In this Notice of Meeting and Explanatory Statement, the following terms have the following meanings:
Advisers collectively, Trident Capital, CPS Capital and Niche
Export Agency.
Annexure an annexure to this Explanatory Statement.
ASIC the Australian Securities and Investments Commission.
ASX ASX Limited (ACN 008 624 691).
Board the board of Directors.
Capital Consolidation the consolidation of the Existing Shares and Options of
the Company on the basis of 1 for 5, as proposed under Resolution 2 and detailed in section 3.4.
Capital Raising the proposed issue of a minimum of 35,000,000 or up to
50,000,000 Shares under the Prospectus at an offer price of $0.20, as referred to in section3.9.
Capital Raising Shares the 2,501,558 Shares to be issued to the Livelynk
Vendor under the Capital Raising in connection with the Proposed Transaction.
Closely Related Party of a member of the Key Management Personnel means:
(a) a spouse or child of the member; (b) a child of the member’s spouse;
(c) a dependent of the member or the member’s spouse;
(d) anyone else who is one of the member’s family and may be expected to influence the member, or be influenced by the member, in the member’s dealing with the entity;
(e) a company the member controls; or
(f) a person prescribed by the Corporations Regulations 2001 (Cth) for the purposes of the definition of ‘closely related party’ in the Corporations Act.
Chairman the Chairman of the Company.
Company Lithex Resources Limited (ACN 140 316 463).
Consideration Shares the 23,500,000 Shares and 23,100,000 Class A
Performance Shares and 15,400,000 Class B Performance Shares to be issued to the Livelynk Vendor under the Proposed Transaction.
Constitution the constitution of the Company. Corporations Act the Corporations Act 2001 (Cth).
CPS Capital CPS Capital Group Pty Ltd (ACN 088 055 636) AFSL
294848.
Director a director of the Company.
Existing Directors Mr Giuseppe (Joe) Graziano, Mr Jack James and Mr
Jason Peterson.
Existing Shares the 135,632,437 issued ordinary fully paid Shares in the
capital of the Company.
Existing Shareholder a holder of an Existing Share.
Explanatory Statement this explanatory statement incorporated in the Notice of
Meeting.
Heads of Agreement means the heads of agreement between the Company,
Livelynk and the Livelynk Vendor dated 9 July 2014.
Historical Loan hasthe meaning given to that term in Section 2.2. Independent Expert John Van Dieren of Stantons International (Perth). Independent Expert’s Report the report of the Independent Expert attached to
Annexure C to and forming part of the Explanatory Statement.
Investment Loan hasthe meaning given to that term in Section 2.2.
Key Management Personnel has the same meaning as in the accounting standards
issued by the Australian Accounting Standards Board and means those persons having authority and responsibility for planning, directing and controlling the activities of the Company or if the Company is part of a consolidated entity, of the consolidated entity, directly or indirectly, including any director (whether executive or otherwise) of the Company, or if the Company is part of a consolidated entity, of an entity within the consolidated group.
Listing Rules the official Listing Rules of ASX.
Livelynk Livelynk Group Pty Limited (ACN 134 429 637). Livelynk Employees means the persons set out in Annexure J. Livelynk Vendor Zhenya Holdings.
Managing Director the managing director of the Company who may, in
accordance with the ASX Listing Rules, continue to hold office indefinitely without being re-elected to the office.
Maroon Tech Maroon Tech Ltd (Company No. 522300) (a company
incorporated in Ireland).
Meeting or Annual General
Meeting the annual general meeting of the Company to be held
on 25 November 2014 at 2:30pm (WST).
Mpire collectively Livelynk, Mpire Media, Maroon Tech and
Mpire Network.
Mpire Media Mpire Media Pty Ltd (ACN 126 813 214).
Mpire Network Mpire Network Inc (Ontario Corp No. 002411178) (a
company incorporated in Canada).
New Option an Option on the terms set out in Annexure D.
Niche Export Agency Niche Export Agency Pty Ltd (ACN 104 662 900) as
Notice or Notice of Meeting the notice of meeting incorporating this Explanatory
Statement.
Option an option to acquire a Share.
Ordinary Resolutions Resolutions 2 to 7 (inclusive) and 9 to 19 (inclusive). Performance Share collectively, Performance Share Class A and
Performance Share Class B in the Company, on the terms set out in Annexure H
Placement the placement of 14,152,950 Shares at a price of $0.02
per Share to sophisticated investors to raise a total of $283,059 as announced to ASX on 17 July 2014.
