TIDMXAR
RNS Number : 1301O
Xaar PLC
06 October 2021
Xaar plc
Proposed divestment of Xaar 3D
Xaar PLC (LON: XAR) ("Xaar", the "Company"), the leading inkjet
printing technology group, is pleased to announce that it has
conditionally agreed terms with Stratasys Solutions Limited
("Stratasys"), its partner in Xaar 3D Limited ("Xaar 3D"), to
accelerate the sale of Xaar's interest in Xaar 3D to Stratasys.
Whilst Xaar 3D has continued to make progress this year there
have been delays to the development of Xaar 3D products as a result
of the COVID-19 pandemic. As a direct consequence of these delays
it was anticipated that Xaar 3D would require more investment than
originally planned. Having considered all options for the future
financing and ownership structure of Xaar 3D the Board of Xaar has
conditionally agreed with Stratasys to amend the terms of the Call
Option pursuant to the terms of a conditional call option amendment
agreement entered into on 6 October 2021 (the "Call Option
Amendment Agreement").
This agreement will provide Xaar 3D with the best opportunity to
complete the commercialisation of the product range in the shortest
time, would lead to an immediate injection of cash and will enable
Xaar to focus on its core business. Xaar will be entitled to
receive royalties on products and services sales for up to 15
years.
The proposed amendments to the financial terms of the Revised
Call Option are, in summary, as follows:
-- A payment of US$12.83 million will become immediately payable
on exercise of the Revised Call Option (the "Initial
Consideration").
-- Payments totalling US$4.63 million will become payable in
three instalments, subject to the achievement of three agreed Xaar
3D revenue milestones (the "Earn-out Payments").
-- The cap on the Two Per Cent Initial Earn-out is to be
increased by US$6.375 million to US$16.375 million and the level of
royalty shall be increased from two per cent. to three per cent. of
the gross revenue of Stratasys, Xaar 3D and their affiliates which
is recognised as earned from sales of Xaar 3D's products and
services during the relevant period (the "Three Per Cent Revised
Earn-out").
The aggregate of the Initial Consideration together with the
Three Per Cent Revised Earn-out and the Earn-out Payments is,
therefore, up to US$33.83 million (the "Revised
Consideration").
John Mills, Chief Executive Officer, commented:
"This agreement will provide Xaar 3D with the best opportunity
to continue its progress and leadership in the field of industrial
3D printing. We have enjoyed our partnership with Stratasys and
look forward to continuing to work with them to supply printheads
to Xaar 3D and share in the long-term success of the business. The
agreement will also allow us to focus on our core business and
other opportunities in the market that will support our long-term
growth strategy."
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018. Upon the publication of this announcement
via the Regulatory Information Service, this inside information is
now considered to be in the public domain.
Contact information
+44 (0) 1223 423
Xaar plc 663
Ian Tichias, Chief Financial Officer
John Mills, Chief Executive Officer
Investec Bank plc (Financial Adviser, Sponsor +44 (0) 207 597
& Broker) 5970
David Anderson
Henry Reast
Shalin Bhamra
+44 (0) 207 353
Tulchan Communications 4200
James Macey White
Giles Kernick
Important Notices
Investec Bank, which is authorised by the PRA and regulated in
the United Kingdom by the FCA and the PRA, is acting solely for the
Company and no-one else in connection with the matters referred to
in this Announcement. Investec is not responsible to anyone other
than the Company for providing the protections afforded to clients
of Investec or for providing advice in connection with the contents
of this Announcement or any other matters referred to herein.
This Announcement may contain and the Company may make verbal
statements containing "forward-looking statements" with respect to
certain of the Company's plans and its current goals and
expectations relating to its future financial condition,
performance, strategic initiatives, objectives and results.
Forward-looking statements sometimes use words such as "aim",
"anticipate", "target", "expect", "estimate", "intend", "plan",
"goal", "believe", "seek", "may", "could", "outlook" or other words
of similar meaning. By their nature, all forward-looking statements
involve risk and uncertainty because they relate to future events
and circumstances which are beyond the control of the Company. As a
result, the actual future financial condition, performance and
results of the Company may differ materially from the plans, goals
and expectations set forth in any forward-looking statements. Any
forward-looking statements made in this Announcement by or on
behalf of the Company speak only as of the date they are made.
