Re AGM

RNS Number:7314L
Stream Group PLC
30 May 2003

Further to this morning's announcement, the following is the text sent to
shareholders by the Company yesterday.

28 May 2003

Dear Shareholder

Attached to this letter is a notice convening an AGM of the Company on Friday 
20 June 2003.

Save for one resolution, the business to be conducted at the AGM is routine.
Resolution 4 in the notice asks you to vote by way of Ordinary Resolution to
authorise your Board of Directors to give notice to cancel the admission of the
ordinary shares of the Company on the Alternative Investment Market (AIM) of the
London Stock Exchange (the "Resolution"). The board is split on this resolution
and the non-executive directors oppose it. A separate letter from them is
enclosed with this pack.

The purpose of this letter is to set out the executive directors' reasons for
proposing the Resolution.

I am also taking this opportunity to update you on the performance of the
business and our development activities.

1     Background

Stream Group plc listed on AIM two years ago, in April 2001. At that time,
despite being towards the end of the "dot com" boom period, there was still
institutional interest in "micro cap" companies such as Stream.

When Stream listed on AIM in April 2001 the directors perceived the benefits as
follows:

a)     Access to a broader spread of potential investors in the Company.

b)     The ability to issue publicly quoted "paper" at an attractive valuation
to help finance acquisitions.

c)     A liquid market for trading in the shares.

d)     Commercial credibility and a raised profile as a public company.

Over the last two years the public company arena has changed dramatically with
Stream, in line with many publicly quoted companies, experiencing a significant
reduction in its market capitalisation. In addition, trading in the Company's
stock is minimal, and the percentage spread between bid and offer prices in the
Company's share price has widened significantly, currently being 34% around the
mid market price. Furthermore the annual cost of being publicly quoted, such as
fees paid to Nominated Advisors, Stock Exchange listing fees, Public Relations
advisors and so forth, amounts to a significant sum in the context of a business
of Stream's size.

The executive directors are aware that certain institutional shareholders have
for varying reasons indicated to the Company's brokers a desire to sell their
shareholdings.

Furthermore, Stream is now experiencing commercial disadvantage as a result of
its low stock market valuation as a publicly quoted company on AIM, because
companies with which Stream deal often doubt the financial credibility of the
business when they see the size of the market capitalisation.

The executive directors believe that the original benefits of listing on AIM as
noted above no longer apply for the following reasons:

a)     The Company is now generating cash and the executive directors do not
believe that further fund raising will be necessary. However, should additional
funding be required, it is unlikely to be available by issuing shares to the
market in current stockmarket conditions at current levels, nor is it likely to
be attractive to shareholders to do so except in exceptional circumstances.

b)     The use of publicly quoted Stream shares as acquisition currency is no
longer a realistic commercial option as a consequence of the low ratings the
Company and other companies such as Stream attract in today's market. The
executive directors believe that all such acquisitions would need to be largely
financed from cash resources.


 c. Stream's share dealing history has consistently shown that the stock is
    essentially illiquid. This position has been made more extreme by difficult
    market conditions and an investor preference for investing in what are
    perceived to be less speculative ventures.

 d. The Company's very low market capitalisation is impacting adversely on the
    executive directors' ability to grow the business. It is increasingly
    difficult to negotiate and close contracts with significant global partners
    on optimal terms because the Company is clearly seen as a 'small player'.
    The Company's current market capitalisation is approximately #5m. As the
    Company embarks on an international expansion strategy, potential partners
    and clients invariably look at the Company's low quoted market
    capitalisation as an indication of Stream's performance and value. The
    commercial credibility the Company initially achieved as a public company
    has now become a distinct disadvantage.

The executive directors believe that the costs and time involved in being listed
are inappropriate for the Company and not a good use of company funds and
management time. Indeed OFEX has recently indicated that it believes many AIM
listed companies will be forced to de-list and go private because of the
predicted escalating cost of regulation due to pending listing rules
harmonisation with Europe. For these same reasons it may be appropriate for the
Company to change its status to that of private limited company at some time in
the future.

2     Options considered

2.1     The executive directors launch a bid for those shares in the Company
that they do not own

Earlier this year my fellow executive directors and I investigated the
possibility of launching a Management Buy Out (MBO) of the company. Taking
account of the sizable costs involved, both in fees and financing, compared to
the proportion of shares that we would have expected to acquire, a MBO did not
appear financially viable, for either the MBO team or the Company.