Proposed Directors Mr Luke Taylor, Mr Eugeni ‘Zhenya’ Tsvetnenko, Mr
Jeff Botnick and Mr Stephen Belben, further details of whom are provided at section 2.10.
Proposed Transaction the proposed acquisition by the Company of all of the
securities in Livelynk.
Prospectus the prospectus to be issued by the Company for the
purposes of the Capital Raising as referred to in section 3.9.
Relevant Interest has the meaning given to that term in the Corporations
Act.
Remuneration Report means the remuneration report set out in the Director’s
report section of the Company’s annual financial report for the year ended 30 June 2014.
Resolution a resolution set out in the Notice.
Rights Issue a non-renounceable rights issue of 27,126,491 new
shares at $0.02 a share to raise $542,530 announced by the Company on 5 August 2014.
ROI means return on investment.
Share fully paid ordinary share in the capital of the Company. Share Sale and Purchase
Agreement means the Share Sale and Purchase Agreement
between the Company and Zhenya Holdings dated 30 September 2014 for the sale of 100% of Zhenya Holdings’ rights and title in the issued capital Livelynk.
Shareholder a shareholder of the Company. Special Resolution Resolutions
1
and8
.Stantons Stantons International (Perth).
Trident Capital Trident Capital Group Pty Limited (ACN 100 561 733)
AFSL 292674.
Vacating Directors the Directors who were directors of the Company when
the resolution to make the Directors’ Report considered at the last annual general meeting of the Company was passed, other than the Managing Director of the Company at that time.
Voting Power has the meaning given to that term in the Corporations
Working Capital Loan hasthe meaning given to that term in Section 2.2.
WST Western Standard Time, being the time in Perth,
Western Australia.
Zhenya Holdings Zhenya Holdings Pty Limited (ACN 121 173 073) as
ANNEXURE A – LIVELYNK VENDOR AND EUGENI ‘ZHENYA’
TSVETNENKO – RELEVANT INTERESTS AND VOTING POWER
Entity Relevant Interests in Existing Shares1 Relevant Interests in Consideratio n Shares (excluding Performance Shares) Relevant Interests in Capital Raising Shares Relevant Interests in Performance Shares (Class A) (assuming vesting) Relevant Interests in Performance Shares (Class B) (assuming vesting) Voting Power (minimum Capital Raising of $7 million)2 Voting Power (maximum Capital Raising of $10 million)2 Zhenya Holdings Pty Ltd (ACN 121 173 073) as trustee for the Zhenya Holdings Trust and Eugeni ‘Zhenya’
Tsvetnenko
Nil 23,500,000 2,501,558 23,100,000 15,400,000 41.13% 37.54%
Notes:
1. The Existing Shares are set out on a post-Capital Consolidation basis and are subject to rounding. 2. Reflects the Voting Power of the Livelynk Vendor, Mr Eugeni ‘Zhenya’ Tsvetnenko and their associates.
Assumes that Zhenya Holdings and Mr Tsvetnenko (personally) do not apply for Shares under the Capital Raising other than as set out in the table.
The total numbers of Shares on issue upon which these Voting Power percentages are calculated:
• are subject to the rounding effects of the Capital Consolidation;
• assume that no Shares are issued from the date of this Notice until completion of the Proposed Transaction (including pursuant to the exercise of existing Options) other than those Shares proposed to be issued pursuant to the Resolutions in this Notice of Meeting; and
ANNEXURE B – PRO FORMA STATEMENT OF FINANCIAL
POSITION
This section contains the Pro Forma Statement of Financial Position for the Company as a merged group with Mpire (Merged Group), reflecting the combined business of the
Company and Mpire. The Pro Forma Statement of Financial Position is presented to provide Shareholders with an indication of the Merged Group’s consolidated financial position as if the Proposed Transaction had been implemented as at 31 October 2014.
As the Proposed Transaction, if implemented, will be effected at a future date, the actual financial position of the Merged Group post implementation of the Proposed Transaction will differ from that presented below.
The Company has not yet received a completed review report by a registered company auditor or independent accountant of the pro forma statements of financial position, but that report is proposed to be included in the Prospectus.
