Pre-Annual General Meeting Information • Apr 25, 2014
Pre-Annual General Meeting Information
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.
If you have sold or otherwise transferred all your Ordinary Shares in QinetiQ, please send this document, together with the accompanying Form of Proxy, as soon as possible, to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee. If you have sold or otherwise transferred only part of your holding, you should retain these documents.
The distribution of this document and accompanying documents in or into jurisdictions other than the United Kingdom may be restricted by local law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws or regulations of such jurisdictions.
(Incorporated and registered in England and Wales No. 04586941)
Proposed disposal of QinetiQ's US Services division and £150 million capital return to shareholders by way of share buyback and Notice of General Meeting
This document should be read as a whole. Your attention is drawn to the letter from the Chairman of QinetiQ which is set out on pages 2 to 7 of this document and recommends you to vote in favour of the resolutions to be proposed at the General Meeting referred to below. Your attention is also drawn to the risk factors set out in Part II (Risk Factors) of this document.
Notice of a General Meeting of QinetiQ Group plc, to be held at 10.00 a.m. on 13 May 2014 at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA, is set out at the end of this document. The Form of Proxy for use at the meeting accompanies this document and, to be valid, should be completed and returned to the Company's registrars, Equiniti at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA as soon as possible and, in any event, so as to arrive by no later than 10.00 a.m. on 9 May 2014. Completion and return of the Form of Proxy will not preclude Shareholders from attending and voting in person at the General Meeting, should they wish to do so.
J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove) (''J.P. Morgan Cazenove'') which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for QinetiQ and no one else in connection with the Disposal and will not be responsible to anyone other than QinetiQ (whether or not a recipient of this document) for providing the protections afforded to its clients or for giving advice in connection with the Disposal, the contents of this document or any of the transactions, arrangements or other matters referred to or contained in this document.
UBS Investment Bank which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority is acting exclusively for QinetiQ and no one else in connection with the Disposal and will not be responsible to anyone other than QinetiQ (whether or not a recipient of this document) for providing the protections afforded to its clients or for giving advice in connection with the Disposal, the contents of this document or any of the transactions, arrangements or other matters referred to or contained in this document.
Apart from the responsibilities and liabilities, if any, which may be imposed upon J.P. Morgan Cazenove and UBS Investment Bank by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, neither J.P. Morgan Cazenove nor UBS Investment Bank accepts any responsibility whatsoever nor makes any representation or warranty, express or implied, concerning the contents of this document, including its accuracy, completeness or verification, or concerning any other statement made or purported to be made by them, or on their behalf, in connection with QinetiQ or the Disposal and nothing in this document is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Each of J.P. Morgan Cazenove and UBS Investment Bank accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to herein) which they might otherwise have in respect of this document or any such statement.
The delivery of this document shall not imply that there has been no change in the Company's affairs or that the information set forth in this document is correct as of any date subsequent to the date hereof.
| Directors | Mark Elliott (Non-Executive Chairman) Leo Quinn (Chief Executive Officer) David Mellors (Chief Financial Officer) Michael Harper (Deputy Chairman and Senior Independent Non-Executive Director) Noreen Doyle (Non-Executive Director) Admiral Sir James Burnell-Nugent (Non-Executive Director) Paul Murray (Non-Executive Director) Susan Searle (Non-Executive Director) |
|---|---|
| Company Secretary | Jon Messent |
| Registered Office | Cody Technology Park Ively Road Farnborough Hampshire GU14 0LX |
| Joint Sponsor and joint financial adviser |
J.P. Morgan Limited 25 Bank Street London E14 5JP |
| Joint Sponsor and joint financial adviser |
UBS Limited 1 Finsbury Avenue London EC2M 2PP |
| Joint financial adviser | Stone Key Partners LLC 2 Sound View Drive 2nd Floor Greenwich CT 06830 |
| Legal Advisers to the Company as to English Law |
Ashurst LLP Broadwalk House 5 Appold Street London EC2A 2HA |
| Legal Advisers to the Company as to US Law |
Stroock & Stroock & Lavan LLP 180 Maiden Lane New York NY 10038 |
| Legal Advisers to the Joint Sponsors | Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG |
| Auditors and Reporting Accountants to the Company |
KPMG LLP 15 Canada Square London E14 6GL |
| Registrar | Equiniti Limited Aspect House Spencer Road, Lancing West Sussex BN99 6DA |
| Event | Expected time/date |
|---|---|
| Announcement of the Disposal | 7.00 a.m. on 22 April 2014 |
| Latest time and date for receipt of Forms of Proxy | 10.00 a.m. on 9 May 2014 |
| General Meeting | 10.00 a.m. on 13 May 2014 |
| Longstop date for completion of the Disposal | 20 August 2014 |
Future dates are indicative only and are subject to change by the Company, in which event details of the new times and dates will be notified to the FCA and, where appropriate, to Shareholders.
References to times in this document are to London time.
| Page | |
|---|---|
| PART I—LETTER FROM THE CHAIRMAN OF QINETIQ GROUP PLC |
2 |
| PART II—RISK FACTORS | 8 |
| PART III—PRESENTATION OF INFORMATION | 10 |
| PART IV—FINANCIAL INFORMATION RELATING TO THE US SERVICES DIVISION | 12 |
| PART V . |
14 |
| SECTION A—UNAUDITED PRO FORMA FINANCIAL INFORMATION | 14 |
| SECTION B—ACCOUNTANTS' OPINION ON PRO FORMA FINANCIAL INFORMATION . |
17 |
| PART VI—PRINCIPAL TERMS OF THE PROPOSED DISPOSAL | 19 |
| PART VII—ADDITIONAL INFORMATION . |
22 |
| PART VIII—DEFINITIONS | 30 |
| PART IX—DOCUMENTS INCORPORATED BY REFERENCE | 33 |
| NOTICE OF GENERAL MEETING | 34 |
Incorporated and registered in England and Wales, Registration No. 04586941
Directors: Registered Office: Cody Mark Elliott (Non-Executive Chairman) Technology Park Leo Quinn (Chief Executive Officer) Ively Road David Mellors (Group Finance Director) Farnborough Michael Harper (Deputy Chairman and Senior Independent Hampshire Non-Executive Director) GU14 0LX Noreen Doyle (Non-Executive Director) Admiral Sir James Burnell-Nugent (Non-Executive Director) Paul Murray (Non-Executive Director) Susan Searle (Non-Executive Director)
25 April 2014
Dear Shareholder
On 22 April 2014, the Board of QinetiQ announced that it had entered into a conditional agreement to sell its US Services division (excluding Cyveillance) to The SI Organization, Inc. for an initial cash consideration of US\$165 million (approximately £100 million), together with a potential earnout of up to US\$50 million in cash. The earnout is based on the gross profit performance of the US Services division in the financial year ending 31 March 2015.
Following completion of the Disposal and subject to prevailing equity market conditions, it is the Company's intention to return £150 million to Shareholders by way of an on-market share buyback. This return of capital is equivalent to 10.2 per cent of the Company's market capitalisation as at 17 April 2014.
The Disposal, because of its size in relation to the Group, is a Class 1 transaction for QinetiQ under the Listing Rules and is therefore conditional, amongst other things, upon the approval of Shareholders. A General Meeting is to be held on 13 May 2014 for the purpose of seeking such approval. Shareholder approval will also be required to provide authority for the Company to implement the intended share buyback. A notice convening the General Meeting, at which the Resolutions will be proposed, is set out at the end of this document.
The purpose of this document is to provide details of the Disposal and the proposed share buyback and to explain why the Board considers the Disposal and the share buyback to be in the best interests of QinetiQ and its Shareholders as a whole.
Shareholders should read the whole of this document and not just rely on the summarised information set out in this letter.
On 23 May 2013, in conjunction with its preliminary results for the year ended 31 March 2013, the Group announced it had initiated a strategic review of the US Services division to determine the best route to maximise its value. The strategic review excluded Cyveillance, which provides open source threat intelligence and remediation and which was formerly reported as part of the US Services division. It also excluded the US element of the Global Products division, which delivers technology-based solutions and contract funded research and development.
