NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR IN ANY OTHER JURISDICTION IN WHICH OFFERS OR SALES WOULD BE PROHIBITED BY APPLICABLE LAW. THIS ANNOUNCEMENT IS NOT AN OFFER TO SELL OR A SOLICITATION TO BUY SECURITIES IN ANY JURISDICTION, INCLUDING THE UNITED STATES, CANADA, AUSTRALIA, JAPAN AND THE REPUBLIC OF SOUTH AFRICA. NEITHER THIS ANNOUNCEMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION WITH, ANY OFFER OR COMMITMENT WHATSOEVER IN ANY JURISDICTION.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION 2014/596/EU (WHICH FORMS PART OF DOMESTIC UK LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT 2018), AS AMENDED. IN ADDITION, MARKET SOUNDINGS WERE TAKEN IN RESPECT OF THE MATTERS CONTAINED IN THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS BECAME AWARE OF SUCH INSIDE INFORMATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN AND SUCH PERSONS SHALL THEREFORE CEASE TO BE IN POSSESSION OF INSIDE INFORMATION.

10 February 2023

Bonhill Group plc

("Bonhill", the "Company" or the "Group")

Proposed Disposal of the Business and Assets of Bonhill Media UK Limited and the Entire Issued Share Capital of Last Word Media (Asia) Pte. Limited

and

Proposed Reduction of Capital

Bonhill (AIM: BONH), a leading B2B media business specialising in financial services providing media, events and data & analytics, announces that it has exchanged contracts with MA Financial Media, a member of the Mark Allen Group, and an ultimate subsidiary of Mark Allen Holdings Limited, regarding the conditional disposal of the business and assets of Bonhill Media UK Limited ("Bonhill Media") and the entire issued share capital of Last Word Media (Asia) Pte. Limited ("Last Word Asia") (together the "UK and Asia Businesses") for a total cash consideration of £6.5 million.  Due to its size, under the AIM Rules, the Disposal is conditional on Shareholders' approval.

Highlights

·    Disposal of the UK and Asia Businesses agreed with MA Financial Media, subject to shareholder approval, for £6.5 million in cash

·    The Disposal represents a fundamental change of business for the Company pursuant to Rule 15 of the AIM Rules and is therefore subject to Shareholders' approval which is to be obtained at the General Meeting

·    The UK business and brands of Bonhill Media (being Bonhill Create, Portfolio Advisor, Expert Investor, International Advisor, ESG Clarity, Content Clarity, Future Flows, What Investment and Tax Guide) are to be sold to MA Financial Media

·    The disposal of Last Word Asia will be undertaken by way of the acquisition by the entire issued share capital of Last Word Asia by MA Financial Media

·    Due diligence by a US media buyer on InvestmentNews is continuing

·    As soon as practicable following both Completion and Completion of the US Disposal, the Company intends to return substantially all of its cash to Shareholders by way of a tender offer

·    In order for the Board to effect the proposed return of capital to Shareholders (howsoever it is structured), the Company will need to create further distributable reserves by way of the Proposed Capital Reduction

·    Following Completion, Patrick Ponsford, the Group CEO, will resign as a Director and will be joining the Mark Allen Group. Jon Kempster, a Non-Executive Director, has notified the Board of his intention to resign as a Director with effect from 31 March 2023

Further details of the Disposal and Proposed Capital Reduction in the form of extracts from the Circular are set out below. The Company intends later today to post a Circular to Shareholders regarding the Disposal and Proposed Capital Reduction, which includes a notice convening the General Meeting at 10.00 a.m. on 27 February 2023. A copy of the Circular will be published on the Company's website at www.bonhillplc.com. Capitalised terms used but not defined in this announcement will have the same meaning given to them in the Circular.

Commenting, Jonathan Glasspool, Non-Executive Chair of Bonhill, said:

"We are pleased to announce today the conditional exchange of contracts with MA Financial Media, which represents the first stage of the sale of the distinct parts of the Group.  I would like to take this opportunity to thank Patrick Ponsford for leading the business since he was appointed last year as Group CEO and successfully navigating the sale process thus far. 

The Board is committed to completing the proposed sale of InvestmentNews as soon as reasonably practicable. Once that has been achieved, we will focus on returning substantially all of the Company's cash to shareholders."