Pro forma Pro forma Pro forma Pro forma
Livelynk Company
Consolidated Minimum1
Consolidated Maximum2
31 Oct 2014 31 Oct 2014 31 Oct 2014 31 Oct 2014
AUD AUD AUD AUD
Current assets
Cash and cash equivalents 271,666 371,630 6,449,237 9,296,331
Trade and other receivables 1,596,406 2,344 1,598,750 1,598,750
Loan to Livelynk Group Pty Ltd - 1,200,000 - -
Prepayments 16,720 10,232 26,952 26,952
Deferred tax assets 57,491 - 57,491 57,491
1,942,283 1,584,206 8,132,430 10,979,524
Non current assets
Intangible assets 494,908 - 494,908 494,908
Property, plant and equipment 105,475 3,274 108,749 108,749
600,383 3,274 603,657 603,657 Total assets 2,542,666 1,587,480 8,736,087 11,583,181 Current liabilities
Trade and other payables 418,992 41,728 460,720 460,720
Borrowings: Zhenya Holdings Pty Ltd 1,726,481 - 1,226,170 1,226,170
Borrowings: Lithex Resources Ltd 1,200,000 - - -
Provision for employee entitlements 125,204 - 125,203 125,203
Provision for income tax 962,430 - 962,430 962,430
4,433,107 41,728 2,774,523 2,774,523
Total liabilities 4,433,107 41,728 2,774,523 2,774,523
Net assets / (liabilities) (1,890,441) 1,545,752 5,961,564 8,808,658
Equity
Contributed equity 100 9,481,195 12,694,901 15,541,995
Accumulated losses (1,894,134) (8,020,458) (7,235,942) (7,235,942)
Foreign Currency Translation Reserve 3,593 - 3,593 3,593
Share Based Payments Reserve - 85,015 499,013 499,013
Notes and assumptions:
The audited financial statements of Livelynk and the Company for the year ended 30 June 2014 have been adjusted for the following to arrive at a pro-forma consolidated balance sheet post completion of the acquisition of Livelynk by the Company:
1. Completion of a 1 for 5 consolidation of capital. 2. Completion of:
• the maximum Capital Raising of $10,000,000, incurring capital raising costs of $846,653 of which $138,250 is expensed and $708,403 is charged directly to equity; and
• the minimum Capital Raising of $7,000,000, incurring capital raising costs of $693,747 of which $138,250 is expensed and $555,497 is charged directly to equity.
3. Of the total Capital Raising amount, $500,312 (2,501,558 Shares) is not received in cash, but rather offset against a loan from the Livelynk Vendor.
4. Completion of the acquisition of Livelynk by way of an issue of 23,500,000 Shares at a deemed issue price of $0.20 per Share ($4,700,000) and the issue of 38,500,000 Performance Shares at a deemed issue price of $0.00 per Performance Share.
5. The issue of 28,575,000 Performance Shares to Livelynk management and staff at a deemed value of $0.00 per Performance Share.
6. The issue of the following Shares on a post Capital Consolidation basis at a deemed issue price of $0.20 per Share as consideration for the introduction of Livelynk as an acquisition target of the Company:
• 1,500,000 Shares issued to CPS Capital (deemed value of $300,000);
• 625,000 Shares issued to Niche Export Agency (deemed value of $125,000); and
• 2,000,000 Shares issued to Trident Capital (deemed value of $400,000).
7. The issue of 6,000,000 Options t o Trident Capital as consideration for the introduction of Livelynk as an acquisition target of the Company. The Options are exercisable at $0.25 each on or before 30 June 2017 and have been valued using the Black-Scholes option valuation methodology at $372,787.
8. Completion of Livelynk’s acquisition of Maroon Tech.
9. Livelynk operating costs of approximately $1,473,000 for the period 1 July to 31 October 2014 having obtained funding from the Company of $1,200,000.
10. Company operating costs of approximately $533,000 for the period 1 July to 31 October 2014. 11. The principles of reverse acquisition accounting have been applied and all intercompany
ANNEXURE D – TERMS OF NEW OPTIONS
The New Options entitle the holder to subscribe for Shares on the following terms and conditions:
(a) Entitlement
Each New Option entitles the holder to subscribe for one Share upon exercise of the New Option.
(b) Exercise Price and Expiry Date
The New Options have an exercise price of $0.25 (Exercise Price) and an expiry
date of 30 June 2017 (Expiry Date).
(c) Exercise Period and Lapsing
The New Options may be exercised at any time after their date of issue prior to the Expiry Date.
(d) Notice of Exercise
The New Options may be exercised by notice in writing to the Company (Notice of Exercise) and payment of the Exercise Price for each New Option being exercised.