More particularly the executive directors do not wish to force existing
shareholders to realise their investment in the Company at a time when the
Company's trading has been improving; the executive directors are committed to
continuing to work on behalf of the shareholders to create and maximise value in
the future.

2.2     The Company moves to OFEX

The executive directors investigated a move to OFEX. However, an OFEX listing
would not solve the liquidity and credibility issues Stream currently faces.
OFEX operates on a "matched bargain" basis and therefore the current lack of
market in Stream shares would remain. In addition, Stream would continue to have
a publicly quoted valuation with the associated costs.

2.3     The Company remains AIM listed

There is no evidence to indicate that Stream's rating and perception in the
public company arena are going to improve significantly in the near or medium
term future.

The Company's annual figures for the year ending December 2002 were well
received by existing investors with the market makers immediately marking
Stream's share price up by approximately 35%. However, this failed to stimulate
any significant interest either by way of publicity or share deals and trading
has since continued to be minimal and the share price has resumed its downward
pattern. The executive directors do not believe this situation will alter in the
foreseeable future, despite the improving performance of the Company.

During the "dot com" boom period between 1999 and 2001, financial institutions
were prepared to invest in small TMT companies such as Stream. Valuations and
expectations were high. However, times have changed and " micro cap" companies
such as Stream are far removed from most "City radar screens" and the prospects
of this situation changing appear slight.

The executive directors recognised in late 2001 that the Company was supporting
operational, personnel and property infrastructure which was both heavily loss
making and consuming capital. The executive directors took the decision to close
the Company's Newbury base and relocate the Company to one location in London
where most of the Company's key clients are based. Much of the improvement in
the Company's financial performance in recent periods has been as a result of
decisions taken at that time by the executive directors to streamline the
Company's cost base and range of business areas and to focus management time on
core operations.

Despite the improved performance, there has been a significant further decline
in the share price since I first announced that the Company was moving into
profit at the announcement of the half year results last year.

The executive directors believe that international expansion is a key driver to
Stream's future growth. The UK is becoming an increasingly difficult and
competitively saturated market in our sector. The well publicised slow
development and uptake by consumers of 3G and even GPRS mobile technology has
impacted on our ability to drive data content services in the UK at this time.
We do expect to see significant growth in mobile content, but not until at least
the end of this year/early next year. Meanwhile, the executive directors have
been actively developing opportunities in Asia and Australia where there are a
number of unexploited opportunities in "low technology" sms content areas.

Our strategy for international growth is to take a low cost/low risk approach,
seeking out local partners and, where necessary, attracting local risk funding.
In Asia we have been actively working towards securing support and funding from
a significant and influential local partner. Stream's artificially low UK quoted
market value has adversely affected our ability to raise funding for expansion
into Asia as potential investors have made judgements on the UK plc valuation.
This predicament will continue for as long as we have a very low benchmark
valuation on the London Stock Exchange.

The executive directors believe that Stream is in a position whereby the
benefits of being a company with a trading facility on AIM have evaporated and
being quoted has become a burden which brings little or no benefit to the
Company. The executive directors therefore believe that action must be taken to
address the situation.

2.4     The Company cancels its AIM listing

This option is considered by the executive directors to be in the best interests
of the Company and its shareholders. It will improve earnings potential and
ultimately returns to shareholders.

It is the intention of the executive directors that, subsequent to a de-listing,
the Company continues to uphold similar levels of corporate governance as it
does at present in its AIM listed status. The Board has agreed that the current
non-executive directors will resign if the Company de-lists from AIM. Stream
will maintain independent non-executive director representation including
remuneration and audit committees. The Board of Directors will retain a policy
of working to maximise cash returns to all shareholders, including the payment
of dividends as and when profits and sufficient distributable reserves permit.

The executive directors will remain committed to developing and growing the
business with the ultimate aim of a trade sale, merger or re-float.

Notice of cancellation of the AIM listing requires twenty working days, meaning
that if notice is given on 20 June 2003 the last day of trading on AIM would be
18 July 2003.