The strategic review was initiated because the US Services division was not delivering on its role in the portfolio, which, as a small player in a large market, was to grow profitably by building market share. At its current size (£463.8 million revenue in the year ended 31 March 2013, excluding Cyveillance) the US Services division is not large enough to benefit from economies of scale. Since scale and revenue growth are important factors in achieving both competitive rates and profitability, the underperformance was also impacting the division's profit contribution to the Group.
As competition has increased and lowest-price-technically-acceptable purchasing criteria have become more prevalent in the US federal services market, costs in the US Services division have been controlled tightly in order to maintain competitive rates. However QinetiQ, as a UK-listed company operating in the US defence and security market, faces additional administrative obligations and costs associated with the US National Industrial Security Program to which the Purchaser, as a US-domiciled company, will not be subject.
In addition, synergies of the US Services division with the broader Group have proved to be limited. The US Services division is focused predominantly on the domestic US market with many of its securitycleared employees working on federal customers' sites.
The Board recognises that with ongoing reductions in US federal government expenditure, there is likely to be consolidation in the US federal services market and believes that there are clear benefits to being at the forefront of this trend.
The Group has worked with its advisers to evaluate its options, including a market testing exercise announced in November 2013. Following completion of the strategic review, the Board concluded that a sale of the US Services division provided the best route to maximise value for Shareholders.
The market testing process that was conducted as part of the strategic review attracted a number of interested parties. The Board believes that this competitive process has ensured that the initial cash consideration of US\$165 million (approximately £100 million), plus a potential earnout of up to US\$50 million in cash, recognises the market position and future prospects of the US Services division and that the Disposal will maximise value for Shareholders.
The US Services division is a provider of technical services and solutions to the US federal government. The division has a broad customer base both within and beyond defence. As at 30 September 2013, the US Services division employed approximately 3,000 people.
The businesses in the US Services division comprise:
The Disposal does not include Cyveillance, which is based in the US and was formerly reported as part of the US Services division. The US element of the Group's Products division was also excluded from the strategic review and does not form part of the Disposal.
A summary of the trading results (on an IFRS basis) for the US Services division for the three years ended 31 March 2013 and the six months ended 30 September 2013 is set out below:
| US Services(1) trading results | ||||
|---|---|---|---|---|
| FY11 | FY12 | FY13 | Six months ended 30 September 2013 |
|
| £m | £m | £m | £m | |
| Revenue | 577.2 | 523.7 | 463.8 | 222.2 |
| Underlying operating profit | 43.7 | 37.1 | 23.7 | 10.1 |
| Profit/(loss) before tax(2) | 33.7 | 28.0 | (240.7) | 6.0 |
(1) Restated to exclude Cyveillance
(2) Includes impairment of goodwill and amortisation of intangible assets arising from acquisitions
The operating profit generated by the US Services division is subject to US corporation tax regulations and rates. As at 30 September 2013, the US Services division had gross assets (including goodwill) of £296.0 million and net assets (including goodwill) of £232.3 million.
Except where otherwise identified, the financial information in this paragraph has been extracted without material adjustment from the financial information contained in Part IV (Financial Information relating to the US Services division) of this document. Shareholders should read the whole of this document and not just rely on the summarised financial information set out in this Part I (Letter from the Chairman of QinetiQ Group plc).
QinetiQ is a defence, aerospace and security company which offers high-end, technical expertise underpinned by world-class research and innovation. The Group supplies advice, assurance, test and evaluation, engineering solutions and training to governments and commercial organisations internationally. Following the Disposal it will operate two divisions: EMEA Services and Global Products.
Having delivered on the goals of its 24-month self-help programme, including the strengthening of its balance sheet, in May 2012 the Group set out the next phase of its development, the 'Organic-Plus' strategy, to continue growing sustainable earnings. The Directors believe that the Group will meet its goals of delivering an increase in sustainable earnings by investing in its strong 'Core' businesses which have the capabilities to win market share in both the UK and international markets. The intellectual property developed by the 'Core' businesses through working with customers provides the Group with a dynamic source of both domain knowledge and potential future offerings. The Group is nurturing a select number of established ('Explore') services and solutions, including OptaSense, Cyveillance, and Training and Simulation Services, to determine their ability to scale into significant future revenues particularly in new sectors, accelerated as appropriate by alliance and acquisitions. At the same time, early stage ('Test for Value') offerings, such as ALARM-, Integrated Warrior and Power Line Sensors are evaluated as they are generated to determine their potential for value and how best to realise this, including through partnerships and licensing.
Following the Disposal, the Board considers the Retained Group to be highly differentiated and better positioned to deliver an increase in sustainable earnings from its Organic-Plus strategy.
The Board also believes that the cash generative nature of the Retained Group will continue to support both ongoing investment in the business and a progressive dividend policy.
Following the Disposal, the retained US element of the Global Products division will remain subject to a new proxy agreement. The existing Proxy Agreement which applies to the US Services division is more particularly described at paragraph 5.1(e) of Part VII (Additional Information).
The Group is highly cash generative and disciplined about cash generation. As at 30 September 2013, the Group had £120.5 million of net cash.
The initial gross cash consideration from the Disposal is US\$165 million plus a potential earnout of up to US\$50 million in cash, based on the gross profit performance of the US Services division in the financial year to 31 March 2015.
The net cash proceeds from the Disposal, after transaction costs, are expected to be approximately US\$155 million (approximately £94 million), excluding the contingent, deferred consideration of up to US\$50 million.
Following completion of the Disposal, the Group will make a one-off cash payment of £6 million into its UK defined benefit pension scheme and an early repayment of its remaining private placement debt of approximately US\$248 million (£150.3 million), with associated accelerated interest costs of approximately US\$47.1 million (£28.5 million), subject to market rates on the date of repayment. This early repayment of private placement debt will improve the efficiency of the Group's balance sheet through the removal of borrowings which are no longer required. Following recognition of the accelerated interest costs on repayment of the private placement debt, future interest expense will be reduced by approximately £12 million per year. The Group retains revolving credit facilities with a total value of £272.5 million at its last balance sheet date which are undrawn.
Following completion of the Disposal, the Company also intends to return £150 million to shareholders (equal to approximately 10.2 per cent of the Company's market capitalisation as at 17 April 2014) by way of an on-market share buyback subject to prevailing equity market conditions and a resolution approving the buyback of shares up to a limit of 14.99 per cent of the Company's issued share capital is to be proposed at the General Meeting. The minimum price that may be paid for each Ordinary Share is 1 pence which amount shall be exclusive of expenses, if any, and the maximum price (exclusive of expenses) that may be paid for each Ordinary Share is an amount equal to the higher of: (i) 105 per cent of the average of the middle market quotations for the Ordinary Shares as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which such share is contracted to be purchased; and (ii) the higher of the price of the last independent trade and the highest current independent bid on the trading venues where the purchase is carried out, as stipulated by article 5(1) of the EU Buyback and Stabilisation Regulation 2003 (No. 2273/2003).
The Directors believe that, once complete, the net effect of the Disposal together with the share buyback and the early repayment of private placement debt will be earnings enhancing.
The Board believes that the scale of the proposed share buyback reflects the continuing strong cash-generative characteristics of the Group and its confidence in the Organic-Plus strategy, while taking into account the continuing uncertainty in QinetiQ's end markets, its pension obligations and its current working capital position. The Group is committed to maintaining an efficient balance sheet.
In the event that Ordinary Shares are purchased pursuant to the share buyback authority they may either be cancelled (and the number of Ordinary Shares in issue would be reduced accordingly) or, in accordance with the Companies Act 2006, be retained as treasury shares. The Company will consider holding repurchased Ordinary Shares pursuant to the authority conferred by the Buyback Resolution as treasury shares. This would give the Company the ability to re-issue treasury shares quickly and cost effectively and would provide the Company with additional flexibility in the management of its capital base.
