrence of a change of
control of one of the parties which can be waived by the relevant
counterparties. In the event that Ultra determines that there is
such a contract or arrangement requiring a consent or waiver in
relation the Acquisition, there can be no assurance that such
consent will be obtained at all or on favourable terms. The
inability to obtain waivers from one or more relevant
counterparties could, if the Acquisition Completes, have a material
adverse effect on the Combined Group.
Employment arrangements with change of control provisions may
provide for the vesting of outstanding awards and/or change of
control payments upon the occurrence of a change of control. If the
Acquisition would constitute a change of control of Sparton, any
such employment arrangements could require Sparton and, by
extension (following Completion), the Combined Group to commit
significant financial resources to satisfying the liabilities
arising as a result of the Acquisition.
Ultra will incur additional indebtedness in connection with the
Acquisition, which may decrease its ability to fund expansionary
initiatives. All of Ultra's debt obligations will have priority
over the Ultra Shares with respect to payment in the event of a
liquidation
Ultra is party to a GBP100,000,000 revolving credit facility and
a GBP200,000,000 revolving credit facility which it is proposed be
drawn down in order to finance (in part) the Acquisition. While
neither of these facilities prohibit drawing down funds to finance
the Acquisition (subject to satisfaction of customary conditions
precedent to draw down), each facility includes customary
representations and warranties, covenants and events of default.
These events of default include (subject to customary grace periods
and materiality thresholds): (i) failure to satisfy any financial
covenants contained in the relevant facility; (ii)
misrepresentation under certain designated documents relating to
each facility; (iii) certain insolvency events or proceedings; and
(iv) material adverse changes in the business or financial
conditions of Ultra and its guarantors, taken as a whole. Were an
event of default to occur under either facility prior to Completion
of the Acquisition, Ultra would not be entitled to draw down under
the relevant facility but would nevertheless remain obliged to
Complete the Acquisition. In such circumstances, Ultra would be
reliant on one or more alternative sources of funding to Complete
the Acquisition, which might not be available at all or not
available on terms which the Ultra Directors consider to be
satisfactory. If an event of default occurs under either facility
prior to Completion of the Acquisition, Ultra may be unable to
satisfy its obligation to pay the consideration amount under the
Merger Agreement (constituting a breach by Ultra of the Merger
Agreement) which could have a material adverse effect on the
business, financial condition, results of operations and/or
prospects of the Ultra Group. If Ultra secures alternative funding,
but on terms which the Ultra Directors do not consider to be
satisfactory and the Acquisition Completes, this could have a
material adverse effect on the business, financial condition,
results of operations and/or prospects of the Combined Group.
Further, while the Ultra Board still expects to be able to
invest in targeted acquisitions following Completion to further
strengthen its portfolio, the Combined Group's increased
indebtedness following Completion could reduce funds available to
fund expansionary initiatives, including for capital expenditure
and acquisitions and may create competitive disadvantages for the
Combined Group relative to other companies with lower indebtedness
levels.
In any liquidation, dissolution or winding-up of Ultra, Ultra
Shares would rank behind all debt claims against Ultra or any of
its subsidiaries. In addition, any convertible or exchangeable
securities or other equity securities that Ultra may issue in the
future may have rights, preferences and privileges more favourable
than those of Ultra Shares. As a result, holders of Ultra Shares
will not be entitled to receive any payment or other distribution
of assets upon any liquidation or dissolution until after Ultra's
obligations to its debt holders and holders of equity securities
which rank senior to the Ultra Shares have been satisfied.
Representations and warranties contained in the Merger Agreement
may provide limited protection for Ultra
The Merger Agreement contains warranties and representations on
the part of Sparton, which, as is usual in such a transaction, are
provided by Sparton and cannot be enforced after Completion.
Accordingly, Ultra may not have an effective ability to recover
damages or compensation in the event of an undisclosed liability of
Sparton arising after Completion. Limitations in the ability of
Ultra to enforce the representations and warranties in the Merger
Agreement could result in Ultra assuming undisclosed liabilities as
a result of the Acquisition and/or realising a lower value from the
Acquisition than anticipated.
Lawsuits may be filed, against, among others, Ultra and/or
Sparton challenging the Acquisition, and an adverse ruling in any
such lawsuit may delay or prevent Completion or result in an award
of damages against Ultra or Sparton
Lawsuits arising out of or relating to the Merger Agreement or
the Acquisition may be filed in the future. The results of complex
legal proceedings are difficult to predict and could delay or
prevent Completion. The existence of litigation relating to the
Acquisition could impact the likelihood of obtaining the
shareholder approvals from either Ultra or Sparton. Moreover, any
future litigation could be, time-consuming and expensive and could
divert Ultra's and Sparton's respective management's attention away
from their regular business.
One of the Conditions to Completion is the absence of any law or
judgment issued by any court or tribunal of competent jurisdiction
that restrains, enjoins or otherwise prohibits Completion.
Accordingly, if a plaintiff is successful in obtaining a judgment
prohibiting Completion, then such judgment may prevent Completion,
or Completion within the expected time frame.