Subject to the Resolution being passed, once the AIM trading facility has been
cancelled, there will be no market in the Company's shares. This will make it
difficult for shareholders to sell their shares should they wish to do so. The
executive directors, together with other persons, had hoped to secure funding
for an entity that would have acquired the shares of the shareholders who wished
to sell. Following correspondence and discussions with the Panel on Takeovers
and Mergers ("Panel") however, it was concluded that this could not be achieved,
the Panel's view being that a full code offer be made. In the absence of the
committed financing necessary to achieve this and the significant costs referred
to earlier, this option is not available.

The executive directors hope to find a solution in the short term to allow any
such shareholders, should they wish, to realise value for their holdings, and
are investigating among other options currently under review, the possibility of
an application to the High Court to apply the share premium account surplus to
free up distributable reserves, with the objective of applying such reserves to
a share buyback. However, there is no certainty that such plans will prove
workable. Further, if Stream was a private limited company (see above) it may be
possible for the Company to purchase its shares out of capital. The executive
directors may also explore another alternative, which would involve further
discussions with the Panel; namely a possible whitewash under which the
independent shareholders would be asked to waive the obligations of certain
named persons/entities from making a general offer to all shareholders.

In proposing the Resolution it is not in any way the intention of the executive
directors to place any shareholder under pressure to sell their holdings in the
Company. Shareholders should be assured of the executive directors' continuing
desire to work on their behalf to make Stream Group a successful company.
However the executive directors recognise the differing circumstances of
individual shareholders and remind holders that they may wish to take
professional advice on whether it is in their interest to retain their shares or
to seek to sell them before cessation of trading. The executive directors advise
any such shareholders who decide they would be interested in realising their
shareholdings, after the possible de-listing, to in future contact the Company
Secretary, Paul Tuson, at the Company's address, who intends to keep a register
of all such holders and will facilitate the matching of bargains.

Subsequent to a the vote on a resolution to cancel the AIM listing, the
directors also hope to appoint an independent stockbroker to conduct all trades
in the Company's shares, on a matched bargain basis.

3     Trading Update

My executive director colleagues and I believe the current trading position of
the company is broadly in line with where we expected to be at this stage in
2003. Clearly we have risks to manage in our Company such as developing business
in the largely unproven mobile content market, but we remain positive that we
should be able to maintain the progress to date.

4     Action to be taken

Also enclosed with this document and notice of AGM is a form of proxy for use in
connection with the AGM. Whether or not you intend to be present at the meeting,
you are requested to complete and return the proxy card to the Company's
Registrars, Northern Registrars, Northern House, Woodsome Park, Fenay Bridge,
Huddersfield HD8 0LA so as to be received as soon as possible and in any event
no later than 18 June 2003. If you complete and return the form of proxy, you
may still attend and vote at the meeting should you wish to do so.

5     Expected timetable
Latest time and date for receipt of proxies                                     18 June 2003
AGM                                                                             20 June 2003
Cancellation of AIM trading facility/subject to the passing of Resolution 4 in
the notice of AGM                                                               18 July 2003

6     Recommendation

The rules of AIM allow your Board itself to cancel the listing, but your Board
has decided it would be appropriate to put the decision to shareholders at the
forthcoming AGM, despite the fact that there is no obligation to do so. In
proposing the Resolution, however, my executive director colleagues and I, who
between us hold approximately 38% of the Company's issued share capital are
recommending that in our view such a move is in the best interests of the
Company and its shareholders in the longer term as well as for the immediate
future. In addition shareholders representing approximately a further 20% of the
Company's issued share capital have verbally indicated that they are likely to
vote in favour of the Resolution. However shareholders should note that the
non-executive directors, owning approximately 3% of the Company's issued share
capital have indicated that they are not in favour of the Resolution and have
submitted a separate letter to you.

Yours sincerely

GORDON ROBSON

EXECUTIVE CHAIRMAN



Dear Shareholder,

Stream Group PLC ("the Company" or "Stream") - Proposal to De-list

With the notice of the AGM to be held on Friday 20th June 2003, you will have
received a letter from the Chairman telling you of the Executive Directors'
proposal to cancel the Company's AIM listing.

The Executive Directors have a three to two majority on the board.

As the board is split on this proposal and we, the Non-Executive Directors, are
against it, we think that we should explain to you the background to the current
position, the reasons why we do not support the resolution and our intended
actions if the resolution is passed.