As at 24 April 2014, the total number of options and awards over Ordinary Shares that were outstanding under all of the Company's share option and award plans was 18,085,376, which if exercised would represent 2.7 per cent of the Company's issued share capital at that date. If the Company were to purchase Ordinary Shares to the fullest possible extent of its authority from shareholders (existing and being sought), this number of outstanding options could potentially represent 3.2 per cent of the issued ordinary share capital of the Company.
The Board is confident that the Group's Organic-Plus strategy will deliver value to shareholders over the medium term and retains its progressive dividend policy. The strength of the Retained Group means that the dividend per Ordinary Share will not be re-based as a result of the Disposal.
Under the terms of the Share Purchase Agreement, which was signed on 22 April 2014, QinetiQ US Holdings Inc., an indirect subsidiary of QinetiQ Group plc, has conditionally agreed to sell the entire issued share capital of QinetiQ North America, Inc. The initial cash consideration for the Disposal is US\$165 million (approximately £100 million), which is subject to certain standard closing adjustments as described in more detail in Part VI (Principal Terms of the Proposed Disposal) of this document, together with a potential earnout of up to US\$50 million in cash. The earnout is scheduled to be payable no earlier than 1 April 2015 on a sliding scale between zero and US\$50 million based on gross profit generated by the US Services division between US\$100 million and US\$132 million in the financial year ending 31 March 2015. The gross profit of the US Services division, excluding Cyveillance, was US\$67 million in the half year ended 30 September 2013.
Completion of the Disposal is conditional (among other things) upon (i) the Disposal Resolution being passed by the Shareholders at the General Meeting; (ii) the receipt of certain US Government approvals and/or authorisations (for example, a Hart-Scott-Rodino anti-trust filing) and there not being in effect any governmental order making the Disposal illegal, or otherwise restraining or prohibiting Completion; and (iii) there not having occurred any Material Adverse Effect within the US Services division between the date of the Share Purchase Agreement and the date of Completion. The Disposal is expected to
complete by no later than 20 August 2014. The parties may terminate the Share Purchase Agreement if these conditions are not satisfied on or before 20 August 2014.
The Purchaser is a portfolio company of The Veritas Capital Fund IV, L.P. (''Veritas''), a US-based private equity fund. The Purchaser intends to fund US\$150 million of the initial consideration through bank borrowings in respect of which it has entered into facility commitment letters subject to a limited number of conditions and all of which the Purchaser has warranted it believes will be satisfied at or prior to Completion of the Disposal. With regard to the balance of the initial consideration, at completion, the Purchaser will fund this through existing resources or equity funding which has been committed by Veritas (such commitment being capped at US\$15 million).
The principal terms of the Share Purchase Agreement, together with certain ancillary agreements entered into in connection with the Disposal, are summarised in Part VI (Principal Terms of the Proposed Disposal) of this document.
QinetiQ announced its unaudited interim results on 21 November 2013 for the half year ended 30 September 2013 which saw:
The Group's performance was described in the Chief Executive's statement as follows:
''We continue to reshape the Group through our Organic-Plus strategy. Of the 'Core' businesses, EMEA Services has generated a robust performance with encouraging order intake and is expected to remain steady this year. Despite heightened market uncertainty, US Services is stabilising and the strategic review of this division will determine the path to maximum value. As expected, Global Products has seen a decrease in conflict-related sales and continues to work on broadening its portfolio especially beyond defence. Our newer 'Explore' businesses are making good progress with several strategic wins building a foundation for future growth.''
The outlook for the Group was described in the Chief Executive's statement as follows:
''Although the short-term range of possible outcomes remains wider than usual, particularly in Global Products, the Board is maintaining its expectations for overall Group performance in the current year absent any material changes in customer requirements. Over the medium term, our confidence that our 'Core' businesses and newer growth opportunities will drive an increase in sustainable earnings is reflected in the increased interim dividend.''
The Group's pre-close trading update, dated 28 March 2014, confirmed that the Group remained on course to deliver on its expectations for the financial year ended 31 March 2014. The Group will announce its preliminary results for the year ended 31 March 2014 on 22 May 2014.
Shareholders should consider fully the risk factors set out in Part II (Risk Factors) of this document.
A notice convening a General Meeting of the Company to be held at 10.00 a.m. on 13 May 2014 at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA is set out at the end of this document. A Form of Proxy to be used in connection with the General Meeting is enclosed. The purpose of the General Meeting is to seek Shareholders' approval for the Disposal and authority for the Company to implement the intended share buyback.
You will find enclosed a Form of Proxy for use at the General Meeting. Whether or not you intend to be present at that meeting, you are requested to complete the Form of Proxy (in accordance with the instructions printed thereon) and return it to the Company's registrars, Equiniti Limited at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA as soon as possible and, in any event, so as to arrive by 10.00 a.m. on 9 May 2014. Completion and return of a Form of Proxy will not preclude you from attending the General Meeting and voting in person if you so wish.
Your attention is drawn to the further information contained in Parts III (Presentation of Information) to IX (Documents Incorporated by Reference) of this document.
You are advised to read the whole of this document and not to rely solely on the information contained in this letter.
The Board has received financial advice from J.P. Morgan Cazenove, UBS Investment Bank and Stone Key Partners LLC in relation to the Disposal. In providing their financial advice to the Board, J.P. Morgan Cazenove, UBS Investment Bank and Stone Key Partners LLC have relied upon the Board's commercial assessment of the Disposal.
The Board considers the terms of the Disposal and the share buyback to be in the best interests of the Company and its Shareholders as a whole.
Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings amounting (as at 24 April 2014, being the latest practicable date prior to the posting of this document) to an aggregate of 2,279,906 Ordinary Shares, representing approximately 0.35 per cent of the Ordinary Shares in issue.
Yours faithfully,
Mark Elliott Chairman
The following risk factors, which the Directors believe include all known material risks relating to the Disposal, should be carefully considered by Shareholders together with all information included or incorporated by reference into this document when deciding what action to take in relation to the Disposal. If any or a combination of the following risks actually occurs, the business, financial condition, results of operations or prospects of the Retained Group (or the Group if the Disposal does not take place) could be adversely affected. In such case, the market price of the shares could decline and you may lose all or part of your investment. Additional risks and uncertainties relating to the Disposal that are not currently known to the Directors, or that the Directors currently deem immaterial, could also have a material adverse effect on the Retained Group (or the Group if the Disposal does not take place).
Following the Disposal, although the fact that the Retained Group will no longer include the US Services division is not in itself expected to result in material disruption to its operations, the Retained Group will be smaller and its overall financial performance will depend to a greater extent on the performance of each of its remaining continuing operations.
For the year ended 31 March 2013, the US Services division contributed revenue of £463.8 million and underlying operating profit of £23.7 million which represented 35 per cent and 14 per cent of Group revenue and underlying operating profit respectively.
Should any one of its continuing operations underperform, this would have a larger relative impact on the Retained Group than would have been the case prior to the Disposal and may materially adversely affect the Retained Group's business, financial condition, results of operations and prospects.
Furthermore, following the Disposal the Retained Group will become more dependent on the MOD which in the year ended 31 March 2013, represented 35 per cent of revenue. Excluding the US Services division, the MOD would have represented 54 per cent of revenue for the same year.
The Company may not realise all of the anticipated benefits of the Disposal set out in Part I (Letter from the Chairman of QinetiQ Group plc) of this document. The Company may encounter unforeseen substantial difficulties in achieving these anticipated benefits and/or these anticipated benefits may not materialise.
The SPA contains certain indemnities given by the Seller in favour of the Purchaser that will survive Completion. The Seller may be required in the future to make payments under such indemnities in the SPA (in certain cases, subject to certain caps). If so, this may materially adversely affect the Retained Group's business, financial condition, results of operations and prospects.
Further details of the SPA are set out in Part VI (Principal Terms of the Proposed Disposal) of this document.
During the period from signing of the SPA on 22 April 2014 to Completion, events at or developments in the US Services division may occur, such as a material improvement in the current trading of the US Services division. Such events or developments could make the terms of the SPA less attractive for the Company. If the conditions to Completion in the SPA are satisfied, the Seller will be obliged to complete the Disposal notwithstanding such events or developments.
