by Andrew Hore, July 2008 

This article was originally published in AIM Micro: www.aimmicro.com

Feature reproduced courtsey of AIM Micro

Technology developer and investor, XL Tech Group, ran into problems when it couldn’t negotiate a bridging facility with its main lender, the Laurus/Valens Family of Funds. XL Tech Group defaulted on certain conditions of its existing loans from Laurus/Valens and this sparked the restructuring. If it isn’t approved by shareholders the company will be liquidated.

TyraTech will have to amend its own certificate of incorporation to enable Laurus/Valens to take the 45.2% stake in the company without bidding for it.

An independent third part is carrying out a valuation of the assets to provide information on whether the deal is fair. This is still ongoing and the report won’t be ready until just before the planned meeting on 8 August to gain shareholder agreement to the proposals. If the terms are deemed to be unfair then the meeting will be adjourned. XL may then have to seek bankruptcy protection.

All of those assets will be put into one or more new companies. Once Laurus/Valens is repaid the money it is owed plus interest, and taking account of any additional investment made in the businesses, then XL shareholders will get 15% of any upside.

As well as the 15% upside on its former investments XL will retain other assets. It will hold 88.7% of QuoNova, 43.3% of GenXL, convertible debt in Mercury Therapeutics equivalent to 75% of the company plus a $3m loan to it, the other 50% of the AgCert intellectual property, other assets worth $650,000 and the company’s methodology and pipeline of potential technologies. Offset against that is $1.3m of liabilities.

XL has cut costs an won’t have any employees by the time that the restructuring takes place. Senior management intends to provide funds of up to $1m to XL through a loan note. Other shareholders will be given the chance to contribute to the fund raising on the same terms.

XL also plans non-core asset sales to help pay off liabilities. It hopes to sell all or part of its stake in diabetes treatment developer Mercury Therapeutics.

XL is also looking for outside investors for QuoNova, which is developing a technology that inhibits the formation of biofilms.  

There is no certainty that XL will be able to find enough working capital to continue but at least it has a chance with these proposals.

Part of the cost cutting process will be the withdrawal of the shares from Aim. Another meeting will be held on 29 August to gain approval for this proposal, which should then be carried out on 5 September.

The shares were suspended on 26 June at 13p each, which values XL at £6.71m.