These forward-looking statements reflect the Company's judgment at
the date of this Announcement and are not intended to give any
assurance as to future results and cautions that its actual results
of operations and financial condition, and the development of the
industry in which it operates, may differ materially from those
made in or suggested by the forward-looking statements contained in
this Announcement and/or information incorporated by reference into
this Announcement.
The information contained in this Announcement is subject to
change without notice and except as required by applicable law or
regulation, the Company expressly disclaims any obligation or
undertaking to publish any updates, supplements or revisions to any
forward-looking statements contained in this Announcement to
reflect any changes in the Company's expectations with regard
thereto or any changes in events, conditions or circumstances on
which any such statements are based, except where required to do so
under applicable law.
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 Company post-transaction for the current or future
financial 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 Company. This announcement is
not intended to, and does not constitute, or form part of, any
offer to sell or an invitation to purchase or subscribe for any
securities or a solicitation of any vote or approval in any
jurisdiction. Xaar shareholders are advised to read carefully the
formal documentation in relation to the Revised Call Option
Amendment Agreement once it has been despatched. Any response to
the Revised Call Option Amendment Agreement should be only on the
basis of the information in the formal documentation to follow.
Introduction
On 12 September 2019, Xaar announced that it had entered into an
agreement with Stratasys Solutions Limited ("SSYS"), its partner in
Xaar 3D to sell 20 per cent of the enlarged share capital of Xaar
3D to SSYS for US$10 million (which was implemented in combination
with an additional issuance of shares by Xaar 3D to SSYS), and
grant SSYS a call option to acquire the remaining 55 per cent of
Xaar 3D not held by SSYS for at least US$33 million, exercisable
over three years (the "Call Option"). Exercising such Call Option
would entitle Xaar to receive a two percent royalty on Xaar 3D
products and services sales for up to 15 years, subject to a US$10
million cap (the "Two Per Cent Initial Earn-out").
In order to provide for staff incentivisation arrangements at
Xaar 3D and in light of the proposed future divestment of Xaar's
remaining interests in Xaar 3D, subsequent to the agreement of the
Call Option, Xaar determined to set aside five per cent. of certain
cash amounts to be received by Xaar from such future divestment for
the purpose of staff incentivisation. Accordingly, the amounts
payable to Xaar referred to below are shown, as applicable, net of
such five per cent. (which, following the exercise of the Revised
Call Option (as defined below) will, for practical reasons, be held
by SSYS to be distributed to staff at Xaar 3D at SSYS' sole
discretion).
Due to delays caused by the impact of the COVID-19 pandemic on
the development of Xaar 3D products, the Directors believe there is
a risk that the Xaar 3D programme may take longer than anticipated
when it entered into the Call Option, and subsequently the Company
would be required to commit additional cash funding to Xaar 3D of
up to US$10 million over the next two years. Additionally, the
delays in the programme increase the risk of Stratasys deciding to
not exercise the original Call Option before the end of 2022. The
Board of Xaar has, therefore, conditionally agreed with SSYS to
amend the terms of the Call Option (the "Revised Call Option")
pursuant to the terms of a conditional call option amendment
agreement entered into on 6 October 2021 (the "Call Option
Amendment Agreement"). The proposed amendments to the financial
terms of the Revised Call Option are, in summary, as follows:
-- A payment of US$12.83 million will become immediately payable
on exercise of the Revised Call Option (the "Initial
Consideration").
-- Payments totalling US$4.63 million will become payable in
three instalments, subject to the achievement of three agreed Xaar
3D revenue milestones (the "Earn-out Payments").
-- The cap on the Two Per Cent Initial Earn-out is to be
increased by US$6.375 million to US$16.375 million and the level of
royalty shall be increased from two per cent. to three per cent. of
the gross revenue of SSYS, Xaar 3D and their affiliates which is
recognised as earned from sales of Xaar 3D's products and services
during the relevant period (the "Three Per Cent Revised
Earn-out").
The aggregate of the Initial Consideration together with the
Three Per Cent Revised Earn-out and the Earn-out Payments is,
therefore, up to US$33.83 million (the "Revised
Consideration").
SSYS, by virtue of its 45% shareholding in Xaar 3D, a subsidiary
of Xaar, is a related party to the Company for the purposes of
Chapter 11 of the Listing Rules. The proposed amendments to the
Call Option and the entering into of the Revised Call Option by
Xaar is, therefore, considered to be a related party transaction
for the purposes of Chapter 11 of the Listing Rules. Consequently,
the Revised Call Option is subject to and conditional upon the
approval of Shareholders.