For further enquiries please contact:

About Bonhill Group plc

Bonhill Group plc is a leading, AIM-quoted, B2B media company providing Business Information, Events and Data & Insight propositions to the global Financial Services community. Bonhill operates multiple digital platforms, has market leading media brands, hosts over 100 events per annum, offers a portfolio of data & analytics propositions and provides a range of content marketing solutions.

Bonhill operates exclusively in the financial services space where its brands and services are acknowledged as market leaders. It specialises in enhancing the relationship and flow of information between the global community of financial services providers and the advisers who recommend their products. Bonhill was early to recognise the growing importance of ESG in asset allocation and fund selection and now owns the leading global platform in this space, serving the adviser community.

Flagship brands include: InvestmentNews, ESG Clarity, Portfolio Adviser, Fund Selector Asia, Expert Investor Europe, UK Adviser and International Adviser.

Offices in New York, London, Singapore and Hong Kong.

For more information visit www.bonhillplc.com.

About Mark Allen Holdings Limited

Mark Allen Holdings Limited is the parent company of a privately-owned group of operating companies, including MA Healthcare, MA Business, MA Agriculture, MA Education, MA Exhibitions, MA Music Leisure & Travel and MA Dentistry Media.  Founded in 1985, the group has grown to be a global business with a team of nearly 500 people and a diverse portfolio of market-leading brands, digital products and events providing quality content and information services to specialist business and consumer communities.

IMPORTANT NOTICES

Shore Capital is authorised and regulated in the United Kingdom by the Financial Conduct Authority ("FCA") and is acting exclusively as Financial Adviser, Nominated Adviser and Broker and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Bonhill for providing the protections afforded to its clients nor for providing advice in relation to the subject matter of this announcement.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

This announcement (including any information incorporated by reference in this announcement), oral statements made regarding the formal sale process, and other information published by the Group contain statements about the Group that are or may be deemed to be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, may be forward looking statements.

These forward-looking statements are not guarantees of future performance. Such forward-looking statements involve known and unknown risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results to differ materially from those projected or implied in any forward-looking statements. Due to such uncertainties and risks, readers should not rely on such forward-looking statements, which speak only as of the date of this announcement. The Group disclaims any obligation or responsibility to update publicly or review any forward-looking or other statements contained in this announcement, except as required by applicable law.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

PART I

1.            Introduction

The Company announces that it has exchanged contracts with MA Financial Media, a member of the Mark Allen Group, and an ultimate subsidiary of Mark Allen Holdings Limited, regarding the conditional disposal of the business and assets of Bonhill Media UK Limited ("Bonhill Media") and the entire issued share capital of Last Word Media (Asia) Pte. Limited ("Last Word Asia") (together the "UK and Asia Businesses") for a total cash consideration of £6.5 million.  Due to its size, under the AIM Rules, the Disposal is conditional on Shareholders' approval.

This announcement provides the background to the Disposal and to explain why the Independent Directors consider that it is in the best interests of the Company and its Shareholders as a whole and why they recommend that Shareholders should vote in favour of the Resolutions to be proposed at the General Meeting. A notice convening the General Meeting to be held at the offices of Charles Russell Speechlys LLP, 5 Fleet Place, London EC4M 7RD at 10.00 a.m. on 27 February 2023 will be set out at the end of the Circular. Patrick Ponsford, the Group's CEO, will resign upon Completion as he is joining the Mark Allen Group, and therefore he has not participated in the Board's consideration of, and recommendation to proceed with, the Disposal. 

2.            Background to and reasons for the Disposal

Following board changes in April 2022 and an equity fundraising of £1.1 million at 5.5 pence per share, which was completed in May 2022, the Board set about divesting or discontinuing all low margin and non-core business previously undertaken by the Group. This resulted in the sale in late August 2022 of the Company's Business Solutions and Governance division ("BSG") for a cash consideration of £0.723 million to Stubben Edge Limited. At the time, the Company stated that the sale of the BSG division would enable it to achieve approximately £0.6 million in annual cost savings from streamlining central support headcount, reduced office space and lower IT costs, the full benefit of which would be achieved in 2023. Furthermore, following the disposal of the BSG division, the Group would be more focused, less capital intensive, less complex and would generate higher margins.

However, as first announced by the Company in its unaudited interim results for the six months ended 30 June 2022, which were released on 8 September 2022, market turbulence over the period had led to a weakening in traditional media and content projects, as the Group's clients had held off on discretionary marketing spend. Since then, as further announced on 2 November 2022 and 9 December 2022, due to ongoing political uncertainty, particularly in the UK, and economic uncertainty in the UK and the US, the Company's markets had continued to soften and trading conditions continued to deteriorate, leading to major content projects, which had been budgeted for Q4 2022, slipping into Q1 2023.