The above events and/or developments may have an adverse effect on the business, financial condition and results of the operations of the Retained Group.
The consideration for the Disposal includes a potential earnout of up to US\$50 million in cash. The amount received will be dependent upon gross profit generated by the US Services division in the financial year ending 31 March 2015. Consequently the sums actually realised by way of the earnout arrangements may be less than the maximum entitlement. The earnout payment will also be made in US dollars. If the US dollar exchange rate to sterling moves materially prior to Completion of the Disposal it may adversely (or positively) impact the Retained Group's financial position post-transaction.
The Retained Group will continue to be dependent on the US Services division for a period of six months and two weeks from 31 March 2014 for the provision of core service functions pursuant to the terms of a transitional services agreement dated 31 March 2014 (which is to be amended at Completion) (the ''TSA''). In the event that the US Services division becomes insolvent or fails to fulfil its contractual obligations, in whole or in part, to the requisite standards specified in the TSA, if there is a significant disruption in the supply of services to the Retained Group, or the Retained Group is unable to negotiate reasonable terms of renewal (if required), or find suitable replacement suppliers if the TSA expires or is terminated, this could have a material adverse effect on the Retained Group's reputation, business, financial condition and results of operations.
Completion of the Disposal is subject to the satisfaction of certain conditions, details of which are set out in Part VI (Principal Terms of the Proposed Disposal) of this document, including, amongst others, Shareholder approval at the General Meeting, The SI Organization, Inc. securing requisite funding, as well as regulatory and other approvals. There can be no assurance that these conditions will be satisfied or, where relevant, waived. In the event that any condition is not satisfied or waived, the Disposal will not proceed.
The Board is of the opinion that the Disposal is in the best interests of the Company and its Shareholders as a whole as it will maximise the value of the US Services division as set out in Part I (Letter from the Chairman of QinetiQ Group plc). In the absence of a Disposal, the US Services division faces challenges from ongoing reductions in US federal government expenditure, likely sector consolidation, and being too small to benefit from economies of scale. These factors underpin the Board's belief that the Disposal, which has been market tested, maximises value for Shareholders.
The Company plans to use the US dollar proceeds from the Disposal, supplemented by cash resources of the Group, to fund the early repayment of its remaining private placement debt of approximately US\$248 million (£150.3 million), maturing between 2016 and 2019, with associated accelerated interest costs of approximately US\$47.1 million (£28.5 million). Following recognition of the accelerated interests costs associated with this early repayment, this will result in savings on future interest expense. The Company may be unable to make this early repayment, and thereby realise the savings on future interest expense, should the Disposal not proceed.
The contents of this document should not be construed as legal, financial or tax advice. Shareholders should consult their own solicitor, financial adviser or tax adviser for legal, financial or tax advice.
Financial information relating to the US Services division for the years ended 31 March 2011, 2012 and 2013 and the six months ended 30 September 2013 set out in this document has been extracted without material adjustment, other than as noted in Part IV (Financial Information Relating to the US Services Division) from the consolidation schedules that underlie the Group's audited consolidated financial information for the years ended 31 March 2011, 2012 and 2013 and the unaudited interim financial information of the Group for the period ended 31 September 2013. The historical financial information represents the current composition of the US Services division and the financial information in respect of the components that have previously been divested have been excluded.
The risk factors set out in Part II (Risk Factors) of this document are those material risk factors relating to the Disposal of which the Directors are aware. However, these should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties relating to the Disposal. Additional risks and uncertainties relating to the Disposal that are not at present known to the Directors, or that the Directors currently deem immaterial, may also have a material and adverse effect on the Group's business, financial condition, results of operations and prospects.
No statement in this document or incorporated by reference into this document is intended to constitute a profit forecast or profit estimate for any period, nor should any statement be interpreted to mean that earnings or earnings per share will necessarily be greater or lesser than those for the relevant preceding financial periods for any member of the Group as appropriate.
Certain statements contained in this document, including those in Part II (Risk Factors) constitute ''forward-looking statements''. In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''plans'', ''prepares'', ''anticipates'', ''expects'', ''intends'', ''may'', ''will'' or ''should'' or, in each case, their negative or other variations or comparable terminology. Shareholders should specifically consider the factors identified in this document, which could cause actual results to differ, before making any decision whether to vote in favour of the Resolutions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. Such risks, uncertainties and other factors include those set out more fully in Part II (Risk Factors) and include, among others: general economic and business conditions, industry trends, competition, changes in government regulation, economic downturn and the Group's ability to implement expansion plans. These forwardlooking statements speak only as at the date of this document. Except as required by the FCA, the Listing Rules, the Prospectus Rules, the DTRs, the London Stock Exchange, applicable law or relevant regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. This statement does not seek to qualify the working capital statement given at paragraph 6 of Part VII (Additional Information) of this document.
The US Services division's historic financial information has been translated into Sterling from US Dollars at the following rates of exchange, unless otherwise stated:
| Income statement(1) | Balance sheet | |
|---|---|---|
| 6 months to 30 September 2013 | 1.54 | 1.62 |
| Year to 31 March 2013 |
1.58 | 1.52 |
| Year to 31 March 2012 |
1.60 | 1.60 |
| Year to 31 March 2011 |
1.56 | 1.60 |
(1) These are the average exchange rates prevailing during the period.
The transaction proceeds and post-completion payments to repay private placement debt and associated accelerated interest costs have been translated into Sterling at a rate of 1.65.
Certain figures included in this document and in the information incorporated by reference into this document have been subject to rounding adjustments. Accordingly, discrepancies in tables between the totals and the sums of the relevant amounts is due to rounding.
All references in this document to time are to London time unless stated.
Capitalised terms used in this document have the meanings ascribed to them in Part VIII (Definitions) of this document.
The following historical financial information relating to the US Services division has been extracted without material adjustment, other than as noted below, from the consolidation schedules that underlie the audited consolidated financial information of the Group for the years ended 31 March 2013, 31 March 2012 and 31 March 2011 and the unaudited interim financial information of the Group for the six months ended 30 September 2013. The historical financial information represents the current composition of the US Services division and the financial information in respect of the components that have previously been divested have been excluded.
The financial information in this Part IV (Financial Information relating to the US Services division) does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The consolidated statutory accounts for the Group in respect of the financial years ended 31 March 2013, 31 March 2012 and 31 March 2011 have been delivered to the Registrar of Companies. The auditor's reports in respect of those statutory accounts were unqualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The financial information in this Part IV (Financial Information relating to the US Services division) has been prepared using the IFRS accounting policies used to prepare the consolidated financial statements of the Group for the 12 months ended 31 March 2013.
Shareholders should read the whole of this document and not rely solely on the summarised financial information in this Part IV (Financial Information relating to the US Services division).
| Six months ended 30 September |
|||
|---|---|---|---|
| 2013 | |||
| 222.2 | |||
| (211.5) | |||
| 45.9 | 39.0 | 25.4 | 10.7 |
| (2.0) | (1.8) | (1.6) | (0.6) |
| (0.2) | (0.1) | (0.1) | — |
| 10.1 | |||
| — | |||
| — | |||
| (10.0) | (9.1) | (8.6) | (3.8) |
| 6.3 | |||
| — | — | — | (0.3) |
| 6.0 | |||
| (21.0) | (15.6) | 17.6 | (2.8) |
| 12.7 | 12.4 | (223.1) | 3.2 |
| FY11 577.2 (531.3) 43.7 — — 33.7 33.7 |
FY12 523.7 (484.7) 37.1 — — 28.0 28.0 |
FY13 (£ million) 463.8 (438.4) 23.7 (246.7) (9.1) (240.7) (240.7) |
| As at 31 March 2013 |
As at 30 September 2013 |
|
|---|---|---|
| (£ million) | ||
| Non-current assets | ||
| Goodwill |
137.7 | 129.2 |
| Intangible assets | 45.1 | 38.5 |
| Property, plant and equipment | 9.1 | 7.7 |
| Deferred tax asset | 7.4 | 7.1 |
| 199.3 | 182.5 | |
| Current assets | ||
| Inventories | 0.9 | 0.7 |
| Trade and other receivables |
102.9 | 88.1 |
| Current tax | 7.5 | 3.8 |
| Cash and cash equivalents | 11.3 | 20.9 |
| 122.6 | 113.5 | |
| Total assets | 321.9 | 296.0 |
| Current liabilities | ||
| Trade and other payables | (68.9) | (57.1) |
| Provisions |
(7.4) | (3.8) |
| (76.3) | (60.9) | |
| Non-current liabilities | ||
| Provisions |
(4.0) | (1.7) |
| Other payables | (0.4) | (1.1) |
| (4.4) | (2.8) | |
| Total liabilities | (80.7) | (63.7) |
| Net assets | 241.2 | 232.3 |
The unaudited pro forma statement of consolidated net assets of the Retained Group set out below has been prepared on the basis set out in the notes below to illustrate the effect of the Disposal on the consolidated net assets of the Retained Group as at 30 September 2013 had the Disposal taken place on that date.