Information on Xaar 3D
Xaar 3D is developing 3D printing machines which leverage the
benefits of industrial Xaar printheads. These machines deposit a
fine layer of plastic powder, onto which Xaar piezoelectric
printheads print a high resolution cross-sectional pattern of the
parts to be manufactured. The complete powder layer is exposed to
infra-red energy, causing the imaged powder to absorb this energy
and fuse. This process is then repeated layer by layer until the
whole build is complete.
In order to maximise the revenue opportunity and expedite
time-to-market for Xaar 3D's products, on 11 July 2018, Xaar
announced a joint investment agreement with SSYS to develop 3D
printing solutions based on high speed sintering technologies,
forming Xaar 3D. Xaar's position in the 3D business is one of
technology enabler and our end goal has been, and remains to,
supply printheads for use in 3D applications and not become an OEM
in the sector. That was the rationale behind our joint venture
agreement with SSYS, a recognised leader in 3D with a proven track
record and strong routes to market, and the subsequent option
agreement signed with SSYS.
For the year ended 31 December 2020, Xaar 3D generated a loss
before tax of approximately GBP6.4 million. The value of the gross
assets of Xaar 3D as at 31 December 2020 was approximately GBP10.0
million.
For the six months ended 30 June 2021, Xaar 3D recorded a loss
of GBP3.5 million, up from GBP2.9 million recorded over the six
months ended 30 June 2020. The increased level of losses in the
business primarily relate to R&D expenses recognised in the
period, which increased by GBP0.5 million compared to H1 2020.
Background to and reasons for the amendment to the terms of the
Option Agreement
On 12 September 2019, Xaar announced that it had entered into an
agreement with SSYS to sell 20 per cent of the enlarged share
capital of Xaar 3D to SSYS for US$10 million (which was implemented
in combination with an additional issuance of shares by Xaar 3D to
SSYS), and grant SSYS a call option to acquire the remaining 55 per
cent of Xaar 3D not held by SSYS for at least US$33 million.
Exercising such Call Option would entitle Xaar to receive a two
percent royalty on Xaar 3D products and services sales for up to 15
years, subject to a US$10 million cap. At the point of entering
into the Call Option, Xaar 3D was recapitalised and Xaar 3D's
funding was deemed sufficient to operate the business through to
full commercialisation, with the sale of initial products being
contributed to by the Group and SSYS.
In April 2020, the Board announced its strategy to return the
Group to profitability and deliver sustainable growth for the long
term. This included focussing on the Group's printhead business and
Xaar Bulk technology; to focus on the Group's product print system
business, ("EPS"); to utilise existing technologies and expand into
adjacent markets; and to execute its 3D business unit strategy
following the investment by SSYS in Xaar 3D in 2019.
As announced on 30 September 2020 in the Company's interim
results for the six months ended 30 June 2020, the focus for Xaar
3D for 2020 was the successful testing of machines, shipping these
machines to SSYS for beta trials and establishing the go-to-market
teams and infrastructure prior to product launch. The Company
announced on 14 January 2021 in its year end trading update that
further progress with product development and testing in Xaar 3D,
despite continued COVID-19 related delays, was made and the Company
continues to work closely with SSYS to optimise the approach to
commercialisation of the Xaar 3D product range.
It was announced on 27 April 2021, in the Company's results for
the year ended 31 December 2020, that whilst Xaar 3D continued to
make progress over 2020, it was impacted by the COVID-19 pandemic,
which affected the programme most significantly in two areas.
Firstly, due to restrictions put in place in Denmark, the number of
people able to access the Copenhagen facility has been limited, and
these limitations have restricted both the test capacity and the
speed at which testing can take place. Secondly, travel
restrictions have prevented the team from travelling and has meant
face-to-face time with the sub-contract manufacturer has also been
limited and has affected the program timeline.
Due to delays caused by the impact of the COVID-19 pandemic on
the development of Xaar 3D products, the Directors believe there is
a risk that the Xaar 3D programme may take longer than anticipated
when it entered into the Call Option, and subsequently the Company
would be required to commit additional cash funding to Xaar 3D of
up to US$10 million over the next two years. Subsequently, in the
announcement of the Company's results for the year ended 31
December 2020, it was stated that Xaar 3D was classified as a
discontinued operation and is held on the Group's balance sheet as
an asset held for sale. Additionally, the delays in the programme
increase the risk of Stratasys deciding to not exercise the
original Call Option and means Xaar considers it to be unlikely
that Stratasys would exercise their option before the end of
2022.