Due to being AIM quoted, the Company is burdened with a fixed set of annual overheads currently amounting to approximately £0.4 million which, given that the Group is loss making and not cashflow positive, is becoming harder to justify. In addition, due to the size of the Company's market capitalisation, which has been below £10.0 million for some time, and consequently the shares are becoming increasingly more illiquid with reduced day-to-day share trading, in the Board's opinion, there are therefore very few reasons for the Ordinary Shares to remain admitted to trading on AIM ("Admission"). While cancellation of Admission is an option, given the cash consumptive nature of the Company and as access to the requisite equity capital would be much reduced as a private unquoted company, the Board considers that the Group, its brands and employees would be better placed as part of a larger group.      

As announced on 10 October 2022, given the challenging macro-economic situation, and following discussions with certain of the Company's major shareholders, the Board decided to undertake a strategic review which might or might not result in the sale of the Group as a whole or of either of the Company's principal trading businesses, InvestmentNews LLC ("InvestmentNews") in the US or Bonhill in the UK and Asia. As the Company is subject to the City Code and as a potential sale of the Group was being considered, a formal sale process under the City Code ("Formal Sale Process") was launched. As previously announced, the Board was pleased by the strong level of interest received from a range of bona fide potential buyers following the commencement of the Formal Sale Process, including for the Group in its entirety and separate parts of the Group.

At the same time as it announced the Formal Sale Process, the Company announced that as at 30 September 2022 it had cash of £1.0 million and net debt, including leases of £2.6 million, totalling £1.7 million. However, given the macro-economic conditions, as a precautionary measure, it had entered into a standby loan facility ("Loan Facility") with Rockwood Strategic Plc ("Rockwood"), its largest shareholder. The Loan Facility, which runs to 1 May 2023, was initially for up to £0.8 million in cash at a monthly compound interest rate of 2 per cent. on funds drawn down, which would be capitalised. It has an arrangement fee of 5 per cent., may be drawn down in tranches of £200,000 and would be used for working capital purposes. On 6 February 2023, the Company and Rockwood agreed to increase the size of the Loan Facility to £1.0 million. All other terms of the Loan Facility remain unchanged.

In its announcement of 9 December 2022 referred to above, the Company stated that it expected to have cash at 31 December 2022 of £0.3 million and that it continued to manage its cash well, including the use of the Loan Facility where required. As at 31 January 2023, the Company had cash of £0.5 million and net debt of £2.6 million, including leases of £2.2 million and £0.8 million drawn down under the Loan Facility. On 6 February 2023, the Company drew down the remaining £0.2 million under the Loan Facility.

On 9 December 2022, the Company announced that, subject to the completion of satisfactory due diligence, it had received a conditional offer of £6.6 million in cash (equating to a price per share of approximately 5.5 pence) from a privately owned UK media company for the business and assets of its UK and Asia businesses.  On the same date, the Company also announced that it had received indicative conditional offers for InvestmentNews. After exploring the various options, the Board has concluded that a sale of the UK and Asia Businesses to MA Financial Media, a member of the Mark Allen Group, and an ultimate subsidiary of Mark Allen Holdings Limited, (along with the separate sale in due course of InvestmentNews) represents the best value for Shareholders and therefore the Company has entered into the Sale and Purchase Agreements, further details of which are set out below.

If the Disposal is not approved by Shareholders at the General Meeting, the Board believes that the Company will need to raise further equity capital. There is no guarantee that the price per share would be at or above 5.5 pence, being the price at which the new shares were issued in the fundraising in May 2022, referred to above.

Having concluded the strategic review and Formal Sale Process as it is no longer in discussions with, nor in receipt of an approach from, any potential offeror relating to an acquisition of its issued and to be issued share capital, the Company announced on 6 February 2023 that it was no longer conducting the Formal Sale Process. As such, the Company ceased to be in an "offer period" as defined in the City Code and the disclosure requirements pursuant to Rule 8 of the City Code are therefore no longer applicable.