The market price of Ultra Shares may decline as a result of the
Acquisition
The market price of Ultra Shares may decline as a result of the
Acquisition if, among other reasons:
-- Ultra is unable to dispose of MDS (either at all or on terms
which are commercially beneficial to the Combined Group);
-- Completion is delayed or does not occur on the terms and
subject to the Conditions envisaged in the Merger Agreement;
-- the integration of Sparton's ECP Division is delayed or unsuccessful;
-- Ultra does not achieve the expected benefits of the
Acquisition as rapidly or to the extent it anticipates or to the
extent anticipated by analysts and/or investors;
-- the effect of the Acquisition on the Ultra Group's financial
results is not consistent with Ultra's expectations or the
expectations of analysts and/or investors; or
-- Ultra Shareholders sell a significant number of Ultra Shares following Completion.
In addition, these factors could also make it more difficult for
the Combined Group to raise funds through future offerings of Ultra
Shares.
PART B: MATERIAL NEW RISKS TO THE ULTRA GROUP OR THE SPARTON
GROUP AS A RESULT OF THE ACQUISITION
The MDS spin-off arrangements
As at the date of this Announcement, the Ultra Group has not
entered into a binding agreement to dispose of MDS and no assurance
can be given that a suitable buyer will be found within a
reasonable time-period, at an acceptable price or on acceptable
terms to Ultra, or at all. Any disposal of MDS, if agreed, may also
be subject to the satisfaction or (if applicable) waiver of a
number of conditions. No assurance can be given that any such
conditions would be satisfied or waived within any applicable
time-frame, in which case any such disposal may be delayed or may
not complete. A delay in the completion of any such disposal may
also divert management attention away from focussing on normal
business operations. The tax consequences of a disposal of MDS are
not yet known but there could be a tax liability on a disposal of
MDS. The Ultra Board believes the disposal of MDS to be in the best
interests of the Ultra Shareholders because the business in which
MDS specialises (manufacturing and refurbishing of printed circuit
card assemblies and integration of medical devices) is
considered
non-core to the business of Ultra. If the Ultra Group is unable
to dispose of MDS, the Ultra Group's ability to deliver shareholder
value, to deliver value for MDS or to implement the Ultra Group's
stated strategy may be prejudiced. In particular, should the
disposal of MDS not occur, or take materially longer than expected
(Ultra's intention being to dispose of MDS by the end of Q1 2018),
the level of anticipated costs savings described in paragraph 4 of
this Announcement will be lower in the year-ending 31 December
2018.
Any agreement to dispose of MDS may be expected to contain
certain representations, warranties and/or indemnities given by
Ultra in favour of the buyer of MDS under such agreement. If Ultra
is required in the future to make payments under any of these
representations, warranties and/or indemnities this could have an
adverse effect on the Combined Group's cash flow and financial
condition.
If a disposal of MDS does not proceed, the Ultra Group's
management and employees may be affected and key management or
employees may choose to leave MDS as a result of the uncertainty
that would be caused were such a disposal to fail to complete. This
may have a negative effect on the performance of MDS under the
Ultra Group's ownership. To maintain shareholder value, the Ultra
Group's management would be required to continue to allocate time
and cost to the ongoing supervision and to the development of MDS.
It would also be appropriate to determine the ongoing investment
plans and undertake a review of MDS's cost structure. MDS currently
has a certain amount of excess property capacity, which may require
a provision to be taken in the future.
Sparton may not perform in line with expectations
If the results and cash flows generated by the combination of
the operations of the Sparton Group with those of the Ultra Group
are not in line with the Ultra Directors' expectations, a
write-down may be required against the carrying value of the Ultra
Group's investment in Sparton. Such a write-down may reduce the
Combined Group's ability to generate distributable reserves and
consequently affect its ability to pay dividends or return capital
to Ultra Shareholders.
The Sparton Group is and, if the Acquisition Completes, the
Combined Group will be liable for remediation costs to address
known contamination at a former site of the Sparton Group
The Sparton Group is liable for certain remediation costs in
respect of hazardous waste generated at an electronics
manufacturing facility previously used by the Sparton Group and
based in New Mexico, United States. The Sparton Group believes that
remediation work at the site will be substantially complete by 2030
and in its most recent audited consolidated financial statements
booked a liability of approximately $6.1m in respect of certain
remediation costs that may be incurred as a result of contamination
at the site. While the Sparton Group may be able to recover certain
amounts in respect of eligible site-related remediation costs from
the US Department of Energy (the "DOE") in the event the final
amount of the remediation costs exceeds the amount of the relevant
liability and/or the DoE does not provide reimbursement (in part or
at all), such costs could have a material adverse effect on the
business, financial condition and results of operations of the
Sparton Group and, if the Acquisition Completes, the Combined
Group.