The Board announced on 14 September 2021 in the Company's
results for the six months ended 30 June 2021, that its printhead
business continues to perform well, with a growing pipeline of new
product development. The Board believes the Group's ImagineX
platform, which builds upon several technology and development
programmes from the Group's legacy Bulk and Thin Film investment,
is driving the next phase of Xaar's success by enabling the
business to increase its addressable market whilst establishing
market leading products across all sectors. The Board added that
the Company's continued strong performance which, despite
challenging market conditions, demonstrates the positive momentum
its strategy is driving across the business.
On 12 July 2021 the Board announced the completion of the
acquisition of FFEI Limited ("FFEI"), a leading integrator and
manufacturer of industrial digital inkjet systems and digital life
science technology for an initial cash consideration of GBP3.7
million, which reflected existing FFEI free cash reserves, with an
additional GBP5.4 million deferred consideration to be paid out
over three years (the "Acquisition"). The Acquisition of FFEI
strengthens Xaar's capabilities and skills and will accelerate
Xaar's existing growth strategy.
The Board, therefore, believes that its sole focus on delivering
its printhead and print systems strategy will be vital to the
future success of the business, and investment of both management
time and capital (including the application of the proceeds from
the Revised call Option) should be prioritised in these business
lines and not Xaar 3D as the underpin to the Group's future
growth.
Proposed amendments to the terms of the Call Option
The payment terms of the Revised Call Option are as follows:
-- A fixed payment of US$12.83 million will become immediately
payable in cash on exercise of the Call Option.
-- Payments totalling US$4.63 million will become payable in
three instalments, subject to the achievement of three agreed Xaar
3D revenue milestones during the five years following completion.
The three agreed Xaar 3D revenue milestones are as follows:
1. upon Xaar 3D achieving cumulative revenue of US$10 million,
US$593,750 shall become payable to Xaar ("Milestone 1");
2. upon Xaar 3D achieving cumulative revenue of US$30 million
(which, for the avoidance of doubt, shall include the revenues
counted in achieving Milestone 1), US$2,018,750 shall become
payable to Xaar ("Milestone 2"); and
3. upon Xaar 3D achieving cumulative revenue of US$90 million
(which, for the avoidance of doubt, shall include the revenues
counted in achieving Milestone 1 and Milestone 2), US$2,018,750
shall become payable to Xaar ("Milestone 3") (Milestone 1,
Milestone 2 and Milestone 3 together being the "Milestones").
-- The cap on the Two Per Cent Initial Earn-out is to be
increased by US$6.375 million to US$16.375 million and the level of
earn-out shall be increased from two per cent. to three per cent.
of the gross revenue of SSYS, Xaar 3D and their affiliates which is
recognised as earned from sales of Xaar 3D's products and services
during the relevant period.
The payment due to be received by Xaar following the exercise of
the Revised Call Option by SSYS will, therefore, be US$12.83
million and the aggregate of the Initial Consideration together
with the Three Per Cent Revised Earn-out and the Earn-out Payments
is, therefore, up to US$33.83 million.
Pursuant to the terms of the Call Option Amendment Agreement
SSYS and Xaar 3D Holdings have undertaken to exercise the Revised
Call Option, conditional amongst other matters, upon approval by
the Shareholders of the amendment to the Call Option, and which
will result in the sale of Xaar 3D to SSYS.
In addition to the financial terms detailed above, the Call
Option Amendment Agreement includes terms consistent with a
transaction of this nature including a non-compete undertaking
pursuant to which the Company and its affiliates agree not to
compete with the business of Xaar 3D for a period of three years
from the date of completion, certain warranties and indemnities not
considered to be unusual for a transaction of this nature and
certain escrow terms to enable SSYS access to the Company's
print-head technology in the unlikely event of the insolvency of
the Company so as to enable SSYS to continue to manufacture the
Xaar 3D products in such circumstances.