3.            Current trading and prospects

On 6 February 2023, the Company announced that, since its announcement on 9 December 2022, certain clients had continued to delay the release of planned marketing spend in the year ended 31 December 2022 ("FY2022") (equating to approximately £0.2 million of revenue and £0.1 million of EBITDA) and, as a result, the Board expected FY2022 revenue of £13.6 million and LBITDA of £1.5 million. Furthermore, the Company announced that it continued to manage its cash well, including the use of the Loan Facility, with an expected year end net cash position of £0.7 million. Subsequently, as set out above, the Company and Rockwood agreed to increase the size of the Loan Facility to £1.0 million.

4.            Details of the Disposal

The UK Business is to be disposed of by way of the acquisition of certain tangible and intangible assets by MA Financial Media, a member of the Mark Allen Group, and an ultimate subsidiary of Mark Allen Holdings Limited.  The disposal of Last Word Asia will be undertaken by way of the acquisition by the entire issued share capital of Last Word Asia by MA Financial Media.

In the year ended 31 December 2021, the UK and Asia Businesses generated audited turnover of approximately £6.3 million and made an operating profit of approximately £0.3 million. At the same date, they had audited net assets of approximately £1.1 million.

The Disposal will represent a fundamental change of business for the Company pursuant to Rule 15 of the AIM Rules and is therefore subject to Shareholders' approval which is to be obtained at the General Meeting. A notice convening the General Meeting to be held at the offices of Charles Russell Speechlys LLP, 5 Fleet Place, London EC4M 7RD at 10.00 a.m. on 27 February 2023 will be set out at the end of the Circular.

Mark Allen Holdings Limited is the parent company of a privately-owned group of operating companies, including MA Healthcare, MA Business, MA Agriculture, MA Education, MA Exhibitions, MA Music Leisure & Travel and MA Dentistry Media.  Founded in 1985, the group has grown to be a global business with a team of nearly 500 people and a diverse portfolio of market-leading brands, digital products and events providing quality content and information services to specialist business and consumer communities.

5.            Summary of the Sale and Purchase Agreements

On 10 February 2023, the Company entered into the Sale and Purchase Agreements, pursuant to which it has conditionally agreed to dispose of the UK and Asia Businesses to MA Financial Media, a member of the Mark Allen Group, and an ultimate subsidiary of Mark Allen Holdings Limited for a total cash consideration of £6.5 million.

Completion of the Sale and Purchase Agreements, which is conditional on the passing of Resolution 1 as set out in the Notice, is expected to take place shortly following conclusion of the General Meeting.

UK Sale and Purchase Agreement

Pursuant to the UK Sale and Purchase Agreement, the UK business and brands of Bonhill Media (being Bonhill Create, Portfolio Advisor, Expert Investor, International Advisor, ESG Clarity, Content Clarity, Future Flows, What Investment and Tax Guide) are to be sold to MA Financial Media.

Under the terms of the UK Sale and Purchase Agreement:

·     the purchase price attributable to the UK Business which is payable by MA Financial Media at Completion shall be £5.18 million in cash save that £0.2 million is to be retained in escrow to the later of:

i)          six months from Completion; and

ii)         cancellation of Admission of the Ordinary Shares; or

iii)        a change of control of the Company.

·     in the period between the date of the agreement and Completion, Bonhill has agreed to carry on the UK Business in the ordinary course;

·     the Company and Bonhill Media have provided certain warranties to MA Financial Media in respect of the UK Business;

·     the Company and Bonhill Media are providing a limited number of indemnities to MA Financial Media in respect of certain agreed matters; and 

·     the Company and Bonhill Media have agreed to certain non-compete restrictions in respect of the UK Business, including those brands being disposed of. However, it is not envisaged that the Company will carry on any trade relating to the UK Business in the future.

Asia Sale and Purchase Agreement

Pursuant to the Asia Sale and Purchase Agreement, the Company and Last Word UK are to sell the entire issued share capital of Last Word Asia to MA Financial Media.

Under the terms of the Asia Sale and Purchase Agreement:

·   the purchase price attributable to the Asia Business shall be £1.32 million in cash which is payable by MA Financial Media at Completion; 

·   in the period between the date of the agreement and Completion, Bonhill and Last Word Asia have agreed to carry on the Asia Business in the ordinary course;

·   the Company and Last Word UK have provided certain warranties to MA Financial Media in respect of Last Word Asia;

·   the Company and Last Word UK are providing a limited number of indemnities to MA Financial Media in respect of certain agreed matters; and 

·   the Company and Last Word UK have agreed to certain non-compete restrictions in respect of the Asia Business. However, it is not envisaged that the Company will carry on any trade relating to the Asia Business in the future.