The Sparton Group may default under its existing credit facility
agreement prior to Completion
The Sparton Group is party to an Amended and Restated Credit and
Guaranty Agreement (the "Sparton Credit Facility") with a syndicate
of lenders (the "Sparton Lenders"), which includes representations,
covenants and events of default that are customary for financings
of this nature. The Sparton Credit Facility is secured against
substantially all of the assets of Sparton and relevant members of
the Sparton Group (the "Security"). Under the terms of the Sparton
Credit Facility, in the event that any of the financial covenants
contained therein are breached, a default under the terms of the
Sparton Credit Facility could be triggered.
In light of a potential failure of Sparton to comply with
financial covenants in the Sparton Credit Facility concerning the
total funded debt to EBITDA ratio of relevant members of the
Sparton Group (the "Leverage Covenants"), on 30 June 2017 Sparton
entered into an amendment agreement with the Sparton Lenders in
respect of the Sparton Credit Facility (the "Amendment Agreement"),
pursuant to which, among other things, the Sparton Lenders have
agreed amendments to the Leverage Covenants which increase
permitted leverage for the fiscal quarters ended June 2017,
September 2017 and December 2017 and have waived any event of
default that may have occurred solely as a result of Sparton's
failure to comply with the unamended Leverage Covenants for the
test period ending on the last day of Sparton's fiscal quarter June
2017.
Notwithstanding the Amendment Agreement, if during the period
prior to Completion of the Acquisition Sparton breaches financial
covenants (including any of the Leverage Covenants) contained in
the Sparton Credit Facility, this could trigger a default under the
terms of the facility, which would permit the Sparton Lenders to
restrict Sparton's (and relevant members of the Sparton Group)
ability to borrow under the Sparton Credit Facility, cause all of
the Sparton Group's outstanding obligations to the Sparton Lenders
to become immediately due and repayable and permit the Sparton
Lenders to enforce the Security. Cross-default provisions of other
agreements of the Sparton Group could also be triggered as a result
of this. In such circumstances, Ultra may nevertheless remain
obliged to Complete the Acquisition, unless the underlying
circumstances gave rise to a right to terminate the Merger
Agreement or to invoke a Condition under the Merger Agreement. If a
default were to occur under the Sparton Credit Facility prior to
Completion and Ultra were nevertheless to Complete the Acquisition,
the anticipated benefits of the Acquisition may be materially less
than those anticipated by the Ultra Directors, which could result
in a material adverse effect on the business, financial condition,
results of operations and/or prospects of the Combined Group.
PART C: EXISTING MATERIAL RISKS TO THE ULTRA GROUP OR THE
SPARTON GROUP WHICH WILL BE IMPACTED BY THE ACQUISITION
Future operating results are dependent on the growth in
customers' businesses and/or capabilities
The Ultra Group has a strategic objective to maintain
year-on-year growth. The continued growth of the Ultra Group and
the Sparton Group is, and if the Acquisition Completes, the
Combined Group's growth will be, dependent (in part) on the growth
in the sales of its customers' products and on the expansion of
their capabilities as well as the development by its customers of
new products and/or capabilities. If the Ultra Group, the Sparton
Group and, if the Acquisition Completes, the Combined Group fail to
respond to changing market dynamics (including changes in
technology), win new business, anticipate changes in their
customers' businesses and their changing product needs, their
results of operations and financial position could be negatively
impacted. It is not certain that the markets that the Ultra Group
and the Sparton Group serve and, if the Acquisition Completes, the
Combined Group will serve will grow in the future, that their
existing and new products will meet the requirements of these
markets or that they can maintain adequate gross margins or profits
in these markets. A decline in demand in one or several of their
end-user markets could have a material adverse impact on the demand
for their products and have a material adverse effect on business,
results of operations and financial condition of the Ultra Group,
the Sparton Group and, if the Acquisition completes, the Combined
Group.
Delivering change within the Combined Group's business
As part of the Ultra Group's ongoing business and operations,
major change programmes are being implemented in order to enhance
the Ultra Group's operational performance. In particular, Ultra
management is currently focussed on streamlining the Ultra Group's
finance, information technology, human resources, sourcing and
property functions into a single global business services function
as part of a major change programme, known as the standardisation
and shared services programme. The effective delivery of these
major change programmes relies upon, among other things, the focus,
oversight and input of Ultra's management. Completion, delivery and
implementation of the Acquisition could, however, for a number of
reasons (including the challenges presented by the integration of
Ultra's and Sparton's respective businesses and the enhanced scale
of the Combined Group), result in the management and employees of
the Combined Group being unable to devote sufficient focus,
oversight and input to these major change programmes. If major
change programmes are not successfully delivered, the anticipated
benefits of those programmes may not be realised, the costs of
those programmes may increase and the Combined Group's business
performance may be adversely impacted, potentially resulting in a
material adverse effect on the business, results of operations and
financial condition of the Ultra Group and, if the Acquisition
Completes, the Combined Group.
Reliance on, and potential inability to attract, retain and
develop highly skilled personnel
The success of the Ultra Group, the Sparton Group and, if the
Acquisition Completes, the Combined Group's strategy is and will be
dependent on their ability to attract, develop and retain talented
and skilled employees, including a qualified team of engineers and
employees in managerial, technical, marketing and information
technology support positions. Competition for such key personnel is
intense, and the Ultra Group, the Sparton Group and, if the
Acquisition Completes, the Combined Group cannot be assured of
their ability to successfully attract and retain such employees.