The unaudited pro forma statement of consolidated net assets, which has been produced for illustrative purposes only, by its nature addresses a hypothetical situation and, therefore, does not represent the Retained Group's actual financial position or results. The unaudited pro forma financial information is compiled on the basis set out in the notes below and in accordance with the requirements of Listing Rule 13.3.3R. It is based on the consolidated unaudited interim financial statements of the Group as at 30 September 2013 and on the financial information of the US Services division as at 30 September 2013 contained in Part IV (Financial Information relating to the US Services division) of this document.
Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this Part V (Unaudited Pro Forma Financial Information). KPMG's report on the unaudited pro forma statement of net assets is set out in Section B of this Part V (Accountants' Opinion on Pro Forma Financial Information).
| Adjustment: Disposal of US Services |
Adjustment: Net transaction |
Adjustment: Repayment of private placement |
Adjustment: Pension |
Pro forma as at 30 September |
||
|---|---|---|---|---|---|---|
| Group | division | proceeds | debt | contribution | 2013 | |
| (Note 1) | (Note 2) | (Note 3) | (Note 4) (£ million) |
(Note 5) | ||
| Non-current assets | ||||||
| Goodwill | 274.1 | (129.2) | 144.9 | |||
| Intangible assets | 50.0 | (38.5) | 11.5 | |||
| Property, plant and equipment | 233.6 | (7.7) | 225.9 | |||
| Other financial assets | 3.1 | 3.1 | ||||
| Investments . |
0.4 | 0.4 | ||||
| Deferred tax asset | 15.4 | (7.1) | 8.3 | |||
| 576.6 | (182.5) | — | — | — | 394.1 | |
| Current assets | ||||||
| Inventories | 20.5 | (0.7) | 19.8 | |||
| Other financial assets | 2.8 | 2.8 | ||||
| Trade and other receivables |
222.5 | (88.1) | 134.4 | |||
| Investments . |
2.2 | 2.2 | ||||
| Cash and cash equivalents | 276.5 | 94.0 | (178.8) | (6.0) | 185.7 | |
| 524.5 | (88.8) | 94.0 | (178.8) | (6.0) | 344.9 | |
| Total assets | 1,101.1 | (271.3) | 94.0 | (178.8) | (6.0) | 739.0 |
| Current liabilities | ||||||
| Trade and other payables | (394.5) | 57.1 | (337.4) | |||
| Current tax | (7.6) | (3.8) | (11.4) | |||
| Provisions |
(7.5) | 3.8 | (3.7) | |||
| Other financial liabilities |
(1.8) | (1.8) | ||||
| (411.4) | 57.1 | — | — | — | (354.3) | |
| Non-current liabilities | ||||||
| Retirement benefit obligation | (24.8) | 6.0 | (18.8) | |||
| Deferred tax liability | (3.3) | (3.3) | ||||
| Provisions |
(19.1) | 1.7 | (17.4) | |||
| Other financial liabilities |
(160.1) | 150.3 | (9.8) | |||
| Other payables | (8.7) | 1.1 | (7.6) | |||
| (216.0) | 2.8 | — | 150.3 | 6.0 | (56.9) | |
| Total liabilities | (627.4) | 59.9 | — | 150.3 | 6.0 | (411.2) |
| Net assets | 473.7 | (211.4) | 94.0 | (28.5) | — | 327.8 |
| Net cash | 120.5 | — | 94.0 | (28.5) | (6.0) | 180.0 |
Notes:
The financial information in respect of the Group has been extracted, without material adjustment, from the published unaudited interim results of the Group.
The financial information in respect of the US Services division has been extracted without material adjustment from the financial information for the US Services division set out in Part IV (Financial Information relating to the US Services division). Cash balances have been excluded, reflecting the fact that cash is excluded from the assets and liabilities to be transferred to the Purchaser.
Represents the net transaction proceeds associated with the Disposal. The consideration receivable comprises US\$165 million (£100 million) cash plus up to US\$50 million (£30 million) contingent on the future operating results of the US Services division. The pro forma includes the US\$165 million receivable (£100 million) on completion, but does not include an estimate of the contingent element of the proceeds. A deduction of £6 million has been made in respect of directly attributable transaction costs, payable to the Group's sponsors, legal advisors and accountants, including certain costs relating to the strategic review. Additionally, the board of QNA has awarded bonuses and change of control agreements to certain QNA directors and management that could result in up to £6 million of payments in accordance with the terms of these contractual arrangements. These payments are not included within the net transaction proceeds. £5 million of these payments are contingent on future conditions, for example cessation of employment with the US Services division, and £1 million of these payments are contingent upon completion of the proposed Disposal.
Canary Wharf London E14 5GL United Kingdom
KPMG LLP Tel +44 (0) 20 7311 1000 Transaction Services Fax +44 (0) 20 7311 3311 15 Canada Square DX 157460 Canary Wharf 5
The Directors QinetiQ Group plc Cody Technology Park Ively Road Farnborough Hampshire, GU14 0LX
25 April 2014
Dear Sirs
We report on the pro forma financial information (the 'Pro forma financial information') set out in Part V of the Class 1 circular dated 25 April 2014, which has been prepared on the basis described in notes 1 to 8, for illustrative purposes only, to provide information about how the transaction might have affected the financial information presented on the basis of the accounting policies adopted by QinetiQ Group plc in preparing the financial statements for the period ended 30 September 2013. This report is required by paragraph 13.3.3R of the Listing Rules of the Financial Conduct Authority and is given for the purpose of complying with that paragraph and for no other purpose.
It is the responsibility of the directors of QinetiQ Group plc to prepare the Pro forma financial information in accordance with paragraph 13.3.3R of the Listing Rules of the Financial Conduct Authority.
It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed and which we may have to Ordinary shareholders as a result of the inclusion of this report in the Class 1 circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R(6), consenting to its inclusion in the Class 1 circular.
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Registered in England No OC301540 Europe LLP and a member firm of the KPMG network of independent Registered office: 15 Canada Square, London, E14 5GL member firms affiliated with KPMG International Cooperative, a Swiss entity.
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the directors of QinetiQ Group plc.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of QinetiQ Group plc.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
In our opinion:
Yours faithfully
KPMG LLP
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Registered in England No OC301540 Europe LLP and a member firm of the KPMG network of independent Registered office: 15 Canada Square, London, E14 5GL member firms affiliated with KPMG International Cooperative, a Swiss entity.
On 22 April 2014, the Share Purchase Agreement between QinetiQ US Holdings, Inc., a United States corporation organised under the laws of the State of Delaware, the Company (solely with respect to certain sections of the Share Purchase Agreement), and The SI Organization, Inc., a United States corporation organised under the laws of the State of Delaware, was executed. Pursuant to the terms of the Share Purchase Agreement, the Seller has conditionally agreed to transfer the entire issued share capital of QNA to the Purchaser.
The principal terms of the Share Purchase Agreement are set out in this Part VI (Principal Terms of the Proposed Disposal).