6.            Board Changes

Upon Completion, Patrick Ponsford, the Group CEO, will resign as a Director and will be joining the Mark Allen Group. In addition, Jon Kempster, a Non-Executive Director, has notified the Board of his intention to resign as a Director with effect from 31 March 2023. 

7.            The Continuing Group

Following Completion, the Company will comprise solely of its US businesses, including InvestmentNews.

The Company announced on 6 February 2023, that it had received a non-binding offer from a US media buyer for the business and assets of InvestmentNews of $6.5 million in cash (equating to a price per share of approximately 4.5 pence). Subject to the completion of satisfactory due diligence, the Company expects to sign a conditional agreement with the purchaser in March 2023. Shareholders are advised that there can be no certainty that any sale or other transaction will be concluded for InvestmentNews, nor as to the terms on which any sale or other transaction may be made. A further announcement will be made in due course.

Should the proposed sale of the business and assets of InvestmentNews be successful ("Completion of the US Disposal"), the Company will cease to own, control or conduct all or substantially all, of its existing trading business, activities or assets. The Company, which is then expected to have four Directors, being Sarah Thompson, Laurie Benson, Richard Staveley and myself, and three employees, will therefore become an AIM Rule 15 cash shell and, as such, will be required to make an acquisition or acquisitions which constitute(s) a reverse takeover under AIM Rule 14 (including seeking re-admission as an investing company (as defined under the AIM Rules)) on or before the date falling six months from Completion of the US Disposal or be re-admitted to trading on AIM as an investing company under the AIM Rules (which requires the raising of at least £6.0 million), failing which, the Ordinary Shares would then be suspended from trading on AIM pursuant to AIM Rule 40. Admission to trading on AIM would be cancelled six months from the date of suspension should the reason for the suspension not be rectified during that period.

Any failure in completing an acquisition or acquisitions which constitute(s) a reverse takeover under AIM Rule 14, including seeking re-admission as an investing company (as defined under the AIM Rules), would result in the cancellation of the Ordinary Shares from trading on AIM.

Market conditions may also have a negative impact on the Company's ability to make an acquisition or acquisitions which constitute(s) a reverse takeover under AIM Rule 14. There is therefore no guarantee that the Company would be successful meeting the AIM Rule 15 deadline as described above.

8.            Proposed return of capital to Shareholders

As soon as practicable following both Completion and Completion of the US Disposal, the Company intends to return substantially all of its cash to Shareholders.  Following consideration and consultation, the Board has concluded that a tender offer is the best and most efficient way to return a significant amount of capital to Shareholders in a short space of time, taking account of the relative costs, complexity and timeframes of the various possible methods, as well as the likely tax treatment for Shareholders (the "Proposed Tender Offer").  Further details of the Proposed Tender Offer will be sent to Shareholders at the appropriate time. In the event that the US Disposal does not take place or is delayed beyond current expectations, the Board will consider returning certain of the proceeds of the Disposal to Shareholders with a further return of capital as and when the US Disposal completes.

9.            Capital Reduction

In order for the Board to effect the proposed return of capital to Shareholders (howsoever it is structured), the Company will need to create further distributable reserves.  It is intended to do this by: -

·   cancelling the amounts standing to the credit of the Company's Share Premium Account (the "Share Premium Reduction"); and

·   capitalising the amounts standing to the credit of the Company's Merger Reserve by issuing B ordinary shares in the capital of the Company and immediately cancelling such B ordinary shares (the "Merger Reserve Reduction").

The Share Premium Reduction and the Merger Reserve Reduction being, together, the "Capital Reduction".

Further details of the Capital Reduction are set out at Part II of this announcement.    The Company intends to commence the process relating to the Capital Reduction as soon as practicable following the despatch of the Circular.  The Company will make further announcements in this regard.

Following completion of the Capital Reduction, it is expected that the Retained Earnings will be approximately £8.0 million, which will allow the Board to distribute substantially all of the expected proceeds (net of costs) from the Disposal and, if successful, the US Disposal.  It should be noted that the Company will need to retain a certain amount of such proceeds for its on-going working capital requirements following both Completion and Completion of the US Disposal.