Employee retention may be particularly challenging following
mergers or divestures, such as the Acquisition, as the Combined
Group must continue to motivate employees (of both the Ultra Group
and the Sparton Group) and keep them focused on its strategies and
goals, which may be particularly difficult due to potential
distractions related to integrating the Sparton Group. Failure to
retain or loss of all the skills necessary to execute on growth
plans and deliver key customer programmes is likely to result in
reduced customer confidence and the Combined Group's business,
results of operations and financial condition could be materially
adversely affected.
Risks associated with information technology systems
The Ultra Group and the Sparton Group rely and, if the
Acquisition Completes, the Combined Group will rely on their
information technology ("IT") systems which are an integral part of
their businesses. A serious disruption to the IT systems could
significantly limit the Ultra Group's, the Sparton Group's and, if
the Acquisition Completes, the Combined Group's ability to manage
and operate their businesses efficiently, which in turn could have
a material adverse effect on their businesses, results of
operations and financial condition.
The Ultra Group and the Sparton Group also face and, if the
Acquisition Completes, the Combined Group will face various cyber
security threats, including cyber security attacks to IT
infrastructure and attempts to gain access to proprietary or
sensitive information. Although various procedures and controls are
utilised to monitor these threats and mitigate exposure to such
threats, there can be no assurance that these procedures and
controls will be sufficient to prevent cyber security threats from
materialising. If any of these threats were to materialise, the
operations may be disrupted and the Ultra Group, the Sparton Group
and, if the Acquisition Completes, the Combined Group may
experience a loss in sales or increased costs arising from the
implementation of additional security measures. A cyber security
breach may also result in legal claims or proceedings and could
damage the Ultra Group, the Sparton Group and, following Completion
of the Acquisition, the Combined Group's reputation.
Reliance on subcontractors and key suppliers
The Ultra Group and the Sparton Group rely upon subcontractors
to deliver upon their customer commitments and, if the Acquisition
Completes, the Combined Group will rely upon subcontractors to
deliver upon their customer commitments. This reliance on
subcontractors involves significant risks, including lack of
control over capacity allocation, delivery schedules, the
resolution of technical difficulties and the development of new
processes. Disputes regarding the ownership of or rights in certain
third-party intellectual property may preclude subcontractors from
fulfilling the Ultra Group's, the Sparton Group's and, if the
Acquisition Completes, the Combined Group's requirements at a
reasonable cost or, in some cases, at all. A shortage of raw
materials or production capacity could lead any subcontractors to
allocate available capacity to other customers, or to internal
uses.
If these subcontractors fail to perform their obligations in a
timely manner or at satisfactory quality and cost levels, the
Combined Group's ability to bring products to market and its
reputation could suffer, its costs could increase and, where such
failure causes the Combined Group to be in breach of any of its
obligations to its end customer, it could result in the Combined
Group incurring liability. For example, during a market upturn,
contract manufacturers may be unable to meet demand requirements,
which may preclude the Ultra Group, the Sparton Group and,
following Completion of the Acquisition, the Combined Group from
fulfilling customers' orders on a timely basis, which could lead to
a loss in sales and/or liability for breach of contract. The
ability of these subcontractors to perform is largely outside of
the control of Ultra and Sparton.
The Ultra Group and the Sparton Group also purchase and, if the
Acquisition Completes, the Combined Group will purchase various
types of raw materials and component parts from suppliers, and may
be materially and adversely affected by the failure of those
suppliers to perform as expected. This non-performance may consist
of delivery delays or failures caused by production issues or
delivery of non-conforming products. The risk of non-performance
may also result from the insolvency or bankruptcy of one or more
suppliers. Further, the Ultra Group, the Sparton Group and, if the
Acquisition Completes, the Combined Group, may occasionally seek to
engage new suppliers with which they have little or no experience;
this can pose technical, quality and other risks. Efforts to
protect against and to minimise these risks may not always be
effective.
The Ultra Group and the Sparton Group have, and if the
Acquisition Completes, the Combined Group will have, a complex
supply chain. There may be reputational challenges faced by
customers and other stakeholders if the Ultra Group, the Sparton
Group or, if the Acquisition Completes, the Combined Group is
unable to sufficiently verify the origins for minerals originating
from the conflict zones of the Democratic Republic of Congo and
adjoining countries used in their products. The Ultra Group, the
Sparton Group, and if the Acquisition Completes, the Combined Group
may also encounter challenges satisfying those customers who
require that all of the components of their products are certified
as conflict free and, if so, customers may choose to disqualify
them as a supplier.