Pursuant to the Share Purchase Agreement, the Company will sell the Sale Shares, and through this sale, indirectly transfer ownership of the following subsidiaries: 3H Technology, L.L.C.; 3H Technology Federal Corp.; Analex Corporation; Apogen Technologies, Inc.; Beta Analytics, Incorporated; ComGlobal Systems, Incorporated; Dominion Technology Resources, Inc.; ITS Services, Inc.; Neptune Sciences, Inc.; Pimsol, LLC; Planning Systems Incorporated; Science and Engineering Associates, Inc.; SimAuthor, Inc.; Westar Aerospace & Defense Group, Inc.; and Westar Display Technologies, Inc. (such subsidiaries are collectively referred to as the ''Included Subsidiaries'').
Completion is subject to customary closing conditions, including, inter alia:
Following the satisfaction of all the closing conditions, Completion is expected to occur no later than three business days thereafter, or on such other date as the parties may mutually agree.
If the conditions of the Seller or the Purchaser to Completion have not been satisfied on or before the 120th day following the date of the Share Purchase Agreement, the ''Drop Dead Date'', either the Seller or the Purchaser, as applicable, subject to certain conditions, has the right to terminate the Share Purchase Agreement on written notice to the other party, and the Share Purchase Agreement will cease to have effect.
Either party will also have the right to terminate the transaction if, inter alia, there shall be any law that makes consummation of the transactions contemplated by the Share Purchase Agreement illegal or otherwise prohibited, or if, save for certain conditions, a governmental order restraining or enjoining the transactions contemplated by the Share Purchase Agreement is issued and such governmental order shall have become final and non-appealable.
The Seller will be entitled to receive a cash termination fee from the Purchaser of US\$10 million if (i) all of the Purchaser's conditions and the obligations of the Purchaser to complete the Disposal have been satisfied, (ii) the Seller has irrevocably notified the Purchaser that it is ready and willing to consummate the Disposal, (iii) the Purchaser fails to consummate the Disposal within five business days after receiving such notice, and (iv) the Seller terminates the Share Purchase Agreement as a result.
The Purchaser will be entitled to receive a cash termination fee from the Seller of US\$5 million if Shareholders fail to pass the Disposal Resolution.
The Purchaser intends to fund US\$150 million of the initial consideration through bank borrowings, in respect of which it has entered into facility commitment letters with its banks. These are subject to a limited number of conditions which the Purchaser has represented to the Company it believes will be satisfied at or prior to Completion. In respect of the balance of the initial consideration, at Completion, the Purchaser will fund this through existing resources or equity funding which has been committed by Veritas (such commitment being capped at US\$15 million).
The Purchaser has agreed to pay US\$165 million (approximately £100 million) in cash consideration at Completion and up to an additional US\$50 million in cash pursuant to an earn-out for the sale of the Sale Shares (the ''Consideration'').
The Consideration is subject to a post-Completion adjustment to give effect to certain agreed upon levels of working capital of QNA.
The earn-out of up to US\$50 million is based on fiscal year 2015 gross profit for QNA (linear between US\$100 million to US\$132 million).
Upon the execution of the Share Purchase Agreement until Completion, the Seller shall use reasonable best efforts to cause QNA and the Included Subsidiaries to conduct their business and activities in the ordinary course of business and use reasonable best efforts not to cause or permit QNA or the Included Subsidiaries to take certain enumerated actions.
Subject to certain exceptions, the Seller (and its affiliates) has agreed for a period of two years following Completion not to compete in the business of the type provided by the US Services division.
Subject to certain exceptions, the Purchaser has agreed for a period of two years following Completion to cause QNA and the Included Subsidiaries not to compete in the business of the type provided by the Retained Group.
The Share Purchase Agreement contains a set of representations and warranties given by the Seller which are customary for a transaction of this nature. The representations and warranties relate to, amongst other things: organisation and authority of the Seller and QNA, capitalisation and taxes, and solely with respect to QNA, financial statements, title to assets, compliance with laws and material contracts.
The survival period for the Purchaser's right to bring a claim for a breach of warranty will cease within fifteen months after Completion, save that the period in which to bring a claim with respect to certain representations and warranties will survive for longer periods including, in some cases, up to the applicable statute of limitations.
The Seller's liability under the representations and warranties, which will entitle the Purchaser to recover in respect of any breach of such representations and warranties, is subject to, inter alia, the following limitations:
The Seller will also indemnify the Purchaser, for all taxes imposed on QNA and the Included Subsidiaries for tax periods (or portions thereof) ending on or prior to the date of Completion.
The foregoing limitations on indemnification, however, do not apply to breaches by the Seller of its fundamental representations, losses stemming from certain pre-existing claims and litigation matters, losses relating to the separation of the Retained Group from the US Services division, losses stemming from tax matters and breaches by the Seller of its covenants.
The Company will provide a guarantee of the Seller's pre- and post-Completion obligations (including those obligations relating to indemnification).
Pursuant to the tax covenant of the Share Purchase Agreement, the Seller has agreed to be responsible for the preparation and filing of all tax returns of QNA and the Included Subsidiaries to be filed after Completion but which relate to tax periods ending on or prior to Completion and the satisfaction of tax liabilities for that period. The Purchaser has agreed to be responsible for the preparation and filing of any tax returns which relate to tax periods beginning before and ending after Completion (i.e., the straddle period) and the satisfaction of tax liabilities following Completion.
The Share Purchase Agreement is governed by the laws of the State of Delaware.
The Company and the Directors, whose names appear on page 2 of this document, accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Company and the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
The registered office and the principal place of business in the UK of the Company is located at Cody Technology Park, Ively Road, Farnborough, Hampshire, GU14 0LX (telephone number +44 1252 392000).
3.1 As at 24 April 2014 (being the latest practicable date prior to the posting of this document), the aggregate interests of each of the Directors in the share capital of the Company which have been notified by each Director to the Company pursuant to DTRs 3.1.2R and 3.1.3R or the interests of persons connected with them which would, if the connected person were a Director, be required to be disclosed under DTRs 3.1.2R and 3.1.3R and the existence of which is known to, or could with reasonable diligence be ascertained by, that Director) were as follows:
| Director | Number of Ordinary Shares |
Percentage of issued share capital |
|---|---|---|
| Mark Elliott |
125,000 | 0.02 |
| Leo Quinn(1) | 1,661,827 | 0.25 |
| David Mellors(1) |
375,921 | 0.06 |
| Michael Harper |
20,000 | 0.003 |
| Noreen Doyle |
24,662 | 0.004 |
| Admiral Sir James Burnell-Nugent | 11,419 | 0.002 |
| Paul Murray | 56,077 | 0.008 |
| Susan Searle | 5,000 | 0.001 |
Note: Figures for Leo Quinn and David Mellors include their holdings in the All-Employee Share Incentive Plan (see 3.3(e) below).
3.2 As at 24 April 2014 (being the latest practicable date prior to the posting of this document), the aggregate interests in the share capital of the Company of those senior executives who have regular access to inside information relating, directly or indirectly, to the Company and who have power to make managerial decisions affecting the future development and business prospects of the Company are as follows:
| Senior Executive | Number of Ordinary Shares |
Percentage of issued share capital |
|---|---|---|
| Jack Dyer Crouch II | 34,742 | 0.005 |
3.3 The following options and awards over Ordinary Shares have been granted to the Directors and senior executives and are outstanding as at 24 April 2014 (being the latest practicable date prior to the posting of this document):
| Name of Director | Date of Grant | Vesting date | Number of Ordinary Shares under option(1) |
|---|---|---|---|
| Leo Quinn | 28 June 2013 | 28 June 2016 | 247,129 |
| 30 June 2012 | 30 June 2015 | 229,596 | |
| 1 July 2011 | 1 July 2014 | 226,777 | |
| David Mellors | 28 June 2013 | 28 June 2016 | 157,196 |
| 30 June 2012 | 30 June 2015 | 117,173 | |
| 1 July 2011 | 1 July 2014 | 70,379 | |
| Total | 1,048,250 |
(1) There is no exercise price for any of these awards.