10.          Shareholders' Approval

Set out at the end of the Circular will be a notice convening the General Meeting to be held at 10.00 a.m. on 27 February 2023 at the offices of Charles Russell Speechlys LLP, 5 Fleet Place, London EC4M 7RD at which the Resolutions will be proposed to approve the: -

·        sale by the Company of the UK and Asia Businesses to MA Financial Media for the purposes of Rule 15 of the AIM Rules;

·        Share Premium Reduction;

·        Capitalisation of the Merger Reserve; and

·        Cancellation of the B Shares.

11.          Action to be taken by Shareholders

Shareholders will find enclosed with the Circular a Form of Proxy for use at the General Meeting. They are requested to complete and return the Form of Proxy to Share Registrars, 3 The Millennium Centre, Crosby Way, Farnham, Surrey GU9 7XX in accordance with the instructions printed thereon as soon as possible but, in any event, to be received no later than 10.00 a.m. on 23 February 2023 being 48 hours (excluding days that are not business days) before the time of the General Meeting. Completion and return of a Form of Proxy will not prevent you from attending and voting at the meeting in person should you wish to do so.

12.          Recommendation

The Independent Directors unanimously recommend Shareholders to vote in favour of the Resolutions as they intend to do in respect of their own beneficial shareholdings, which amount, in aggregate, to 715,818 Ordinary Shares, representing approximately 0.6 per cent. of the Company's issued share capital.

PART II

1.            Capital Reduction

As noted in Part I of this announcement, the Company needs to undertake the Capital Reduction as a preliminary step in order to be able to return funds to Shareholders.  Further details on the Capital Reduction are set out in this Part II.

As at 31 December 2022, the Company had Retained Earnings of approximately £4.44 million.  As at 31 December 2022, the balance standing to the credit of the Share Premium Account was approximately £2.52 million. In addition, a sum of approximately £1.97 million was standing to the credit of the Merger Reserve.

The implementation of the Capital Reduction is subject to a number of criteria and legal processes, which are explained further below.

Share Premium Reduction

As at the date of this announcement, the Company has £2,524,929 standing to the credit of its Share Premium Account.

Share premium forms part of the capital of the Company which arises on the issue by the Company of Ordinary Shares at a premium to their nominal value. The premium element is credited to the Share Premium Account. Under the Act, the Company is generally prohibited from paying any dividends or making other distributions in the absence of positive distributable reserves, and the Share Premium Account, being a non-distributable reserve, can be applied by the Company only for limited purposes.

However, provided the Company obtains the approval of Shareholders by way of a special resolution and the subsequent confirmation by the Court, it may reduce all or part of its Share Premium Account and the amount by which the Share Premium Account is cancelled is credited to the Company's Retained Earnings reserve.

The Board is recommending that the entire amount of the Share Premium Account be reduced to £nil.  In order to effect the Share Premium Reduction, the Company first requires the authority of its Shareholders by the passing of a special resolution at the General Meeting.

The Share Premium Reduction will take effect when the order of the Court confirming it and a statement of capital approved by the Court have been registered with the Registrar of Companies. The Effective Date of the Share Premium Reduction is expected to be the working day following the hearing at which the Capital Reduction is to be confirmed by the Court.  As noted in Part I of this announcement, the Court process will commence as soon as practicable following the date of this announcement and further announcements will be made when appropriate.

Merger Reserve Reduction

In certain circumstances, such as where shares are issued in consideration for the acquisition of shares in another company, instead of creating share premium, an amount is credited to a merger reserve.  The Company has £1,976,190 standing to the credit of its Merger Reserve as a result of various acquisitions of companies in which it has used its Ordinary Shares as consideration.

As in the case of a share premium account, a merger reserve can only be used in very limited circumstances. However, unlike the Share Premium Account, the Merger Reserve is a non-statutory reserve and the Court does not have the power to reduce non-statutory reserves.

Therefore, it is proposed to capitalise the entire sum standing to the credit of the Company's Merger Reserve, being £1,976,190, by applying that sum in paying up, in full, new B ordinary shares in the capital of the Company (with the nominal value of such shares being equal to the sum that is obtained by dividing the number of such shares to be issued into £1,976,190) (the "B Shares") and, on the business day prior to the day of the Court hearing to confirm the Merger Reserve Reduction, allotting and issuing such shares by way of a bonus issue to the persons holding Ordinary Shares as at the Capital Reduction Record Time, on the basis of one such B Share for every one Ordinary Share held (the "Bonus Issue").