Failure to comply with laws, regulations and restrictions
The Ultra Group and the Sparton Group operate and, if the
Acquisition Completes, the Combined Group, will operate in a highly
regulated environment and are and will be subject to the laws,
regulations and restrictions of many jurisdictions, including those
of the US, the UK and other countries. These include anti-bribery
provisions, import and export controls, and government contracting
rules. Sanctions for failure by the Ultra Group, the Sparton Group
or, if the Acquisition Completes, the Combined Group, or their
sales intermediaries, or others acting on their behalf, to comply
with these laws, regulations and restrictions could include fines,
penalties, legal claims, suspension or debarment from future
government contracts for a period of time, as well as having an
impact on reputation. Such sanctions could have an impact on the
Ultra Group, the Sparton Group and, if the Acquisition Completes,
the Combined Group's businesses, financial position and future
operations and prospects. New legislation, changes in existing
legislation and/or regulatory or enforcement policies may also
result in delays or additional costs or restrictions. The risks
described in this paragraph are particularly relevant in the US,
where a significant proportion of the Sparton Group's revenues
derive, and in the UK, where Ultra is incorporated. Following
completion of the Acquisition, the Combined Group's exposure to
such risks is likely to be higher than that of the current Ultra
Group or the current Sparton Group in isolation. For example, if
the Acquisition Completes there is a greater risk that the
activities of the Sparton Group will come within the territorial
scope of the UK Bribery Act 2010, thus increasing the Combined
Group's exposure to that legislation. Ultra has and, if the
Acquisition Completes, the Combined Group will have policies and
procedures in place, which are regularly reviewed and audited,
including procedures related to the use of sales and marketing
representatives, anti-bribery and anticorruption, gifts and
hospitality, whistleblowing and investigation of ethics and
compliance concerns. Mandatory training is and will be also
undertaken on a variety of compliance related subjects, including
anti-bribery and corruption.
In addition to the foregoing, the Ultra Group and the Sparton
Group are and, if the Acquisition Completes, the Combined Group
will be subject to a significant number and growing range of laws
and regulations including, amongst others, those relating to data
protection (including, in the future, the European Union's General
Data Protection Regulation ("GDPR")). Data protection laws impact
the records held by the Ultra Group on its employees and personnel.
Ultra requires that all members of the Ultra Group are compliant
with data protection laws in respect of such records. Accordingly,
if the Acquisition Completes, the increased scale of the Combined
Group will mean the relevant data protection laws and regulations
to which the Combined Group will be subject, and with which it will
be obliged to comply, will increase. A failure to comply with any
such laws or regulations could have a material adverse effect on
the business, results of operations and financial condition of the
Ultra Group, the Sparton Group and, if the Acquisition Completes,
the Combined Group, on account of, among other things, the
imposition of substantial fines and/or other penalties, exposure to
regulatory investigations, litigation and/or reputational
damage.
Increased scale of the business and exposure to the United
States
If the Acquisition completes, the scale of the Combined Group
will be increased. The greater scale of the Combined Group may
present different or enhanced challenges to those currently faced
by the Ultra Group, including greater exposure to market volatility
in the US particularly in light of the recent change in
administration which may lead to greater political, economic and
operational risks.
In particular, if the Acquisition completes, the Combined Group
will have a significantly expanded presence in, and exposure to,
the US, as a significant portion of the Sparton Group's revenue is
derived from operations in that country. As a result, the risks
highlighted above will be particularly significant for the Combined
Group in the US. The regulatory landscape in the US is undergoing
certain changes under the new administration, particularly in the
defence sector. In addition, whilst the US Navy's sonobuoy budget
is currently forecast to continue to grow under the US DoD five
year plan, there can be no guarantee that such growth will
continue. Therefore, to a greater extent than for the Ultra Group's
current operations, the US business of the Combined Group may be
adversely affected by changes to US laws and regulations (including
those related to trade restrictions, defence and foreign
investment) and changes to defence budgets of the US DoD and US
Navy, particularly to the extent changes in such laws and/or
budgets affect sonobuoys or any other products of the Combined
Group.
Risks associated with the Combined Group's US operations also
include changes in economic conditions (including potential
slowdowns in the US economy, wage and cost inflation, currency
exchange rates, consumer spending and employment levels), changes
in tax rates, potential tariffs, duties and other trade barriers
and increased competitive promotional activity. Moreover, the
Combined Group's success in the US depends on its ability to
predict, identify, interpret and react to changes in US government
policy in respect of the sector in which the Combined Group will
operate and the products it trades in.
If the Combined Group cannot effectively manage exposure to
these challenges, this could have a material adverse effect on the
Combined Group's business, financial condition, results of
operations and prospects.
Deterioration in the macroeconomic environment and cyclicality
of end user markets
The Ultra Group's and the Sparton Group's revenue is and, if the
Acquisition Completes, the Combined Group's revenue will be derived
from global defence and security and commercial sectors. The level
and type of spending in such sectors is dependent on a complex mix
of macroeconomic, fiscal and strategic defence and security
imperatives. Changes in government spending could lead to programme
terminations or delays, or changes in sector growth. Deterioration
in demand affecting short cycle business or a fundamental shift in
how customers procure products or services could also have an
adverse effect on the Combined Group's future results.