| Name of Director | Date of Grant | Vesting date | Number of Ordinary Shares under option(1) |
|---|---|---|---|
| Leo Quinn | 28 June 2013 | 28 June 2016 | 471,632 |
| 9 August 2012 | 9 August 2015 | 560,064 | |
| David Mellors . |
28 June 2013 | 28 June 2016 | 300,000 |
| 9 August 2012 | 9 August 2015 | 356,250 | |
| Total | 1,687,946 |
(1) There is no exercise price for any of these awards.
| Date of Grant | Vesting date | Number of Ordinary Shares under option(1) |
|---|---|---|
| 1,531,800 | ||
| 309,102 | ||
| 765,900 | ||
| 29 July 2010 | 29 July 2014 | 154,551 |
| 2,761,353 | ||
| Leo Quinn 26 May 2011 29 July 2010 David Mellors 26 May 2011 Total |
26 May 2014 29 July 2014 26 May 2014 |
(1) There is no exercise price for any of these awards.
| Name of senior executive | Date of Grant | Vesting date | Number of Ordinary Shares under option(1) |
|---|---|---|---|
| Jack Dyer Crouch II . |
26 August 2010 | 26 August 2014 | 21,250 |
| 26 August 2010 | 26 August 2014 | 21,250 | |
| 2 August 2011 | 2 August 2014 | 21,250 | |
| 2 August 2011 | 2 August 2015 | 21,250 | |
| 12 September 2012 | 12 September 2016 | 11,250 | |
| 12 September 2012 | 12 September 2015 | 11,250 | |
| 12 September 2012 | 12 September 2014 | 11,250 | |
| 12 September 2012 | 12 September 2014 | 22,500 | |
| 12 September 2012 | 12 September 2015 | 22,500 | |
| 12 September 2012 | 12 September 2016 | 22,500 | |
| 1 August 2013 | 1 August 2017 | 98,125 | |
| 1 August 2013 | 1 August 2016 | 98,125 | |
| 1 August 2013 | 1 August 2015 | 98,125 | |
| 1 August 2013 | 1 August 2015 | 98,125 | |
| 1 August 2013 | 1 August 2014 | 98,125 | |
| 1 August 2013 | 1 August 2014 | 98,125 | |
| 1 August 2013 | 1 August 2016 | 98,125 | |
| 1 August 2013 | 1 August 2017 | 98,125 | |
| Total |
971,250 |
(1) There is no exercise price for any of these awards.
| Name of Director | Number of Ordinary Shares held beneficially under the SIP |
|---|---|
| Leo Quinn |
5,568 |
| David Mellors | 7,203 |
| Total |
12,771 |
| Name | Number of Ordinary Shares |
Percentage of the issued share capital |
|---|---|---|
| Artisan Partners | 36,320,010 | 5.50% |
| Fidelity International Limited | 31,258,590 | 4.73% |
| Fidelity Management and Research Company | 32,986,143 | 4.99% |
| Investec |
33,160,928 | 5.02% |
| Norges Bank | 26,310,597 | 3.98% |
| Ruane Cunniff & Goldfarb, Inc. | 64,117,000 | 9.71% |
| Schroders | 35,429,785 | 5.36% |
The Company has entered into the following contracts or, as appropriate, a letter of appointment with its Directors and senior executives.
Details of the Executive Directors' service contracts can be found on page 58 of the Company's 2013 Annual Report and Accounts in the section entitled ''Remuneration Report'' and are incorporated herein by reference.
The Executive Directors have entered into service agreements with the Company. Details of these service agreements are set out below.
| Director | Date of service agreement |
Commencement date of office |
Notice terms | Basic Annual Salary |
Annual bonus payment for the financial year ended 31 March 2013 |
|---|---|---|---|---|---|
| (£) | (£) | ||||
| Leo Quinn | 28 October 2009 | November 2009 | 12 months | 615,325 | 896,100 |
| David Mellors | 20 May 2008 | August 2008 | 12 months | 391,400 | 570,000 |
A summary of the Non-Executive Directors' letters of appointment can be found on page 58 of the Company's 2013 Annual Report and Accounts in the section entitled ''Remuneration Report'' and are incorporated herein by reference. The current annual fees payable to the Non-Executive Directors are set out below. Save as disclosed in this paragraph 4.2 of this Part VII (Additional Information), there have been no changes to the terms of the letters of appointment of the Non-Executive Directors since the publication of the 2013 Annual Report and Accounts.
The Non-Executive Directors have entered into letters of appointment with the Company. Details of these letters of appointment are set out below.
| Director(3) | Effective date of current appointment |
Date of first appointment |
Notice terms | Annual Fee(2) (£) |
|---|---|---|---|---|
| Mark Elliott(1) | 10 February 2010 | June 2009 | — | 228,750 |
| Michael Harper | 22 November 2011 | November 2011 | — | 53,000 |
| Noreen Doyle | 20 January 2006 | October 2005 | — | 52,000 |
| Admiral Sir James Burnell-Nugent | 10 April 2010 | April 2010 | — | 52,000 |
| Paul Murray . |
25 October 2010 | October 2010 | — | 52,000 |
| Susan Searle . |
14 March 2014 | 14 March 2014 | 1 month | 43,000 |
Notes:
(1) As Mark Elliott is a US resident, he is paid an accommodation allowance of £75,000 per annum.
(2) UK resident non-executive directors are paid an additional £2,500 per board meeting held in the US.
(3) Non-executive Directors' letters of appointment are renewed on a rolling twelve-month basis subject to reappointment at the annual general meeting of the Company.
Save as disclosed above, there are no service agreements between any Director and any member of the Group.
Save as mentioned above in this paragraph 4 of this Part VII (Additional Information), there are no existing or proposed service agreements between any Director and the Company or any of its subsidiaries providing for benefits upon termination of employment.
Details of these service agreements with the senior executives are set out below.
| Senior Executive | Effective date of current appointment |
Date of first appointment |
Expiry/Notice terms | Basic Annual Salary (US\$) |
|---|---|---|---|---|
| Jack Dyer Crouch II | 1 April 2013 | 1 April 2013 | Initial appointment of two years and renewed annually thereafter unless 90 days' advance notice of termination given by either party |
550,000 |
agreement provide that the Group has a contingent entitlement to additional payments from Armstrong (Kent) LLP in the event that additional planning consents are secured by them. The quantum of any such payment is dependent upon the scope of the consent obtained.
The Company is of the opinion that the Retained Group has sufficient working capital for its present requirements, that is, for at least the next twelve months from the date of this document.
US\$50 million. QNA deny any such wrongdoing. The trial in this matter has recently concluded and judgment is expected to be given in the next few months.
In respect of the periods for which historical financial information appears in this document and in respect of the periods from the end of such financial periods to 24 April 2014, being the latest practicable date prior to the publication of this document, neither the Company nor any other member of the Group has entered into any transactions with related parties.