The B Shares will not be admitted to trading on AIM, or to any other market or stock exchange.  It is a condition of issue of the B Shares that no share certificates will be issued in respect of them. The B Shares will have extremely limited rights. In particular, the B Shares will carry no rights to participate in the profits of the Company and no rights to participate in the Company's assets, save on a winding up. The B Shares will be transferable, but no market will exist in them and it is anticipated that the Court will confirm their cancellation the day after they are issued.

A discussion of the United Kingdom tax position relating to the Bonus Issue is set out in paragraph 2 below.

Other matters concerning the Capital Reduction

In order to approve the Capital Reduction, the Court will need to be satisfied that the interests of the Company's creditors will not be prejudiced by the Capital Reduction. The Company could be required, if the Court is of the view that the interests of creditors may be prejudiced by the Capital Reduction, to obtain consent from creditors and/or to provide security in a form acceptable to the Court. This is in order that the Capital Reduction can be confirmed by the Court on terms that will permit any part of the sum released by the Capital Reduction to be returned to Shareholders as a capital payment.

In such event, if the Company is unable in the timetable proposed to obtain consent from, or is unable or unwilling to provide security (where security is required) for all such creditors, then the amount released by the Capital Reduction, when the Capital Reduction is confirmed by the Court, will remain undistributable for the time being until any such outstanding consents have been obtained, security (where security is required) has been put in place, or the relevant obligations have been discharged, and the Company may be required to give an undertaking to that effect to the Court.

The Board reserves the right (where necessary by application to the Court) to abandon, discontinue or adjourn any application to the Court for confirmation of the Capital Reduction, and hence the Capital Reduction itself, if the Board believes that the terms required to obtain confirmation are unsatisfactory to the Company or if the Board considers that to continue with the Capital Reduction is inappropriate or not advisable and would not be in the best interests of the Company and its Shareholders.

The Capital Reduction does not affect the voting or dividend rights of any Shareholder or the rights of any Shareholder on a return of capital.

2.            United Kingdom taxation

The following comments are intended as a general guide only and relate only to certain UK tax consequences of receiving the B Shares under the Bonus Issue. The comments are based on current legislation and HM Revenue & Customs practice, both of which are subject to change, possibly with retrospective effect. These comments deal only with Shareholders who are resident for taxation purposes in the UK, who are the absolute beneficial owners of the Ordinary Shares and who hold them as an investment and not on a trading account. They do not deal with the position of certain classes of Shareholders, such as dealers in securities, insurance companies, collective investment schemes or persons regarded as having obtained their Ordinary Shares by reason of employment.

The Bonus Issue should be treated as a "reorganisation" for the purposes of UK taxation of chargeable gains ("CGT"), so that a Shareholder should not be treated as making a disposal of his Ordinary Shares for CGT purposes upon receipt of the B Shares. Instead, the B Shares will be treated as the same asset, acquired at the same time, as their Ordinary Shares.  On the basis that the B Shares will be treated as being paid up for "new consideration" received by the Company, the issue of the B Shares should not give rise to any liability under UK income tax (or corporation tax) in a Shareholder's hands.  For CGT purposes, a Shareholder's base cost in their Ordinary Shares will be apportioned between their B Shares and their Ordinary Shares based on their respective market values at the date that the B Shares are cancelled. It is likely that the market value of the B Shares will be £nil for the duration of their existence. This is because the B Shares will have no voting rights or rights to income; will have no market on which they can be traded; and it is anticipated that they will be cancelled for no payment on the day immediately following the date of their issue. Consequently, the issue of the B Shares should not impact the base cost of the Ordinary Shares and there should be no tax charge (nor any allowable loss) on the cancellation of the B Shares.

No stamp duty or stamp duty reserve tax will be payable on the issue of the B Shares, or on their cancellation.

This section is intended to be a general guide only and is not intended to be, and should not be construed to be, legal or taxation advice to any particular Shareholder. Any Shareholder who has any doubt about their own taxation position, whether regarding CGT or otherwise, or who is subject to taxation in any jurisdiction other than the UK should consult their own professional taxation advisor immediately.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

If any of the details contained in the timetable above should change, the revised times and dates will be notified to Shareholders by means of an announcement through a Regulatory Information Service.

References to time in this announcement and the Notice of General Meeting are to UK times.

DEFINITIONS

The following definitions apply throughout this announcement unless the context otherwise requires:

Unless otherwise stated, the US$/£ exchange rate used in this announcement is 1.21