Forum Archive Index - January 2004

["Cristine Kerr" <criskerr@optusnet.com.au>]

Zylotech is proceeding with a non-renounceable rights issue on a 1:4
basis, plus one free option exercisable at 6c on or before March 2005.
Details of the offer will follow.

Positives:
. For the company, a 'rights issue' of this nature raises funds for
development or other projects.
. For shareholders, it provides an opportunity to gain additional
shares, or options (or both, as in this case) at reduced prices.

Negatives:
. Raises a question mark about why the company is in need of funds. (I
checked into this - see further below)
. Zylotech's offer is a non-renounceable issue. If the issue is
non-renounceable the shareholder must have funds readily available or
raise funds to take advantage of the offer and pay for the shares.
(This is what can cause an initial sell-off of part-holdings to free
cash to purchase the cheaper shares.)
. An offer of this nature can cause a reassessment of the share value.
Often, the reassessed value ends up being determined by the level of
demand.

When issues are awarded with renounceable rights a special code is
allocated and the rights issued shares can be traded in much the same
way as ordinary shares (for a limited period of time). At the end of
the period, the person who has retained or acquired the 'rights' is
offered the shares at the issue price. This means a shareholder can
sell some or all of their 'rights' to their allotment without ever
having to pay for them. Such was the case with Intec (INL). In that
instance, rather than sell my 'rights', I took advantage of an
opportunity to purchase more 'rights' to Intec shares.

With both types of 'rights' issues, i.e.; Renounceable and
Non-renounceable; conditions apply to 'who' is eligible to
participate, eg; you need to be a chess registered shareholder as at a
certain date to be eligible to participate in the offer. (A little
further down the track we will find out what 'cut-off' date has been
determined for this issue. It may have already been determined.)

In both instances, you can accept or not accept a 'rights' offer. You
are not forced to take up your 'right' to additional shares. Companies
usually have a contingency plan for any shares not taken up in the
offer and are able to find another good home for them.

If you hold or buy Zylotech and take advantage of the offer it means
you can elect to buy one Zylotech share for every 4 shares you hold.
The cost will be 1c per share. Each 1c share purchased is attached to
one free option as detailed above.

Example:

Hold 400,000 shares @ .014 = $5600 + brokerage approx $25 = $5625
Accept rights offer of 100,000 shares @ .01 = $1,000 (no brokerage)
Accept 100,000 x 6c options free-of-charge

= Holding 500,000 shares + 100,000 options exercisable at 6c to March
2005
Total Cost $6625
Cost of each share is reduced to .01325, plus you have acquired
100,000 options free-of-charge

So with all this in mind, my primary concern with this announcement
was with the purpose of the 'rights' issue. I phoned Zylotech to
satisfy myself the issue was not related to financial concerns and was
advised Zylotech raise funds for projects etc this way as they have a
policy against borrowing. I found this response credible, however;
anyone interested in this offer should perform their own research and
satisfy their own concerns: http://www.zylotech.com.au/sonacom.html

I have considered the above. I have also considered;

. Zylotech have been awarded a defence contract (ASX Notice 7.11.03);
. Fujitsu has successfully teamed on one known digital video
surveillance project with Zylotech (ASX Notice 23.10.03);
. the developmental nature of Zylotech's business, including its
subsidiary, i.e; scientists and engineers of Sonacom develop
underwater acoustic systems, and;
. the likelihood the share price will rise above 6c by March 2005;

and for me, this offer is very attractive.

Hope this helps,
Cris

----- Original Message -----

From: Cristine Kerr

To: sharechat@sharechat.co.nz

Sent: Wednesday, January 14, 2004 3:37 PM

Subject: Re: [sharechat] ZYL - Zylotech

ASX Announcement at 2.51pm today

Zylotech is offering shareholders a non-renounceable rights issue on a
1:4 basis (1 for every 4 shares held) at 1c each, plus one free option
exercisable at 6c and expiring on March 2005.

Full details in approx 2 weeks.

 

Regards,

Cris