In addition, many of the sectors that the Combined Group will
serve, including defence, have historically been cyclical and have
experienced periodic downturns. The factors leading to and the
severity and length of a downturn are difficult to predict and
there can be no assurance that the Combined Group will
appropriately anticipate changes in these underlying end-markets,
or that any increased levels of business activity would continue as
a trend into the future. If the Combined Group does not anticipate
changes in the end-market in which it serves, its business, results
of operations and financial condition could be materially adversely
affected.
Risks associated with products and services provided by the
Combined Group
The Ultra Group and the Sparton Group design, develop and
deliver and, if the Acquisition Completes, the Combined Group will
design, develop and deliver, products and services that are often
customised, utilising complex technologies, under fixed price
contracts that are sometimes long term in nature. This gives rise
to the risks of failure to execute the contract profitably, the
supply of a defective or delayed product, the incurrence of other
contractually related liabilities, or damage to reputation and
commercial relationships.
In addition, the future success of the Combined Group is
dependent on the timely development and introduction of competitive
new products at acceptable margins; this carries design and
operational risks. Delays in commencing or maintaining volume
shipments of new products, the discovery of product, process,
software, or programming defects or failures and any related
product returns could each have a material adverse effect on the
business, financial condition and results of operation of the
Combined Group.
Failure to execute or deliver a contract gives rise to increased
programme costs, contract penalties, litigation and other financial
liabilities, reduced future profitability and reputational risk.
The Combined Group may not be able to anticipate all of the
possible performance or reliability problems that could arise with
its new or existing products, which could result in significant
product liability or warranty claims. Any defects found in the
products could result in a loss of sales or market share, failure
to achieve market acceptance, damage to reputation, indemnification
claims, litigation, increased insurance costs and increased service
costs, any of which could also discourage customers from purchasing
its products. Occurrence of any of the foregoing could have an
adverse effect on the Ultra Group's, the Sparton Group's and, if
the Acquisition Completes, the Combined Group's business, financial
condition, results of operations and prospects.
The Ultra Group and the Sparton Group operate in a highly
competitive industry, and inability to successfully compete could
result in loss of market share and decline in revenues
The Ultra Group and the Sparton Group operate and, if the
Acquisition Completes, the Combined Group will operate in a highly
competitive industry. Current and prospective customers for their
products evaluate their capabilities against the merits of direct
competitors. The Ultra Group and the Sparton Group compete and,
following Completion of the Acquisition, the Combined Group will
compete, primarily on the basis of technology and performance. For
certain products, they also compete on price. There can be no
assurance that the Ultra Group, the Sparton Group and, if the
Acquisition Completes, the Combined Group will be able to maintain
their current market share with respect to any of their products. A
loss of market share to competitors could have a material adverse
effect on the business, results of operations and financial
condition of the Ultra Group, the Sparton Group and, if the
Acquisition Completes, the Combined Group.
Exchange rate fluctuations could negatively impact the Combined
Group
Ultra's reporting currency is in pound sterling and its
principal foreign currency exposure relates to movements in the US
dollar - pound sterling exchange rate, due to its US operations,
and US dollar-denominated costs in the UK. This exposure can
adversely affect profits, cash flows and balance sheet positions,
such as net debt. Ultra implements policies to manage these
exposures on an ongoing basis. The Acquisition will increase the
amount of Ultra's (and therefore the Combined Group's) US Dollar
earnings, cash flows and balance sheet values. The primary impact
of fluctuations in exchange rates for the Combined Group is
expected to be translational (i.e. the translation of foreign
earnings and assets and liabilities into pounds sterling for
reporting purposes). An appreciation of pounds sterling against the
US dollar (or other currencies) could result in a significant
negative translational impact on the Combined Group's results of
operations, as the contribution of its overseas operations, and the
value of overseas earnings and assets, when translated into pounds
sterling, would decline. The Combined Group will continue to be
exposed to transactional currency risk, which arises when
commercial transactions or recognized assets or liabilities are
denominated in a currency that is not the functional currency of
the relevant member of the Combined Group. While policies will be
adjusted to take account of these increased exposures in the
Combined Group, there can be no assurance that the financial
performance and condition of the Combined Group will not be
adversely affected by movements in the US dollar/pound sterling
exchange rate or other exchange rates.
The pound sterling experienced sharp depreciation following the
United Kingdom's referendum on 23 June 2016 (the "Referendum"),
falling to its lowest levels since the 1980s, with one pound
sterling equal to $1.29 as at 6 July 2016 (as derived from
Bloomberg), compared to $1.48 as at 23 June 2016 (before the result
of the Referendum was known). Although the pound sterling exchange
rate has stabilised in recent months, its movements continue to be
influenced by political as well as economic factors, including, but
not limited to, the results of the general election in the United
Kingdom on 8 June 2017, and there can be no assurance that pounds
sterling will not experience further significant volatility against
other major currencies.
As a result of all of the above, adverse movements in currency
exchange rates, if not effectively managed by the Combined Group,
could adversely affect its reported results of operations and
financial condition.
