TZ Limited (ASX:TZL) will bank US$3,489,878 in net proceeds from the sale of the entire assets and business of its subsidiary, Product Development Technologies, Inc to PDT Acquisition, LLC, an Illinois limited liability company.
As flagged earlier, the unsolicited approach for PDT was under serious consideration by TZ's Mark Bouris and Ken Ting as the business required ongoing support and a sale would also bring cash resources to support its PAD and IXP division.
Executive chairman of TZ, Mark Bouris, said "the sale of the PDT business is significant as it brings:
- cash resources into TZ for the roll out of new projects;
- eliminates the cash drain that has been experienced by TZ in its support of the PDT restructuring, PDT has required approximately $1,500,000 in capital support over the last 18 months;
- the sale has also enabled the repayment in total of a secured third party bank debt in the USA;
- the sale eliminates TZ's requirement to amortize that debt to the bank over the next 6 months and frees up personnel resources to concentrate on growing our PAD and IXP applications in North America, and the Asia PAC region;
- and, as part of the sale terms, TZ has embedded a continuous service arrangement for at least 12 months, pursuant to an engineering master services agreement, at preferred rates for the future.
The sale contracts were entered into on 1 June 2013 (or 31 May 2013 US time). Closing of the sale occurred simultaneously with signing of the contracts.
- Purchase price was US$5,040,000. All bank debt associated with the PDT business was paid out by the purchaser at closing, by way of reduction against the purchase price.
- A total of $540,000 of the purchase price was left outstanding in the form of vendor finance and is required to be paid to TZL over three years at an interest rate of 4% per annum.
- This loan is secured by way of second ranking security over the purchaser's assets.
Net cash amount payable to TZ is US$3,489,878.73, after deducting the bank debt paid out of US$943,267.27, a working capital adjustment of US$66,854.00 and the promissory note for US$540,000.00 vendor finance.
The transaction was an asset sale and not a sale of the PDT company, although TZL did sell its shareholding in the Ukraine company (which employs a number of lower cost employees used in the business) as part of the transaction.
It is believed the purchaser is a company controlled by Paul Burke/Telefonix Inc (70%) and Mark Schwartz (30%). Mark Schwartz was the CEO of PDT. Mr Schwartz and all other employees of PDT have become employees of the purchaser.
Balance sheet and revenue effects
The effect of the sale on TZL's total assets and total equity will be a decrease of $8.7 million and $5.1 million respectively for the financial year ended 30 June 2013.
The group annual revenue of TZL and its subsidiaries will be reduced by approximately $1.7 million with profit before tax and extraordinary items increased slightly by $65,000 for the financial year ending 30 June 2013.
The purchaser assumes various liabilities, including all of the current liabilities of PDT included in the working capital adjustment and all accounts payable of PDT arising in the ordinary course of business.
In addition, the purchaser has agreed to provide discounted engineering services for 12 months after closing. The discount will be 20% off standard rates capped at $100,000 of gross services per month.
Executive chairman Mark Bouris will present to investors at the Proactive Investors' "Stars in 2013" Forum in Sydney on Tuesday, 4th June 2013.
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