Any Notice of Exercise of a New Option received by the Company will be deemed to be a notice of the exercise of that New Option as at the date of receipt.
(e) Shares issued on exercise
Shares issued on exercise of the New Options rank equally with the then existing fully paid ordinary shares of the Company.
(f) Quotation of Shares on exercise
Subject to compliance with any applicable ASX imposed escrow period, application will be made by the Company to ASX for quotation of the Shares issued upon the exercise of the New Options.
(g) Timing of issue of Shares
Within 5 business days after the later of the following:
(i) receipt of a Notice of Exercise given in accordance with these terms and conditions and payment of the Exercise Price for each New Option being exercised by the Company if the Company is not in possession of excluded information (as defined in section 708A(7) of the Corporations Act); and
(ii) the date the Company ceases to be in possession of excluded information with respect to the Company (if any) following the receipt of the Notice of Exercise and payment of the Exercise Price for each New Option being exercised by the Company,
the Company will:
(iv) give ASX a notice that complies with section 708A(5)(e) of the Corporations Act (to the extent that it is legally able to do so); and
(v) subject to compliance with any applicable ASX imposed escrow period, apply for official quotation on ASX of Shares issued pursuant to the exercise of the New Options.
(h) Participation in new issues
There are no participation rights or entitlements inherent in the New Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the New Options. However, subject to applicable laws and the ASX Listing Rules, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least four business days after the issue is announced. This is intended to give the holders of New Options the opportunity to exercise their New Options prior to the announced record date for determining entitlements to participate in any such issue.
(i) Adjustment for bonus issues of Shares
If the Company makes a bonus issue of Shares or other securities to existing Shareholders (other than an issue in lieu or in satisfaction of dividends or by way of dividend reinvestment):
(i) the number of Shares which must be issued on the exercise of a New Option will be increased by the number of Shares which the holder would have received if the holder had exercised the New Option before the record date for the bonus issue; and
(ii) no change will be made to the Exercise Price. (j) Adjustment for rights issue
If the Company makes an issue of Shares pro rata to existing Shareholders there will be no adjustment of the Exercise Price of a New Option.
(k) Adjustments for reorganisation
If there is any reconstruction of the issued share capital of the Company, the rights of the New Option holders will be varied to comply with the Listing Rules which apply to the reconstruction at the time of the reconstruction.
(l) Quotation of the New Options
The Company will not apply for quotation of the New Options on ASX. (m) New Options transferable
The New Options are transferable subject to compliance with any applicable ASX imposed escrow period.
(n) Lodgement Instructions
Cheques paid in connection with the exercise of a New Option shall be in Australian currency, made payable to the Company and crossed "Not Negotiable". The application for shares on exercise of the New Options with the appropriate remittance should be lodged at the Company's Registry.
ANNEXURE E – AUDITED FINANCIAL STATEMENTS OF LIVELYNK
Set out below is the following extracts from the historical financial information, as audited by Ernst & Young, of Livelynk:
1. Audited Consolidated Statement of Comprehensive income for the last 3 financial years;
2. Audited Consolidated Statement of Financial Position for the last 3 financial years; 3. Audited Consolidated Statement of Cash Flows for the last 3 financial years; 4. Audited Consolidated Statement of Changes in equity for the last 3 financial years. 5. Notes to the Audited Financial Statements of Livelynk for the year ended 30 June
2014.
The audited financial statements of Livelynk for the years ended 30 June 2012 and 30 June 2013 comprise Livelynk and Mpire Media. The audited financial statements of Livelynk for the year ended 30 June 2014 comprise Livelynk, Mpire Media and, with effect from 18 March 2014, Mpire Network.
The complete, audited financial accounts for Livelynk for the periods 30 June 2012, 30 June 2013 and 30 June 2014 will be available to Shareholders at the Annual General Meeting to be held on 25 November 2014.