Long term contract exposures to inflation, interest rate
changes, the availability of capital markets and commodity pricing
fluctuations
The Ultra Group and the Sparton Group are, and if the
Acquisition Completes, the Combined Group will be, dependent on
managing macro financial risks, including inflation, interest rate
changes, the availability of capital markets and commodity prices.
Failure to manage financial risks can impact operating profit
through higher costs or lower revenue and result in the Ultra
Group, the Sparton Group and, if the Acquisition Completes, the
Combined Group failing to meet their forecasted financial
results.
Significant business interruptions
The Ultra Group's, the Sparton Group's and, if the Acquisition
Completes, the Combined Group's businesses could be impacted by
numerous inherent risks, particularly unplanned events such as
inclement weather, explosions, fires, terrorist acts and other
accidents. While insurance coverage could offset losses relating to
some of these types of events, the Ultra Group, the Sparton Group
and, following Completion of the Acquisition, the Combined Group's
business, results of operations and financial condition could be
materially adversely affected to the extent that any such losses
are not covered by insurance.
Reliance on sales to federal government
The Ultra Group and the Sparton Group derive a significant
portion of their revenues from contracts with agencies of the US
federal government or contractors or subcontractors of the federal
government. The loss or significant curtailment of any government
contracts or subcontracts, or failure to exercise renewal options
or enter into new contracts or subcontracts, could have a material
adverse effect on the Ultra Group, the Sparton Group and, if the
Acquisition Completes, the Combined Group's business, results of
operations and financial condition.
Continuation and the exercise of renewal options on existing
government contracts and subcontracts and new government contracts
and subcontracts are, among other things, contingent upon the
availability of adequate funding for the various federal government
agencies with which the Sparton Group and Ultra Group and prime
government contractors do business. Changes in federal government
spending could directly affect the financial performance of the
Ultra Group, the Sparton Group and, if the Acquisition Completes,
the Combined Group.
The federal government can terminate or modify any of its
contracts either for its convenience or for a default by the Ultra
Group, the Sparton Group or, if the Acquisition Completes, the
Combined Group, as applicable, under the terms of the contract. A
termination for convenience could adversely affect the Combined
Group's revenues and results of operations.
A termination arising from default could expose the Combined
Group to liability and have a material adverse effect on its
reputation and ability to compete for future contracts and
subcontracts, which could materially and adversely affect its
business and results of operations. Failure to replace sales
generated from terminated or modified contracts would result in
lower sales and could adversely affect revenue, which could have a
material and adverse effect on its business, results of operations
and financial condition.
In addition, ERAPSCO is currently contracted to provide all of
the sonobuoys required by the US Navy. There is a possibility that
at some point in the future, the US DoD will choose to support a
new provider. Such a decision could have a material and adverse
effect on the business, results of operations and financial
condition of ERAPSCO and therefore, after Completion, the Combined
Group.
U.S. government audits and investigations
Federal government agencies, including the Defense Contract
Audit Agency and the Defense Contract Management Agency, routinely
audit and evaluate government contracts and government contractors'
administrative processes and systems. These agencies review the
Ultra Group's and the Sparton Group's and, if the Acquisition
Completes, will review the Combined Group's performance on
contracts, pricing practices, cost structure, financial capability
and compliance with applicable laws, regulations and standards.
They also review the adequacy of the Ultra Group's and the Sparton
Group's and, if the Acquisition Completes, will review the Combined
Group's internal control systems and policies, including their
purchasing, accounting, estimating, compensation and management
information processes and systems.
If such an audit, evaluation or review were to uncover improper
or illegal activities, then the Ultra Group and the Sparton Group
and, if the Acquisition Completes, the Combined Group could be
subject to civil and criminal penalties and administrative
sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines and suspension or
prohibition from doing business with the U.S. government. In
addition, responding to governmental audits or investigations may
involve significant expenses and divert management attention away
from focussing on normal business operations. If any of the
foregoing were to occur, it could have a material adverse effect on
the business, results of operations and financial condition of the
Ultra Group, the Sparton Group and, if the Acquisition Completes,
the Combined Group.
Protection of intellectual property rights
The Ultra Group and the Sparton Group rely and, if the
Acquisition Completes, the Combined Group will rely on patents,
trademarks, copyrights, trade secrets, and proprietary know-how and
concepts. The Combined Group will attempt to protect its
intellectual property rights, in the UK, the US and elsewhere,
through a combination of patent, trademark, copyrights and trade
secret laws, as well as confidentiality agreements. Failure to
obtain or maintain adequate protection of intellectual property
rights for any reason could have a material adverse effect on the
business, results of operations and financial condition of the
Ultra Group, the Sparton Group and, if the Acquisition Completes,
the Combined Group.
While the protection afforded by patent, trademark, copyright
and trade secret laws may provide some advantages, the competitive
position of participants in their industry is principally
determined by such factors as the technical and creative skills of
personnel, the frequency of their new product developments and
ability to anticipate and rapidly respond to evolving market
requirements. To the extent that a competitor effectively uses its
intellectual property portfolio, including patents, to prevent the
Ultra Group, the Sparton Group and, if the Acquisition Completes,
the Combined Group from selling products that allegedly infringe
such competitor's products, its results of operations could be
materially adversely affected.