Whilst the Company has, in accordance with the terms of the Call
Option Amendment Agreement, undertaken to procure that Xaar 3D
Holdings shall perform on demand any of its obligations or
undertakings under the Call Option Amendment Agreement, including
any obligation to pay on demand any amount that Xaar 3D Holdings is
liable to pay under the Call Option Amendment Agreement (and shall
upon the default of any such payment obligation, pay and discharge
that obligation on behalf of Xaar 3D Holdings), the liability of
Xaar 3D Holdings under the warranties and indemnities included in
the Call Option Amendment are, with the exception of certain
warranties and indemnities given in relation to intellectual
property (the "IP Warranties & Indemnities"), subject to a
buy-side warranty and indemnity insurance policy (the "W&I
Policy") that has been entered into in connection with the Call
Option Amendment Agreement. Pursuant to the terms of the W&I
Policy, the sole recourse of SSYS under those warranties and
indemnities (not being the IP Warranties & Indemnities) in
excess of GBP1.00 is to bring a claim against the W&I Policy.
With regards to the IP Warranties & Indemnities, any recourse
of SSYS is limited to any amounts of the Three Per Cent Revised
Earn-out that actually becomes payable following the receipt of a
claim against the IP Warranties & Indemnities and there would
be no recourse against any amounts of the Three Per Cent Revised
Earn-out already paid at such time, nor against the Initial
Consideration or any Earn-out Payments.
In connection with the Revised Call Option a new supply
agreement has been entered into between Xaar 3D, XaarJet and SSYS
on 6 October 2021 (the "New Supply Agreement") conditional upon
completion of the Revised Call Option. The existing Supply
Agreement (as defined below) shall be superseded by the New Supply
Agreement and shall terminate upon completion of the Revised Call
Option.
In addition a new service agreement to cater for certain
transitional services has been entered into between the Company and
Xaar 3D on 6 October 2021 (the "New Service Agreement") conditional
upon completion of the Revised Call Option. The existing Service
Agreement (as defined below) shall be superseded and shall
terminate upon completion of the Revised Call Option.
The New Supply Agreement will be for a minimum duration of five
years and thereafter it shall automatically renew for a term of
three years unless either party serves notice to terminate.
Pursuant to the terms of the New Supply Agreement, XaarJet has
agreed to supply SSYS with printheads at an agreed level of pricing
with XaarJet having the ability to upwardly adjust such pricing
subject to certain usual restrictions. Save for certain specified
amendments, XaarJet's standard warranty conditions shall apply to
the printheads supplied under the New Supply Agreement.
The purpose of the New Service Agreement is to cater for certain
transitional services required by SSYS following the exercise of
the Revised Call Option. Pursuant to the terms of the New Service
Agreement Xaar has agreed to provide Xaar 3D with certain ordinary
course transitional services, including with regards to the
provision of office space, finance and accounts support,
procurement management and information technology, at an agreed
level of pricing. The New Service Agreement provides SSYS with such
transitional services for a period of 90 days from completion of
the Revised Call Option, unless terminated earlier for convenience
by SSYS, and save that certain services relating to the provision
of office space shall continue until the lease relating to such
office space is formally transferred from the Company to Xaar 3D.
The liability of the Company under the New Service Agreement shall
be limited to the fees payable to the Company thereunder.
General Meeting
As noted above, the Revised Call Option is subject to the
passing of the Resolution at the General Meeting. A notice
convening the General Meeting, to be held at the offices of Xaar at
1 Hurricane Close, Ermine Business Park, Huntingdon,
Cambridgeshire, PE29 6XX UK at 10.00 a.m. on 25 October 2021, is
set out at Part IV of the shareholder circular to be published.
The General Meeting is being convened for the purposes of
considering and, if thought fit, passing the Resolution which is
required to implement the Revised Call Option.
Timetable
Latest time and date for receipt of 10.00 a.m. on 21 October
proxy vote from Shareholders for the 2021
General Meeting
Latest time and date for receipt of 10.00 a.m. on 21 October
CREST proxy instructions from Shareholders 2021
Voting Record Time for General Meeting 10.00 a.m. on 21 October
2021
General Meeting 10.00 a.m. on 25 October
2021
Expected date of Completion 1 November 2021
Notes:
(1) The times and dates set out in the expected timetable of
principal events above and mentioned throughout this announcement
may be adjusted by Xaar (in consultation with Investec), in which
event details of the new times and dates will be announced to a
Regulatory Information Service.
(2) References to times in this announcement are to London time unless otherwise stated.
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END
MSCUPGCCUUPGPPA
(END) Dow Jones Newswires
October 06, 2021 02:00 ET (06:00 GMT)
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