1. Audited Consolidated Statement of Comprehensive Income 2014 2013 2012 $ $ $ Revenue 1,137,818 6,433,444 6,329,182 Cost of services (818,019) (1,688,756) (4,088,681) Gross profit 319,799 4,744,688 2,240,501 Other income 503,979 235,558 92,822 Administration costs (210,821) (295,932) (239,396) Compliance costs (102,435) (41,540) (26,785) Consultancy costs (55,291) (44,753) (257,268) Employment costs (1,848,978) (1,411,105) (1,083,918) Occupancy costs (186,177) (155,786) (116,966) Travel costs (102,566) (37,231) (9,180) Marketing costs (24,218) (21,443) (14,552) Finance costs (5) (2,378) (8,918)
Foreign exchange differences (47,597) 27,025 62,400
Depreciation (29,271) (21,641) (21,250)
Profit/(loss) before income tax (1,783,581) 2,975,462 617,490
Income tax benefit/(expense) 29,314 (907,267) (185,156)
Profit/(loss) for the year (1,754,267) 2,068,195 432,334
Other comprehensive income/(expenditure) net of tax - - -
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations 3,593 - -
Total comprehensive income/(expenditure) for the year (1,750,674) 2,068,195 432,334
Profit/(loss) for the year attributable to:
Members of Livelynk Group Pty Ltd (1,754,267) 2,068,195 432,334
Non-controlling interests - - -
(1,754,267) 2,068,195 432,334
Total comprehensive income/(expenditure) for the year
attributable to:
The owners of Livelynk Group Pty Ltd (1,750,674) 2,068,195 432,334
Non-controlling interests - - -
2. Audited Consolidated Statement of Financial Position 2014 2013 2012 $ $ $ ASSETS CURRENT ASSETS
Cash and cash equivalents 48,052 47,120 67,943
Trade and other receivables 943,860 4,328,458 3,197,944
Deferred tax assets 57,491 28,178 18,957
TOTAL CURRENT ASSETS 1,049,403 4,403,756 3,284,844
NON CURRENT ASSETS
Property, plant and equipment 101,407 92,007 92,295
TOTAL NON CURRENT ASSETS 101,407 92,007 92,295
TOTAL ASSETS 1,150,810 4,495,763 3,377,139 LIABILITIES CURRENT LIABILITIES
Trade and other payables 187,719 776,735 351,549
Provisions 1,087,289 2,835,810 252,289
Interest-bearing loans and borrowings 293,258 - 2,308,278
TOTAL CURRENT LIABILITIES 1,568,266 3,162,545 2,912,116
NON-CURRENT LIABILITIES - - - TOTAL LIABILITIES 1,568,266 3,162,545 2,912,116 NET ASSETS (417,456) 1,333,218 465,023 EQUITY Contributed equity 100 100 100
Foreign currency translation reserve 3,593 - -
Retained earnings/(accumulated losses) (421,149) 1,333,118 465,023
3. Consolidated Statement of Cash Flows
2014 2013 2012
$ $ $
Cash flows from operating activities
Receipts from customers 3,550,518 6,559,959 3,330,850
Payments to suppliers and employees (3,916,888) (3,233,642) (5,682,626)
Other income received 496,966 180,206 -
Interest received - 299 610
Interest paid (5) (2,378) (8,918)
Income tax paid (158,168) - (88,870)
Net cash flows (used in)/provided by operating activities (27,577) 3,504,444 (2,448,954)
Cash flows from investing activities
Purchase of property, plant and equipment (38,671) (28,797) (16,694) Net cash flows used by investing activities (38,671) (28,797) (16,694)
Cash flows from financing activities
Proceeds from loan from Parent Company 1,274,551 - 2,266,240
Dividends paid (1,200,000) - -
Loan provided to Parent Company - (1,188,192) -
Repayment of loan from Parent Company - (2,271,286) -
Net cash flows provided by/(used in) financing activities 74,551 (3,459,478) 2,266,240
Net increase/(decrease) in cash and cash equivalents 8,303 16,169 (199,408) Cash and cash equivalents at the beginning of the year 47,120 30,951 230,359 Effects of exchange rate changes on cash and cash equivalents (7,371) - - Cash and cash equivalents at the end of the year 48,052 47,120 30,951
4. Audited Consolidated Statement of Changes in Equity Contributed equity Retained earnings/ (accumulated losses) Foreign currency translation reserve Total equity $ $ $ $ Balance at 1 July 2013 100 1,333,118 - 1,333,218
Loss for the year - (1,754,267) - (1,754,267)
Other comprehensive income
Foreign exchange differences arising on translation of foreign
operations - - 3,593 3,593
Total comprehensive income/(expenditure) for the year - (1,754,267) 3,593 (1,750,674)
Transactions with equity holders in their capacity as owners - - - -
Balance at 30 June 2014 100 (421,149) 3,593 (417,456)
Balance at 1 July 2012 100 464,923 - 465,023
Profit for the year - 2,068,195 - 2,068,195
Other comprehensive income - - - -
Total comprehensive income for the year - 2,068,195 - 2,068,195