The Ultra Group and the Sparton Group also rely and, if the
Acquisition completes, the Combined Group will rely on unpatented
proprietary technology. It is possible that others will
independently develop the same or similar technology or otherwise
obtain access to such unpatented technology. To protect trade
secrets and other proprietary information, employees, consultants,
advisors and collaborators are required to enter into
confidentiality agreements. It cannot be assured that these
agreements will provide meaningful protection for trade secrets,
know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. If the Ultra
Group, the Sparton Group and, if the Acquisition Completes, the
Combined Group are unable to maintain the proprietary nature of
their technologies, their sales could decrease and this could have
a material adverse effect on its business, results of operations
and financial condition.
PART D: RISKS RELATING TO THE ULTRA SHARES
Ultra's share price may fluctuate and may not deliver a
return
The share prices of publicly quoted companies can be highly
volatile and shareholdings illiquid. The market price of the Ultra
Shares may be subject to wide fluctuations in response to many
factors, including variations in the operating results of Ultra,
divergence in financial results from stock market analysts'
expectations, changes in earnings estimates by stock market
analysts, general economic conditions, legislative changes in the
Ultra Group's and, if the Acquisition Completes, the Combined
Group's sector and other events and factors outside of Ultra's
control. Ultra Shares may not be a suitable investment for all
prospective shareholders and before acquiring the Ultra Shares,
investors should take their own independent advice. In the event of
a winding-up of Ultra, the Ultra Shares will rank behind any
liabilities of Ultra and therefore any return for Ultra
Shareholders will depend on Ultra's assets being sufficient to meet
the prior entitlements of creditors.
Shareholders may be exposed to fluctuations in currency exchange
rates
The Ultra Shares, and any dividends to be announced in respect
of such Ultra Shares, will be quoted in pound sterling. An
investment in Ultra shares by an investor in a jurisdiction whose
principal currency is not pound sterling exposes such investor to
foreign currency exchange rate risk. Any depreciation of the pound
sterling in relation to such foreign currency will reduce the value
of the investment in the Ultra Shares in foreign currency terms and
may adversely impact the value of any dividends.
Substantial future sales or offerings of Ultra Shares could
impact the market price of Ultra Shares
Ultra cannot predict what effect, if any, future sales of Ultra
Shares, or the availability of Ultra Shares for future sale, will
have on the market price of Ultra Shares. It is also possible that
Ultra may decide to offer additional Ultra Shares in the future
(for example to finance corporate acquisitions) which would dilute
investors' shareholding in Ultra. Sales or offerings of substantial
amounts of Ultra Shares in the future, or the perception or any
announcement that such sales or offerings could occur, could
adversely affect the market price of Ultra Shares and may make it
more difficult for investors to sell their Ultra Shares at a time
and price which they deem appropriate.
Ultra's ability to pay dividends on the Ultra Shares in the
future is not guaranteed
While the Ultra Directors intend that, if the Acquisition
Completes and subject to the Combined Group's trading prospects
being satisfactory, the Ultra Board will continue Ultra's policy
whereby dividends are covered by between 2.5 to 3.0 times
underlying earnings, the declaration and payment of any dividends
in the future and the amount of any future dividends will depend
upon the Combined Group's results of operations, financial
conditions, cash requirements, future prospects and such other
factors as may be relevant at the time, as well as Ultra's profits
available for distribution at such time.
APPENDIX 4 - SPARTON FINANCIAL STATEMENT
In its announcement of its Third Quarter Results published on 9
May 2017, Sparton stated that:
"Sparton expects revenues for the fourth quarter of fiscal 2017
of between $97m and $101m at a gross margin of approximately
18%".
Basis of preparation
The above statement was prepared by Sparton management in
accordance with its US GAAP accounting policies, which are
consistent with the accounting policies adopted by Ultra in the
preparation of its audited financial statements for the year-ended
31 December 2016.
Principal assumptions
The above statement has been compiled on the basis of the
following assumptions:
-- Assumptions which are outside the influence of Sparton
management and the Sparton Directors:
-- There will be no material change in the operational strategy
or current management of Sparton;
-- There will be no material change in the current trading
environment and economic conditions;
-- There will be no material change in the competitive
environment in which the Sparton Group operates;
-- There will be no material change in customer preferences and
resulting purchase commitments;
-- There will be no material change in U.S. Congressional budgetary allocations;
-- There will be no material change in any applicable federal,
state, provincial, local and foreign regulatory environment;
-- There will be no material business disruptions, including
natural disasters and political or industrial instability.
-- Assumptions which are within the influence of Sparton management and the Sparton Directors:
-- There will be no acquisitions or disposals during the quarter ending June 30, 2017;
-- There will be no material change in the management and efficiency of Sparton's operations;
-- There will be no material change in internal controls and financial reporting policies.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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