Background

After flotation in April 2001 the Company did not do well and lost money until
the middle of 2002. Since then there has been a good turnaround and the Company
is now both profitable and cash positive.

Although it is true that the share price performance has been most disappointing
it is our view that the recent share price does not adequately reflect a fair
value for the Company.

In respect of the share price, this year has therefore been a frustrating time
for all the board and the Executive Directors in particular.

Stream is a closely held company. The Chairman has a beneficial interest in
approximately 33 per cent. of the ordinary shares in Stream ("Stream Shares").
Many Stream Shares are also held by his friends, family, acquaintances and the
other two Executive Directors. This group of shareholders speaks for
approximately 59 per cent. of the Stream Shares ("the Majority Shareholders").

In February this year, the Executive Directors informed us of a plan for a
management buy-out. We were concerned that the timing was opportunistic and that
the terms were unlikely to be in the interests of all the shareholders. In the
event, we were informed on 15 April 2003 that this plan was being abandoned for
reasons given in the Chairman's letter.

At the same time, we were informed of a new plan for a company, controlled by
the Majority Shareholders, to buy any Stream Shares which they anticipated the
institutions might wish to sell, by private treaty (rather than a general offer)
and at the same time to de-list the Company. We, your Non-executive Directors,
were not in favour of this plan as we felt that it did not adequately take
account of the interests of minority shareholders.

The Majority Shareholders approached the Takeover Panel seeking guidance on this
proposal. We understand that the Panel's view is that no such purchase should
take place unless a general offer is made. The Majority Shareholders have
therefore abandoned their share purchase plans. Notwithstanding that, the
Executive Directors still wish to proceed with de-listing the Company.

Now, although the Majority Shareholders' proposals to purchase shares have been
withdrawn, as the proposal to de-list remains we still have concerns for the
position of minority shareholders and we are opposed to the proposed de-listing
for the reasons set out below.

Reasons for opposing de-listing

The Company was admitted to AIM just over two years ago at a share price of 28p
and at that time raised #4 million gross from new investors. We believe that
those investors were entitled to consider that the Company would retain its
listing for the foreseeable future unless there were very powerful reasons why
it should not.

It is our view that a decision to de-list will be significantly disadvantageous
for minority shareholders. The disadvantages include the fact that de-listing
may mean some shareholders are forced to become unwilling sellers. Others are
likely to find that the value of their holding is discounted far more heavily
than would be the case if the Company retained its listing. Even if current
liquidity in the shares is low, any future opportunity for liquidity for
minority shareholders will be very substantially reduced by de-listing. We think
that it is relevant that the Executive Directors and the other shareholders who
we understand are in favour of de-listing, because they hold a majority of the
Stream Shares, are unlikely to be disadvantaged in this way.

The letter sent to you by the Chairman refers to a number of reasons for the
proposed cancellation of the Listing on AIM. We do not, however, believe that
these arguments are sufficiently powerful to outweigh the disadvantages to the
minority shareholders.

For example, cancelling the AIM Listing will not address the issue of liquidity
or breadth of shareholder base. Nor are we convinced that the Executive
Directors' ability to grow the business or its commercial credibility are being
damaged as a result of the Company being listed on AIM.

One principal benefit of de-listing put forward is cost saving. However we do
not believe that there will be a saving in costs which is sufficiently material
to justify de-listing, especially if the Company wishes to continue with high
standards of corporate governance.

We have therefore concluded that it would be inappropriate to change the status
of the Company by de-listing. It is our opinion that the interests of the
minority shareholders would best be served, and at no detriment to the majority,
by continuing with the AIM listing. The Company's nominated adviser, Teather &
Greenwood Limited, has confirmed to us that it concurs with this opinion.

Intended Actions

A split board is unhealthy for the Company. The vote itself is likely to be
academic in that we have been informed that the Executive Directors and the
other Majority Shareholders who together hold in the region of 59 per cent. of
the votes, are likely to vote in favour and therefore the resolution will be
passed. On that basis we have both indicated to the Board that with effect from
the AGM we will give the board three months notice of our intention to resign.
This should give the Company sufficient time to recruit new non-executive
directors as mentioned in the Chairman's letter.

Yours faithfully,

David Channing Williams, Hugo Drayton

Non-Executive Directors



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