Copies of the following documents will be available for inspection at the registered office of the Company during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) until the conclusion of the General Meeting:
The following definitions apply throughout this document and the accompanying Form of Proxy, unless the context otherwise requires:
| ''All-Employee Share Incentive Plan'' |
the employee share scheme operated by the Company for employees under which the trustee uses participants' monthly contributions to purchase shares in the market and then allots to participants one matching share for every three purchased shares (subject to certain conditions being fulfilled); |
|---|---|
| ''Board'' or ''Directors'' | the directors of the Company as at the date of this document whose names are set out on page 2 of this document; |
| ''Buyback Resolution'' | the special resolution to be proposed at the General Meeting in connection with the purchase the Company's own shares in the markets up to a limit of 14.99 per cent of its issued ordinary share capital, as set out in the Notice of General Meeting; |
| ''Completion'' | completion of the Disposal in accordance with the SPA; |
| ''Cyveillance'' | the business conducted by Cyveillance Inc and its subsidiaries, providing open source threat intelligence and remediation. This business has formerly been reported as part of the US Services division but is to be retained within the QinetiQ Group following the Disposal; |
| ''Deferred Annual Bonus Plan'' | the plan under which certain senior executives were required to defer part of their annual bonus as shares with a matching award from the Company subject to achievement of performance conditions; |
| ''Disposal'' | the proposed disposal by the Seller of the Sale Shares pursuant to the SPA; |
| ''Disposal Resolution'' | the ordinary resolution to be proposed at the General Meeting in connection with the Disposal, as set out in the Notice of General Meeting; |
| ''DTRs'' | the disclosure rules and transparency rules made by the FCA (as amended from time to time); |
| ''EMEA Services'' | one of the three main divisions within the Group (along with the Global Products and US Services divisions) and which combines world-leading expertise with unique facilities to provide technical assurance, test and evaluation, and training services; |
| ''Financial Conduct Authority'' or ''FCA'' |
the Financial Conduct Authority of the UK in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of admission to the Official List otherwise than in accordance with Part VI of FSMA; |
| ''Form of Proxy'' | the form of proxy relating to the General Meeting being sent to Shareholders with this document; |
| ''FSMA'' | the Financial Services and Markets Act 2000 of England and Wales, as amended; |
| ''FY'' | financial year; |
| ''General Meeting'' | the general meeting of the Company convened for 13 May 2014 (or any adjournment of it), notice of which is set out at the end of this document; |
| ''Global Products division'' | one of the three main divisions within the Group (along with the EMEA Services and US Services divisions) and which delivers technology-based solutions and contract funded research and development; |
|---|---|
| ''Group'' | the Company and its existing subsidiary undertakings; |
| ''IFRS'' | International Financial Reporting Standards; |
| ''Included Subsidiaries'' | has the meaning given to such term in paragraph 2 of Part VI (Principal Terms of the Proposed Disposal); |
| ''J.P. Morgan Cazenove'' | J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove); |
| ''Listing Rules'' | the listing rules made by the FCA under Part VI of FSMA (as amended from time to time); |
| ''London Stock Exchange'' | London Stock Exchange plc; |
| ''Material Adverse Effect'' | save for certain exclusions, any change, effect, event, occurrence, state of facts or development that, individually or in the aggregate, is materially adverse to the assets, properties, business, financial condition or results of operations of the US Services division taken as a whole; |
| ''MOD'' | the UK Ministry of Defence; |
| ''NASA'' | the National Aeronautics and Space Administration of the United States; |
| ''Notice of General Meeting'' or ''Notice'' |
the notice of General Meeting set out at the end of this document; |
| ''Official List'' | the Official List of the Financial Conduct Authority; |
| ''Ordinary Shares'' | the ordinary shares in the capital of the Company with a par value of £0.01 each in issue as at the date of this document; |
| ''Performance Share Plan'' | the discretionary share plan under which participants may be granted award of Company shares, normally subject to continued employment and the satisfaction of agreed performance conditions over a set performance period; |
| ''Prospectus Rules'' | the rules made by the FCA under Part VI of FSMA in relation to offers of transferable securities to the public and admission of transferable securities to trading on a regulated market (as amended from time to time); |
| ''Proxy Agreement'' | has the meaning given to such term in paragraph 5.1(e) of Part VII (Additional Information); |
| ''Purchaser'' | The SI Organization, Inc.; |
| ''QinetiQ'' or the ''Company'' | QinetiQ Group plc; |
| ''QNA'' | QinetiQ North America, Inc; |
| ''Resolutions'' | the Disposal Resolution and the Buyback Resolution; |
| ''Restricted Stock Unit Plan'' | the long term incentive plan for senior executives in QinetiQ North America by which stock awards are made to recipients based on time and performance criteria; |
| ''Retained Group'' | the Group following the disposal of the US Services division; |
| ''Sale Shares'' | the entire issued share capital of QNA; |
| ''Seller'' | QinetiQ US Holdings, Inc.; |
| ''Shareholder(s)'' | holder(s) of Ordinary Shares; |
| ''SPA'' or ''Share Purchase Agreement'' |
the conditional agreement between, the Company, the Seller and the Purchaser dated 22 April 2014 relating to the transfer of the Sale Shares, the principal terms of which are set out in Part VI (Principal Terms of the Proposed Disposal) of this document; |
|---|---|
| ''UBS Investment Bank'' | UBS Limited; |
| ''UK'' or ''United Kingdom'' | the United Kingdom of Great Britain and Northern Ireland; |
| ''US Services division'' | QNA and the Included Subsidiaries; and |
| ''Value Sharing Plan'' | the long-term incentive plan pursuant to which participants are awarded a pre-defined number of shares in the Company for each £1 million of additional shareholder value created. |
The following documentation, which was sent to Shareholders at the relevant time and/or is available for inspection in accordance with paragraph 11 of Part VII (Additional Information) of this document, contains information which is relevant to this document.
The table below sets out the documentation incorporated by reference into this document to ensure that Shareholders and others are aware of all information which, according to the particular nature of the Company, is necessary to enable Shareholders and others to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the Company. For the avoidance of any doubt, no information incorporated by reference in such documentation shall be incorporated by reference into this document.
This document should be read and construed in conjunction with these documents, each of which has been previously published or are published simultaneously with this document and that have been filed with the National Storage Mechanism. Those parts of these documents that are not incorporated by reference are either not relevant for investors or covered elsewhere in this document.
Any information not listed below, but included in the documents incorporated by reference, is given for information purposes only.
| Reference Document | Information incorporated by reference |
Reference Document Page Reference |
Page Reference in this Document |
|
|---|---|---|---|---|
| Company's 2013 Annual Report | Section entitled | |||
| and Accounts | ''Remuneration Report'' | 50 | 24-25 |
NOTICE is hereby given that a General Meeting of QinetiQ Group plc (the ''Company'') will be held at 10.00 a.m. on 13 May 2014 at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA for the purpose of considering and, if thought fit, passing the following resolutions. It is intended to propose resolution 1 as an ordinary resolution and resolution 2 as a special resolution.
J. Messent Company Secretary
25 April 2014
Registered Office: Cody Technology Park, Ively Road, Farnborough, Hampshire GU14 0LX Registered in England and Wales No: 04586941
A member is entitled to appoint another person (who need not be a shareholder of the Company) as his proxy to exercise all or any of his rights to attend, to speak and to vote at the General Meeting. A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him.
A proxy need not be a member of the Company but must attend the meeting to represent you. Your proxy could be the Chairman, another Director of the Company or another person who has agreed to represent you A form of proxy for the meeting is enclosed.
To be valid any proxy form or other instrument appointing a proxy must be received by post or by hand (during normal business hours only) by our registrar Equiniti at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA or at the electronic address provided in the form of proxy, in each case no later than 10.00 a.m. on 9 May 2014 or, in the event of any adjournment, at 10.00 a.m. on the date which is two days (not taking account of any part of a day that is not a working day) before the day of the adjourned meeting (or in the case of a poll taken subsequently to the date of the meeting or adjourned meeting, not less than 24 hours before the time appointed for the taking of the poll). If you are a CREST member, see note 3 below. If you return more than one proxy appointment, either by paper or electronic communication, that received last by the registrar before the latest time for receipt of proxies will take precedence.
Completion of a form of proxy, or other instrument appointing a proxy or any CREST Proxy Instruction will not preclude a member attending and voting in person at the meeting if he/she wishes to do so. If you attend the meeting in person, your proxy appointment will be automatically terminated.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the General Meeting and any adjournment(s) thereof by using the procedures, and to the address, described in the CREST Manual subject to the provisions of the Company's articles of association. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ''CREST Proxy Instruction'') must be properly authenticated in accordance with Euroclear UK and Ireland (formerly CRESTCo) specifications and must contain the information required for such instructions, as described in the CREST Manual (available via www.euroclear.com). The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA19) by 10.00 a.m. on 9 May 2014. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Applications Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK and Ireland (formerly CRESTCo) does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The statement of the above rights of the members in relation to the appointment of proxies does not apply to Nominated Persons. Those rights can only be exercised by members of the Company.
Merrill Corporation Ltd, London 14ZBB12901
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